ML19323A045

Annual Financial Rept 1979

ML19323A045
Person / Time
Site:	Peach Bottom
Issue date:	04/08/1980
From:	ATLANTIC ELECTRIC OF NEW JERSEY
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ML19323A042	List: ML19323A041 ML19323A043 ML19323A044 ML19323A045 ML19323A046
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Text

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Atlantic Electric r~

SERVING A MILLION PEOPLE r.

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IN SOUTHERN NEW JERSEY

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1979 Annual Report l

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l Contents Letter to Shareholders 2

Construction Program 4

Financing 5

Earnings and Dividends 6

Revenues 6

Community involvement 6

Environment 6

Conservation 7

Rate Matters 8

j Fuel and Fuel Costs 8

Employees 10 Company Facilities 11 Our Service Area 12 l

Energy Sales 12 l

Information for Investors '

14 i

Financial Statements 15-26 Management's Discussion and i

l Analysis of the Statements of income 27 l

Supplementary Information Concerning the Effects of Changing Prices 28 l

1979-1969 Statistical Review and f

Summary of Operations

'30 Directors 32.

Other Information for Investors 32

- Officers inside Back Cover l

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The control room of the Systems Operations Department is the Company's " nerve center", constantly monitoring the generation of electricity to help assure reliable service to our customers.

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Advance Notice 2

The 1980 Annual Meeting of Shareholders will be held Tuesday. April 22,1980, at the Company's Customer In August the Company began conversion of its computer Service Center, Black Horse Pike and Fire Road, near system to the highly advanced /BM 370/tS8. Thn Pleasantville, New Jersey. A Notice of Meeting will be conversion will be completed in 1982 and will greatly mailed in March to those shareholders entitled to vote.

expand our data processing capabilities, it also will enable l

us to provide even better service to customers and shareholders and will result in elimination of some outside I

service costs.

our cover 1

Atlantic Electric is Reliable Electric! The symbolic photo-graphs on the cover of this Reportdepictjusta fewof the employees and types of equipment needed to insure that reliable service is a reality in Southern New Jersey.

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l Results of Operations 1979-1975 l

1979 1978 1977 1976 1975 Sales of Electricity (Billions of Kilowatt-hours) 5.308 5.275 4.979 4.664 4.378 Electric Operating Revenues (Millions)..

S 283.1

$ 255.1

$ 235.0

$ 212.0

$ 199.1 Net income (Millions)

$ 34.3

$ 30.1

$ 27.4

$ 30.8

$ 28.3 Earnings per Share.......

S 2.36

$ 2.21

$ 2.06

$ 2.60

$ 2.41 Dividends Paid per Share

$ 1.765

$ 1.67

$ 1.62

$ 1.56

$ 1.51 Gross Additions to Utility Plant (Millions)

$ 72.8

$ 58.1

$ 48.7

$ 41.7

$ 46.7 Generating Capacity (Kilowatts) 1.384.700 1,414,700 1,414,700 1,334.700 1,334,700 i

Utility System Peak Load (Kilowatts) 1.192.600 1,177,400 1,176,000 1,030,300 1,069,400 Average Annual Residential l

l Kilowatt-hour Use 7.849 7,951 7.653 7,320 7,018 Electrically Heated Dwelling Units (Year-end) 51.930 48,778 45,389 42,878 41,026 Customer Service Installations (Year-end)....

371.362 362.131 352,205 343,147 336,105 1

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To Our Shareholders In this period of international unrest and energy uncertainty, Atlantic Electric has made progress. We have made progress on a number of fronts and as a g

result we are in a better position to cope with whatever the future may bring.

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Over the years since the 1973-74 oil embargo, we have made progress in moving away from overseas oil as a i

I fuel for our generating stations. At the time of the l

embargo, approximately 73% of the electricity serving our Southern New Jersey region was produced from oil.

By shifting to coal and nuclear we now have that dependence on oil down to approximately 35% and we are addressing measures which would lower that de-pendence even further.

We have made progress in arranging for the generating capacity to meet the electric energy needs of the future.

Such capacity will be a mix of coal and nuclear energy which will further reduce our dependence on overseas oil. Coal and nuclear are basically domestic energy

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sources and as such are less subject to international l

Mr. Alfred C. LinkIctter, Chairman of the Board of 9SSU'**

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Directors. and Mr. John D. Fechan. President and Chief Tbe Company has been making gradual but steady becutive Officer.

improvement in its financial strength including improved earnings and dividends and improved capitalization and debt protection. Such financial strengthening and in-creasingly responsive regulators are essential if your Company is to continue to serve its customers well. In i

the face c; nigh inflation and serious concern about oil's j

availability, your Company must be financially strong in order to cope with the future.

Atlantic Electric has been working hard over the years to forge a strong team and a strong Companyto meet these challenges. That team is in place and it is forging the strength we need as a Company.

Atlantic Electric has been emphasizing preparedness and we have made progress. Looking beyond the Company to the Nation, we have grave concern over the country's preparedness. While Atlantic Electric was reducing its dependence on overseas oil, the Nation was doubling its dependence. We are now all keenly aware of the implications of such dependence on foreign oil.

In seerching for words of advice forour Country at this time, we would find none more appropriate than the very words we used in our 1974 Annuai Report to you.

"Our nation is in the most important struggle ofits 200-year history, short of war and the Great Depres-sion. The problem is the threat of world dominance by the oil producing nations-dominance in fuel supplies and th 3 rcsultant dominance in the finan-cial world as a result of the massive payments being exacted from the user nations for the oil they need.

The projected increase in U.S. imports of oil, if allowed to go unchecked, will almosi bankrupt this nation in the next decade or two. Weaker user nations could fall or fail even sooner.

Our entire nation needs to perceive this threat very quickly and put its united strength behind its leadership to launch an aggressive program to minimize our dependence on overseas oil. Here's I

what we must do as a nation:

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' (Per Share of Common Stock)

$3.00-

' $2.60.

1. Develop more of our own domestic energy re-

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$2.21 '

sources, such as:

$2.06 A. Oil and natural gas from the Alaskan pipeline, 2.00---

from further drilling in the Gulf of Mexico, and

$1.765

$1.62 -

M from the Outer Continental Shelf off the Atlantic 1.50- l $1.51 :

$1.56 '

and Pacific coasts.

B. Nuclear power, our most abundant, clean and 1.00 -

completely self-sufficient energy source.

C. Coal, our most abundant fossil fuel.

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2. Develop a better balance between our environ-mental aspirations and our energy needs. Our

.0 individual, corporate, local, state and national 1975 1976 -

1977-1978 1979-budgets just cannot utiord all that we wouldlike to 4

do environmentally and all that we must do to Earnings and Dividends provide the energy needs of the nation.

3. Conserve energy in all forms by utilizing it more E Earnings per share ~ ' Dividends paid per share efficiently and wisely whether it be in our homes, oflices, f actories or automobiles. We have switched 80-Percent from a nation of ' Haves' to a nation of 'Have Nots' 70 -

and we must start acting accordingly.

4. Recognize that we willhave to pay more for energy 60 -

in all forms in order to have sufficient quantities and that without it our economy will grind to a halt.

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Massive amounts of capital will be required to 40 -

develop our domestic resources, and the rate of e

N N return on such capital must be sufficient to attract 30 -

investors.

There are more things that we can do as a nation, l-but in our view these are the most important.

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What can you do as a shareholder? You can add 1

your voice to that of the leadership in the nation in Oq l

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attempting to get public understanding of the enor-1973 1974 1975 1976 1977 1978 1979 mity of the need. Because many sacrifices will be required, the nation cannot move forward until the Percent of Kilowatt-hours Produced from Various Fuels public understands and then puts its resources and n Oil E Coal M Nuclear E Gas dedication behind the program. Only by pulling together during what will be an extended struggle can we protect our nationalintegrity from th;s threat of world dominance. We strongly urge that you speak out."

In the five years since we wrote those thoughts, the problem for the Nation has not gGrt awn-only time has.

We believe Atlantic Electric has used that time well and that with the combination of coal, nuclear and conservation we can meet our eesponsibilities in !*e futu m For the Board of Directors f

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A. C. Linkletter Chairman of the Board

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J. D. Feehan President i

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y lIf Our Customers-The People We Serve

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'l Reliabi!ity has a different meaning to different groups of

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people. To shareholders it means an adequate reliable I

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return on their investment, to customers it means l

reliable service and reliable benefits in the form of prospenty and progress for the service area, to em-l ployees it means an opportunity for continuous employ-ment. We at Atlantic Electric strive to ensure reliabilityin

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every aspect of our business. Pages 4 through 9 respond to questions we believe are most often asked by three g

groups of people-the young. the mature worker, and i

senior citizens on fixed incomes. We hope that after I

reading this Annual Report, you will agree that Atlantic W

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Electric is reliable electric.

During 1979. your Company made severalimportant decisions which will help to provide reliable electric service during the 1980's and beyord. We have made arrangements to obtain generating capacity from two units being constructed by Delmarva Power & Light l

j Company end from two units being constructed by t.fodels are fine (such as this modelof our proposedcoal-fired Pennsylvania Power & Light Company. We also pro-staflon) but what these and other young people are asking is ceeded with a siting study and with other plans to enable "Will there be enough electricity for our generafton and us to construct a coal-fired unitin Southern New Jersey.

those of the future?.. Whaf ts Atlantic Electriodoingi We continued discussions with other utilities as to the Insure safe and reliable service to its customers?

possibility of our sharing in their capacity additions scheduled for service in the late 1980's or early 1990's. A list of expected major generating capacity additions in which we will participate during the next decade is shown below:

MAJOR GENERATING CAPACITY ^.ODITIONS A C.E. Co.

Scheduled Share of in-Service Capacity Unit and Location Fuel Year (Megawatts)

Salem Unit No. 2 (N.J.).

. Nuclear 1980 83 (a)

Indian River Unit i

No. 4 (Del.).

. Coal 1980 50 (b)(d)

Susquehanna Unit l

No.1 (Pa )

. Nuclear 1982 62 (c)(e)

Susquehanna Un!t No. 2 (Pa.)

. Nuclear 1983 63 (c)(e)

Hope Creek Unit No.1 (N.J.).

. Nuclear 1985 53 (a)

Hope Creek Unit No. 2 (N.J.).

. Nuclear 1987 54 (a)

Vienna Unit No. 9 (Md.).

. Coat 1987 125 (b)

(Not yet designated)

(N.J.)

. Coal 1988 250 740 mw j

(a) Public Service Electric & Gas Company in charge of con-

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struction and operation.

(b) Delmarva Power & Light Compary in charge of construc-tion and operation.

(c) Pennsylvania Power & Light Company in charge of con-struction and operation.

(d) Company will not have direct ownership but will purchase capacity from service date through May 31,1985.

(e) Company will not have direct ownership but will purchase capacity from service date through September 30.1991.

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finance the construction of new generating stations, J

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transmission, distribution and other facilities in order to

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serve the growing energy needs of the people of

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ditures amounted to $66.4 million, and allowance for

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funds used during construction totaled $6.4 million.The c

4' cash construction estimate for 1980 is $115.6 million.

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i, That amount includes (1) $44.9 million for production gg p.

facihties. (2) $65.3 million for construction of additional fem,. -

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1 substations, improvements to the transmission and r~.

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l distnbution system and general plant and, (3) $5.4 0E w [ If

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construction in 1980 is expected to total $7.3 million.

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Securities issued during 1979 consisted of 1,000,000

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shares of Common Stock issued in January and 233,599 T help meet the increased demand for energy in the shares of Common Stock issued during the year through 1980s the Company will be receiving 5.94 to of the net

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the Company s Dividend Reinvestment and Stock Pur-capacity and energy output of each of two 1,050 MW units chase Plan and the Employee Stock Ownership Plan.

of the Susquehanna Steam Electric Station, presently under Short-term loans, which were negotiated during the construction.

year to help finance construction, amounted to $39.5

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1 milhon at year-end. In January,1980 the Company sold

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$75 million principal amount of 12Po First Mortgage 1;;~

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repay short-term debt, to retire First Mortgage Bonds

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About 700o of the cash construction requirements in

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[j 1980 are expected to be generated internally through

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$y 7 V. 72 retained earnings. depreciation accruals and similar

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items. The balance is to be obtained from the issuance of

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shares of Common Stock under the Dividend Reinvest-jq

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l Ownership Plan and from shnrt-term loans. No sales of

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service to our customers. We're proud that our custo-

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In 1979 we continued to provide safe and reliable 1

mers receive uninterrupted service more than 99.98% of Nt.~

the time. One of the prinr,ipal reasons for this good b

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record of reliability is the excellent performance of our The Company willpurchase 50.000 kilowatts of the capacity own generating units and the adequacy of our transmis-and output of the 400 MW coal-fired Indian River Station to sion and distributton systems. Another is the progress help serve our customer's needs during the first five years we have made in interconnecting our power system with of this decade.

those of neighboring utilities. The Company has, for many years, been an associate member of the Pennsyl-(Millions of dollars-Projected for 1980-1982) vania-New Jersey-Maryland Interconnection (PJM) which

$125-provides for the interchange of energy and capacity through pooling arrangements. PJM integrates the genera-tion and trar.smission power supply operations of eleven 100 -

electric utihties serving an area of about 48.700 square miles with a population in excess of 21,000,000.We have 75 -

applied for and have been accepted for full rnembership status in PJM. We expect to attain this no later than June 50 -

1.1981 at which time additional operating and economic I

benefits will become available. Also,1979 marked the 25 -

first full year of service of the entire Lower Delaware Valley Transmission System (LDVTS) which is part of o_

the PJM. LDVTS is owned by the Company and three 1977 1978 1979 1980 1981 1982 other utilities and strengthens our ability to provide reliable service to our customers and to withstand Cash Construction Expenditures emergency situations.

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Our Customers-The People We Serve Our primary responsibility to the shareholders, or owners, of Atlantic Electric is to endeavor to provide a E

fair return on the investment that they have made. This M.d can be a difficult task, particularly in t'he face of double-

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digit inflation and regulatory lag (the amount of time

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granted). In addition, the regulatory chmate must con-e D

tinue to be responsive to our needs. Over the years, we 4

have been able to establish a remrd of which we are g

e proud: dividends have been paid 'or sixty-two consecu-

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tive years and the cash dividead has increased in l

twenty-seven consecutive years.

Earnings available for Common Stock amounted to

$2.36 per average share outstanding in 1979 as com-pared to $2.21 in 1978 when there were fewer average shares outstanding. Dividends paid on Common Stock l

during 1979 amounted to $1.765 per share, compared i

with $1.67 per share paid in 1978. The quarterly dividend I

rate was increased by two and one-half cents per share I

with the October 1979 dividend payment and the new i

"What responsibililles does Atlantic Electric have to its rate is equivalent to $1.84 on an annual basis.

shareholders and communities in Its service area?"

Electric operating revenues totaled $283 million, an increase of 11% over 1978. These additional revenues I

can be attributed to (1) the increases in base rates i

granted to the Company in 1978 and 1979. (2) the modest increase in kilowatt-hour sales and (3) higher j

fuel costs recovered through base rates and the level-ized energy adjustment.

An important part of our responsibility to the share-i holder and customer is to provide them with information about their elec'ric energy supply and the Company's efforts on the;r oehalf. Our people are active in telling i

Atlantic Elect ic's " story" to the public and to the j

financial community. Our Speakers Bureau made over 200 presentations in 1979 on topics covering every I

aspect of our business as well as providing information on conservation and safety. Teams of Company officers j

made presentations to the New York Society of Security i

Analysts in May, to the Philadelphia Securities Associa-I tion in July, and met with representatives of securities rating agencies. Many key financial representatives j

were in attendance at these three meetings.

j While we are always aware of the need to safeguard j

the interests of our shareholders and our customers, we strongly believe in the need to protect our environment.

In keeping with this philosophy, Atlantic Electric as-sembled a 21 member advisory board comprised of l

members of professional groups, political representa-i tives, Company employees and other interested persons j

who gave us their views cn the siting of the proposed new generating station. Issues of primary concern were discussed, including air quality, water quality and avail-ability, site accessibility and community sensitivity.

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3-Follow-up meetings were held with key segments of the 1

public.We are pleased with the results of this action and 6

know it has helped create greater awareness of car concern for the environment and our desire to listen to and, whenever practical, adopt the ideas and sugges-

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r3 tions of our customers.

in accord with our environmental concerns, the instal-4 *

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l lation of more efficient electrostatic precipitators on Units No. I and No. 2 at the B. L. England Generating

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Station has begun and completion is expected by Decernber 31,1980 and June 1,1982 respectively. The Company President John D. Feehan addressed the Philadelphia Secunties Association in July to inform the installation of this new equipment is expected to cost an 1 the cha eng t I ce.

$30.8 million and will enable us to satisfy particulate i

emission standards. It also will enable us to continue to burn coal in those units. Baded on the current cost of fuel, using coal instead of oil will save about $43.5 million pcr year for our customers. Over the next three j

i years approximately $ 33 million will be spent by the Company for capital purposes relating to improvement of the environment.

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l Your Company intensified its efforts in 1979 to pro-l mote energy conservation. We continue to believe that f

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conserving energy and increasing use of nuclear fuel

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and coal are the best ways to achieve independence l

from foreign oil. O r energy conservation program was a strong one:

-Our popular Energy Conservation Van made many appearances on behalf of the Company at various

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locations in Southern New Jersey.

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-During Energy Awareness Week, we sponsored an Extensive wetland areas in the Southern New Jersey area Energy Exposition} at a local shopping mall. In all, require that Company employees use extreme caution to 28 exhibitors participated in this event which was protect the delicate ecology of the area.

seen by about 10.000 persons.

-Over 1,000 customers took advantage of our Energy

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Audit Program and learned how to hold the line on 6

energy-related costs.

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-An intensive newspaper advertisement campaign was undertaken to encourage the wise use of M

energy at times of peak demand.

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-The Company launched a major customer usage-pattern study. Data from the study will help us better l

utilize our facilities, forecast future demand and s

design electric rates for each class of customers.

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-n More efficient electrostatic precipitators are being constructed on two units at B. L. England Generating Station.

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projected operating conditions, periodic and timely rate y

relief will be required if we are to remain financially viable and sound. Substantial amounts of money will be j

needed to finance the construction of new generating, i

~ 1 transmission, distribution and other service facilities at.

4 f well as to pay 10. ' el and other operating expenses.The i

new f acilities are neu mary to meet the steady growth of our customers' demant 3 o.,d to replace equipment as it 1

wears out. Here is a summary of events in 1979 related to

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our efforts to obtain adeauate rate rehef:

-On June 27,1979 the New Jersey Board of Public Utility Commissioners (BPU) approved a $10 million l

increase in the Company's base rates,ef fective July

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1,1979. This was the result of the final segment of a bg two-part rate request originally filed in March,1978.

-On August 6,1979 we filed a req uest with the BPU to raise the Levelized Energy Adjustment Charge.

i Effective Cecember 1,1979, the BPU granted us a

$64.3 million increase to recover unexpectedly high "Why does Atlantic Electric ask for rate lncreases?.. In 1979 fuel costs and to meet anticipated energy elew of the escalallng costs of electricity,Is aldavailable expenses in 1980. This was our first energy adjust-to people on f/xed incomes?..

ment charge increase in 20 months. The principal cause of the major change,n the Levelized Energy i

Adjustment Charge has been the spiraling cost of oil used in our generating units. During 1979 the cost per barrel of oil increased 98%. Oil was used to produce 35% of the electric energy generated for our customers during 1979, coal produced 37%,

nuclear fuel produced 23% and natural gas pro-duced 5%.

-On November 30,1979 we filed an application for an increase in our base rates in the amount of $85.7 million to be received in two parts over a 15 month period. Our request calls for $45.2 million by July 1, i

1980 with the balance becoming effective before March 1,1981.

A number of steps are being taken to conserve fuel, control energy costs and improve reliability through changes and improvements in operating procedures at our generating stations. We were able to obtain some i

natural gas in 1979 for use in a steam unit and in a combustion turbine at Deepwater Generating Station.

The gas displaced foreign oil (about 60% f ranian), and it saved our customers about $1.7 million. Unfortunately, natural gas cannot be expected to be available over the long-term, and current national policy will prevent any long-term use of gas in boilers to generate electric energy.

Late in 1979 we conducted a 30 day test of burning a mixture of coal and oilin one of the Deepwater Station boilers and the results are being evaluated.

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l WhatPriceOil?

A long-term contract has been signed assuring a Iron Up 66T reliable supply and some stability in the price of coal we U 60 P

burn at our B. L. England Generating Station. In view of gp the fact that the Iranian situation threatens the suoply of Aou Dhobi Up 63%

oil, plans are being formulated to burn coalin

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the generating units at the Deepwater Station.

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While adding nothing to reliability, another factor serving to escalate customer bills is the New Jersey I

Gross Receipts and Franchise Tax. This tax alone kp Ad NNEi.

%[*i$gE:E accounts for about $8 million of the $64.3 milhon risein 4

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the energy adjustment charge. This added burden only W..,5,,

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iffE serves to compound the effects of inflation and tremen-dous fuel costs. Efforts are being made to have legisla-D N

E9E.ES-tion enacted in New Jersey which would limit the gross ff-M5 l

receipts and franchise tax which we must collect from E. _,3% enc =r our customers.

We have agreed to participate in an alternative fuel h ^d*"'d'"'"

l program to be sponsored by the Un'.ted States Depart-f ment of Energy which would convert coal to liquid fuel

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l and gas. A number of eastern utility companies will be participating in this research project. A demonstration These communications carried important messages to our

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plant, capable of producing as much as 12,000 barrels of customers.

I synthetic liquid fuel each day, should be ready for operation by 1984. The plant is to be constructed in l

Morgantown, West Virginia and part of the fuel it (Based on a Residential Bill for 500 KWH) produces will be used for testing and evaluation as a

$50-boiler and combustion turbine fuel to produce elec-tricity. We also have initiated a research and develop-40 -

$37.38 ment program involving the installation, testing and

$31.25 evaluation of solar hot water heaters.

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$25.79 $25.94 $26.30 $27.32 Utilities and governments must continue to,nvesti-

$20.99 i

gate all potential alternate sources of energy. Yet we 20 -

must also be realistic. Based on current scientific knowledge, it does not appear that alternate energy 10 -

1133 sources will provide substantial amounts of reliable 9.84 8I46 9.50 10.17 electric energy during this century.

0-Although efficient fuel utilization has always been a Dec. Dec.

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prime goal of Atlantic Electric, the rapid increase of oil 1973 1974 1975 1976 1977 1978 1979 pnces has caused an even greater emphasis on im-proved generating unit efficiency. While the controls increased Fuel Cost Effect and reviews instituted in previous years have been on Customers' Electric Bills at Year-End.

maintained, we have embarked on a new program to E Total amount of bill Total fuel represented in the bill further reduce the fuel we use to make electricity for our customers. An Operator incentive Program, adopted C

early in 1979, has proven successful. Its major goals (Cents per gallon or equivalent) 6 were to reduce the amount of fuel used per unit of l

electricity generated by 2% from the prior year and to 50--

l improve the reliability of our generators.

l One form of aid for those on fixed incomes is the 40 -

l Lifeline Credit Program which was approved by the j

State of New Jersey in August,1979. Lifeline provided

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$1.6 million in discounts to more than 20,000 elderly and

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l handicapped electric customers in Southern New Jer-20 -

sey who qualified under the program. The discount, ci rrently $50 on electric and $50 on gas bills (or $1000n electric if they do not have gas), is to rise to $125 in 10 -

October,1980. An inerr.ase in the tax on the gross I

revenue of thecasino hotels in Atlantic City provided the 0-Dec.

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i funds for this aid.

1973 1974 1975 1976 1977 1978 1979 Average Cost of Fuels E oil E Coal 5 Nuclear D Gas 9

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Our Employces-fv The People Who Serve e

" Reliability of service"-such few words to describe a twenty-four-hour-a-day, seven-day-a-week responsi-bility. Our employees are dedicated to providing reliable service at the lowest possible cost to our customers.

They are constantly aware of our customers' depen-P dence on electricity at all hours and take this responsi-bility seriously. This was evident on February 19,1979 when one of the worst snow storms in our area in many

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years disrupted electrical service to almost one-fourth i

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,g of our customers. Our operating and customer service 9i employees worked long hours to restore service as J

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quickly as possible We know it was appreciated since E

l we received many compliments about tha performance of employees during the storm.

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lY Under the two year agreement entered into between the Company and the International Brotherhood of Electrical Workers, a general wage increase of 8.3%

o d

became effective as of December 10.1979. An additional l

general wage increase of 7.77% becomes effective M

December 8,1980. This increase, together with im-Reliable electric service is tho produc t ol dedicated employees proved benefits will add approximately $3.3 million to i

and dependable equipment.

the Company's 1980 payroll costs.

Two new incentive programs were instituted in 1979 to 4

encourage improved productivity and safety among employees.

In addition to the Operator Incentive Program de-scribed on page 9, a new Safety Incentive Program was conducted for both physical and non-physical workers.

Prizes were awarded to employees who met personal and departmental safety goals.

The Company is pleased with the safety record achieved by employees in 1979. First, and most important, there were no fatalities in 1979. We recorded the best safety record (statistically) in more than ten years. The accident incidence rate was 4.28, about 16%

better than the prior year. There was a 47% decline in the number of hours lost as a result of disabling injuries.We have worked hard to improve our safety record and have shown gradual but consistent improvement. During

'i979 the number of motor vehicle accidents increased from the prior year, although most were minor in nature-we will be taking steps in 1980 to improve that record.

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,ystem pea k load of 1 193 megawatts c om parod wit h 1 177 meqawatts the prior year Pr < g ctions for rjrowth in rjomand show an average annual rato of 4 20. for tho nex t five years but over the I/jtig-hati! an aver age of 2 99 ; f or thr> next fif teen years Casmr > hotei, and related area development will account for about 20% of the increase in demand owr the next ton goars Three casino hotels aro Currently m operation and smoral more are ox nectod to begin operat.nq iri 1980 Atlantic Electric continues to positively interact with the communitios that wo serve through a Conege Presi-dents Roundtable monthly Roundtable discussions wrth consumms, and a newly rnstituted County Round-tahlo whu h provides a forum for an exchange of ideas and opinions between a Company Off mer and the loaders and residents of colmtms in our service area One of the most unique events of our year occurred #n December when Atlantic E!nctric presented a play entitled The Idea of Edtson which was shown on New Jersey Pubhc Television

( N J PT s/ ) and presented to other audiences m Saothern New Jersey 'I he script was prepared and produced by us in collaboration with NJPTV to colehrate the 100th ;3nniversary of Edison's invention of the incandescent hqht This joint production was one of the first projects of its kind in New Jersey i

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The new $50 m i O, neadcluarters hunding of The National A v :a t vn Facil. ties F a ve' ' ontai Center where research wdI De darte cin air 'raf f-C 8afPf6 dild e?hC:enf V 13

Ccmm:n Stock, Prica R:nga cnd Divid:nds The Common Stock of the Company is traded on the New York Stock Excnange (Principal Market) and the Philadelphia Stock Exchange. The high and low sales prices of the Common Stock as reported in the Wall Street Journal as New York Stock Exchange-Composite Transactions for the periods indicated were as follows:

Dividends Paid 1979 1978 Per Share High Low High Low 1979 1978 First Quarter 19 %

18 23 20 43%C 40%C Second Quarter 19 %

17%

22%

20 %

43%C 41 %C Third Quarter 20 %

18%

23 %

20%

43%C 41 %C Fourth Quarter 19%

16%

21 %

17%

46C 43%C 10-K Report Available The Annual Report to the Securities and Exchange Commission on Form 10-K is available to shareholders and may be obtained by writing to the Company: Attention: Mr. C. F. Morgan, Senior Vice President.

Information for investors 1979 1978 1977 1976 1975 Number of holders of Common Stock (year-end) 48,194 44,490 43,826 42,516 39,279 Total cash dividends paid per share on Common Stock

$1.765

$1.67

$1.62

$1.56

$1.51 Pay-out ratio..

75 %

76%

79 %

60%

63 %

Book value per share (year-end)

$21.63

$21.27

$20.71

$20.25

$19.34 Price Earnings Ratio (year-end).

7 8

11 9

7 Times fixed charges earned (before income taxes)..

3.64 3.66 3.14 3.14 2.84 1

For your convenience, listed below are the proposed 1980 record dates and payable dates, for dividends on Common Stock:

Record Dates Payable Dates March 13,1980 September 18,1980 April 15,1980 October 15,1980 June 12,1980 December 18,1980 July 15,1980 January 15,1981 I

l Shareholder Records: Communications regarding stock transfer requirements or lost certificates should be directed i

to the appropriate Transfer Agent. Changes of address, inquiries on dividends or matters concerning the Dividend l

Reinvestment and Stock Purchase Plan should be addressed to:

l Atlantic City Electnc Company l

Shareholder Records Department l

1600 Pacific Avenue Atlantic City, New Jersey 08404 or telephone Area Code 609-645-4506 or 4507.

l TRANSFER AGENTS REGISTRARS SHARE LISTINGS Fcr C:mmon Stock For Common Stock Common Stock of the Company Irving Trust Company Irving Trust Company is listed on the New York Stock 1 Wall Street 1 Wall Street Exchange and the Philadelphia New York, N.Y.10015 New York, N.Y.10015 Stock Exchange. The 5%%

Cumulative Convertible Preferrec First National Bank of Sou'h Jersey Guarantee Bank Stock of the Company is listed Atlantic City, N.J. 08404 Atlantic City, N.J. 08404 on the New York Stock Exchange.

F:r Cumulative Preferred Stock For Cumulative Preferred Stock Record-keeping and Chemical Bank Irving Trust Company Dividend Disbursing Agent 20 Pine Street New York, N.Y.10015 Atlantic City Electric Company.

New York, N.Y.10015 See address on this page.

For Cumulative Convertible Fct Cumulative Convertible Preferred Stock Pr;ferred Stock Morgan Guaranty Trust Company Irving Trust Company of New York New York, N.Y.10015 New York, N.Y.10015 14

48C R;sid;ntiil Fuel Taxes Commercial Cost of Invested Funds l

35C Materials and Supplies Industrial Labor Depreciation Other Revenue 19C Reinvested II#

15C Funds 11C 10C 8C 4C 2C E

m 1979 Revenue Dollar Where it came from Where it v,ent R port of Management The financial statements presented herein have been prepared by management in conformity with Generally Accepted Accounting Principles applicable to rate-regulated public utilities. Such Accounting Principles are consistent in all material respects with the accounting prescribed by the Federal Energy Regulatory Commission and the New Jersey Department of Energy, Board of Public Utilities. In preparing the financial statements, management makes informed judgments and estimates relating to events and transactions that are currently being reported.

In an effort to insure the integrity and objectivity of the financial data presented, the Company has established a system of internal accounting and financial controls and procedures. Such system is designed to insure that the books and records reflect the transactions of the Company and that established policies and procedures are followed. The Company's system of internal accounting control is examined by management on a continuing basis for ef fectiveness and efficiency. Further, the system of internal accounting control is reviewed on a regular basis by an internal audit staff that reports directly to the Audit Committee of the Board of Directors.

The financial statements have been examined by Deloitte Haskins & Sells, Certified Public Accountants, whose report thereon appears below. The independent auditors provide an objective, independent review as to management's discharge of its responsibilities insofar as they relate to the fairness of reported operating results and financial condition. Their examination includes procedures believed by them to provide reasonable assurance that the financial statements are not misleading and includes a review of the Company's system of internal accounting and financial controls and a test of transactions.

l The Board of Directors, acting through its Audit Committee, which is composed solely of outside directors, has oversight responsibility for determining that management has fulfilled its obligation in the preparation of financial statements and the ongoing examination of tne Company's system of internal accounting control. The Audit Committee meets regularly with management, Deloitte Haskins & Sells and the internal audit staff to discuss accounting, auditing and financial reporting matters. The Audit Committee reviews the program of audit work performed by the internal audit staff. To insure the auditors' independence, both Deloitte Haskins & Sells and the internal audit staff have complete and free access to the Audit Committee.

Auditors' Opinion Dil:itte Haskins & Sells 550 Broad Street C rtified Pub!!c Accountants Newark, New Jersey 07102 l

Atlantic City Electric Company:

We have examined the balance sheets of Atlantic City Electric Company as of December 31,1979 and 1978 and the re-lated statements of income and retained earnings and of chariges in financial position for each of the five years in the l

period ended December 31,1979. 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 accompanying financial statements present fairly the financial position of the Company at Dec:mber 31,1979 and 1978 and the results of its operations and the changes in its financial position for each of the five years in the period ended December 31,1979 in conformity with generally accepted P.ccounting principles applied on a consistent basis.

/

4 January 31,1980 '

15

St:t:m:nts cf Inc::ms cnd R t:In:d Ecrnings Year Ended December 31 1979 1978 1977 1976 1975 (in Thousands)

OPERATING REVENUES-ELECTRIC (Notes 1 and 3)

$283.106

$255.058

$234,995

$212.027

$199,079 OPERATING EXPENSES:

Energy (Note 1):

Fuel......................................

100,472 84.735 82,735 69,234 71,644 Interchange..........

19.098 2,171 3,735 4,819 2,855 Deferred Costs....

J20.340) l N e t E ne rg y..............................

99.230 86,906 86,470 74,053 74,499 Power Production-Operation and Maintenance 24,717 20.716 17,782 13,498 10,268 i

Other Operation and Maintenance...........

36.145 31,719 29,263 26,334 24,632 Depreciation (Note 1) 22.590 21,614 19,369 17,395 16,846 4

I Taxes Other Than Federal Income Taxes (Note 11) 35,860 31,999 29,069 26,342 23,394 Federal income Tax Expense (Notes 1 and 2)..

17.886 18,956 13,188 11,495 8,689 Total Operating Expenses............

236 428 211.910 195,141 169.117 158,328 l

OPER ATING INCOME.................

46.678 43.148 39,854 42,910 40,751 OTHER INCOME:

Allowance for Funds Used During Construction (Note 1) 7,457 7,230 Allowance for Equity Funds Used During Construction (Note 1) 3.669 3,238 3,906 Miscellaneous Non-Operating Income Less Income Deductions....

1.611 112 (25) 386 517 i

Total Other income S.280 3,350 3,881 7,843 7,747 INCOME BEFORE INTEREST CHARGES.......

51.958 46,498 43,735 50,753 48,498 INTEREST CHARGES:

4 Interest on Long Term Debt 18,094 18.179 18,489 18,949 18,403 Amortization of Debt Expense and Premium-Net 41 40 63 52 25 Interest on Short Term Debt..................

1,632 230 434 801 1.695 Other Interest Expense....

493 288 162 155 95 Total Interest Charges...................

20.260 18,737 19.148 19,957 20,218 Allowance for Debt Funds Used During 4

Construction (Note 1)......................

(2.609)

(2,303)

(2,771)

Net Interest Charges....................

17.651 16,434 16.377 19,957 20,218 N ET I N C O M E.................................

34,307 30,064 27,358 30,796 28,280 RETAINED EARNINGS AT BEGINNING OF YEAR 94.052 88,601 84,028 74.166 65,765 128.359 118,665 111,386 104,962 94,045 DIVIDENDS DECLARED:

Dividends on Cumulative Preferred Stock......

6.039 6,241 5,550 5,484 5,484 Dividends on Common Stock (por share 1979-1975. $1.79, $1.70, $1.62, $1.58 and

$1.52) 21.623 18.372 17,235 15.450 14,395 Total Dividends Declared.................

27.662 24,613 22,785 20,934 19,879 RETAINED EARNINGS AT END OF YEAR.......

S100.697

$ 94,052

$ 88.601

$ 84,028

$ 74,166 AVERAGE NUMBER OF COMMON SHARES O U T ST A N D I N G.............................

11.980 10,791 10.630 9,747 9,470 1

EARNINGS PER SHARE OF COMMON STOCK (Note 1)

$2.36

$2.21

$2.06

$2.60

$2.41 See Notes to Financial Statements 16

Atl8"Ic.* y ctric Statements of Changes in Financial Position Year Ended December 31, 1979 1978

_1977 1976 1975 SOURCE OF FUNDS Funds from Operations:

(In Thousands)

Net income.

S 34 307

$ 30.064

$27,358

$30,796

$28,280 Principal Non-Cash Charges (Credits) to income:

Depreciation.

22.590 21,614 19,369 17,395 16.846 Amortization of Nuclear Fuel..

732 1,376 1,038 Allowance for Funds Used During Construction.

(G.363)

(5.541)

(6,677)

(7,457)

(7.230)

Federal income Taxes-Deferred-Net G.281 8,116 7.866 4,697 3,962 investment Tax Credit Adjustments-Net.

4.354 4,963 2.850 6,420 3,736 Other-Net....

308 (200)

(167) 132 472 Total Funds from Operations 62 209 60.392 51,637 51.983 46.066 Funds from Outside Sources:

Long Term Debt 15,000 2,500 51,500 Sale of Common Stock.

24 934 5,023 3,350 20,791 Sale of Preferred Stock...

10,000 Capital Stock Purchase Plan.

14 1

24 Increase in Short Term Debt.

39.475 Total Funds from Outside Sources.

61473 5.024 28,374 23.291 51,500 Hope Creek Transfer-Net.

3.262 Other Sources-Net..

G19 1,252 23 (127)

(793)

Total Source of Funds...

5127 251

$ 66.668

$80.034

$78,409

$96.773 APPLICATION OF FUNDS Gross Additions to Utility Plant S 72.773

$ 58,073

$48.733

$41,702

$46.745 Allowance for Funds Used During Construction 10.363)

(5,541)

(6,677)

(7,457)

(7,230)

Property Abandonment Costs.

(12)

(4.888)

Net..

60 398 47,644 42,056 34,245 39,515 Di,

.1ds on Preferred Stock.

6,039 6,241 5,550 5.484 5,484 Divioends on Common Stock....

21.623 18,372 17,235 15.450 14,395 Retirement and Maturity of Long Term Debt.

3.222 228 15,400 10,592 15,125 Conversion of Preferred Stock..

1.331 1,729 512 25 Redemption of Preferred Stock 1.G00 Decrease in Short Term Debt...

13,650 23,650 Property Abandonment Costs....

12 4,888 Investments in Subsidiary Companies.

391 135 (2.803) 1,161 895 increase (Decrease) in Working Capital 20 G35 (12.569) 2,084 (2.198)

(2.291)

Total Application of Funds.

$12 7 251

$ 66.668

$80.034

$78.409

$96.773 NET INCREASE (DECREASE) IN COMPONENTS OF WORKING CAPITAL

• Current Assets:

Cash and Cash items.......

$ 1.064

$(3,334)

$ 2,253

$ (994)

$ (2,812)

Accounts Receivable 2.392 3,906 95 1,367 158 Fuel.

3.240 753 3,389 (2.082) 2,392 Materials and Supplies...

3 030 1,450 1,029 69 (71)

Prepayments...........

2,211 242 319 134 207 Deferred Energy Costs 18.540 Other.

(3.262) 3.262 (2.106)

Total 30.477 3.017 3,823 1,756 (2.232)

Current Liabilities:

Accounts Payable....

1.789 983 (193) 2.527 (1,633)

Taxes Accrued......

(7.509) 4,601 3,662 336 252 Interest Accrued.

146 32 35 (291)

(32)

Deferred Energy Costs (4.989) 4,989 Accumulated Deferred Taxes-Deferred Energy Costs.

8.528 Other....

5.877 4.981 (1,765) 1.382 1,472 Total 3.842 15.586 1,739 3,954 59 N;t increase (Decrease) in Working Capital.......

S 26.635

$(12,569)

$ 2,084

$ (2,198)

$ (2,291)

• Excludes Short Term Debt. Notes and Current Maturities of Long Term Debt and Cumulative Preferred Stock Subject to Mandatory Redemption.

Se] Notes to Financial Statements 17

Cdan::o Sheets December 31, Assets 1979 1978 (In Thousands)

ELECTRIC UTILITY PLANT (Notes 1 and 4):

l In Service:

Production.....................................................................

S333,860

$328,563 Tra n s m i ss i o n.................................................................

125,075 120,362 i

Dist ri b u tio n.......................................

243,961 226,657 Genera!....................................................................

17 333 16.764 j

Total......................................................................

720.229 692,346 Less Accu mulated Dep reciation............................................

187 608 169.361 Net....................................................................

532 621 522.985 Con struction Work in Pro g ress..................................................

132 684 97.538 N u c le a r Fu e l..................................................................

17,162 12,589 Less Accu mulated Amo rtization..........................................

3.146 2,414 i

Net...................................................................

14 016 10.175 Elect ric Utilit y Pla n t-N et................................................

679 321 630.698 INVESTMENTS:

Investment in Subsidiary Companies, at Equity (Note 5)...........................

3,437 3,081 Land Pu rchase Cont racts....................................

813 794 Other.......................................................................

681 561 To ta l I n v es t m e n t s.........................................................

4.931 4,436 CURRENT ASSETS:

Cash (Note 8).................................................................

2,829 3.657 Te m po ra r/ Cash I nvest m ents....................................................

1,800 Special Deposits and Working Fu nds............................................

1,130 1,038 Accounts Receivable.

Utility Services..................

19,776 17.409 M i s c e l l a n eo u s................................................................

3,036 3,011 Allowa n ce for Dou btful Accounts...........................................

(200)

(200) l l

Fu el ( a t e v e ra g e co s t ).............................................................

22,264 19,024 Materials and Supplies (at average cost).........................................

12,776 9,746 Prepayments....................................................................

4,480 2,269 De fe rred Ene rgy Cos ts (No te 1)...................................................

18.540 Tot a l C u r re n t A sset s..........................................................

86.431 55,954 DEFERRED DEBITS:

Property Abandonment Costs (Note 1)............................................

4,684 4,888 U namortized Debt Expense (N ote 1 )...............................................

1,727 1.878 Other...........................................................................

2 358 2,007 To t a l De fe r red Deb i ts.........................................................

8,769 8,773 TO TA L A S S ETS............................................................

$779.452

$699,861 See Notes to Financial Statements I

i l

18

OAtlanticElectr

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December 31 LIzbilities and Capitalization 1979 1978 (in Thousands)

CAPITAllZATION:

Common Shareholders' Equity:

Co m m o n S to c k ( N o t e 6).......................................................

$ 36,589

$ 32,749 Pre m iu m on Ca pita l Stock.....................................................

128.285 107.171 Ca pital Stoc k Pu rchase Plan.................................................

40 25 Capital Stock Ex pense............................

(1,781)

(1.832) j R e ta i n ed Ea r n in g s.............................................................

100.697 94.052 Total Common Shareholders' Equity..........

263.830 232,165 Cumulative Preferred Stock Not Subject to Mandatory Redemption (Note 6).....

46,401 47,732 Cumulative Preferred Stock Subject to Mandatory Redemption (Note 6)...........

37.,600 39,200 L o n g Te rm De b t ( N ot e 7 ).......................................................

263.448 286,781 Total Capitalization (less long term debt due, and cumulative preferred stock subject to maridatory redemption, within one year)....................

611.279 605.878 CURRENT LIABILITIES:

Current Portion:

i Cumulative Preferred Stock Subject to Mandatory Redemption (Note 6)..........

800 800 Lo n g Term Deb t ( N ot e 7 )...............................................

23.000 3.000 i

Nctes Payable to Banks (Note 8)........................

7,500 I

C om m er cial Pa per (N ot e 8).......................................................

31.975 A c c o u n t s Paya ble........................................................

6,819 5.030 Customer Deposits...................

3.240 2,819 Ta x e s A c c r u e d.................................................................

3.108 10,617 l

I n t e re st A c c r u e d................................................................

3.743 3.597 i

D ivi d e n d s D ecl a red..........................................................

7.100 6,292 Def erred Ene rgy Costs (N ote 1 )................................................

4,989 Accumulated Deferred Taxes-Deferred Energy Costs (Notes 1 and 2).............

8.528 Other.........................

12.752 8.103 To t al C u rre n t Lia bilities....................................................

108.565 45.247 DEFERRED CREDITS:

Customer Advances for Construction..............................................

792 726 Accumulated Deferred Investment Tax Credits (Notes 1 and 2)......................

24,539 20.185 I

ccumulated Deferred income Taxes (Notes 1 and 2).............................

32.703 26.422 O p e ra t i n g R es e rve s..............................................................

755 740 O t h e r D e fe r re d C re d i t s..........................................................

819 663 To ta l Defe rred C red it s......................................................

59.608 48,736 COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)

TOTAL LI ABILITIES AN D CAPITAllZATION.................................

S779.452

$699,861 See Notes to Financial Statements i

i 19 l

i

I i

Not:s to Fin:ncirl Stetsm:nts 4

J NOTE 1. SIGN /FICANT ACCOUNTING POLICIES:

Nuclear fuel requirements for Peach Bottom Units No.

REGULATION-The accounting and rates of the Com-2 and 3 are being provided by the operating company for i

pany are subject to the requirements of the State of New Peach Bottom through a fuel purchase contract. Pres-l Jersey, Department of Energy Board of Public Utilities ently, such costs are calculated using a zero net salvage (BPU) and in certain respects to the Federal Energy value. The Company is responsible for payment of its Regulatory Commission (FERC).

proportionate interest (7.51%) of the cost of the fuel i

ELECTRIC UTILITY PLANT-Property is stated at origi-consumed and of certain operating costs and interest nal cost (cost to the person first devoting the plant to expense during the term of the contract.

i pubhc service). Generally the plant is subject to a first The costs of nuclear fuel consumed is included in the mortgage lien. The cost of property additions, including Statements of Income as a charge to Fuel Expense.

replacement of units of property and betterments, is FEDERAL INCOME TAXES-Deferred FederalIncome capitalized. Included in certain additions is an Allow-4 Taxes are provided in amounts equal to the tax effect of ance for Funds Used During Construction (AFDC) the difference between tax depreciation computed on j

which is defined in the applicable regulatory systems of depreciable property added after 1973 using accele-accounts as the net cost, during the period of construc-rated methods under the ADR System and the straight-tion, of borrowed funds used for construction purposes line method using asset guideline periods. Tax reduc-l and a reasonable rate on other funds when so used-tions relating'aight-line asset guideline depreciation to the differences between book deprecia-1 Effective January 1,1977, in accordance with a FERC tion and str 1

order. AFDC is computed and shown in the Statements reflected in Federal Income Tax Expense currently as of incomo as other income (equity) and borrowed funds allowed by the current ratemaking policy of the BPU. In (debt). AFDC has no; been reclassified in the financial addition, the Company provides deferred Federal in-statements :nto equity and debt components for years come Taxes relating to the deferral of energy costs and prior to January 1,1977, since prior period financial data to the use of the repair allowance provisions of ADR would not be comparable. AFDC has been calculated (See Note 2). Investment tax credits are deferred on the J

]

using a rate of 8% tor all years reported.Such rateisless balance sheet and are restored to income over the life of than the maximum allowed under the FERC order for the the related property.

]

years 1979,1978 and 1977.

PENSION PLAN-The Company and Deepwater, refer-j DEFERRED ENERGY COSTS-The Company has a red to in Note 5, have in offect a noncontributory insured Levelized Energy Clause (LEC) which uti!izes projected retirement annuity plan covering all regular employees.

1 energy costs which are based on a thirteen-month The cost of the plan, determined under the aggregate 1

period ending December 31,1980 and include prior cost actuarial method was as follows:

1 period under or over recoveries. Under this Clause, the i

recovery of energy costs is made through levelized Company Cost

• Amount monthly charges over the period of projection. Any including Charged to Deepwater under or over recoverits are deferred in balance sheet Construction Contruction Cost i

accounts as a current asset or current liability as j

appropriate. Such deferrals are recognized in the State-1979....

$3,740

$857

$609 z

ments of Income m the period in which they are 1978.

3,529 799 573 j

subsequently recovered through the clause.

1977..

3,076 678 498 1

DEPRECIATION AND MAINTENANCE-TheCompany 1976..

2,544 582 414

]

provides for depreciation on the basis of the estimated 1975...

2,164 510 362 j

service lives of depreciable property on a straight-line

• Excludes Deepwater basis. Depre:iation applicable to nuclear plant provides 4

i for estimated cost of dismantling or decommissioning.

Based on an actuarial study as of December 31,1978, i

The overall composite rate of depreciation was approxi.

the vested benefits computed under the Plan were in i

mately 3.3% for 1979,1978 and 1977, and 3.2% for 1976 excess of pension fund assets by approximately I

and 1975. In addition to the provisions for depreciation,

$2,181,000. The Company's Plan is in compliance with j

income is charged with the cost of labor, material, the Employee Retirement income Security Act of 1974.

)

supervision and other expenses incurred in making PROPERTY ABANDONMENT COSTS-These costs, repairs and minor replacements and in maintaining the principally the Company's investment in four off-shore properties in efficient condition. Accumulated deprecia-nuclear units which were cancelled by Public Service tion is charged with the cost of depreciable property Electric & Gas Company in December 1978, are bemg j

2 units retired, together with removal costs less salvage and other recoveries.

)

NUCLEAR FUEL-The Company's amortization of the Salem nuclear fuel is based on a rate using the number of units of thermal energy produced over the estimated I

total thermal units to be produced during the life of the fuel, plus a factor representing the estimated future costs (storage and disposal) for the disposition of spent nuclear fuel.

20

Atic Electric 7.O'.'O M.'

amortized for book purposes. with the concurrence of OTHER-Capital Stock expense is being amoritzed on a the BPU, over a 20 year period subject to the BPU's final ratable basis over 20 years.

order with respect to disposition of these costs.

Debt issuance expense and premium are being amor-

[

EARNINGS PER SHARE-These earnings have been tized over the lives of the issues to which they pertain. In computed for Common Stock by dividing net income conformity with allowed BPU ratemaking accounting, j

less applicable preferred stock dividend requirements all gains or losses relating to reacquired debt are

($6,065,900, $6.253,193, $5,484,691, $5,483,936 and recogruzed currently.

$5,483,936 in 1979 to 1975, respectively) by the average Certain prior-year amounts have been reclassified to conform with current classifications.

common shares outstanding during the year.

i NOTE 2. FEDERAL INCOME TAXES:

Federal income tax expense applicable to current operations is less than the amount computed by applying the statu-tory rate on book incomo subject to tax for the following reasons:

Year Ended December 31, 1979 1978 1977 1976 1975 (In Thousands)

Net i n c om e....................

$34,307

$30.064

$27,358

$30,796

$28,280 i

Federal income Tax Expense (as below)........

18.868 19,064 14,130 11,825 8,772 Book income Subject to Tax........................... $53,175

$49,128

$41,468

$42,621

$37,052 Income Tax at Statutory Rate (46W1979,48% Prior)... $24,461

$23,581

$19.914

$20,458

$17,785 Less:

I Encess of Tax over Book Depreciation (flow-through I

portion).............................................

89 666 1,788 3,656 3,844 Allowance for Funds Used During Construction......

2,888 2,659 3,205 3,579 3,470 Capitalized Overheads.............................

1.041 927 796 730 745 Investment Tax Credits-Used......................

735 610 379 289 426 Other...........................................

840 (345)

(384) 379 528 Total Federal Income Tax Expense..........

$18,868

$19,064

$14,130

$11,825

$ 8,772 Federal Income Tax Expense is comprised of the following:

Federal Income Tax Currently Payable................ $ (1,550)

$ 5,414

$ 1,850

$ 378 991 Deferred Federal Income Taxes (as below)............

14,383 8,116 7,866 4,697 3,962 investment Tax Credit-Earned.....................

5,788 6,036 3,851 6,709 4,162 Investment Tax Credit-Used (735)

(610)

(379)

(289)

(426)

Federal Income Tax Expense.................

17.886 18,956 13,188 11,495 8,689 Federal income Tax-Other income...................

982 108 942 330 83 i

Total Federal Income Tax Expense............. $18,868

$19,064

$14,130

$11.825

$ 8.772 l

Deferred Federal Income Taxes result from the following timing differences:

1 Deferred Credits:

$ 3,830

$ 3,925

$ 4,138

$ 3,264

$ 2,256 Liberalized Depreciation Repai r Allowa n ce.....................................

2,967 2,994 4,062 1,920 1,845 l

Property Abandonment Costs..........................

6 1,467 Amortization-Accelerated Depreciation, Repair Allow-ance and Property Abandonment Costs...............

(516)

(391)

(315)

(247)

(139)

Other.......................

(6) 121 (19)

(240) l Total.........................................

6,281 8.116 7,866 4,697 3,962 Current Liabilities:

l Def erred Energy Costs.................................

8,528 Other........

(426)

Total Deferred Federal Income Taxes-Net.........

$14,383

$ 8,116

$ 7,866

$ 4,697

$ 3,962 l

l Investment tax credit earned in 1979 and 1978 includes $699,000 and $463,000 respectively, representing the Company's use of the additional investment tax credit available under the Tax Reduction Act of 1975.

21 i

,m.

i Nat:s to Fin nci:1 Sttt:m:nts 1

l 4

l NO TE 3. RA TE INCREASES:

Dunng the period indicated below, rate increases have been approved by the BPU designed to increase annual revenues from electric service, based in each case on the applicable test year, as follows:

Increase j

Date of Amount Date Amount In Test j

Petition Requested Effective Approved Revenue Year i

j (Millions)

(Millions)

A u g u st, 19 7 5...............................

$28.0 February 5,1976

$ 9.3 4.7%

1975 F eb ru a ry, 197 7.............................

16.5 January 27.1978 8.0 3.8 1976 I

March.1978 (prelimina ry)...................

35.7 July 19,1978 14.8 6.2 1978 March,1978 (final)...............

July 1,1979 10.0 4.0 1978 I

On November 28,1979 the BPU approved an increase in the Company's LEC from 0.0322C/kwh to 1.1019C/kwh, i

etfective December 1.1979. This will represent an estimated increase of $64,300.000 in revenues over the thirteen-month period ending December 31,1980 (See Note 1 of Notes to Financial Statements).

l l

On November 30,1979 the Company filed an application with the BPU for a rate increase of $85,700,000, based upon a projected 1980 test year. The requested amount represents an increase of approximately 25% of estimated i

1980 revenues. The Company proposed an initial increase of $45.200.000 to be effective by July 1,1980 and that the balance of $40,500,000 be acted upon by the BPU on or before February 28,1981. The Company cannot presently i

predict either the amounts, if any, of the increase which might be granted or the timing of the decisions by the BPU.

NOTE 4. JOINTLY-OWNED GENERATING STATIONS:

l The Company's ownership interests in jointly-owned generating stations at December 31 are as follows:

Electric Plant Construction Work Company's In Service In Progress (a)

Station Share 1979 1978 1979 1978

)

(In Thousands)

(In Thousands) 1 Keystone.......

2.47%

$ 5,594

$ 5,605 90 69 j

Conemaugh.........

3.83 %

10.358 9,837 679 925 Peach Bottom.........

7.51 %

60,413 60.413 3.266 1,757 Salem............

7.41 %

75,029 71,219 49,937 44,243 j

Hope Creek 5.00 %

49,534 34,721 (a) Amounts shown include allowance for funds used during construction.

The Company provides its own financing forits proportionate share of the cost of each station and includes its share of direct expenses in its statements of income. The dollar amounts shown above represent only those portions of the units owned by the Company.

NOTE 5. INVESTMENT IN SUBSIDIARY COMPANIES:

The Company's investment in Deepwater Operating Company (Deepwater), a wholly-owned subsidiary which operates generating and process steam units owned by the Company, was $2.641,000 and $2,301,000 at December 31, I

l 1979 and 1978, respectively. The assets of Deepwater principally consist of working capitalin which the equity of the Company is fairly represented by its investment in Deepwater. The net production costs of Deepwater (af ter deducting l

contract charges) are charged to the Company. These costs are included in the Company's accounts classified as to operation. maintenance and taxes.

The Company also has an investment in Atlantic Housing, Inc. (Housing), a wholly-owned subisidary, which amounted to $796,480 and $779,692 at December 31.1979 and 1978 respectively. Housing's principal investment is a i

20% undivided interest as tenant in common in a future generating station and industrial site.

NOTE 6. CAPITAL STOCK:

COMMON STOCK-As of December 31,1979 and 1978, the Company's Common Stock included 14,000,000

. authorized shares of Common Stock ($3 par value), of which 12,196,486 and 10,916,308 shares, respectively, were outstanding.

l$

Shares of common stock issued in 1979 and 1978 consisted of the following:

1979 1978 Sale of Common Stock............................. 1,000,000 Dividend Reinvestment and Stock Purchase................

184.889 126,680 Employee Stock Ownership Plan.............

48,710 26,547 Conversion of Preferred Stock.........................

46.579 60.524 To t a l....................................... 1.2 80.178 213,751 Premium on Capital Stock was credited in 1979 and 1978 with $21,114.141 and $4,382,108 respective'y, representing the excess of proceeds over the par value of shares of Common Stock issued, sold and converted. At December 31, 1979. there were 100,590 shares of Common Stock authorized for issuance pursuant to its Dividend Reinvestment and 22

@AtlanticElect

=:=:::

Stock Purchase Plan which became effective in 1976 and 148,895 shares of Coramon Stock authorized for issuanca pursuant to its Employee Stock Ownership Plan which became effective in 1977. At December 31,1979,224,029 shares of Common Stock were reserved for the conversion of 5%% Convertible Series of Preferred Stock.

CUMULATIVE PREFERRED STOCKS-The Company has authorized 799,979 shares of Cumulative Preferred Stock, Par Value $100, and 2,000.000 shares of cumulative preferred stock, No Par Value. Unissued shares may, or may not, possess mandatory redemption characteristics upon issuance. In certain circumstances, if dividends on issued Cumulative Preferred Stock are in arrears voting rights for the election of a majority of the Board of Directors becomes operative.

Cumulative Preferred Stock Not Subject to Mandatory Redemption:

Pren.:am Current on Redemption December 31, Capital Price Per

$100 % Value-Cumulative and Non-ps:ticipating shares 1979 1978 Stock Share issued and outstanding:

(in Thousands)

Series:

4%

77.000 S h a res........................

$ 7,700

$ 7,700

$93

$ 105.50 4.10 % 72.000 S ha res.............

7.200 7,200 101.00 4.35% 15,000 S h a res...........................

1,500 1.500 101.00 l

4.35 % 36,000 Shares 3,600 3,600 101.00 4.75% 50,000 S h a res................

5.000 5,000 101.00 5.0% 50.000 S ha res........................

5,000 5,000 100.00 5-7/8% Convertible Series 64,007 Shares (1979)....................

6,401 103.00 77,316 Shares (1978)...................

7,732 7.52 % 100,000 S h a res..........................

10,000 10,000 106.77 To t a l......................

$46,401

$47.732 Cumulative Preferred Stock Not Subject to Mandatory Redemptionis redeemable solely at the option of the Com-pany upon payment of the redemption price plus accumulated and unpaid dividends to the date fixed for redemption.

The 5-7/8% Convertible Series s convertible ! subject to adjustment in certain events) into Common Stock at the rate of 3.5 shares of Common Sto;k for each share of Preferred, Cumulative Preferred Stock Subject to M,indatary Redemption:

Current Refunding Par December 31 Redemption Restricted Valoe 1979 1978 Price Per Share Prior to I

Issued and Outstanding:

Series:

(In Thousands) 8.40% 100.000 S ha res.............

$100

$10,000

$10,000

$115.00 l

9.96% 184,000 Shares (1979) 100 18,400 108.21 Aug.1,1984 i

200,000 Shares (1978).......

100 20,000

$8.25 100,000 Shares..............

None 10,000 10.000 107.83 Nov.1.1987 38,400 40,000 Less Portion due within one year.......

800 800 To t a l.........................

$37.600

$39.200 On February 1,1985, and annually thereafter. 4,000 shares of the 8.40% Series must be redeemed through the l

operation of a sinking fund at a redemption price of $100.00 per share. At the option of the Company, an additional 4,000 shares may be redeemed on any sinking fund date, without premium, up to 32,000 shares in the aggregate.

On August 1. annually 8,000 shares of the 9.96% Series must be redeemed through the operation of a sinking fund at a redemption price of $100.00 per share. At the option of the Company, an additionhl 8,000 shares may be redeemed on any sinking fund date, without premium, up *- 40,000 shares in the aggregate. In August 1979, the Company i

redeemed 16,000 shares at par.

On November 1,1983, and annually thereafter. 2,500 shares of the $8.25 No Par Preferred Stock Series must be redeemed through the operation of a sinking fund at a redemption price of $100.00 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.

The minin.um sinking fund provisions of the above series aggregate $800,000 in each of the years 1980,1981 and 1982, and $1,050,000 in 1983 and 1984.

23

s.t.

Nztes 13 Financial Statements NOTE 7. LONG TERM DEBT:

December 31 1979 1978 n

usan @

First Mortgage Bonds:

2-7/8% Series due (June 1) 1979..

$ 3,000 2-3/4% Series d ue (July 1) 1980.........................................

4,600 4,600 2-7/8% SerMs A d ue (N ov.1) 1980...................................

18,400 18,400 3-1/4% Series d ue (March 1) 1982................................

4,620 4,620 3-1/4% Series due (Jan.1) 1983........

4.050 4,050 9-1/4% Series due (May 1) 1983..........................

35,000 35,000 3% Series due (March 1) 1984........................

5,000 5,000 3-1/4% Series d ue (March 1) 1985..................................

10,000 10,000 4-1/2% Series due (Jan.1) 1987.............

10,000 10.000 3-7/8% Series d ue (April 1) 1988............................

10,000 10,000 4-1/2% Series d ue ( April 1 ) 1989.......................................

5,000 5,000 4-1/2% Series due (March 1) 1991....

10,000 10,000 4-1/2% Series dm (July 1) 1992......

15,000 15,000 4-3/8% Series due (March 1) 1993.........

15,000 15,000

.,-1/8% Series d ue (Feb.1) 1996........................

10,000 10,000 8-7/8% Series d ue (Sept.1) 2000...........

20,000 20,000 8% Series d ue (May 1) 2001..................................

27,000 27,000 7-1/2% Series due (April 1) 2002 20,000 20,000 7-3/4% Series due (June 1) 2003 30,000 30,000 7-5/8% Pollution Control Series due (Jan.1) 2005.......................

6,500 6,500 6-3/8% Pollution Control Series due (Dec.1) 2006.

2,500 2,500 262.670 265,670 Debentures:

5-1/4% Sinking Fund Debentures due (Feb.1) 1996........

3,612 3,732 7-1/4% Sinking Fund Debentures due (May 1) 1998....

3,800 3.902 7,412 7.634 Notes-7.90% Notes due (Dec. 15) 1982............

15.000 15.000 Add Un a mo rtized Premium (Note 1)......................................

1.366 1,477 286,448 289,781 Deduct Series due within one year.....................

23.000 3,000

$263,448

$286.781 Deposits in sinking funds for retirement of debentures are required on February 1 of each year from 1980 through 1995 for the 5-1/4% debentures, and on May 1 of each year from 1980 to 1997 for the 7-1/4% debentures,in amounts in each case sufficient to redeem $100,000 p;incipal amount plus, at the election of the Company, up to an additional

$100,000 principal amount in each year. At December 31,1979, the Company had reacquired and cancelled $488,000 principal amount of the 5-1/4% dsbentures and $500,000 principal amount of the 7-1/4% debentures toward its requirements for 1980 and subsequent periods.

Annual sinking fund requirements of $1,246,700,in connection with certain first mortgage bonds outstanding, are being satisfied by certification of property additions as provided for in the related mortgage indentures.

In January 1980, the Company issued $75,000,000 principal amount of new First Mortgage Bonds 12-5/8% Series due 2010. The proceeds will be used in connection with t he Company's ongoing construction program, the retirement of indebtedness and for other corporate purposes.

24

4 I,s MAdMM8e sE e A seg y e

NOTE 8. SHORT TERM DEBT AND COMPENSATING Commission. Accordingly, in the event of a nuclear BALANCES:

incident involving any licensed nuclear reactor in the The Company had arrangements for short term debt as United States which was not covered by the $160,000,000 follows:

private insurance, the Company could be assessed, 1979 1978 based on the three nuclear reactors now in servica, a (Dollars in Thousands) maximum amount in relation to its ownership participa-Maximum amount of short tion (approximately $1,100,000 for any such incident but term debt outstanding not more than $2,200,000 in any year).

at any month-end Due to the suspension of construction of the Forked during the year:

River Nuclear Generating Station and the resultant delay Notes Payable to Banks

$ 7,500 in the commercial operation of that unit, the Company Commercial Paper.,..

$31,975

$7,000 has terminated negotiations with Jersey Central Power &

Light regarding the purchase of a 10% ownership in the Average daily amount of short Forked River unit. The Company and Pennsylvania term debt outstanding Power & Light Company (PPL), have entered into an during the year:

agreement whereby the Company will purchase 5.94% of Notes Payable to Banks

$ 2,260 88 the net capacity and energy output of each of two PPL Commercial Paper.

$ 9,352

$1,599 1050 MW nuclear generating units, scheduled to be Weighted daily average placed in service January 1982 and January 1985, interest rate of short term respectively. The purchase of power from PPL will debt during the year:

commence with commercial operation of the stations Notes Payable to Banks 13.0%

8.5%

and continue through September 30,1991. Also, the Commercial Paper.

12.4%

7.9%

Company on December 11,1979; signed an agreement with Delmarva Power & Light Company (DPL) for the Weighted average interest purchase of 50 MW of power from the output of DPL's rates for short term debt coal-fired Indian River Station, which is scheduled to be outstanding at year-end:

placed in service during the fall of 1980. The purchase of Notes Payable to Banks 14.7%

50 MW of power from DPL will commence with commer-Commercial Paper..

13.2%

cial operation of the station and continue through May The unused lines of credit available at December 31, 31,1985. In addition, the Company, on October 10,1979, 1979 and 1978 were $20,525,000 and $40,000,000, re.

signed a letter of intent with DPL for a 25% ownership in spectively. Demand deposits are maintained with lend.

the 500 MW coal-fired Vienna No. 9 Generating Station, ing banks,'certain of which are deemed to constitute which is scheduled to be placed in commercial operation compensating balances which are not legally restricted.

in 1987.

Based on lines of credit and loans outstanding at NOTE 10. LEASES-December 31,1979 and 1978 respectively, such com-Rents, principally charged to operations, amounted to:

pensating balances approximated $1,581,000 and

$4,182,000, $3,805,000, $3,600,000, $3,500,000 and

$ 1,550,000.

$3,380,000 for the years 1979 to 1975, respectively. In l

NOTE 9. COMMITMENTS AND CONTINGENCIES:

accordance with ratemaking treatment, the Company's l

Construction expenditures, including nuclear fuel but capital leases are accounted for as operating leases.

excluding production plant, are estimated at $71,000,000 Such leases, if capitalized, would have increased the for 1980. Commitments for the construction of produc-Company's assets and liabilities by approximately tion plant amount to approximately $245,000,000 of

$17,000,000 and would not have had a materialimpact which it is estimated that $45,000000 will be expended in on the Company's net income.

1980.

Future minimum rental commitments under capital The Price-Anderson Act places a liability limit of leases and noncance' 'de operating leases as of Decem-

$560,000,000 on each nuclear generating unit for public ber 31,1979 are app aimately:

liability claims that could arise from a nuclearincident. in Year Capital Operatina Total the event of any such inc, dent, all owners of nuclear (In Thousarvis) i generatmg units licensed to operate would be required to 1980

$ 2'000

$500

$ 2'500 contribute toward satisfaction of such claims.The Com-1981 ' ' ' "

2'000 400 2'400 pany, as a co-owner of the Peach Bottom and Salem 2,

Stations,' has partially insured for this exposure by p

purchasing, through the principal owners, private insur-1984 2'000 100 2'100 ance in the maximum available amount of $160,000,000.

ThereSft[r 24,100 800 24,900 i

The remainder ($400,000,000) is provided by a combina-tion of a mandatory program of retrospective premiums The total minimum rental commitments for capital to be assessed against owners of nuclear reactors after a leases as of December 31, 1979 are applicable to nucl:ar incident (up to $5,000,000 per incident but not combustion turbine generating units (69%), fuel storage mora than $10,000,000 in any calendar year, for each facilities (19%) and general plant (12%). Minimum rental lic:nsed nuclear reactor in the United States) and by commitments for operating leases are applicable to ind:mr ity agreements with the Nuclear Regulatory steam production (55%) and general plant (45%).

25

N t:s to Fin::nci:1 St:t:m:nts NOTE 11. SUPPLEMENTARY INCOME STATEMENT INFORMATION:

Operating expenses include taxes and other items not separately identified in the Statements of Income, as follows:

I Year Ended December 31, 1979 1978 1977 1976 1975 (in Thousands)

Taxes Other Than income Taxes:

Real and Personal Property Taxes.........

$ 1,266

$ 646 825 890 861 State Gross Sales. Excise and Franchise Taxes and Miscellaneous State and Local Ta xes......................

33,149 30,165 27,209 24,548 21,652 l

Social Security Taxes-Federal and State....

1,445 1.188 1,035 904 881 j

Total

$35,860

$31.999

$29.069

$26.342

$23.394 Maintenance Expenses.

$20.565

$17,217

$15.038

$11.663

$ 8,867 j

Charges to income for royalties and advertising are less than 1% of gross revenue.

i J

NOTE 12. OUARTERLY FINANCIAL RESULTS (UNAUDITED):

j Quarterly financial data which reflect all adjustments (which consist of only normal recurring accruals) necessary in the opinion of the Company for a fair presentation of such amcunts are as follows:

j Operating Operating Net Earnings For Earnings Quarter Revenues income Income Common Stock Per Share I

(In Thousands) 1979 1st.

$ 65,532

$10,578

$ 7,503

$ 5,965

$.51 2nd 62,526 9,413 6.418 4,883

.41 3rd...

85,00i 17,148 13,833 12,328 1.02 4th.....

70,047 9.539 6.553 5,065

.42

$283,106

$46,678

$34,307 428,241

$2.36 1978 1st........

S 60,575

$ 8,603

$ 5,274

$ 3,705

$.35 2nd......

58,198 8,240 4,991 3,422

.32 3rd..

75,238 16,708 13,374 11,811 1.09 4th..............,

61,047 9,597 6,425 4,873

.45

$255,058

$43.148

$30.064

$23,811

$2.21 -

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

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Atlantic Electric M:n g:m:nt's Di:cussian cnd An: lysis

==

cf the Statements of income The Statements of income reflect the results of past operations and are 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 Statements of Income (amounts stated in thousands):

Comparison of 1979 and 1978 1978 and 1977

$28,048 11.0%

S20,063 8.5%

Operating Revenues.

Net Energy 12.324 14.2 436 0.5 Power Production-Operations and Maintenance.

4,001 19.3 2,934 16.5 Other Operations and Maintenance.

4,426 14.0 2,456 8.4 Depreciation.

976 4.5 2,245 11.6 Taxes Other than Federal Income Taxes 3,861 12.1 2,930 10.1 Federal Income Tax Expense.

(1,070)

(5.6) 5,768 43.7 Other income..

1,930 57.6 (531)

(13.7) 1,217 7.4 57 0.4 Net interest Charges.

OPERATING REVENUES-Increases are principallyat-OTHER OPERATION AND MAINTENANCE-Increases tnbutable to increases in energy sales in 1979 and 1978, in 1979 and 1978 are due principally to higher transmis-rate increases in January and July of 1978 and July and sion and distribution maintenance expenses and in-December of 1979.

creased administration and general costs. The in-creased charges continue to result from inflationary NET ENERGY:

FUEL-Although generation increased 1.8% in 1979, pressures, including higher costs of material, supplies the significant increase in f uel of $15,737,000 (18.6%)

and wages.

is principally attributable to an increase in the cost of DEPRECI ATION-The increases in 1979 and 1978 are fuel principally attributable to higher depreciable plant bal-INTERCHANGE-Interchange reflects the net cost of ances and, as to 1978, the placing in service of the Salem energy interchanged to and from other utilities within Nuclear Generating Unit in June of 1977.

the PJM. The almost eight-fold increasa in 1979 of TAXES OTHER THAN FEDERAL INCOME TAX

$16.927.000 generally reflects the Company's ability EXPENSE-These taxes are principally taxes on the to acquire (import) energy at a lower cost than if the Company's gross receipts. The increases in 1979 and Company had generated the energy. The Company 1978 are a direct result of increases in the Company's was also a net importer of energy in 1978.

operating revenues.

DEFERRED COSTS-These costs represent energy FEDERAL INCOME TAX EXPENSE-The decrease in costs incurred by the Company which were not re-1979 includes the effect of a lower statutory tax rate in covered in 1979 under the Com pany's LEC (see Note 1 1979. See Note 3 of Notes to Financial Statements for a l

of Notes to Financial Statements). Accordingly, such reconcilistion of actual Federal income taxes to such costs have been deferred on the Company's balance taxes computed at s tutory rates.

)

sheet to be recovered in future periods.

OTHER INCOME-Omer Income, principally AFDC, POWER PRODUCTION-OPERATION AND increased in 1979 as a result of higher equity AFDC MAINTENANCE-The increases in 1979 and 1978 are resulting from higher construction work in progress principally attributable to increased operathnal chaiges balances. The decrease in 1978 results primarily from and major maintenance at our jointly-owned facilities the exclusion of the debt portion of AFDC from other and to higher operational and maintenance costs at our income (See Note 1 of Notes to Financial Statements) wholly-owned facilities.

and the transfer of the Salem Nuclear Generating Unit into service in June,1977.

NET INTEREST CHARGES-The increase in 1979 is principally attriautable to increases in short term debt incurred in connection with the Company's construc-tion program.

27

Suppl:m:nt ry Inf:rmrtian Conc rning tha Effects of Changing Prices (Unaudited).

The following supplementary information is supplied in accordance with the requirements of the Financial Accounting Standards Board for the purpose of proviJing certain information about the effects of changing prices. It should be viewed as an estimate of the approximate effect of inflation, rather than as a precise measure.

Constant dollar amounts in the statement that follows represent historical costs stated in terms of average 1979 dollars. The current cost amounts shown reflect changes in specific prices of utility plant from the date such plant was acquired to 1979. and dif fer from constant dollar amounts to the extent that specific prices have increased more or less rapidly than pnces in general.

Statement of Income From Continuing Operations Adjusted for Changing Prices Year Ended December 31,1979 Actual at in Constant Dollars At Current Cost Historical Average Average Cost 1979 Dollars 1979 Dollars (in Thousands)

Operating Revenues.

$283.106

$283.106

$283.106 Operating Expenses:

Net Energy 99,230 99,581 99.602 Depreciation (Note d).

22,590 44.378 49,536 Other Operating & Maintenance 86,162 86,162 86.162 locome Tax Expense 17,886 17,886 17,886 Interest Expense 17,651 17,651 17,651 Other income.

5.280 5.280 5.280 248.799 270.938 276.117 income from Continuing Operations (changing price columns exclude a reduction to net recoverable cost) (Notes a and e).

S 34.307

$ 12.168

$ 6.989 Increase in Specific Prices of Utility Plant Held During the Year (Note b)

$101,964 Reduction to Net Recoverable Cost (Note e)

S(50,664)

Effect of increases in General Price Level (147.449)

Subtotal (45.485)

Gain from Decline in Purchasing Power of Net Amounts Owed (Note e) 47.551 47.551 Net.

S (3.113)

$ 2.066 (a) Including a reduction to net recoverablecost, the results of continuing operations on a constant dollar basiswould have been a loss of $38,496.000 for 1979.

(b) At December 31,1979, current cost of utility plant, net of accumulated depreciation, was $1,257,311,000, while historical cost or net cost recoverable through depreciation was $679,321,000.

(c) Constant dollar costs were determined by converting historical costs of utility plant and certain other items into average 1979 dollars by using the Consumer Price index for All Urban Consumers (CPI-U). The current cost of utility plant was measured by using the Handy-Whitman Index of Public Utility Construction Costs applied to historical costs by vintage years.

In compliance with Statement of Financial Accounting Standards No. 33, items in the income statement, other than depreciation and amortization of nuclear fuel were not adjusted.

(d) The estimated data for utility plant, comprising plant in service, construction work in progress, plant held for future use and nuclear fuel, determined using the indices specified above, are not indicative of the value of existing utility plant nor of the Company's future capital requirements. The actual replacement of existing utility plant will take place over many years and not necessarily in the same manner as the presently existing assets.

28

Atbntic El;ctric

.-m._,

F The accumulated provisions for depreciation and amortization under both constant dollar and current cost methods described above were estimated for each major class of utility plant-nuclear, fossil or other production; transmission; distribution and general plant. The method used was to multiply the respective cost data by a percentage representing the expired life of existing facilities of each class at December 31,1979. Depreciation and amortization expense for both methods were determined using the rates and methods used for computing book depreciation and amortization applied to utility plant balances re-expressed in terms of constant dollars and current costs.

(e) Under rate-making prescribed by the regulatory commissions to w'hich the Company is subject, only the historical cost of utility plant is recoverable in revenues as depreciation. Therefore, the excess of the cost of utility plant stated in terms of constant dollars or current cost overthe historical cost of plantis not presently recoverable. Due to this feature, the value of utility plant under both methods must be reduced to net recoverable cost which is historical cost. While the rate-making process gives no recognition to the current cost of replacing utility plant, based on past practices the Company believes it will be allowed to earn on theincreased cost of its net investment when replacement of facilities actually occurs.

To properly reflect the economics of rate regulation in the Statement of Income from Continuing Operations, the reduction of net utility plant should be offset by the gain that results from the decline in purchasing power of the net amounts owed by the Company. During a period of inflation, holders of monetary assets such as cash and receivables suffer a loss of general purchasing power while holders of monetary liabilities, generally long term debt, experience a gain because debt will be repaid in dollars having less purchasing power. The Company's gain from the decline in ourchasing power of its net amounts owed is primarily attributable to the substantial amount of debt and cumulative preferred stock subject to mandatory redemption which has been used to finance utility plant. This gain, however, should not be considered as providing funds to the Company. Since depreciation on utility plant is limited to the recovery of historical costs, as explained above, the Company does not have the opportunity to realize the holding gain and is limited to recovery only of its embedded cost of debt capital.

(f) Fuel inventories, the cost of fossil fuels used in generation, have not been restated from their historical cost.

New Jersey regulation controls fuel costs through the operation of a levelized energy clause such that recovery is ultimately limited to actual cost. For this reason fuel inventories are effectively monetary assets.

Five Year Comparison of Selected Supplementary Financial Data Adjusted for Changing Prices (In Thousands of Average 1979 Dollars)

Years Ended December 31, 1979 1978 1977 1976 1975 Operating Revenue *

$283,106

$285,211

$282,900

$271,717

$269,843 Hi:tcrical cost information adjusted l

for general inflation l

Income from continuing operations (excluding reduction to nct recoverable cost).

12,168 income per common share (af ter dividend requirements on preferred stock)

.51 Net assets at year-end at net recoverabic cost.

293,444 i

Current cost information i

Income from continuing operations (excluding l

reduction to net recoverable cost).

6,989 l

Income per common share (after dividend requirements on preferred stock)

.08 l

Excess of increase in general price level over increase in specific prices (after reduction to net recoverable cost)

J.

45,485 Net assets at year-end at net recoverable cost.

293,444 G:n;ral Information l

Gain from decline in purchasing power of net l

amounts owed.

$ 47,551 Dividends declared per common share *..

$ 1.79

$ 1.90

$ 1.95

$ 2.02

$ 2.06 l

Market price per common share at year-end*

$ 17.125

$ 20.128

$ 27.689

$ 30.436

$ 23.212 l

Average consumer price index...

218.5 (est.) 195.4 181.5 170.5 161.2

• (Trended) l 29

Statistical Review and Summary of Operations 1979-1969 Facilities for Service 1979 1978 1977 1976 Total Utility Plant (Thousands).

S 870,075 802,473

$ 753,269

$ 710.343 Grou Additions to Utility Plant (Thousands)..

S 72.773 58,073 48,733

$ 41,702 Pole Miles of Transmission and Distribution Lines 6,831 6,786 6,735 6,696 Generating Capacity (Kilowatts) (a).......

1.384,700 1,414,700 1,414,700 1,334,700 Manimum Utility System Demand-Kw.........

1.192,600 1,177,400 1,176,000 1.030,300 Source of Energy (Thousands of Kwh)

Net Generation.......

5.397.338 5,625,988 5,293,019 4,918,906 Purchased and interr. hanged-Net..........

464.143 130,037 224.169 324,196 Total....

5.861,481 5,756,025 5,517.188 5,243,102 Electric Sales (Thousands of Kwh)

Residential...

?.411.732 2,377,202 2,221.250 2,070,766 ~

Commercial 1.580,384 1,586,097 1,478,559 1,392.029 Industrial.

1.255,304 1.250,636 1,220,260 1,143,170 All Others 60.799 60,705 58,866 57,667 Total.

5,308,219 5,274,640 4,978,935 4,663,632 Gross Revenue (Thousands of Dollars)

Energy Sales Residential.............

135,178 121,440 109,818 98,904 Commercial.

88.819 80,539 73,354 66,354 Industrial.........

47,590 42,185 40,885 36,438 All Others 6.624 5,973 5,630 5.406 To t a l.........

278,211 250,137 229,687 207,102 Other Electric Revenue.........

4.895 4,921 5.308 4,925 Total.

S 283.166 255,058 234,995

$ 212,027 Residential Electric Service ( Average per Customer)

Amount of Electricity used during theyear(Kwh) 7,849 7,951 7,653 7,320 Amount paid for ' year's service...........

439 92 406.18 378.36 349.64 a

Price paid per Kilowatt-hour......

5.61' 5.11' 4.94*

4.78' Customer Service Locations-Electric (Year-End).

371,362 362,131 352,205 343,147 Population Served 1.015.000 990,000 961,000 937,000 Summary of Operations (Thousands of Dollars)

Operating Revenues-Electric.

S 283.106 255,058 234,995

$ 212,027 Operating Expenses Fuel.......................

100.472 84,735 82,735 69,234 Interchange..........

19,098 2,171 3,735 4,819 Deferred Energy (Costs).................

(20.340)

Power Production....

24.717 20,716 17,782 13,498 Other Operating and Maintenance Expenses 36.145 31,719 29,263 26,334 1

Depreciation....

22.590 21,614 19,369 17,395 Taxes...............

53.746 50,955 42,257 37,837 Total Operating Expenses...........

236.428 211,910 195,141 169,117 Operating income..................

46.678 43,148 39,854 42,910 Other Income and Deductions-Net...........

5.280 3,350 3,881 7,843 Income before interest charges......

51.958 46,498 43,735 50,753 Interest Charges-Net..................

17.651 16,434 16,377 19,957 Net income.

34,307 30,064 27.358 30,796 Dividends Paid or Accrued on Preferred Stock.

6.066 6,253 5,485 5,484 Eamings for Common Stock.........

28.241 23,811 21.873 25.312 Average Shares of Common Stock Outstanding.

11,979,607 10,790,977 10,629,930 9,747,012 Earnings Per Share of Common Stock........

$2.36

$2.21

' $2.06

$2.60 Dividends Declared Per Share of Common Stock.

$1.79

$1.70

$1.62

$1.58 Dividends Paid on Common Stock (Cash).......

$1.765

$1.67

$1.62

$1.56 (a) Excludes capacity allocated to a large industrial custorner.

30 -

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OA$.,32YC E.*n,C

_Y 1975 1974 1973 1972 1971

_1970 1969

$ 675,617

$ 637,250

$ 572,555

$ 511,274

$ 455,956

$ 404,364

$ 357,863 46.745

$ 71.200 67,864 58,434

$ 54,151

$ 48,200

$ 35,306 6,645 6,580 6,506 6,408 6,333 6,252 6,187 1,334,700 1,278,700 1,013,500 965,900 897,600 821,400 757,800 1,069,400 1,004,400 1,051,400 920,400 829,300 755,500 721,800 4,715,357 4,651,334 4,236,083 4,071,225 4,262,062 4,294,352 4,227,315 190,852 229,197 665,558 458,050

- 74.395

- 358,203

- 566,932 4,906,209 4,880,531 4,901,641 4,529,275 4,187,667 3,936,149 3,660,383 1,938,724 1,882,560 1,899,122 1,741,895 1,624,793 1,520,939 1,375,546 1,346,216 1,298,858 1,351,974 1,183,668 1,059,498 977,210 879,916 1,036,755 1,136,935 1,119,478 1,061,932 990,363 954,111 911,138 56,465 57,477 58,129 64,531

_f8,963 101,703 116,021 4,378,160 4,375,830 4,428,703 4,052,026 3,763,617 3,553,963 3,282,621 90,956

$ 78,512 59,856 51,544

$ 42,623 36,979

$ 32,672 63,544 55,713 42,804 35,868 28,648 23,933 20,584 34,974 33,565 22,008 19,350 16,529 13,036 11,303 4,881 4,207 3,861 3,763 3,919 3,795 3,753 194,355 171,997 128,529 110,525 91,719 77,743 68,312 4,724 4,614 4,365 4,128 3,687 3,648 3,731

$ 199,079

$ 176,611

$ 132,894

$ 114,653 95,406 81,391 72,043 7.018 6,982 7,303 7,008 6,793 6,542 6,072 329.25

$ 291.21 230.19 207.37 178.19 159.06 144.22 4.69' 4.17' 3.15' 2.96' 2.62' 2.43' 2.38' 336,105' 330,758 320,834 309,393 297,437 288,538 282,274 915,000 894,000 865,000 828,000 796,000 773,000 753,000

$ 199,079

$ 176,611

$ 132,894

$ 114,653 95,406 81,391 72,043 71,644 73,167 37,144 29,944 28,705 22,457 15,691 2,855 5,862 8,155 3,979 (815)

(2,941)

(3,165) 10.268 11,360 8,810 8,060 6,686 5,111 5.074 l

24,632 21,730 21,119 19,388 17,462 15,692 14,194 16,846 12,946 11,749 11,190 10,355 9,632 9,043 32,083 16,203 16,616 15,359 10,603 11,129 12,292 158.328 141,268 103,593 87,920 72,996 61,080 53,129 i

40,751 35,343 29,301 26,733 22,410 20,311 18,914 l

7,747 10,755 8,745 6,647 5,164 3,520 1,773 l

48,498 46,098 38,046 33,380 27,574 23,831 20,687 20,218 19,088 15,129 13,297 11,641 9,276 6,302 28,280 27,010 22,917 20,083 15,933 14,555 14,385 5,484 4,233 2,652 2,456 1,900 1,900 1,900 I

22,796

$ 22,777 20.265 17,627 14,033 12,655 12,485 l

9,470,073 8,973,400 8,453,400 7,810,073 7,436,740 6,920,073 6,817,083

$2.41

$2.54

$2.40

$2.26

$1.89

$1.83

$1.83

$1.52

$1.50

$1.4766

$1.4316

$1.37

$1.345

$1.31

$1.51

$1.50

$1.4688

$1.4144

$1.36

$1.34

$1.30 This Annual Report has been prepared for the purpose of providing general and j

statistical informatton concerning the Company and not in connection with any sale, j

offer for sale or solicitation; of an offer to buy any securities.

l Pr.w musA 31

Directors:

Board of Directors Committee Listings El:anor S. Daniel Mr. Linkletter, Chairman of the Board, serves as an ex-Self employed. Vice President and Director of several officio member of all committees and Mr. Feehan, real estate corporations.

President, serves as an ex-officio member of all com-mittees except the Audit Committee.

Richard M. Dicke Counselor at law. Senior Partner of the law firm of Audit Committee Pension and Insurance Simpson Thacher and Bartlett.

John M. Miner, Chairman Committee Eleanor S. Daniel Richard M. Dicke, Chairman Jchn D. Feehan Joseph M. Galvin, Jr.

John M. Miner President and Chief Executive Officer of the Company.

Mack C. Jones Frank H. Wheaton, Jr.

Joseph M. Galvin, Jr.

Executive Director and Chief ExecutiveOfficerof Salem

$',P] Dsetopment p

County Memorial Hospital.

Frank H.Wheaton,Jr.. Chairman Richard M. Dicke, Chairman M:ck C. Jones Eleanor S. Daniel Eleanor S. Daniel Mack C. Jones Frank H. Wheaton, Jr.

Engineer. Retired.

John M. Miner Alfred C. Linkletter Shareholder Consultant, Chairman of the Board of Directors of the Energy, Operations and Community and Company.

Research Committee Government Relations Mack C. Jones, Chairman Eleanor S. Daniel, Chairman Sen o i

President of Crocker National Bank.

ar ison F an HWe r,J.

Frank H. Wheaton, Jr.

Richard M. Wilson President of Wheaton Industries. Manufacturer of glass Finance Committee and plastic containers.

John M. Miner, Chairman Eleanor S. Daniel Richard M. Wilson Richard M. Dicke Senior Vice President of the Company.

Mack C. Jones Dividend Reinvestment and Stock Purchase Plan The Company continues to offer a Dividend Reinvest-

/ 7 ment and Stock Purchase Plan which enables share-

@M holders and employees to automatically invest their O

• Q** son optional cash payments without paying brokerage com-an, cash dividends in Company Stock, and also make 7,ji

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missions or service charges. About 185,000 sharcs were

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purchased through the Plan in 1979 with proceeds to the M

Company in excess of $3.4 million. There were 9,122 2

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participants in the Plan at year-end. To enroll, please contact our Shareholder Records Department.

L_ /,. #4 Regional Information Meeting Atlantic Electric held a Regional Information Meeting for Southern New Jersey Shareholders on November 27 The Company was awarded the 1979 Nicholson Award by 1979. President and Chief Executive Officer John D$

the National Association of Investment Clubs for 'Best 1978 Feehan spoke to the 150 persons in attendance on a Annual Report for the IndividualInvestor.

number of topics affecting the Company. Chairman of the Board Alfred C. Linkletter and other Directors and Officers were in attendance and offered expert com-i mentary on such topics as rate relief, dividends, nuclear power, construction and fuel costs and casino-hotel development.

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Controtter Assistant C on t rol Vice President-Rates and Regulatrons

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Electr.ic i ic SERVING A MILLtON PEOPLE IN SOUTHERN NEW JERSEY 1600 Pacific Avenue Atlantic City, N.J. 08404

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