ML20071G804

Annual Rept 1979

ML20071G804
Person / Time
Site:	Surry, North Anna
Issue date:	12/31/1979
From:	VIRGINIA POWER (VIRGINIA ELECTRIC & POWER CO.)
To:
Shared Package
ML18139A105	List: ML18139A104 ML20071G804
References
NUDOCS 8004010275
Download: ML20071G804 (32)

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7; -- w,, ,,,. ~ V l t i l l ? l l 1 lll ? s 1 ~ Highlights..... 1 : Rato Relief. ; 5 innovatiorc KeytoProgress.. .10 Stochhotdors Letter.... 2 '. Investor Relations.~. 7 Managernents Discussion and Ibvenues...... 5 = Generating Facilities. 7- . Analysisof StatementsofIncorne . 11 Erinnsos............,. 5- . Nuclear....... 7 Description of Business.. .11. - Earnings and Dividends.,,. '5 Coal.....,.......... 9 FinancialStatements.', , ; 13 Electncoutput,'... 5. Bath County Pumped Storage.. 9L Statisteallnformation.. . 28 .10. DirectorsandOfficers.. . 32 - i Fintncing.. 5-OtherCost Efficiency Efforts.. 1 4

1979 H!ghlights .l Increase % increase 3 1979 1978 (Decrease) (Decrease) = Financial 3f Total Operating Revenues $1,703,309,000 $1,464,905,000 $238,404,000 16.3 Total Operating Expenses $1,386,915,000 $1,159,630,000 $227,285,000 19.6 Net income $ 196,467,000 $ 203,864,000 $ (7,397,000) (3.6) { Balance Available for Common Stock $ 141,344,000 $ 150,276,000 $ (8,932,000) (5.9) Average Shares of Common Stock Outstanding 86,965,000 80,060,000 6,905,000 8.6 Stockholders-Common, Preferred and Preference 195,100 180,800 14,300 7.9 = Earnings Per Share of Common Stock $1,63 $1.88 $(.25) (13.3) 5 Dividends Par Share of Common Stock $1.38 $1.30 $.08 6.2 g Book Value Per Share of Common Stock $18.65 $19.09 $(.44) (2.3) g Capital Expenditures S 708,756,000 $ 529,186,000 $179,570,000 33.9 Sales of Long-Term Securities S 407,198,000 $ 439,489,000 $ (32,291,000) (7.3) g Operations y System Output-Megawatt-hours (thousands) 40,484 39,968 516 1.3 d Capability-Megawatts 9,999 9,999 Service Area Peak Load-Megawatts 7,929 7,805 124 1.6 g Cuctomers-Electric-Heating 296,234 261,899 34,335 13.1 -Other 1,012,866 1,008.001 4,865 .5 Total Electric 1,309,100 1,269,900 39,200 3.1 g Customers-Gas 118,600 119,300 (700) (.6) r Average Residential Use-Electric-Kilowatt-hours 10,721 11,099 (378) (3.4) Employees-Full Time 9,625 9,382 243 2.6 j d' a 4 Disposition of the1979 Revenue Dollar 3 i O l 8 Fuel used for I Electnc Generation 42.99 it including Purchased Other Operation and andInterchanged Power 0 49 Maintenance Expenses i Earnings Re nv 9AQ es W % h 129 Referred. Reference and M09 Con =nn oiwdends 8.29 Depreciation and Amortization h InterestandO(herCharges 6,8Q 13.10 Taxes = am 3 = 0 a

= g To Our Stockholders: =- w Z at While thero were some grounds for erating license for North Anna Unit 2, Prior to Three Mile Island, the future 5 optimism,1979 was a difficult year for which was essentially ready for start-of the nuclear industry in general, arvi Vepco and the Company's operating up last summer, that of Vepco in particular, looked results for the year reflect it. The only bright spot in the fuels sit-bright. Performance of nuclear units Revenues increased from $1.46 bil-uation was that the power purchases nationwide in 1978 was the best ever, I lion in 1978 to a record $1.7 billion, necessitated by these events were pri-and the Nuclear Regulatory Commis- ? but net income was down from $203.9 marily from adjacent coal burning utili-sion appeared to be overcoming the million to $196.5 million. ties, and the cost per kilowatt-hour problems of a newly created agency. A decline in earnings por sharo was less than it would have been if the in addition, it appeared that the Presi-from $1.88 in the previous year to power had been generated by our oil dent was about to formulate a work- $1.63 in 1979 resulted from the cu-burning facilities, able policy on nuclear waste disposal mutativo effect of four factors: outages snes. Uranium Litigation Settled of existing nuclear units, delay in ob-At Vepco, three nuclear units were taining an operating license for a new Other encouraging developments in operation in 1978 and a fourth, nuclear unit, inadequate rato relief and during the year were the settlement of North Anna Unit 2, was expected to be the addition of over 6 million averago the uranium supply contract litigation licensed in a few months. ~ shares of common stock last year. with Westinghouse Electric Corpora-Nuclear Units Delayed tion in June, together with an agree-Dividend Rate increased ment on the repairs to the steam gen-Following the Three Mile Island ac-At its May meeting, the Board of Di-erators and turbine generators of cident, the Nuclear Regulatory Com-E rectors voted to raise the quarterly Surry Units 1 and 2. mission placed a moratorium on the is-y dividend rate on common stock from Tho uranium settlement provides for suance of new nuclear licenses and ? 33 cents to 35 cents per share,in-payment to the Company of cash, and has continued to keep that moratorium g creasing the annual dividend from for discounts on uranium deliveries in effect. As a result, our North Anna $1.32 to $1.40. and goods and services having a pres. Unit 2 is still not in operation as of the Wo believe that continued improve-ent value at the timo of settlement of dato of this report. ment in dividends is imperative, and over $380 million. This amount in addition, the NRC ordered early E the Company is committed to raising equaled the value of the uranium con. in 1979 that certain nuclear units be the dividend rate as earnings permit. tracts under litigation if they had been removed from service for reanalysis of We believe also that dividends should fully performed by Westinghouse. their ability to withstand a severe a provido a fair return on the book value in July, $99.7 million in cash was ro. earthquake. Our Surry Unit I had to of our common stock, not just the mar-ceived and another $41 million was re. be taken out of service in order to kot value, and wo are dedicated to ceived on February 1,1980 under the meet this requirement, and various changes in the NRC requirements keptg - achievmg this goal as well. settlement agreements, Rato relief, expected early in tne In spite of a national downturn in it out of service until October. Our g year, was delayed several months, the economy, the Company's cus. Surry Unit 2 was out of service for re-and as a result the substantialin-tomer growth was sustained with the placement of its steam generators at E creases in operating revenues woro al-not addition of almost 40,000 electric the time of the NRC order. Unit 2 will z most entirely offset by increased customers with nearly 87% having probably not be back in operation until costs-particularly the cost of fuel, heat pumps or electric heat. spring of 1980 even though the steam Most of the additional fuel cost re-generator work has been completed. suited from two factors. The first was The Effects of Three Mile Island This delay is a result of requirements, the unanticipated, and wo believo un-The event with the most significant unrelated to the steam gcnerators, 7 necessary, outages of our major oper-impact on the Company during the that the NRC issued in 1980. E ating nuclear units as a result of ac-year was the nuclear accident at These nuclear outages also dis-E tions by the Nuclear Regulatory Three Milo Island in March. That event rupted maintenance schedules on E Commission in the wake of the Three and its repercussions continue to have other generating units, all of which ad- --g Mile Island nuclear accident. The sec-a profound effect on Vepco and on versely affected internal generating =lt ond was the delay in granting the op-much of the electric utility industry. capabilities during periods of heavy =_ i ,N

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<~ loads We have attempted to over-come these problems by upgrading maintenance levels and putting in place a more comprehensive pre-z ventive maintenance orogram. These steps are designed to improve plant operatior, and reliability in the future and to reduce our fu+ ' costs Oil Units Converted to Coal v" To further reduce fuel costs, we are also converting oil fired units on our system to coal as rapidly as possible. In 1979, Portsmouth Unit 4 (23d Mw) % "'"Y"d4""" I Ju*n Wne Jr was converted back to coal Four ad-g d1itional units totaling 638 Mw are We are in the process of arranging growth must come from coal and nu-scheduled to be converted in 1980 project financing for the remainder of clear generation if there is to be an and a 162 Mw unit in 1982 the Bath County Project construction adequate supply. We remain com-Two developments that we an_ penod through a financing trust until a mitted to nuclear energy, and there-nounced in the fall could have a major sale takes place At that time, the proi-fore, are taking every step possible to effect on our future cash position as ect would be transferred to a subsids-insure the efficie' icy and safety of our well as our generating mix, and they ary nuclear facilities provide some grounds at this point for The second significant development We remain committed also to the optimism about the future. is a study we have initiated to determine need for conservation and the need to The first of these is the likely sale of the feasibility of converting North develop alternate sources of energy. a portion of the Bath County Pumped Anna Units 3 and 4 from nuclear to New load management techniques, in-Storage Project to anoiner utility Pre. coal generation. The Company has no cluding experimental time-of-use liminary discussions ha.e beer hmd preconceived idea as to whether it will rates, are expected also to help re-with both Allegheny Power Systmi, continue with the nuclear concept or duce the growth in peak loads in the inc and Amencan Electnc Pow ( r convert these units to coal The choice near future. Company and they have indicated a will be made on the basis of what eco-We will continue also to search for strong interest in purchasing up to nom.cs are revealed by the study, and innovative ways to reduce costs and one-half of the Bath County Project f a-the answer will not be known until the improve efficiency, fight inflation, urge n ilities study is completed this fall. realistic regulations, seek adequate When we applied for the preliminary Challenges of the 80's rates for our service, and to communi-permit for the Bath County Project in The decade of the 1980's will be a cate more effectively with investors, Apri;,19 71, our anticipated load challenging one for Vepco, and for the customers, employees, government growth was over 10% per year, and electric utility industry. We are hopeful and the public at large. two more nuclear units were planned that 1980 will see the start-up of North Nationally, we hope the 1980's will for operation prior to the completion of Anna Unit 2 in the first half of the year, be a period in which our country will fi-the pumped storage project as well as improved operation of our nally unite in its effort to achieve en-other nuclear and coal fired units. ergy self-sufficiency. In a troubled Load Forecast Roduced Recent developments in Iran and world that needs a strong America, we Today, our ioad forecast for the Afghanistan, as well as the drastic in-can settle for no less. 1980's has been reduced to about 3% creases in the world price of crude nil, With the continuing loyalty of our per year, and North Anna Units 3 and highlight the urgent need to reduce employees and their dedication to the 4 have been delayed until after the our nation's dependence on foreign job of supplying electric power for the Bath County Project goes into service oil. For the next 20 years, it is abun-area's economic development, we are in 1983-1984. dantly clear that much of the energy optimistic as we begin the new decade. j id Hu / T Jmtin M ore Jr Stanley Ragon. Chsw l of the Board Pms* 3

K EARNINGS : DIVIDENDS C RETAINED EARNINGS -COMMON STOCK PER SHARE L:. "": [ ' : T :. f "; 7 ? : k - ' -

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~ ~ " p 7 :., : f ; 1 g ; ~. -. -. i..:.J.:,j,'.L. y.l l.57a 160 7 il12 2:22 'ClDLll ll& l 02 5 E C"ZCTCZCEL12~306 1.88 ' l.63 AVE RAGE SHARES OUTSTAN DING - MILLIONS - m 609 175"'" ~P.?m27Wy',""*""Za;1_ '. 77 gg = ~~--w--- -- -- r y-68 1 n.a - au m-n ,w,- n-n . :xL =. 1 ~ d 740 D T T & _ ;- ; :-_ Mch .- ' ? + n DD*W; __ ' .;;; ~:.._ =; .' a.n .:w-: e Qws;;,JJ 80.1 ~ ' OI0 '279 T. uEed%Z7GWai!LQJaa_E- -mi ~ ~ N.J.:L M" + l REVENUES-MILLIONS OF DOLLARS 1.033 1,101 1.359 g m 1A65 1.703 m NET INCOME-MILLIONS OF DOLLARS l 154 7 i ( 166 8 189 8 4 e 203 9 o + 196 5 s.* CAPITAL EXPENDITU RES - MILLIONS OF DOLLARS i 432.1 9-i r S ALES OF ELECTRICITY-MILLIONS OF Kwh w 34 1 s FUEL EXPENSES-ELECTRICINCLUDING PURCHASED ANDINTERCHANGED POWER -MILLIONS OF DOLLARS 4 l: SM l 4 h_ - _ 6 5 3

A decil,no in carning2 per shira Ecrning6 cnd Divid:nd) of thit gen:rtted in 1978, because of outages discussed elsewhere in this from $1/8 in the previous year to The increase in operating revenues report. The lack of nuclear generation $1.G3 in 1979 resulted from the cu-was more than offset by the increase necessitated the purchase of large mulitive effect of four factors: outages in the cost of doing business, resulting amounts of power to meet customer of existing nuclear units, delay in ob-in a decrease in both not incomo and needs. Purchased and interchanged j trining an operating license for a new in the balance available for common power accounted for 18.9% of system nucl:ar unit, inadequate ratn relief and stock output in 1979 compared to 2% in th3 Eddition of over 6 million average Earnings per average share of com-1978. Nuclear generation contributed shiras of common stock last year. men stock outstanding at year-end only 17.4% of system output in 1979, R; venues were $1.63 or 254 less than the $1.88 coal 26.7%, oil 34.2%, and hydro 2.8%. Though kilowatt. hour sales in 1979 in-earned in 1978 (when there were 6.9 crsised only 1% over 1978-an in-million fewer shares outstanding) pri-l dication of conservation on the part of marily the result of the outages of the Financing our customers ns well as mild weather licensed nuclear units, the need to The Company.s service area remains ( throughout the year-total operating purchase costly replacement power, O rev:nues were up 16.3%, or $238.4 and delays in the granting of rate re-million to a record $1.7 billion. Rate lief' its construction program to meet the reli:f provided $50.4 million of the in. vidends paid on the common growing needs of its customers. Dur-crease while recovered fuel costs rep-stock in 1979 amounted to $1,38 per ing 1979 $407.2 million in new capi-resentin o profit accounted for share compared with $1.30 in 1978. tat was raised as shown in the follow-A tentative determination (which "9 "bl - Electric sales provided $1.648 bil-has not been reviewed by the Internal lion and the sale of gas $55 million. Revenue Service) indicates that M Xpenses 33.02% of the first quarter common ' Uperating expenses amounted to $1.4 stock dividends paid in 1979 and First and Refunding Mortga billion in 1979, a 19.6% increase over 91.95% of the second, third and Bonds of 1979. Series A 1o%%. tha comparable 1978 figure. Nuclear fourth quarter dividends paid in 1979 Due Apnl1,2009 $100.o R gulatory Commission requirements constitute a return of capital and First and Refunding Mortgage ktpt the Company's nuclear units out therefore are not taxable as dividend Bonds of 1979. Series B 9 95%. I of service during most of the year. income under requirements of the Due October 1,2004 135.o common Stock: 84.2 Without economical nuclear ger' era-Federal income tax laws. Such per-Pubhc Offering $64.o tion, it was necessary to purchase centages may change based on a sub-more expensive fossil fuels for genera-sequent audit of the Company's Fed- ^"' '"[,'* U'jd*[**"~ ,,,n p 12.9 tion and to buy power from no ghbor-eralincome tax returns. Employee Savings Plan 6.2 ing utilities to meet the needs of our Common Stock Prices and Dividends Trasop 1.1 customers. Fuel used in electric gen-for the last two years were: $8.925 Cividend Preferred Stock 28.o cration was up $10t million, excluding intermediate Term Loans 60 o 1978 thgh Low Dividends dif rred fuel, while purchased and in-First Quarter 14% 13% $.31 TOTAL $407.2 1:rchanged power expenses were up Second Quarter 14% 13% .33 $185 million. Though the outages of Third Quarter 15% 14% .33 the nuclear units necessitated the cur-Fourth Quarter 14% 13% .33 Rate Relief tailment of maintenance on our fossil-1979 bfu 1 units, maintenance expenses in. First Quarter 14 % 13 .33 The continuing increase in the cost of crtased $13.5 million. ,j doing business required the Company S o"d 0uarter d O9 ,e, to seek additional rate relict in 1979 Taxes totaled $174.4 million, up rourth Quarter 12% 10% .35 only 4.4% because of lower taxable from all of the rate making bodies hav-income but some $33.1 million greater Electric Output ing jurisdiction over its operations. thin the balance for common stock. System electrical output rose a slim Without adequate and timely rate re-Stats and local taxes amounted to 1.3% in 1979 as mild weather and lief, the ability to supply the energy $104.4 million of the total, including customer conservation reduced the needsof allclassesof customerswill $60.9 million for gross receipts taxes growth of system load. Though the be in jeopardy. In Virginia the Com-rnd $28.5 million for property taxes. number of residentialcustomersin-pany received an annualincrease in Federal income taxes totaled $70.0 creased over 35,800, the average April of $148.1 million based on a million, down 4.8% primarily because residential use of all customers de-1977 test year--nearly $100 million of increased operating costs resulting clined 3.4%. The 1979 peak of 7,929 less than the increase of $246 million from substantial amounts of pur-Mw,in August, was only 1.6% over the based on a 1978 test year that h3d ch: sed power. previous year's peak. A winter peak of been requested. In addition, the Com-In addition, the Company collected 7,401 Mw, which occurred in Febru-pany has filed requests for $18 million from its customers $56.9 million in ary 1979, was surpassed in February to reflect 1978 costs under the annual ( consumer utility taxes imposed by 1980 when a peak of 7,445 Mw oc-review procedure in effect through some 100 local governments without curred. Increasing winter peaks and 1978, and $46 million to reflect cer-rec-iving any compensation for such the more stable summer peaks con-tain costs associated with the com-

services, tinue a trend that is expected to make mercial operation of North Anna Unit Fuel costs and purchased power Vepco a winter peaking utility in the

2. Hearings, which were not opposed reprisented 43% of the revenue dollar next few years. Generation from our by the Virginia Commission Staff, have and 54% of total operating expenses.

nuclear units amounted to about half been conducted and the Hearing Ex-5

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.u rn .oul a $41 nulhr n anriual rate redut-f uel e q n tr a m haw t ie n i h.in< p,1 ruiw n u p on".in mua.il fin.pu i d to t on by the Comp iny That order was lh u prirnib j iri !'t /'t flie. Aijts itti itit vn e < 3t t S t;.ll iltilit i A dil i g 4(lvi'. ri f< a In t'.f M) ilg ajri C()nHnisslori finf hf Hj$ of in-I u l Ailpe.tou nt Cl.ni a .o r. cono g.n ong >t r ate n h. t g a r en h ui r.ite". ilo .u b quate m Unh nance.it f ossil-fired fi,ih o j.ilh l r e g d.t #"l t i y iid:n I' ,Ifi r u nt iin r t % l a i.i'.f t 1 lib iti IIH Ir h.rI S P a - (p qH 9 dtrh) st.itlorP, ItH* Cornghiny alw h uhhtu" i .t u n ih U n o r fi n d + = uittu-( < o r.unu n pr u i m h w (4 ttm st an;ht.t stay of that order from the goura. t a t he 1 ranun;psu lhemes", Pn".n lent ' antHntl.ita :n (p jub hn,", Nc ath C trohna Court of Appeals f ,mu n -..... n o..+ n a p m hm n..m r, .p,m.. dun. m n a..+ o N m.,n. .nm n,, q, ann.d on sepn.mbe, n. u n; t et. >n the 'it.ite Ci a pi a atu m t.cf m a pro < ein f e; in A hn h the C< an 19/9 Hnets have now been hkui and ( a munec.u to m ( b., emt er.uul an : >r nuv. ton ap;,n n e ") 1(10 '. of < >ur a < h u raon n, e x pected in I. ate 1980 f d, m.m.,, e.a. d n. a m, .. h a n n. n.q u m o n m. n. e m q ,.d..s inn o_,no, of Nnnn Ca,onna nas < <,mo n ; ve. u t imm i i m t hew ".1 T he $ 1 (> nuthon un n.n,o wn AeH tm publu ly n quested the Company to

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In hite N.>ve mt er l ' 4 / 9, A e ane,thi9 utthly itm Company has g n nw-. <. imp.ui,1 hi the e mtonate s rit u he<1 an aqn 9'on nt wdh th ' ( ity state u! th.tt it has rui mh ntst m solhnq with ga, n or,h a.ol y.tnnuits w he n .in. ] (.' >unt y q evi n une nts t it Vin pr u.t sm h f.vahtuu at fins hme i .ippn pr ute At the enit.d the ye it. n that we wru ;it ret.pl lin thn.o ye ir ihe Comp.iny ided for a $3 / nul-t ul tui l i simnu m.v e i orn;-tou t with a (mtr.u i th.it w r. r u st itu th,1 pri o n14 91 lu ai ou re s ts. m We n,t Virtprua rates on the estmute.un!.tdp e,tnn nts nnide ,itu mt $ 10 nulhon m U h titu mal rewou" Iitau,try ? I979 T he Wi",t Vircpnia m ttm f; Jh m mq voar tii esur e that m 14 /H with,ohhton 0 nu reaws m Putdn. 9 :vu e Comunssion granted a the r i r, n. ) i n er r e" < wer y.a un.i.9 re-M y of I'eu l am t I'4H I T he,o p e u- $? I irdin in nu r e.e based on a ( owr y cit ponh ntly nu urno! e'= nu nt W i e th u ti,.luly 1 ;inil e, sul) ' t 9'i' ' r ate of retur n-$ 1 6 nulhon et-perra" pu t t<, tau.u ( i ptano t,v the unhvul tetta..luly 1:i 19/9 and $O $ mdhon Itu mah the Voi; 'ni (:nnmm su oi.d indl<u.0 u m69tnn nts i>tt (te M.uch li 19HO ~ L. uni a.! u,tment.. it the qu u terly in Ju'y 14 /9. th" North Canihna he.u nn;s m 19 /9 at the t,me < >f s mr Utihtu ". Q annm.uon, nt, r e yl its onh 4 I i

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3 ,a g ( 1 ,3 wg' is ,1 is tW ,% h= \\h, s N NO ,~ ., i a ? u. a I wa .w . / www. .w ,.. mn n, mom.. m. e n. nst, o tm wi s m,t on%f sn,350 w units b.una buut it Bath count < ~ ~ Investor Relations l Geographic Distnbution F mi a r..o preferred and Communication with our stockholders c,m,non Stm k own s shares eference stor h s owners shares n, m, *

o. i ta e, rii o m n-, a cg-i.o,

roo 4 r ' to ues to be of paramount importance. in.i, ,io, 4 us e, non. i. io w *"" The opportunity to relate Vepco's ( ( oa,,, m.i i .n.>>4 n,.. v o,6 , sie > 4w we n .,v., ,,. u-n.i, e.., ua., n, i7i s i ni story is always welcomed, and during 1979 your management made several m., m i 24 i oso e u,i o<a i sin n.# e4 v g,,,, i .m... a , con c.umnn, so e is.' 4"' appearances before members of the [ ',[n[ '. n. '[ [, I r'IC..,s., [,] investment community. The Company ,i 4m ,i.. i 2.....o. on,o on i to 4m was pleased to have a number of v.,,a,, i .si i i io. s i wcs,v,,mm. s o. a i n' security analysts who follow the elec-i.,$,$, u im, !b tnc utility industry visit the Bath County { o t i (,,,,,n.,i 4 4., i 4o01 o, un o,q,n i.i c os son Pumped Storage Project in the fall. j u. 4s4 ooi i.i o e iss e no., n, si i i ri or?0 Since 1970 the number of our + w .i 4 i e is a es vc on im i t M H' I en ( o ~nn, co oe.o Jen Desirn i e C.h mt,, 14

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• A77 stockholders has increased from

,..i a.. i4;. n i. 7.i o, n, se m s ma o e ;ij 74 / r. Juo 59,000 to over 195.000. The con-3 ,,,m..,.ao.. os oe n.., < in. fidence shown in Vepco by these in-n( ,o. ic ..ia n r..,, on i..,# (.,o,, >v aoi c o n io, i no. - 1 417 94, vestors is most gratifying. i n o ri, i co 4 os ec s 4 i t e tot at, 24 s co s nio n? { l Generating Facilities Vepco remains firmly convinced that Distribution of Ownership I r i t'"" Preferred and coal and nuclear power are essentialif Comevion Nion k owners shares Preference stocks owners shares n.,,,, sis-ics(' oi i w,.n ten x 17s /Hs 84 i this nation is to meet its future energy i

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i, 1,., n.n n m,, ,c min +, ,.y.., a m n, n (,,,,, i j,im,.,3 ,,, 3 ;, g s.n =_- Commission for v.ityitig tunes in t 9 /9 and m.untenance overh:iul, at which Sources of Electric Energy - Percent E were among the most signihcant f ac-tinie modificat.ons required by the = E tot s in the so iring fuel costs experi-NRC as a result of the Three Mile Is-ES/,, 'm er ( ed dunny the year and the cash I.uid acculent were also made. The g.. R flow poit>lems th.it deveioped I, iter in Unit resurned commerci;il operation in g., the period January t980 [ _-~ In Man.h t 4 /9 the NRC required Because of the Three Mile Island w that < erf.un nuclear units be removed accident last March. the NRC placed a from servit e while seisnuc re.inalyses moratonurn on the issuance of new li-were inade of the pipinq systems to censes and m.ide it clear that it was an deternune it they would withstand a not going to grant any licenses until "7 I" severe earthquake Surry Units t and the President s Comnussion issued its m P were inchuted in this group of five report in late October We were -% 'F g nn plants although Urut P was already pleased that the report riid not recom-R p] ^ q out of service for the scheduled re-mend a moratorium and we hoped that placement of the steam generators the Conumssion would proceed M 40 T he NRC enlarged its requirements promptly to issue the operating hcense { ". ej w 5-and Unit t was not perrnitted to be re for North Anna Unit P and the other turned to service until October new units in the nation that were N E Although the Surry Unit P stearn awaiting operating hcenses Instead. x.w in generator replac ement was essentially the NRC. at a congressional heannq in E mm completed in early December. the ad-November, stated it would continue w g

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.g 3 thfion.il seisnuc reanalysis and modifi-the moratorium The Governor of Vir-cations requued by the NRC will hkely qinia. the State Corporahon Commis-has met all NRC requirements and has B entend the outage of this Unit until the sion of Virginia, as well as members of agreed to comply with additional re-g spong of t 980 We. ire m.iking every the Virginia Congressional Deiegation quirements imposed as a result of the etfort to obtain from the NRC per-and some North Carohna Congress Three Mile Island analysis We hope g nussion to return the Unit to serviw men. have wntten the NRC requesting that the NRC will ~.t least let us pro-p and to complete the piping risinalysis that they reconsider and rescind the li-coed with fuelloading and low power with the that in operation just as we cense moratorium as it apphes to testing of the Unit so that it may be are doing on Surry Unit t North Anna Unit P lt was pointed out brovoht into commercial operation as y North Anna Unit t was taken out of that North Anna has an NRC approved rapidly as possible when the hcense service in September for a retuoling evacuation plan and that the Company for fullload operation is obtained. -m p

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lmff 4 ( i g, 1 of tinergy, Oak Ridge National Labo- 'fa a* wy ratory and the Home Builders Associa-tion of Richmond to construct 40 homes in the Richmond area equipped i with an energy storage system de-signed for residential users. ( Both projects are expected to dem-onstrate Detter utilization of electricity and, consequently, a lower cost for ~ customers. The Company has under g' study several different residential rate 4 schedule options which would allow time-of-day metering. a 1 Reducing peak demand helps both the Company and its customers. It can i hold down rate increases by allowing utilities to reduce the need to build new generating stations for use at peak times only. The use of off-peak i electricity also allows the utility to use 4 existing stations more efficiently. Innovation: g Key to Progress i d As we enter the decade of the 80's, d g the Company continues to apply in-p 8" novative thinking to electric utility A _A- ,i problems. Past accomplishments that Mechanical order pickers in central warehouse greatly increase the eff aciency of operations' e o

• Built the Mt. Storm power station cash requirements. In today's infla-
• The construction of a new 78,870 in the coal fields of West Virginia and tion-riddled money markets, such a re-square foot central storeroom for use reduced generating costs by eliminat-duction in cash requirements will be of by all operating districts. The facility is ing the need for costly overland trans-significant benefit to both the Com-designed to store over 5,000 different porta ion of coal pany's stockholders and ratepayers.

items with rapid retrieval and will en-ble the Company to reduce the num-Other Cost Efficiency Efforts 500,000 volt transmission line to carry f s now locaM hg%ut The Company took significant steps electrical energy from Mt. Storm into sysmnt SaWngs kom Ws new fa-forward in efficiency in 1979 with: our system. cility are expected to exceed $1.2 mil-The operation of a new System

• Constructed over 3,346thousand Hon ad year, and aMonal cenkal Operations Center (SOC). The new kilowatts of nuclear generation.

s ag f achs 6 kms sp as in-

• Converted by the end of 1979 center, a striking computer facility to-cated at system headquarters in Rich-sqators, kansfornws and simdar ma-some 1.2 million kilowatts of c!ectrical terial are currently being planned for mond, is the new nerve center for con-generation from oil to coal. This is the consMon so mat men gmater saw trolling all the Company's power largest amount converted by any utility ngs may M maM stations. It will also monitor the power in the nation. Another 800 megawatts as distributed over 4,600 miles of a Your Company also continued its are scheduled to be converted by transmission lines and through 380 research into non-conventional energy 1982.

transmission substations. System op-forms through two major projects.

• Applied the latest technology to erators, using a network of computers First, Vepco is using new energy the Company's dispatching, transmis-and communication equipment, main-storage devices, heat pumps and solar sion and generation control, load mon-tain an around-the-clock surveillance collectors in a new district office to itoring and conimunications needs, of the integrity of the bulk power sys-demonstrate possible ways to save
• Pioneered many innovative meth-tem. The SOC will also monitor gener-money using energy management ods of raising outside capital. We were ation and power demand and automat-techniques coup!ed with solar energy.

the first utility to sell commercial paper ically provide the combination of The energy storage system consists of and later the first to do so without go-generation-whether from Vepco sta-three 10,000 gallon tanks that accu-ing through a broker; and the first to tions or other utilities-that results in mutate energy in the form of hot or issue short-term, tax-exempt pollution i the lowest practicable cost at any cold water at night or on weekends. control notes through local industrial given time. The new SOC represents This energy is then used for heating or development authorities. the most modern control technology cooling on weekdays to reduce peak The challenges that lie ahead will {. available and will offer invaluable electric demands. require equally bold thought and ac-economies in the Company's battle in another major project, the Com-tion, and Vepco is fully prepared to with steadily rising costs. pany is working with the Department meet them. to

M:nagement's Discussion and operating Expenses and Other Charges Analysis of the Statements of Income Operating expenses and other charges have changed principally as a result of the following: l Expenses increase Bilance for Common Stock decreased $8.9 million in (Decrease) 1979 below 1978 as compared to an $8.2 million increase gyTo'"n "Nar's) in 1978 over 1977. The decrease in 1979 balance for igro 5978 Common Stock resulted primarily from replacing power for Fuel.. $ (25.6) $ 10.5 ) nucl:ar units, temporarily out of service, with more ex-Purchased and interchanged power. 185.2 (42.9) pensive fossil generation and purchased and interchanged Maintenance. 13.5 20.4 power, and as a result of other increased costs as dis-Federal income taxes. (2.9) 12.9 cu' sed under OPERATING EXPENSES AND OTHER CHARGES. Other taxes.. 10.9 12.3 Mo:t of the additional costs of fossil generation to replace Other operating costs. 27.5 34.0 nucl:ar generation are subject to fuel expense recovery Fuel expenses have fluctuated from 1977 through 1979 procedures, but see Note B to FINANCIAL STATEMENTS as to as a result of changes in fuel costs (see Note F to FINAN-purchased and interchanged power costs. The increase in CIAL STATEMENTS), changes in requirements for purchased c:rtrin other costs for 1979 was offset, in part, by rate re-and interchanged power to meet customer demand, and lief granted by the Virginia Commission effective in April increased sales. Purchased and interchanged power ex-1979. Earnings per share of Common Stock decreased penses have fluctuated from 1977 through 1979 as a re- $.25 in 1979 as compared to 1978 due to the decrease in sult of temporary outages of nuclear and fossil units during balance for Common Stock and due to the increase in the 1979 and the first quarter of 1977, and the availability of av r:ge number of Common shares outstanding of about additional generation in 1978 from North Anna Unit 1. 6.9 million shares. Continued outages of nuclear units will Maintenance expense increased for 1978 due to major require utilization of purchased power and fossil genera-maintenance at the Chesterfield, Yorktown, Portsmouth on at costs which substantially exceed those of nuclear and Surry Power Stations. Maintenance costs increased generation and might result in further declines in balance for 1979 primarily as a result of repairs at the Surry Power for Common Stock and earnings per share unless contin-Station and maintenance costs at North Anna Unit 1, uing fuel recovery procedures and timely rate increases placed in-service in June 1978. Federal income taxes tro obtained to recover these costs, and to offset the ef-have fluctuated from 1976 through 1979 primarily due to fects of inflation, the placement in-service of North Anna changes in book income, the amount of permanent differ-Unit 2 and other factors. ences and the reduction in 1979 in the Federal statutory Comparisons of the STATEMENTS OF lNCOME for the years rate from 48% to 46%. (See Not-C to FINANCIAL STATE-1979 (as compared to 1978) and 1978 (as compared to MENTS.) For information with respect to taxes other than 1977) appear below. Federal income taxes, see Note E to FINANCIAL STATE-MENTS. Electric Revenues Other operating costs for 1979 and 1978 include $7.3 Electric revenues increased over the prior year principally million and $6.8 million, respectively, of amortization of cs a result of the following: Revenues increase abandoned project costs relating to the cancellation of From Prior Year Surry Units 3 and 4. For information with respect to these (Mallions ot Dollars) costs, see Note D to FINANCIAL STATEMENTS. are 1978 Continuation of the Company's capital expenditures Rate increases and fuel cost recovery. $215.3 $38.7 and the related financing together with increases in con-nit sales (excluding effect of above). 14.8 59.2 struction and uranium costs, increases in the short-term fi-Other, net. 4.0 2.0 nancing of deferred fuel costs during 1979, and changes Total. .. ~.,...., _. _3234.1 _ _$99.9_ in the cost of capital have resulted in the following in-mases: Incr s See Page 5 for information with respect to current arb requests for increased rates. ( on o 1970 1978 Depreciation. $18.8 $19.0 Gas Revenues Interest charges (before AFC). 25.2 17.0 Gis revenues increased over the prior year principally as Preferred and preference dividends. 1.5 5.9 a ruult of the following: Revenues increase The amounts of allowance for funds used curing con- ~- (M$*nI DNars) struction (AFC) capitalized since 1975 have increased substantially, reflecting, primarily, greater levels of invest-1979 1978 j itts increases and purchased gas ment in construction work in progress. In 1978, AFC de-creased by $10.8 million, and depreciation increased by Unt les(e c u$fing effect of above). j $19 million primarily as a result of the termination of AFC applicable to North Anna Unit I and the accrual of depre- -Tot:I "+=$4 3L $6. 1-clation when the Unit was placed in-service. m rwmn _ _ m_ - Description of Business The electric business of the Company is conducted in most of tives and municipalities. Gas service is provided only in the Nor-Virginia and m parts of North Carolina and West Virginia. In its folk-Newport News area (except Portsmouth) and in the area service area it sells electricity to retail customers (including gov-extending from Newport News to and including Williamsburg. ernmental agencies), and at wholesale to rural electric coopera-1 11

a R = st =. = Report of Management } The management of Virginia Electric and Power Company is responsible for all information and representations con- [ tained in the financial statements and other sections of the annual report. The financial statements, which include g amounts based on estimates and judgments of management, have been prepared in conformity with generally accepted accounting principles. Other financialinformation in the annual report is consistent with that in the financial sta'ements. {_ Management maintains a system of internal accounting control designed to provide reasonable assurance at a rea-r sonable cost that the Company's assets are safeguarded against loss frcm unauthorized use or disposition and that -m transactiota are executed and recorded in accordance with established procedures. This system includes written poli-h cies, an organizational structure designed to ensure appropriate division of responsibilities, careful selection and train- = ing of qualified personnel and a program of internal audits. The financial statements have been examined by Coopers & Lybrand, independent certified public accountants. Their examination is conducted in accordance with generally accepted auditing standards and includes a review of the Com-pany's accounting systems, procedures and internal controls, and the performance of tests and other auditing proce-dures sufficient to provide reasonable assurance that the financial statements neither are materially misleading nor con-tain material errors. The Audit Committee of the Board of Directors, composed entirely of directors who are not officers or employees of the Company, meets periodically with the independent auditors, the executive manager-internal auditing and management to discuss auditing, internal accounting control and financial reporting matters and to ensure that each is properly dis-charging its responsibilities. Both the independent auditors and the executive manager-internal auditing periodically meet alone with the Audit Committee and have free access to the Committee at any tirne. VIRGINIA ELECTRIC AND POWER COMPANY F Ee E. P Report of Independent Certified Public Accountants i To the Stockholders and Board of Directors of Virginia Electric and Power Company: F We have examined the balance sheets of Virginia Electric and Power Company as of December 31,1979 and 1978, 7 and the related statements of income, earnings reinvested in business and changes in financial position for each of the five years in the period ended December 31,1979. Our examinations were made in accordance with generally accepted i auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures = ns we considered necessary in the circumstances. In our report dated February 7,1979, our opinion on the 1978 and 1977 financial statements was qualified as being subject to the effects on the 1978 and 1977 financial statements of such adjustments as might have been required had it ? been known what part of the project costs and cancellation costs, if any, would not be recoverable as a result of the Company's cancellation of a nuclear facility. As discussed in Note D to FINANCIAL STATEMENTS, the Virginia State Corpora-tion Commission has issuad a rate order approving the amortization of these costs over a ten-year period. Accordingly, E our present opinion on the 1978 financial statements, as presented herein, is no longer qualified. As discussed in Note B to FINANCIAL STATEMENTS, the Company has deferred costs incurred in 1979 associated with purchased and interchanged power not presently recoverable from certain customers either through fuel cost recovery procedures or in base rates. At this time, it is uncertain what part of the deferred fuel costs will be recoverable. g in our opinion, subject to the effects of ech adjustments,if any,on the 1979 financial statements as might have been required had the outcome of the uncertainty referred to in the preceding paragraph been known, the financial 5 statements referred to above present fairly the financial position of Virginia Electric and Power Company as of December 31,1979 and 1978, and the results of its operations and the changes in its financial position for each of the five years in y the period ended December 31,1979,in conformity with generally accepted accounting principles applied on a consis-tent basis. 7" Y -s New York. February 6,1980. coopers & LYBRANO m T2 ~ rn

Virginia Electric cnd Paw:r C:mp:ny St:t:m:nts cf inc:m3 i l i Years 1979 1978 1977 1976 1975 (Thousands of Dollars) Operating revenues (Notes A and L) Electric.. $1,647,928 $1,413,866 $1,313,937 $1,060,663 $ 998,933 Gas.. 55,381 51,039 44,923 43,413 34,403 Total., 1,703,309 1,464,905 1,358,860 1,104,076 1,033,336 l " Operating'~ 'xi>enses:~ ~ ~ ~~ ~ ~ ~ e Operation: Fuel used in electric generation (Notes A, B and F). 559,998 585,625 575,151 446,984 449,883 Purchased and interchanged power (Note B).. 194,547 9,384 52,273 15,747 5,540 Other (Note F).. 210,840 183,906 153,514 131,485 113,833 Main'enance (Note A).. 103,856 90,317 69,885 53,749 59,906 Depreciation (Notes A and G). 136,280 117,481 98,527 95,191 89,805 Amortization of abandoned project costs (Note D).. 7,292 6,760 3,173 Taxes--Federal income (Notes A and C). 69,744 72,658 59,736 48,751 27,378 -Other (Note E). 104,358 93,499 81,174 71,413 57,169 Total.. 1,386,915 1,159,630 1,093,433 863,320 803,514 Operating income. 316,394 305,275 265,427 240,756 229,822 Allowance for other funds used during construction (Note A). 66,603 64,002 72,361 Allowance for funds used during construction (Note A). 80,429 66,873 Miscellaneous, net. 1,282 2,209 (305) 283 601 Income taxes associated with miscellaneous, net. , (308) (867) (358) 208 (57) Total.. 67,577 65,344 71,698 80,920 67,417 income before interest charges. 383,971 370,619 337,125 321,676 297,239 ~lnteres't charges: ~ ' Interest on long-term debt. 204,392 184,947 168,885 147,481 122,951 Other.. 12,417 6,677 5,748 7,409 19,556 Allowance for borrowed funds used during construction (Note A). (29,305) (24,869) (27,301) Total., 187,504 166,755 147,332 154,890 142,507 Net income. 196,467 203,864 189.793 166,786 154,732 Preferred and preferenco dividends.. 55,123 53,588 47,719 43,821 35,971 Bilance for common stock. $ 1_41,344_ $ 1_5_0,27_6 $ _ 142,074_ _$_122,965 $ 118,7_61_ _ Shares of common stock-average for year (thousands).. 86,965 80,060 74,025 68.137 60,854 Eirnings per share of common stock. $1.63 $1.88 $1.92 $1.80 $1.95 Cash dividends paid per common share.. $1.38 $1.30 $1.24 $1.22 % $1.18 ( ) Denotes rett figure. The accompanying notes are an integral part of the financial statements. 13

Virginia Electric cnd P wer Company Balance Sheet] Assets December 31, December 31, 1979 1978 ~ (Thousands of Dollars) UTILITY PLANT (Note A): Electric.. $5,960,549 $5.343,985 Gas.. 62,130 60,654 Common.. 14,293 16,592 construction [ 197&-$ 1,283.841,000]). 6,036,972 5,421,231 999,990 887,383 Less accumulated depreciation (Noto G).. 5,036,982 4.533,848 Nuclear fuel (less accumulated amortization of $ 79,151,000 [1976-$53,575,0001). 191,521 151,865 Not utility plant..... 5,228,503 4,685,713 INVESTMENTS: Nonutility property at cost or written-down amounts (loss allowance of $7,575,000 [1978-$5,323,0001).. 5,150 3,857 Subsidiary companies at equity (includes advances of $15,789,000[1978-$15.718.000])(Notes A 20,223 19,426 and N),~,7=;;;n _ .= g2=_.,. Net investments... 25,373 23,283 CURRENT ASSETS: Cash (Noto J).. 4,868 4,668 Temporary cash investments. 31,783 Accounts receivable

• Customers..

$156,378 $120,658 Uranium settlement (Noto N).. 41,000 Other.. 6,912 8,498 ~ 04'290 ~~2Ei66 2 1 Less allowance for doubtful accounts. 2,038 '402,252 1,101 128,055 Accrued unbilled revenues. 93,802 61,407 Materials and supplies at averago cost or less: Plant and general (including construction ma-terials).. 40,301 32.429 Fossil f uel.. 131,370 171,671 96.567 128,996 Prepayments: Taxes. 31,615 36,523 _._,.0,,thef r=1_,;,;;_,n7 4,713 36,328 4,090 ,40,613 Total current a?. sets.....-.. 508,921 395,522 DEFERRED DEBITS: Abandoned project costs (less accumulated amortization of $17,225,000[1978- $9,933,0001)(Noto D).. 56,322 66,156 Deferred fuel costs (Notes A and B). 89,250 3,383 Unamortized expenso on debt. 8,009 7,480 _._ _._..Other.= _;;; 7 = 7 _ 7 3 = 7 44,206 ,29,506 _. _ _. _ _ _ Total doterrod, debits.. 197,787 106,525 = =: = =.=== = k ?*E.*0AO = =:=:== =. = :=== =:. =- = === -) ? = =.

,=

( ) Denotes red figure. The accompanying notes are an integral part of the financial ntatements. h 14

Capital and Liabilities December 31 December 31, 1979 1978 ~ PREfERREESTOCK SUB5dT TO MINDAT3FiEhEDEMETION- ~ -~~ ___..___ _.kl 00 paf _ cumulative (Note Hb.... $ 330,894 $ 304.077 PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION- . _ _ _____kl.p0___ par cumulative (Note 1).. 289,014 289,014 PREFERENCE STOCK NOT SUBJECT TO MANDATORY REDEMPTION-no par. cumulative authorized 30,000,000 shares (Note 1).. 57,360 57,360 COMMON STOCKHOLDERS' EQUITY (Note 1): Common stock-no par; authorized 120.000,000 shares.. 1,319,303 1,235,105 O Other paid-in capital., 27,859 27,859 b Earnings reinvested in business. as annexed.. 384,600 364,215 Total common stockholders' equity... 1,731,762 1,627,179 LONG-TE_RM DEBT (Note K).. 2,610,308 2,376.796 CURRENT LIABILITIES: Securities due within one year (Notes H and K).. 62,093 75,293 Loans payable, pending permanent financing (Note J). 131,730 3,437 Accounts payable, trade.. Customer deposits. 127,684 54,413 12,004 12,310 Payrolls accrued. 11,365 10,109 Taxes accrued. 25,765 33,790 Interest accrued. 69,284 64,651 Deferred income taxes, other (Notes A and C).. 17,316 18,780 [ Other.. 40,683 38,784 y _ Total current liabilities. 497,923 311,567 DEFERRED CREDITS: Uranium settlement (Note N). 130,346 Accumulated deferred income taxes (Notes A and C): Liberalized depreciation... 108,758 76,341 Abandoned project costs.. 24,931 29,352 Accelerated amortization.. Other.. 11,583 13,130 39,528 (2,016) Deferred investment tax credits (Notes A and C). 100,181 103,304 Other (Note F).. 27,996 24,939 _ ___ Total deferred credits. 443,323 245.050 COMMITMENTS AND CONTINGENCIES (Note N) $5,960,584 $_5,211,043 e, mm r=- ,,_,=,====_.m- ,.m _m= . _ = = _ ,m_= 15

Virginia Electric cnd P wcr C:mpany Statements of Earnings Reinvested in Business Years (Thousands of Dollars) BildceAt'beginriir$g of year. $364,215 $318,507 $328,115 $290,260 $242,742 196,467 203,864 189,793 166,786 154,732 Not income (see " Statements of Income"). Cash dividends: Preferred and preference stocks (at annual rates indicated below): Preferred stock subject to mandatory redemption: $7.325 preferred. 5,128 5,128 5,128 5,128 5,128 $8.40 preferred. 6,720 6,720 6,720 6,720 6,720 $9.125 preferred. 1,825 1,825 1,825 345 $8.20 preferred. 4,920 4,920 1,134 $8.60 preferred. 3,291 3,392 $8.625 preferred. 3,191 1,785 $8.925 preferred. 153 Preferred stock not subject to mandatory redemption: $5.00 preferred. 533 533 1,447 1,447 1,447 $4.04 preferred. 52 52 404 404 404 $4.20 preferred. 62 62 420 420 420 $4.12 preferred. 134 134 515 515 515 $4.80 preferred. 351 351 1,440 1,440 1,440 $7.72 preferred. 2,702 2,702 2,702 2,702 2,702 $8.84 preferred. 3,094 3,094 3,094 3,094 3,094 $7.45 preferred. 2,980 2,980 2,980 2,980 2,980 $7.20 preferred. 3,240 3,240 3,240 3,240 3,240 $7.72 preferred (1972 Series).. 3,860 3,860 3,860 3,860 3,860 $9.75 preferred. 5,850 5,850 5,850 4,566 Preference stock not subject to mandatory redemption: $2.90 preference.. 6,960 6,960 6,960 6,960 4,021 Common stock.. 120,638 103,474 91,225 82,923 70,786 Total dividends. 175,684 157,062 138,944 126,744 106,757 Tr;nsfer to common stock as authorized by Board of Directors.. 60,000 Other deductions, net.. 398 1,094 457 2,187 457 ~Bai}n~ ce}t end of year............ ......g......m....................._, $384 600 $364,215 $318,507 $328,115 $290,260 The accompanying notes are an integrat part of the financial statements. 16

T Virgirio Electric cnd P;w:r Company _. -_ _ _._ _._ Stat: menti cf Chrngco in Fin _.nclil P:siti:n mra (Thousands of Dollars) SOURCE OF FUNDS: Funds provided by operations: Net income.. $196,467 $203,864 $189,793 $166,786 $154,732 ltems not affecting working capital: Provision for depreciation (Notes A and G). 136,280 117,481 98,527 95,191 89,805 Amortization of nuclear fuel (Note A). 25,576 29,702 14,526 8,962 385 Amortization of abandoned prc ject costs (Note D).. 7,292 6,760 3,173 Allowance for other funds used dunng construction (Note A).. (66,603) (64,002) (72,361) Allowance for borrowed funds used during construction (Note A).. (29,305) (24,869) (27,301) Allowance for funds used during construction (Note A). (80,429) (66,873) Deferred income taxes (Notes A and C). 66,545 14,668 31.536 14,002 28,686 Deferred investment tax credits, net (Notes A and C).. (5,250) 34,827 19,009 32,540 (166) Total funds provided by operations.. 331,002 318,431 256,902 237,052 206,569 Funds provided by financing and other sources: Mortgage bonds (Note K).. 235,000 213,000 150,000 220,000 276,000 Preferred stock subject to mandatory redemption (Note H).. 28,000 37,000 60,000 20,000 Preferred stock not subject to mandatory redemption ( (Note 1).. 60,000 Preference stock not subject to mandatory redemption (Note 1).. 57,360 Common stock (Note I): Public offering.. 64,050 68,275 70,400 73,875 113,980 Automatic dividend reinvestment plan. 12,926 11,690 9,229 7,727 3,456 Employee savings plan. 6,151 4,774 4,213 3,900 3,651 Tax reduction act stock ownership plan.. 1,071 Term notes (Note K). 60,000 104,750 108,500 25,000 10,000 Increase (decrease) in loans payable.. 128,293 (49,613) 26,550 (83,550) (146,895) Uranium settlement (Note N), 130,346 Total funds provided by financing and other sources.. 665,837 389,876 428,892 326,952 317,552 ~ APPLICATION OF FLNDS: Utility plant expenditures (excluding AFC). $551,881 $422,857 $394,875 $343,693 $339,845 Nuclear fuel (excluding AFC).. 60,967 17,458 74,531 57,479 25,421 Abandoned project costs (Note D).. (2,542) 2,631 16,050 Q Dividends on common, preferred and preference stocks. 175,684 157,062 138,944 126.744 106,757 Q increase (decrease)in deferred debits, fuel costs (Notes A and B). 85,867 (29,898) (18,812) 8,427 (32,855) Securities reacquired or repaid. 74,883 97,273 58,250 10,000 61,200 increase (decrease)in investment (net of repayment of advances)in subsidiary companies (Notes A and N).. 797 4,345 3,137 4,869 (4,873) Increase in working capital other than loans payable

• 42.136 36,551 14,684 10,968 17,404 Other, net..

7,166 28 4,135 1,824 11,222 $996,839 ^ 'ChigesinihdindividdaTaniounlico'mprisTrifwdrling ~ $708.307 $685,794 $564,004 $524,121 capital other than loans payable

• were as follows:

Accounts receivable (excluding uranium settlement).. $ 33,197 $ 20,312 $ 2,103 $ 13,017 $ (9,333) Uranium settlement (Note N).. 41,000 Accrued unbilled revenues.. 32,395 (2,523) 4,965 19,386 3,790 Deferred fuel surcharge. (11,028) 628 (1,670) 12,070 Materials and supplies. 42,675 7,284 26,392 17,080 21,040 Accounts payable, trade.. (73,271) 19,350 1,775 (32,963) 13,183 Interest accrued. (4,633) (11,388) (6,916) (7,177) (7,234) Deferred income taxes, other (Notes A and C), 1,464 4,657 (2,537) (577) (10,496) Other, net.. (30,691) 9,887 (11,726) 3,872 (5,616) m_ _._ $ 42,136_ $ 3,6,551 $ 14,684 $ 10,968 $ 17,404 _ ' Does not include reclassification as current liabilities of maturing long-term debt and cash sinking fund obligations of debt and preferred stock as follows: 1979--$62,093.000; 1978-$75,293,000; 1977-$89,433,000 and 1976-$58,250,000. The accompanying notes are an integral part of the financial statements. 17

N tco ta Fincncid Stat:m:nto A. Significant Accounting Policies: General: The Company's accounting practices are prescribed by extent permitted by the regulatory commissions having ju-th3 Uniform System of Accounts promulgated by the regula-risdiction. tory commissions having jurisdiction. Investment Tax Credits: R; venues: Accumulated investment tax credits at July 1,1970 are Operating revenues are recorded on the basis of service being amortized over a ten-year period, and credits re-rendered. corded after that date are being amortized over the service Utility Plant and Depreciation: lives of the property giving rise to such credits. An addi-btility plant is recorded at original cost which includes la-tionalinvestment tax credit of 1% related to the Tax Reduc-bor, materials, services, allowance for funds used during tion Act Stock Ownership Plan (TRASOP) does not affect construction and other indirect costs. The cost of depre. net income and is recorded as a liability until the contribu-ciable utility plant retired and cost of removal, less salvage, tion is made to the TRASOP trust. are charged to accumulated depreciation. The cost of maintenance and repairs is charged to the Allowance for Funds Used During Construction: appropriate operating expense and clearing accounts. The The applicable regulatory uniform system of accounts cost of renewals and betterments is charged to the appro-defines AFC as the net cost for the period of construction of priate utility plant account, except the cost of minor re. borrowed funds used for construction purposes and a rea-placements which is charged to maintenance expense. sonable rate on other funds when so used. g Provisions for depreciation, which include amounts in accordance with a change in FERC accounting rulesW applicable to estimated decommissioning costs of effective January 1,1977, the Company is separately de- $22,500,000 for nuclear units in service (assuming moth. termining rates and reporting amounts applicable to bor-balling in pairs), are recorded on the straight-line method rowed funds, calculated on a net of tax basis, and to equity based upon estimated service lives. funds, in accordance therewith, for January through March Nuclear Fuel: 1979, April through December 1979,1978, and 1977, the Progress payments are being made for fuel to be owned Company employed an aggregate rate of 7.75%, 7.82%, or leased 7.54%, and 7.75%, respectively, for the accrual of AFC. Before 1978, the Company provided for estimated re-For the years 1975 and 1976, the Company employed processing costs relating to fuel which was being burned, the rate of 8% and reported AFC in accordance with the ac-counting rules then,n effect. Since the assumptions as to i for all jurisdictions. Effective in 1978, the North Carolina Commission granted approval to recover the cost of per-source of construction funds, costs of such funds and caps,- manent storage of spent fuelin base rates and the Federal tal ratios used by the Company prior to January 1,1977 are Energy Regulatory Commission (FERC) allowed the recov-not equivalent to those prescribed in the new accounting cry of these costs through the fuel clause. For periods sub-rules, the Company believes that retroactive reclassifica-sequent to these two decisions, operating expenses include tion of AFC in the Statements of Income for these years reprocessing costs for Virginia jurisdictional customers and w uld be inappropriate. costs of permanent storage for North Carolina and FERC Assuming that funds used to finance construction during jurisdictional customers. the two years ended December 31,1976 were obta,ned i 35% from common equity,52% from debt and 13% from Subsidiaries: preferred and preference stocks, the common equity com-The Company has two wholly-owned subsidiaries. Laurel ponent of AFC as related to earnings available for common Run Mining Companyis engaged in the underground mining stock amounted to 7.2% and 17.4% for the years 1975 and of coal, which is utilized solely by the Company. On January 1976, respectively. 1,1979, the first of two portals of the mine was declared Deferred Fuel Costs-operational. Development costs associated with the second portal are being deferred until it becomes operational. Vir-The Company is deferring for accounting and rate-mak-ginia Nuclear, Inc. was organized to explore for uranium re-g se es; however, no such activities are presently being con-Federal Income Taxes: Retirement Annuity Plan: lho Company's practice is to reduce the current provi-The Company has a contributory ret,rement annuity plan i sion for Federal income taxes to reflect the tax benefit re-and funds pension costs accrued. Prior service cost arising sulting from the use of the double-declining-balance out of amendments to the plan in 1976 and 1979, and m thod of depreciation for property additions and the adop-changes in actuarial assumptions in 1977 is being provided tion of the Asset Depreciation Range and Class Life Sys-in the accounts and funded on the basis of future salaries of t:ms. Effective with property additions placed in service in participants currently covered by the plan. 1974, the Company has provided deferred income taxes on Leases: the aforementioned benefit and, subsequently, has pro-The Company's practice is to account for all leases as vided deferred taxes on other differences between book in-operating leases in accordance with the rate-making prac-come and income taxable for Federal income taxes to the lices presently in effect. r F 18

C. Def;rred Fuel Accounting: Monthly billings under the annual fuel factor,which was deferred pending a determination by the Virginia Commis-approved by the Virginia Commission but subject to quar-sion in 1980 as totheir recovery for rate-making purposes. terly hearings, include projected 1980 fuel costs, including The Virginia Commission granted accounting approval for not estimated fuel costs unrecovered at December 31, this deferral. The effect of this was to increase earnings 1979. per share of Common Stock by S.13 for 1979. In 1979, the Company incurred $21.5 million ($11.6 mil-In the event that future developments dictate a change in lion net of Federal income taxes) of costs associated with the fuel adjustment billing lag period or in the fuel cost base, purchased ano interchanged power r,ot presently recover-the Company will request regulatory approval to recover abla through fuel cost recovery procedures or in base rates through billings to customers any unrecovered deferred 4 from Virginia jurisdictional customers,and such costs were fuel costs. C. Federal Income Taxes: Details of Federal income taxes were as follows: Years 1979 1978 1977 1976 1975 (Thousands of Dollars) Computed tax expense on book income before q Federal income taxes at statutory rate.. . $122,599 $133,147 $119,946 $103,358 $87,440 UDecreases) increases resulting from: Excess of tax over book depreciation not normalized. (4,301) (16,402) (9,956) (14,840) (18,689) AFC. (44,118) (42,658) (47,838) (38,606) (32,099) Investment tax credits, amortization. (5,820) (5,467) (4,539) (3,028) (2,452) l Other, net. 1,384 4,038 2,123 1,867 (3,191) (52,855) (60,489) (60,210) (54,607) (56,431) federal income tax expense before utilization of portion of operating tax loss carry-forward. 69,744 72,658 59,736 48,751 31,009 1974 not operating tax loss carry-forward utilized. (3,631) { I ederal incorne ta.x expense..................... ......... $ 69,744 $ 72,658 $ 59,736 $ 48,751 $.27_J78 Currently payable (refundable).. 8,449 $ 23,163 $ 9,191 $ 2,209 $ (1,142) Tax effects of timing differences: Abandoned project costs. (4,421) (1,822) 31,175 Deterred fuel adjustment: Current year.. 47,054 (21,681) (9,588) 3,243 (9,976) (] Prior year (1974).. 22,793 ,U Liberalized depreciation. 32,418 38,509 13,101 12,320 9,360 Virginia gross receipts taxes. (1,464) 636 2,375 1,379 4,702 Reprocessing / disposal costs on nuclear fuel. (8,067) (6,791) (6,385) (4,076) i Accelerated amortization. (1,547) (1,547) (1,547) (1,547) (1,547) l Indirect construction costs.. 3,463 3,154 2,912 1,796 2,424 l Cost of removal of property retirements. 3,545 2,484 1,696 1,426 930 Contributionsin aid of construction. 2,203 (2,203) North Anna nuclear fuel.. (4,452) (487) Other. 16 10 (539) 66,545 14,668 31,536 14,002 28,68G Investment iax credits, including any carry-back.. 570 40,294 23,548 35,568 2,286 Investment tax credits, amortization. (5,820) (5,467) (4,539) (3,028) (2,452) Not deferred investment tax credits. (5,250) 34,827 19,009 32,540 (166) Federat ingome_ tax ex pense.................................. . $ 69,744 $_7_2J58 $ 59,736 $ 48,751 $27,378 Due principally to the timing differences relating to de-rently payable for 1975, and deferred income taxes of ferred fuel costs and the excess of tax over book deprecia- $22.8 million were reinstated in respect of the fuel costs de-tion, the Company incurred a net operating loss for tax pur-ferred in 1974. poses in 1974, which after carry-back to prior years The Company has investment tax credit carry-forwards r:sulted in a loss carry-forward of $55.1 million. The tax ef-of $42,086,000 of which $22,868,000 and $19,218,000 fect of the mtire loss carry-forward,in the amount of $26.4 will expire in 1985 and 1986, respectively. million, wLs used to reduce the Federal income taxes cur-19

D. Abandoned Pr ject Cztz: in March 1977, the Company canceled plans for con-eral income taxes, over a ten-year period and will amortize ttruction of Surry Umts 3 and 4, previously planned for additional costs as incurred and in January 1979, the Com-completion in 1986 and 1987. At December 31,1979, the pany began amortizing the nuclear fuel enrichment costs Company had expended $73.5 million, including $4.7 mil-over a ten-year period. The Virginia Commission, the North lion in nuclear fuel enrichment services. Furthermore, the Carolina Utilities Commission and the West Virginia Com-Company estimates that additional cancellation costs could mission have allowed the Company to begin recovery of be as much as $38.6 million. The Company is attempt ng to such costs through amortization in rates over ten years. The reduce such costs through sales of certain equipment and Company has requested the same rate-making treatment of negotiations wi*h suppliers. In July 1977, the Company be-these costs from FERC. gan amortizing costs for accounting purposes, net of Fed-

5. Supplementary income Statement Information:

The amounts of royalties, advertising costs and research than Federal income taxes charged to expenses were as and development costs were not significant. Taxes other follows: Years 1979 1978 1977 1976 1975 (Thousands of Dollars) Taxes, other than Federal income taxes: Real estate and property. $ 28,462 $26,333 $25,257 $22,899 $20,200 State and local gross receipts. 60,934 54,865 49,812 42,382 31,909 g State income., 57 505 248 215 87 W Other. 14,905 11,796 5,857 5,917 4,973 Total. $104,358_$93,49_9__$81,174 _$71,413_ $57,169 F. Leases: . Rents charged to expenses consisted of the following: Years 1979 1978 1977 1976 1975 (Thousands of Dollars) Operating leases: Nuclear fuel. $11,632 $35,491 $29,518 $21,447 $24,657 Combustion turbines. 5,611 5,694 5,935 6,185 6,172 Other (principally buildings and teleprocessing equipment).. 10,583 8,427 6,648 5,552 4,761 Total _. .... _. _ _ _ __._ _ _$27,826_ _$49,612_$4 2,101 $33,1_84 $.35,590 in 1971, the Company sold and leased back 28 com-value and present value of these commitments would be bustion turbines for e term of 20 years (plus two optional $103,395,000 and S106,162,000, respectively, at Decem-five-year renewal terms). Annual rental payments are ber 31,1979 and $72,288,000 and $73,935,000, respec- $3,674,000 for the remaining two years of the first ten-year tively, at December 31,1978. term and $6,444,000 during the second ten-year term. Ad-In 1974, the Company sold and leased back three office ditional rentals are beirig accrued during the first ten years, buildings for terms of twenty years (plus two optional five-during which timo payments representing interest only are year renewal terms). Annual rental payments are $730,000 required, so that the annual effect on net income will be during the initial terms of the leases. In IG78, the Company cqualized over the twenty-year period. Deferred credits, leased a newly constructed headquarters office building for other at December 31,1979, include $17,669,000 with re-a term of thirty years (plus four optional five-year renewal gard to such accruals. Had the lease been capitalized, the terms). Annual rental payments are $2,993,000 during the net asset value and present value of the lease commitment initial term of the lease. Had the leases been capitalized, the would be $24,851,000 and $42,601,000, respectively, at net asset value and present value of the lease commitments December 31,1979 and $26,981,000 and $42,601,000, would be $38,610,000 and $40,675,000, respectively, at respectively, at December 31,1978. December 31,1979 and $40,132,000 and $41,201,000, in 1972, the Company sold and leased back the initial respectively, at December 31,1978. core of nuclear fuel for Surry Unit 1. In 1973, the Company if the Company had capitalized the above noted leases sold the initial core of nuclear fuel for Surry Unit 2 and en-and contract, the increase in operating expenses for 1979, t: red into a heat supply contract in respect thereof. Quar-1978,1977 and 1976 would not have been material. t:rly payments are charged to income in amounts sufficient The Company is responsible for expenses in connection to pay for the fuel burned during each quarter (excluding with the leased turbines, nuclear fuel and buildings noted reprocessing and permanent disposal costs) plus interest. above, including insurance, taxes and maintenance. H;d the lease and contract been capitalized, the net asset 20

i G. Depreciation: The provision for depreciation based on mean depre-for 1979, of Electric, Gas and Common plant, respectively. ciible plant for each of the years 1975 through 1977 ap-Pursuant to Virginia Commission approvals, this Com-proximated 3.1%, 2.6% and 2.3% of Electric, Gas and pany increased the depreciation rates for Gas plant as of Common plant, respectively. The provision approximated January 1,1978 and for Electric and Common plant as of 3.2%,3.1% and 2.4% for 1978, and 3.3%,3.1% and 4.4% April 1,1979. H. Preferred Stock Subject to Mandatory Redemption: Preferred Stock Subject to Mandatory Redemption was represented by 3,320,772 shares outstanding at December 31, 1979, as follows: Shares Entitled Per Share Upon Voluntary Redemption And Thereafter to Amounts Dividend Authorized Outstanding Amount Through Declining in Steps to $7.325 700,000 700,000 $110.00 3/31/83 $101.00 after 3/31/88 8.40 800,000 800,000 115.00 3/31/84 100.00 after 3/31/04 9.125 200,000 200,000(1) 110.00 9/19/81 102.00 after 9/19/91 8.20 600,000 600,000(2) 115.00 9/20/87 100.41 after 9/20/96 8.60 370,772 370,772(3,5) 107.00 12/20/87 100.00 after 12/20/97 8.625 370,000 370,000(4) 108.63 6/20/83 100.00 after 6/20/02 8.925 280,000 280,000(6) 108.93 9/20/84 100.00 after 9/20/09 Total 3,320,777 3,320,772(7) ess shares due within one year.. 11,834(7) alance. 3,308,938 (1) Issued October 1976. (2) Issued September 1977. (3) Issued December 1977. (4) 355,000 shares issued in May 1978 and 15,000 shares issued in September 1978. (5) Other than Sinking Fund requirements, no redemp-tion prior to December 20,1982. (6) Issued November 1979. (7) Sinking Fund requirements call for annual re-d:mption at $100 per share as follows: Percentage of Series Shares issued Beginning Ending $8.60 3 Dec. 1978 Dec. 2010 9.125 4 Sept. 1981 Sept. 2000 8.20 5 Sept. 1983 Sept. 1996 7.325 4 April 1984 April 2008 8.625 5 June 1984 June 2002 8.925 3.75 Sept. 1984 Sept. 2009 8.40 4 April 1985 April 2009 The total number of authorized shares for all Preferred accrued dividends. Dividends are cumulative and payable Stock is 7,500,000 shares.~Upon liquidation, all Preferred March 20, June 20, September 20 and December 20. g. Stock shares are entitled to receive $100 per share plus

1. Preferred and Preference Stock Not Subject to Mandatory Redemption, Common Stock and Other Paid-In Capital:

j Pr terred Stock Not Subject to Mandatory Redemption: Preferred Stock Not Subject to Mandatory Redemption was represented by 2,890,140 shares outstanding at Decem-I ber 31,1979, as follows: Shares Entitled Per Share Upon Voluntary Redemption And Thereafter to Amounts Dividend Authorized Outstanding Amount Through Declining in Steps to $5,00 106,677 106,677 $112.50 4.04 12,926 12,926 102.27 4.20 14,797 14,797 102.50 4.12 32,534 32,534 103.73 4.80 73,206 73,206 101.00 7.72 350,000 350,000 106.00 5/31/81 $101.50 after 5/31/84 8.84 350,000 350,000 107.00 8/31/82 101.00 after 8/31/85 7.45 400,000 400,000 106.00 2/28/81 101.00 after 2/29/84 7.20 450,000 450,000 106.00 1/31/82 101.00 after 1/31/85 7.72(1972 Series) 500,000 500,000 106.00 9/30/82 101.00 after 9/30/85 9.75 600,000 600,000(1) 109.75 2/28/81 101.00 after 2/28/91 Totil 2,890.140 2,890,140 (1) Issued March 1976. 21

The tot;l number of authorized shares for all Pr:f rred crued dividends. Dividends ara cumulati'v3 and. payabf3 Stock is 7,500,000 shares. Upon liquidation, all Preferred March 20, June 20, September 20 and December 20. Stock shares are entitled to receive $100 per share plus ac-Pr:ference Stock Not Subject to Mandatory Redemption: Preference Stock Not Subject to Mandatory Redemption prior to May 1,1980, and thereafter declines in steps to wu authorized for issuance offective April 17,1975.On $25.25 on May 1,1990. Upon liquidation, all shares are en-May 22,1975, the Company issued 2,400,000 shares of titled to receive $25 per share plus accrued dividends. Divi- $2.90 Dividend Preference Stock at $23.90 per share dends are cumulative and payable March 20, June 20, Sep-which aggregated $57,360,000. tember 20 and December 20. The Preference Stock is redeemable at $27.90 per sharo Common Stock: Common Stock was represented by 92,874,112 shares are reserved for conversion of the 3%% Convertible Deben-outstanding at December 31,1979. In addition,2,150,538 tures due May 1,1986. During the years 1975 through shares (based on the conversion price of $23.25 per share) 1979 the following changes in Common Stock occurred: Automatic D,v,dend Sav,ngs arid Stock

vser, Pubi,c Ottee ng _ _ _ _ _ _

Remvestment Plan Ownersh,p Plans Total Outstand,ng Add, hone to Addet,ons to Add,teons to Shares Cap,tal Account Shares Captal Account Shares Captal Account Shares Capetal Account 1979..6.000,000 $ 64,050,000 1,049,874 $12,925,755 583,138 $7,222,482 92,874,112 $1,319,303,162 1978.. 5,000,000 68.275,000 827,514 11,689,651 337,143 4,774,135 85,241,100 1,235,104,925 1977.. 5,000,000 70,400,000 626,886 9,229,553 284,167 4,212,884 79,076,443 1,150,366,139(1) 1976.. 5,000,000 73,875,000 541,248 7,726,113 277,798 3,900,245 73,165,390 1,006,523,702 1975..9,000,000 113,980,000 267,802 3,455,908 301.065 3,651,754 67,346,344 921,022,344 57,777,477(2) 799,934,682 (1) In May 1977, $60,000,000 was transfers ed from Earnings Reinvested in Business to the Common Stock account as authorized by the Board of Directors. (2) Outstanding January 1,1975. On April 22,1976, and May 8,1979, the number of authorized shares was increased from 70,000,000 to 95,000,000 and from 95,000,000 to 120,000,000, respectively. Other Pald-in Capital: In 1977, the Company solicited tenders of shares of cer-tios in the range of 52% long-term debt,13% Preferred and tain series of Preferred Stock in exchange for shares of Preference Stock and 35% Common equity. The difference $8.60 Dividend Preferred Stock. The purpose of this ex-between the stated value of the shares exchanged and that change offer was to increase the balance sheet ratio of of the $8.60 Dividend series shares amounting to Common equity to total equity consistent with the objective $27,859,000, net of cash paid for fractional shares, has of the Company to achieve and maintain capitalization ra-been transferred to Other Paid-in Capital. J. Short-Term Loans and Compensating Balances: Da,1y Month [nd Average Outstand,ng Manimum Outstand,ng Interest Rate AlEnd interest 1979 Matursty of Year (t) Amount Rate O) Amount Date Commercial Paper.. (2) 14.25% $69,736,000 11.03 % $175,750,000 6/30/79 Master Notes. (3) 12.2r 3,520,000 9.98 6,937,000 12/31/79 Pollution Control Notes. (2) 7.25 203,000 7.25 2,250,000 11/30/79 ,9ta Commercial Paper.. (2) 43,834,000 7.28 101,636,000 6/30/78 Mister Notes. (3) 9.10 1,834,000 8.40 8,234,000 10/31/78 (1) Weighted average interest. (2) Principally 30 to 90 days. (3) Maximum 180 days. Available bank lines of credit amounted to balances in connection with its lines of eredit. Utilization un- $ 382,875,000 at December 31, 1979, including der the line of credit may require additional balances or $180,000,000 applicable to revolving credit agreements fees. Compensation for the revolving credit agreements are effective through August 29,1981. The Company maintains consistent with the compensation required for the lines of compensating balances of up to 10% or pays fees in lieu of credit. 22

K. Long-Term Debt: Long-term debt outstanding at December 31,1979: (1) The Mortgage provides for sinking funds as follows: Annual Sank,ng Firtt and refunding mortgage bonds (1): co==.aaaa runo n.-.= Seri:s H 2%%, due 1980. 20,000,000 Series H through CC.. $10,200,000 Seri s 1 3%%, due 1981. 20,000,000 Series EE. . June 1979 5,000,000 Seri:s J 3%%, due 1982. 20,000,000 Series FF. .Jan. 1977 8,250,000 Series DD 10%%, due 1983. 75,000,000 Series KK. . Mar. 1984 2,750,000 Seri s K 3%%, due 1984. 25,000,000 Pollution Control Series A Sept. 1986 500,000 Series L 3%%, due 1985. 25,000,000 Pollution Control Series B May 1992 250,000 Seri:s A 6%%, due 1985(a). 8,000,000 Pollution Control Series C May 1989 375,000 Scri s M 4 %%, due 1986. 20,000,000

• The Company may satisfy these requirements by waiv-Seri:s N 4 %%, due 1987.

20,000,000 ing the privilege to issue an equal amount of Bonds by sub-Series O 3%%, due 1988. 25,000,000 statuting property therefor and intends to do so in 1980. Seri s P 4%%, due 1990. 25,000,000 Substantially all of the Company's property is subject to Series O 4%%, due 1991. 30,000,000 the lien of the Mortgage. Series R 4%%, due 1993. 30,000,000 (2) Term Notes: v nou.inemsi n. Series S 4%%, due 1993. 30,000,000 rggy lw,',Q Series FF 11%, due 1994. 125,250,000 em tgy gan,.g. r,gny. Series EE 11%, due 1994. 90,000,000 $ 5,410,000 July 1980 60%(a) Seri:s T 4%%, due 1995. 60,000,000 1980 7%% 10',000 000 Feb Series U 5%%, due 1997. 50,000,000 10 000,000 Nov.1980 (b) 8.15% 7%% Series V 6%%, due 1997. 50,000,000 60'000,000 Feb. 1981 115 8% cri s KK 8.95%, due 1998. 55,000,000 eri:s W 7%%, due 1999. 85,000,000 0 Aug. (c) 9.65 Seri:s X 7%%, due 1999. 75,000,000 50,000,000 Jan. 1982 115 8% Seri:s Y 9%, due 2000. 83,725,000 5,000,000 Apr. 1982 8% Scries Z 8%%, due 2000. 83,725,000 10,000,000 Apr. 1983 8% Series AA 7%%, due 2001. 90,000,000 5,000,000 Oct. M83 8% .j Series BB 7%%, due 2001. 50,000,000 10,000,000 Apr. 1984 8% Series CC 7%%, due 2002. 100,000,000 5,000,000 Apr. 1984 115 9.9 Series C 6.15%, due 2003(a). 8,000,000 5,000,000 Apr. 1984105(d) 9.9 "j 1979 Series B 9.95%, due 2004.. 135,000,000(b) 6,000,000 May 1984 10% Series A 8%%, due 2005(a). 18,000,000 14,000,000 June 1984 10% Series GG 10%, due 2005. 100,000,000 10,000,000 July 1984 10% Series HH 9%%, due 2006. 100,000,000 Series B 6%%, due 2006(a). 20,000,000 O eb.' 9 5115 8% Series 11 8%%, due 2006. 100,000,000 5,000,000 Mar.1985 8% Series JJ 8%%, due 2007. 150,000,000 50,000,000 Man M88 (e) 9 8 Series LL 9%%, due 2008. 150,000,000 $330,410,000 1979 Series A 10%%, due 2009.. 100,000,000(b) 54 Total. 2,251,700,000 (a) Pollution control note. The interest rate may not ex-g k Uhrm notes due 1980-88 (including ceed 6.15% at any time. (b) Base lending rate plus I $60,000,000 issued in 1979)(2). 330,410,000 % of 1%. (c) Base lending rate plus % of 1%. Convertible debentures 3%%, due (d) 107%% of base lending rate after May 8,1980. 1986. 50,000,000 (e) 118% of the higher of commercial paper rate plus f Pollution control revenue bonds due % of 1% or base lending rate. 1980 2004(3). 40,250,000 (3) Pollution Control Revenue Bonds: 2,681,360,000(4) , 2,s,n=,ny, ,,,n L:sO: Due within one year: g' '";7,* ^C',', p,noa Sinking fund obligations (1). 13,250,000 $ 8,000,000 Dec.1980-83

• 7.1-7.4 None Term notes (2).

25,410,000 $250,000 1980-1983 First and refunding mortgage 4,750,000 Dec.1989 8.0 500,000 1984-1986 bonds. 20,000,000 750,000 1987-1988 Pollution control revenue 22,000,000 Oct. 2002 5% 500,000 1990-2001 bonds (3).. 2,250,000 14,500.000 Dec. 2004 8% 750,000 1990-2003 Unamortized discount- $49.250.000 net of premium. 10,142,000 Totallong-term debt (c). .82,610,308.000

• $2,000,000 of the $8,000,000 principal amount of Serial Bonds mature annually.

(4) In 1979, the Company redeemed the $73,700,000 of ( ) Pollution Control Series. (b) Issued in 1979. long-term debt and sinking fund obligations due in (c) No amount of any issue is pledged, held by or for ac-1979. Maturities (including cash sinking fund obliga-count of the Company, held by affiliates or included in tions) through 1984 are as follows: 1980 - sinking or other special funds of the Company. All $60,910,000; 1981-$125,500,000; 1982-amounts are authorized by indenture and are issued $90,500,000; 1983-$105,500,000; and 1984-and not retired or canceled. $111,500,000. n

i L. Effect of Rate increases on Operating Revenues: Rate increases which became offective for portions of The Virginia State Corporation Commission approved an the following years increased operating revenues for the re-increase of $148 million (including $77 million attribut-spectivo years by the approximate amounts shown: able to interim rate relief), effective April 10,1979. w,n,on. e oon..> 1979 1978 1917 1976 1975 Electric. $56.4 $56.9 $376 $6.3 $TTB ^ Ga. .4 .9 M. Retirement Annuity Plan: Costs to the Company under the plan were: 1979 - ity, resulted in a decrease in the unfunded liability of $6.1 $9,697,000; 1978-$8,586,000; 1977-$7,594,000; million. At January 1,1979, the date of the latest available 1976-$5,046,000; and 1975-$3,720,000. Changes in actuarial report reflecting the plan's 1979 amendments, the plan benefits and actuarial assumptions in 1979, principally unfunded liability of the plan amounted to approximately r:lating to incidence of retirement, salary scale and mortal- $13.8 million. N. Commitments and Contingencies: The Company has made substantial commitments in con-time the Company estimated the present value of the settle-n ction with its construction program, which are presently ment, which provides over the period of 1979-1997 fo - estimated to be $730 million for 1980. Additional financing receipt of cash and for discounts on uranium and goods and is contemplated in connection with this program. services, to be over $380 million, which equaled the value The major portion of Laurel Run Mining Company's min-of uranium contracts under litigation had they been fully ing equipment is leased. As guarantor, the Company has a performed by Westinghouse. The Company received $90 contingent liability for annuallease payments of $1.7 million million in cash and $2 million in goods and services in 1979 in 1980, $1.1 million in 1981, $1.0 million in 1982 and $.8 and $41 million in cash in Fer,ruary 1980. Settlement pro-million in 1983. ceeds will reduce fuel expenses under procedures cur-The FERC has directed the Company to reclassify $6.3 rently under review by regulatory authorities. On January 8 million ($4.3 million of AFC and $2.0 million of other costs) 1979 the Company filed with the Internal Revenue Service a associated with a boiler implosion in 1974 at Yorktown Unit request for a ruling with respect to the Federal income tax 3 which the Company has capitalized on its books. The consequences of the settlement. Such filing requested that Company does not agree with FERC, and the matter was the value received from the settlement be treated as a re-included in the FERC rate hearing which was concluded on duction in fuel expense over the life of the nuclear fuel, and June 15,1979. A decision is pending. not as taxable income in the year of the settlement. The On June 22,1979, the Company announced final settle-Company's ruling request is still under consideration by the m:nt with Westinghouse Electric Corporation in the dispute Internal Revenue Service. involving delivery of 11.5 million pounds of uranium. At that O. Quarterly Financial Data (Unaudited): The following amounts (not examined by independent to Note B), necessary in the opinion of the Company for a c:rtified public accountants) reflect all adjustments, con-fair statement of the results for the interim periods, subject sisting of only normal recurring accruals (reference is made to the outcome of the matter referred to in Note B. se w. t.mmo. soi.nc. c n.no. for Per Share for Per Share Opeentmu Operstmg Common of Common Opoestme Op.atmo ^ of Common Ou ier nevenuee Income Stock Stor.k Quarter Revenues income Stock Stock 1979 m a.no.oeoon.. 1978 anou e.s oon..> 1 st. $403,952 $76,138 $34,710 $.41 1 st. $391,771 $72,249 $40,699 $.51 2nd.. 374,082 73,039 29,772 .35 2nd.. 329,340 67,265 32,283 .41 3rd. 457,004 92,361 47,951 .56 3rd. 404,763 90,238 45,700 .57 468,271 74,856 28,911 .31 4th.. 339,031 75,523 31,594 .39 4th.. Results for interim periods may fluctuate as a result of Act of 1978, of $2.2 million ($.03 per share) of Federal in-weather conditions, rate relief and other factors. come taxes previously provided for contributions in aid of Balance for Common Stock for the fourth quarter of 1978 construction. w;s increased by a reduction, as a result of the Revenue 24 u__________

P. Suppl:m:ntrry D;;ts On Ch:nging Pricco (Unzudited): The following supplementary information is supplied in restated since the costs of these assets are considered to accordance with the requirements of FASB Statement No. be current. 33, Financial Reporting and Changing Prices, for the pur-Preferred stock subject to mandatory redemption has i poco of providing certain infarmation about the effects of been classified as a monetary liability in determining the changing prices. It should be viewed as an estimate of the gain from decline in purchasing power of dollars related to approximato effect of inflation, rather than as a precise not amounts owed, in accordance with the definition of a measure. monetary liabihty in FASB Statement No. 33. Constant dollar amounts represent historical costs As prescribed in Statement 33, income taxes were not stated in terms of dollars of equal purchasing power, as adjusted. measured by the Consumer Price index for All Urban Con-Under the rate-making prescribed by the regulatory com-sumers (CPI-U). Current cost amounts reflect the changes missions to which the Company is subject, only the histori-in specific prices of plant from the date the plant was ac-cal cost of plant is recoverable in revenues as depreciation. f quired to the present, and differ from constant dollar Therefore, the excess of the cost of plant stated in terms of amounts to the extent that specific prices have increased constant dollars or current cost over the historical cost of more or less rapidly than prices in general. plant is not presently recoverable in rates as depreciation, The current cost of property, plant and equipment, which and is reflected as a reduction to net recoverable cost. includes intangible plant, property held for future use and While the rate-making process gives no recognition to the construction work in progress, represents the estimated current cost of replacing property, plant and equipment, cost of replacing existing plant assets and was determined based on past practices, the Company believes it will be al-( by indexing the surviving plant by the Handy-Whitman index lowed to earn on the increased cost of its not investment of Public Utikty Construction Costs. The current cost of land when replacement of facilities actually occurs. ('nd general plant was determined by using the CPI-U. The To properly reflect the economics of rate regulation in the j ) Current year's provision for depreciation on the constant Statement of Income from Continuing Operations, the loss dollar and current cost amounts of property, plant and due to the write-down of property, plant and equipment to equipment was determined by applying the Company's de-net recoverable cost should be offset by the gain from the preciation rates to the indexed plant amounts. decline in purchasing power of the dollars related to net Fuel used in electric generation has been restated to amounts owed. During a period of inflation, holders of mon-reflect the constant dollars and current cost of nuclear fuel. etary assets suf fer a loss of general purchasing power while The cost of other types of fuel used in electric generation holders of monetary liabilities experience a gain. The gain and gas purchased for resale have not been restated since from the decline in purchasing power of the dollars related these costs are considered to be cu"ent. to not amounts owed is primarily attributable to the sub-l Fuelinventories, with the exception of nuclear fuel, have stantial amount of debt which has been used to finance not been restated from their historical cost in nominal dol-property, plant and equipment. Since the depreciation on lars. The nuclear fuel inventory is considered an integral this plant is limited by regulation to the recovery of historical part of the plant investment and, therefore, should be re-costs, a holding gain on debt is not allowed and the Com-stated and written-down to not recoverable cost. As in-pany is limited to recovery only of the embedded cost of the dicated above, other types of fuelinventories have not been asset. v 25

Statement cf Income from Continuing Oper tion] Adjusted for Changing Prices (Unaudited) For The Year Ended December 31,1979 Conventional Constant Dollar Current Cost Historical Average Average Cost 1979 Dollars 1979 Dollars (Thousands of Dollars) Operating revenues.. $1,703,309 $1,703,309 $ 1,703,309 Fuel used in electric generation. 559,998 565,565 569,589 136,280 246,183 285,441 Depreciation. Other operating and maWenance expense... 620,893 620,893 620,893 Federal income taxes........ 69,744 69,744 69,744 Interest expense (net of allowance for borrowed funds used during construction).. 187,504 187,504 187,504 Other income and deductions-net. (67,577) (67,577) (67,577) l 1,506,842 1,622,312 1,665,594 Income from continuing operations (excluding reduction to net recoverable costh $ 196,467 80,997* 37,715 in_cre_ase in specific prices (current cost)of property, plant and equipment held during the year * * $ 813,039 Reduction to net recoverable cost. $ (501,519) (246,719) Effect of increase in general price level. (1,024,557) Excess of increase in general price level over increase in specific prices after reduction to (458,237) net recoverable cost...... Grin from decline in purchasing power of dollars related to net amounts owed. 371,363 371,363 N t. $ (130,156) (86 874) 1

• Including the reduction to net recoverable cost, the loss from continuing operations on a constant dollar basis would have been $420,522,000 for 1979.
• At December 31,1979, current cost of property, plant and equipment, net of accumulated depreciation and cmortization was $8,850,838,000, while historical cost or net cost recoverable through depreciation and amortization wIs $5,228,503,000.

2e _a

Fiva Year Comparison cf Selected Supplementary Fin:ncial Data Adjusted for Effects of Changing Prices (Unaudited) Years Ended December 31, 1979 1978 1977 1976 1975 (in Thousands of Average 1979 Dollars) Operating revenues. $1,703,309 $1,629,838 $1,627,637 $1,407,778 $1,393,593 Historical cost information adjusted for general inflation income from continuing operations (cxcluding reduction to net recoverable cost). $80.997 income per common share (after dividend require-m:nts on preferred and preference stock). $0.30 Net assets at year-end at net r coverable cost. $1,966,000 4ur: rent cost information income from continuing operations (:xcluding reduction to net recoverable cost). $37,715 Loss per common share (after dividend require-ments on preferred and preference stock). $(0.20) Excs s of increase in general price level over increase in specific prices after reduction to net recoverable cost. $458,237 Net assets at year-end at net recoverable cost. $1,966,000 General information Glin from decline in purchasing power of dollars I rilited to net amounts owed. $371,363 Ca h dividends declared per common share. $1.38 $1.45 $1.49 $1.56 $1.59 Mirktt price per common share r<t year-end. $9.93 $15.00 $16.94 $19.18 $17.98 b,rdv:r:ge consumer price index. 217.4 195.4 181.5 170.5 161.2 l i i 27 i

Tcn YC:r C:mparctiva Summ:ry of P rf:rin:nco (Tho n DoIlars) Operating revenues. Electric., $1,647,928 $1,413,866 $1,313,937 $1,060,663 Gas.. 55,381 51,039 44,923 43,413 Total operating revenues.. 1,703,309 1,464,905 1,358,860 1,104,076 Expenses (operation and maintenance). 1,069,241 869,232 850,823 647,965 Depreciation.. 136,280 117,481 98,527 95,191 Amortization of abandoned project costs. 7,292 6,760 3.173 Taxos: Federalincome: Currently payable (refundable). 8,449 23,163 9,191 2,209 investment tax credits, including carry-back. 570 40,294 23,548 35,568 Investment tax credits, amortization.. (5,820) (5,467) (4,539) (3,028) Deferred---accelerated amortization.. (1,547) (1,547) (1,547) (1,547) i -4iberalized depreciation.. 32,418 38,509 13,101 12,320 -other.. 35,674 (22,294) 19,982 3,229 Other. 104,358 93,499 81,174 71,413 - Total operating expenses. 1,386,915 1,159,630 1,093,433 863,320 316,394 305,275 265,427 240,756 l Operating income.._ l Other income: l Allowance for other funds used during construction.. 66,603 64,002 72,361 9 Allowance for funds used during construction. Miscellaneous, net.. 974 1,342 (663) 91 Total other income.. 67,577 65,344 71,698 80,920 Income beforeinteIest cla'rge' ~ ~~ 383,971 370,619 337,125 321,676 l ~ s Interest charges: Interest on long-term debt. 204,392 184,947 168,885 147,481' Other. 12,417 6,677 5,748 7,409 Allowance for borrowed funds used during construction.. (29,305) (24,869) (27,301) 187,504 166,755 147,332 154,89C Total interest charges. ~ ~ ~ ~ li1come t$efore cumuia'tideffect of Ehango in accounIing' method 196,467 203I864 189,793 166,78E ~ Cumulative effect to January 1,1974 of accruing estimated unbilled revenues, not of taxes. Net income.. 196,467 203,864 189,793 166,786 On preferred and preference stock.. 55,046 53,588 47,719 43,821 On common stock.. 120,638 103,474 91,225 82,923 Total dividends. 175,684 157,062 138,944 126,744 ~ Earninds reinvested in business.. 20,783 46,802 50,849 2 Shares of common stock-everage for year (thousands). 86,965 80,060 74,025 68.13 Earnings per share of common stock. $1.63 $1.88 $1.92 $1.80 Dividends paid per share of common stock. $1.38 $1.30 $1.24 $1.28 Pay-out ratio.. 85% 69% 64 % 67 Return of capital: Common stock dividends. (2) 72.654 % 25.267 Preferred and preference stock dividends.. Utility plant at original cost. $6,307,644 $5,626,671 $5,109,099 $4,609,416 Utility plant expenditures.. $ 708,756 $ 529,186 $ 569,068 $ 481,601 Accumulated depreciation and amortization.. $1,079,142 $ 940,958 $ 803,604 $ 700,254 Capitalization: Preferred and preference stock.. S 678,451 $ 651,634 $ 619,109 $ 583,807 Common stock, other paid-in capital and earnings reinvested in business.. 1,731,762 1,627,179 1,493,521 1,334,63 Debt (excluding short-term debt) 2,681,360 2,460,060 2,238,400 2,038,15 Total capitalization.. $5,091,573 54,738,873 $4,351,030 $3,956,59 ' Short-term debt--pending permanent financing.T ~ ' ~ ~ ~ ' ~ ~ ~ $ ~131,730 $-~~ 3,~437-53,050~ $ ~26,5C ~ Capitalization ratios: Preferred and preference stock.. 13% 14% 14% 1 Common stock and earnings reinvested in business.. 34 34 34 C Debt (excluding short-term debt). 53 52 52 f (1) includes non-recurring cumulative effect of change in accounting for unbilled revenues of $.24 per share. (2)1979 Return of capital was 33.02% for the first quarter and 91.95% for the remainder of the year. 28 ~ __ _ _ _.

1975 1974 1973 1972 1971 1970 1969 ) 998.933 $ 735,962 $ 524,963 $ 445,668 $ 390,370 $ 353,151 $ 305,770 34,403 28,050 26,000 25,185 23,302 21,729 20,670 1,033,336 764,012 550,963 470,853 413,672 374,880 326,440 629,162 478,716 278,750 264,906 218,846 181,434 142,189 i 89,805 77,757 68,436 53,058 49,950 46,841 41,020 1 (1,142) (7,678) (1,010) (6.850) 8,652 23,784 30,252 2,286 (3,195) 3,901 7,368 1,952 1,163 4,082 I (2,452) (2,412) (2,413) (2,225) (2,062) (1,318) (516) l (1,547) (1,547) (1,547) (1,547) (1,547) (1,547) (1,547) 9,360 3,202 20.873 5,018 7,265 1,356 1,050 57,169 48,216 42,170 36,629 33,514 29,367 26,653 803,514 598,077 395,552 352,695 310,355 279,724 242,133 229,822 165,935 155,411 118.158 103,317 95,156 84,307 9544 873 65,735 57,359 58,451 39,993 24,175 13,602 i 411 336 (156) 142 274 619 ~ ~ 67,417 66,146 57,695 58,295 40,135 24,449 14,221 297,239_, 232,081._ 213,106 176,453 143,452 119,605 98,528 122,951 94,058 78,350 67,554 58,130 44,083 33,653 19,556 23,214 10,684 5,162 3,274 3,368 1,624 142,507 117,272 89,034 72,716 61,404 47,451 35,277 i 154,7'32 114,809 124,072 103,737 82,048 72,154 63,251 1[5{,73{[ 1 . }4,'5 103,737 82,048 72,154 63,251 6 1 0 35,971 30,419 24,147 18,472 12,216 7,728 5,555 70,786 60,165 54,796 46,905 41,993 39,906 36,923 106,757 90.584 78,943 63,377 54,209 47,634 42,478 975 _ $ _ _36,578 _ $.._45,129_ _ _ _.$__ _40,360_ _$__27,839 24,520_ __$ 20,773 _ _ './ ,60,854 52,100 47,021 41,883 37,829 35,881 33,264 $1.95 $1.86(1) $2.13 $2.08 $1.85 $1.80 $1.73 $1.18 $1,18 $1.16 % $1.12 $1,12 $1,12 $1.11 60% 71 % 55% 54 % 60% 62% 64 % 100.000 % 49.407% 100.000% 96.724 % 54.243 % 100.000% 55.565% L4,142,900 $3,739,395 $3,298,447 $2,847,614 $2,416,130 $2,082,487 $1,754,776 i 432,139 $ 460,912 $ 486,709 $ 472,819 $ 380,268 $ 338,074 $ 255,493 i 609,30 $ $ 545,296 $ 476,121 $ 414,941 $ 373,834 $ 335,605 $ 298,175 503,807 $ 446,447 $ 366,447 $ 296,447 $ 201,447 $ 161,447 $ 126,447 l t,211,282 1,042,677 948,369 810,121 680,800 574,633 476,666 1,803.150 1,578,350 1,289,890 1,242,440 1,070,440 932,000 762,000 1,518,239 ~_ $3,067,4 7_4_._. _ $2,604,706._ _. $2,349,008 $ 1,952,687__ _ $ 1,668,080 _ _$ 1,365,1 13_ ] ~ ~ 110,050 $ 256,945 ~ $ 220,150 $ 88,400 61,800 53,700 $, 53,900 14 % 15% 14 % 13% 10% 10% 9% 35 34 36 34 35 34 35 51 51 50 53 55 56 56 l n

l Tcn Yccr Opercting St:tistica ELECTRIC DEPARTMENT 1979 1978 1977 1976 Operat.ng revenues (thousands): Residential... $ 637,519 $ 563,561 $ 524,336 $ 420,150 Commercial.. 431,191 392,101 365,340 298,681 Industrial......... _ 220,814 182,901 176,573 144,770 Other sales of electric energy. 347,276 268,213 242,686 193,096 Other electric revenues. 11,128 7,090 5,002 3,966 Total operating revenues-electric., $1,647,928 $1,413,866 $1,313,937 $1,060,663 Population served at retail-estimated.. 3,523,000 3,465,000 3,415,000 3,365,000 Number of customers: Residential... 1,174,351 1,138.470 1,100,876 1,071,528 Commercial.. 117,965 115,121 111,662 108,197 Industrial., 920 920 920 920 Other.. 15,873 15,446 14,922 14,462 Total customers.. 1,309,109 1,269,957 1,228,380 1,195,107 Sales of electricity--Mwh(thousands): Residential... 12,397 12,405 11,867 11,137 Commercial.. 9,161 9,170 8,762 8,455 Industrial.. 6,460 6,152 6,022 6,011' Other. 9,557 9,340 8,806 8,510 Total sales of electricity.. 37,575 37,067 35,457 13 Losses and miscellaneous system uses.. 2,909 2.901 2,792 61' Total distributioranergy supply. 40,484 39,968 38,249 36,374 Less: Sales outside of service area.. Total distribution. 40,484 39,968 38,249 36,374 Source of electricity-Mwh (thousands): Steam-Fossil. 24,301 24,438 26,403 27,09C -Nuclear.. 7,055 14,098 9,481 7,74r Hydro. 1,122 967 444 59 Other........................... 356 399 625 40 Not purchased and interchanged. 7,650 66 1,296 53 Company energy supply. 40,484 39,968 38,249 36,37 Less: Sales outside of service area.. System output........... 40,484 ~39,968 38,249 36,37 ~ ~ ~ Interchange deliveries for account of others. 325 325 325 32 Company's service area output. 40,809 40,293 38,574 36,70 Company's service area peak load-Mw.. 7,929 7,805 7,902 7,04-Power supply available for peak load-Mw Generahng capability: Steam-Fossil. 6,321 6,321 6,321 2 -Nuclear.. 2,448 2,448 1,550 7 Hydro. 326 326 326 2 Other. 439 _ 39__ 4_ 439 _5 4 Total generating capability.. _9,534 8,636 8,67 9,534 SEPA power disposed of in Company's service area. ___165 165_ _ _165 1_6 Available for firm peak load.. 9,699 9,699 8,801 8,84 Purchase (sale) outside service area. . _300 _ 31: 300 300 Available for service area peak load. 9,999 9,999 9,101 9,15! BTU per kilowatt-hour generated............... 11,067 11.018 10,933 10,731 Average fuel cost per KWH generated-mills.. 20.44 14.04 16.23 12.9d Electric line-pole miles.. 42,149 41,698 41,446 41,18( Underground construction-miles of route... 9,314 8,395 7,794 6,82d GAS DEPARTMENT Operating revenues (thousands): Residential...................... 29,380 $ 30,621 $ 26,640 24,91 Commercial and industrial.. 25,346 20,000 17,981 18,3C Other.. 655 _ _. _ __418 . _ _ _302_ _ If Population served at retail-estimated.. 875,000 875,000_ $. 44,923 $. 43,4 ' Total operating revenues-gas.. _ . $. 55,381 51,039 875,000 875,0r Number of customers...... 118,656 119,288 120,262 122,1 f Sales-Mcf (thousands).......... 16,307 15,303 15,065 17,2; Output-Mcf manufactured (thousands).......... 74 236 650 1; Mcf natural gas purchased (thousands).. 17,499 16,407 15,448 18,5 Miles of main.. 2,095 2,096 2,099 2,1r I Excludes the cumulative effect to January 1,1974 of accruing estimated unbilled revenues ($18.842,000 electric-$1,565,000 gas) shown as a non-recurring item on the income statement, net of taxes. 30

1 1975 1974 1973 1972 _1971 ._ 1970 ____1969_ $ 40.7,889 $ 308,834 $ 229,860 $ 191,924 $ 169,113 $ 158,698 $ 133,506 288,357 211.486 150,758 130,599 113,646 99,957 86,907 137,181 106,309 66,131 58,785 48,375 41,889 39,099 166,854 106,018 75,170 61,440 56,392 50,073 43,323 3,652 3,315 3,044 2,920 2,844 2,534 2,935 $ 998,933 $ 735,962* $ 524.963 $ 445.668 $. 390.370. _ $ _ 353,151 _ _ _ $_ _305,770, 3,315,000 3,270,000 3,225,000 3,185,000 3,150,000 3,100,000 3,025,000 1,041,234 1,018,346 989,471 954,374 920,839 895,210 878,206 105,942 105,531 103,253 100,175 98,223 97,113 96,437 918 916 910 894 874 873 881 14,881 13,045 12,350 11,817 _ _ 11,392 10,948 10,216 1,162.975 1,137,838 1,105.984 .1,067,260 .1.031,328. 1,004,144 _ _ ; 98 5,74 0_,_ 10,373 9,850 9,911 8.775 8,121 7,873 6,870 7,970 7,307 7,330 6,471 5,980 5,617 5,035 5,404 5,658 5,535 5,136 4,683 4,456 4,256 7,741 7,120 7.268 6,529 5,902 5,560 4,861 (7488 29,935 30,044 26,911 24,686 23,506 21,022 ) 'v 585 2,518 2,335 2,199 2,019 1,777 1,826 34,073 32,453 32,379 29,110 26,705 25,283 22,848 34,073 32,453 '32,379 [29,11d ~I20,705]((25, [ 22 ~ ~ [ 23,562 22,819 22,311 23,710 24,335 23,218 22,178 8,969 5,953 6,857 370 988 774 949 1,071 825 445 443 226 629 459 558 323 350 276 328 2,278 1,803 3,401 1,222 1,270 (49) 34,073 32,453 32,379 29,110 26,705 25,283 22,848 ~ ~ 34,073 32,453 32,379' ~~ ~~ 25,7U5 ' 'IS,6 22, 29,11 325 325 315 312 307 301 315 34,398 32,778 32,694 29,422 , 27,012._,. 25,368 _ _ 23,046 m g 7,133 6,734 6,900 6,232 5,295 4,852 ' 4,639 fS321 5,684 4,866 4,306 4,334 4,330 4,330 (V 576 1,576 1,576 788 326 326 326 326 326 326 326 469 530 530 530 530 342 254 8,692 8,116 7,298 5,950 5,190 4,998 4,910 165 165 165 132 132 131 131 8,857 8,281 7,463 6,082 5,322 5.129 5,041 316 251 122 680 610 194 (165) 9,173 8,532 .. 7,585 6.762 5,932 .5,323_ m_ 4,876 _ 10,892 10,868 10,673 10.529 10.382 10,268 10,162 __ = _ _. 13.06 12.43 4.98 4.63 4.28 3.55 2.96 40,663 40,121 39,578 39,055 38,404 37,803 37,336 6,266 5,641 4,772 4,055 3,367 2,763 2,282 21,280 17,265 16,038 16,132 14,847 14,600 14,446 12.944 10,598 9,775 8,858 8,252 6,922 5,932 179 187 187 195 203 207 292 34,403 28,050* $ 26,000 .. $. 25,185_ _ _ _ $ _ 23,302. _ $ _ 21,729_ _. _ $ _ _ 20,670._ _ _.. _ _ _.. _.__ 875,000 864,000 853,000 852,000 850,000 800,000 655,000 122,486 124,395 125,525 125,277 124,029 122,489 122,264 15,017 16,888 17,666 17,620 17,772 16,239 15,345 92 12 297 247 341 378 288 16,274 17,938 18,696 18,824 18,563 17,035 16,257 2,014 2,012 1,992 1,993 1,955 1,9C9 1,850 31

I Membership of Committees ofthe Board O Committee Chairman G Member E Ex Officio Finance Audit Nominating Organization and Employees' Compensation Benefit } Directors James F. Retts. President, S Continental Financial Services Company, Richmond Charles F. Burroughs. Jr., Chairman of the Board, e G 9 Royster Company Norfolk Milton L Drewer, Jr., President, e First American Bank of Virginia, McLean Mrs.MaryC. Fray Culpeper G Dr. Allix B. James. President Emeritus O Virginia Union University Richmond John M. McGum. Retired Chairman of the Board O E E T.Justin Moore,Jr., Chairman of the Board of Directors E E William S. Peebles. Ill, President, O 8 W.S. Peebles and Company, Inc., Lawrencevine Shirley S. Pierce. President. 8 The Ahoskie Fertilizer Company Inc., Ahoskie N.C. Stanley Ragone. President E E Kenneth A. Randall, President. The Conference Board. New York 9 9 William T Roos. President, Penn Luggage. Inc. Hampton G G Roy R. Smith, Chairman of the Board. O l Smith's Transfer Corporation. Staunton William F. Vosbeck, Jr., President. O S I VVKR incorporated, Alexandria Officers T. Justin Moore Jr., Chairman of the Board and Chief Executive Officer. Age 54(23) Stanley Ragone. President and Chief Operating Officer. Age 54 (31) William W. Berry Executive Vice President. Age 47(22) t Jack H. Ferguson, Executive Vice President.(Effective 2/1/80), Age 48(20) Senior Vice Presidents L Samuel C. Brown.Jr., Power Station Engineering and Construction. Age 54 (26) Leon D. Johnson, Ill. Support Services. Age 62 (40) William L. Prof fitt. Commercial Operations. Age 50 (24) Vice Presidents Wadsworth Bugg.Jr., Age 58(33) CharlesM.Jarvis Age 51(32) W B.D. Johnson, Vice President and Controller, Age 47 (23) Donald B. McCammond, Age 64 (9) John I. Oatts. Age 50 (27) O. James Peterson, lit, Vice President and Treasurer. Age 44 (9) William C. Spencer, Age 47(12) Carlton M.Stallings, Age 61(37) William N. Thomas, Age 56(31) Stock and Convertible Debenture Listings NewWrk Stock Exchange Corporate Secretary Transfer Agents S. Brooks Robertson, Age 62 (41) United Virginia Bank. Richmond The Chase Manhattan Bank (N.A.). New Wrk Division Vice Presidents Northorn Division. James R Cox.Jr. Age 61 (40) Central Fidelity Bank N.A., Richmond ~ Manufacturers Hanover Trust Company New Wrk I Eastern Division Harrison Hubard. Age 62 (40) Southern Division. Randolph D. Mciver. Age 49 (20) Western Division. Richard W Carroll. Age 61(33) Annual Meeting Central Division. David W Poole. Age 55 (29) April 16,1980 o w m e uraar. n.nc.

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O 1 Highlights a StockholdersLetter 4 Revenues 4 Dividends 4 Expenses h 4 Fuel Costs 4 Taxes 4 Salesof Electricity 4 Financing 5 Energy s 7 North Anna Nuclear 7 Environmental 9 Bath County Pumped Storage 10 Rates and Responsibility to Designs for Efficiency 14 Management's Discussion and Analysis of Statements of Income 14 Description of Business 15 Financial Statements 28 Statisticallnformation 32 Diroctors and Officers

1978 Highlights increase % increase 1978 1977 (Decrease) (Decrease) Financial Total Operating Revenues $1,464,905,000 $1.358.860.000 $106.045.000 7.8 Total Operating Expenses $1,159.530,000 $1.093.433.000 $ 66,197.000 6.1 l Net income $ 203,864,000 $ 189.793.000 $ 14.071.000 7.4 Balance Available for Common Stock _$ 150,276,000 $ 142.074.000 $ 8.202.000 5.8 Averago Shares of Common Stock Outstanding 80,060,000 74.025.000 6.035.000 8.2 Stockholders-Common. Preferred and Preference 180,800 167.200 13.600 8.1 Earnings Per Share of Common Stock $1.88 $1.92 $(.04) (2.1) ..~.-_..._ __._ _ Dividends, Per Sha,re of Co,mmon_ Stock $1.30 $1.24 $.06 4.8 l Book Value Per Share of Common Stock $19.09 $18.89 $ 20 1.1 f Capital Expenditures S 529,186,000 $ 569.068.000 $(39.882.000) (7.0) Sales of Secunties S 439,489,000 $ 402,342,000 $ 37,147.000 9.2 Operations i System Output-Megawatt-hours (thousands) 39,968 38.249 1,719 4.5 Capability-Megawatts 9,999 9,101 898 9.9 O Service Area Peak Load-Megawatts 7,805 7.002 (97) (1.2) Customers-Electric-Heating 261,899 227,509 34,390 15.1 -Other 1,000,001 1.000,791 7.210 .7 Total Electric 1,269,900 1.228,300 41.600 3.4 (, Customers-Gas 119,300 120.300 (1,000) (.8) Average Residential Use-Electric-Kilowatt-hours 11,099 10.944 155 1.4 Employees-Full Time 9,382 8.821 561 6.4 ] Disposition of the 1978 Revenue Dollar k Fuelusedfor Electric 38'50 l 18 70 N'" "S

• M"'*" "C' Generation Excluding Fuel

~ A Eamings Reinvested 3.10 C' +" # in Business W f "'*'*"gd7"'lc"n"d 10.30 8.20 Depreciation and Amortization j interest and einer char 90s 6.60 --i%e 79 14.60 Taxes mmme!c y .[ h: {

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An overview of 1978 for our Stockholders: The year 1978 was one of notable achievements for the New ground in financing was broken when Vepco be-Company. We wish to share them with you in this message came the first utility to sellits commercial paper notes highlighting the important points set forth in greater detail directly to investors. Sales were made to regional investors throughout the pages of this report. in our area, and created significant savings in the cost of The key operating event of the year was the beginning of short-term debt. commercial service of unit I at the North Anna Nuclear Efficiency of manage. ment and operations improved with Power Station shown on the cover. This milestone for Vepco the move into new corpvrate headquarters at One James occurred on June 6,1978 and generated substantial bene-River Plaza. The leasing of this structure achieved working fits during the year beyond those anticipated. When all four economies through the centrallocation of personnel for-planned units are completed, North Anna will be one of the merly housed in seven separate buildings. n: tion's largest nuclear stations. We are equally proud of the Persistent and pervasive inflation was prominent among f act that its associated facilities-in particular the newly the factors which pushed experises upward during the year, crzted Lake Anna-will afford enormous environmental offsetting significant economies in operations. Rising costs cnd recreational benetts to the area. of fuels, higher depreciation and higher taxes contributed to Customers continued to use more electricity and records an overallincrease of 6% in the expenses of doing business. wers set in kilowatt-hour sales, in total operating revenues Tho gain in nuclear operations with North Anna brought g (ind expenses), and in net income. Earnings per share, reductions in the average cost of generating a kilowatt-however, did not reach the level attained in 1977 when hour and reduced the Company's need for purchased and 6 milhon fewer shares were outstanding and, in fact, de-interchanged power, creased by $.04 per share to $1.88. This reflects the continu-The first unit at our second nuclear station (North Anna) ing problems experienced by the Company under the performed at levels well above the national average. Put into necessity of issuing new securities to finance the construction service in June, North Anna's unit 1 operated for the remain-of essential facilities. ing seven months of 1978 at a capacity factor of 81.3%. The Other factors contributing to lower earnings per share two Surry units operated at a capacity factor of 74.2%. By wers the increased average number of shares outstanding contrast, the national average for nuclear units was a capa-cnd the regulatory delay in timely rate decisions in spite of a city factor of 67.2% for the year. concentrated effort by management to seek rate relief to The power generated at North Anna played a significant cover higher costs. Many,alculations in rate cases are part in limiting the effects of inflation on our customers' bills. based on the prior year's operations, yet inflation centinues During the month of November, Surry and North Anna during the entire period of time from the f; ling of a rate case nuclear units accounted for 52% of Vepco's generation-the until a rate increase is granted and takes effect. Very often first time nuclear power supplied over half of our energy for during the protracted lag in time between request and deci-any one month. In mid 1979, we expect to bring North Anna sion the high rate of inflation that has occurred has offset unit 2 into service with its 934 Mw capacity. pany's response to one of its prime responsibilit The Bath County and North Anna projects are your Com-til or a substantial portion of the rate relief requested. Results of our attempts to secure rate relief in 1978 are trnted in more detail on page 10. The Company had hoped providing dependable electric service to meet our custom-cnd expected to receive a decision on its $246 mi!! ion rate ers' growing energy needs. The challenge of planning for request from the Virginia Commission prior to the printing of the future is highlighted by the fact that sales of electricity thia Report. The Company will continue to seek increases have almost doubled over the past decade. wheq justified to offset increased costs and to assure our Beyond 1979 the Company plans to have 2,100 Mw of abihty to raise new capital when required, thus enabling us to capacity from the Bath County Project in operation in 1982, provide adequate service in the future to our growing area. and No'th Anna units 3 and 4 will bring 938 Mw each into An increase in common stock dividends in June 1978, set service when needed in the mid or late 1980's. Our present a record for dividends paid with a 1978 pay-out of $1.30 per forecast indicates that this new capacity will be needed to sh:re, compared to the $1.24 per sh are paid in 1977. meet the normal peak demands of the 1980's. New capital raised in 1978 totalled over $439 million includ-Expenditures have reached $326 million to meat regula-ing the successful public offering of 5 million additional tory and conservatica requ:rements at North Anna and shares of common stock reflecting continued investor Bath County. Confidence in the Company and the area we serve. Five years have now passed since the Arabs imposed Progress was made in our continuing program to reduce their oil embargo, with little apparent action, except by the dependence on costly imported oil. Power generated by utilities themselves, to try to cut down the nation's reliance nuclear fuel reached a new high of 35.3% of our customers' on the politics and production of the OPEC nations. Mean-electnc energy demands for the year. while, our balance of trade has established a record deficit, Excellent progress was made throughout the year toward and fluctuations in the value of the dollar have been almost the scheduled completion of the Bath County Pumped as turbulent as the turmoil in the Middle East. Storage Station in 1982. This facihty will have the world's Polls indicate, fortunately, that the public is beginning to largest powerhouse of this type, and will provide an efficient recognize the seriousness of the energy problem in the solution to a utihty's most challenging problem-that of meet-years ahead. it is a popular pastime for specialinterest ing peak demand without over-building. groups to accuse the nation of energy waste, yet consumers 2

6. have conserved Whether it is the sheer economic pressure l of increasing pnces or for patriotic reasons, the growth in lj the rate of consumption of electnc energy is dechning l, Opinion surveys also indicate continued strong pubhc

l support for nuclear power as one energy alternative urgent-

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l j: ly needed to get us through the next quarter of a century and ,i Y l(> y,. 5, s j reduce rehance on foreign oil The average citizen today }f'..]e ?g ll appears to be well aware of the penls to hving standards and iJ N \\ ,.,7;]y W l{ jobs from an energy shortage, despite the unceasing efforts .y"1 l ;; of small. specialinterest groups to halt growth and block18 0 \\*2* . i y V,. h & 3 construction of new generating facihties At some pubhc l heanngs on our rates in Virginia last year, witnesses demon-3.[* #,O - ' g ' s ^ 1 ! strated a keen awareness of these problems and of the ~j'~. 'b '".g {.' senousness of delays by regulatory commissions as well '~ ~ f' ?? .i he NAACP was one of those who recognized the need for

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strong energy supply in any formula for a strong economy ~ f-(. ' assets. We are confident that 1979 .;>s

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j I The major factors that shaped Vepco's nuclear generating efficiencies. The net $54.9 million and property taxes were i i operations dunng 1978 are summarized increase in operating expense was $66 $26.3 million. graphically on these two pages. million with a year-end total of $1,160 in addition, the Company collected j Rising by 7.8%, Revenues set a rec-million. There were significant increases from its customers $54.7 million in utility ord total of $1,465 million. Expenses, in operation and maintenance expenses taxes imposed by local governments l however, continued to increase and re-($18.4 million). depreciation ($19 0 mil-and passed on to them without any 1 suited in a gain in net income of only lion) and taxes ($25.2 million). Purchased seivice or handling fees l $14.1 million, or 7.4% From the year's and interchanged power costs were $43 Federalincome taxes amounted to i l balance available for common stock of million lower than in 1977. $72.7 million, an increase of 21.6% j $150.3 million, the Company paid The increase in nuclear generation over 1977. Divliends of $103.5 million, an increase during 1978 was the major factor in hold-Much of the increase in taxes resulted of 13 4% Ouarterly dividends received ing down spiraling Fuel Costs. These from the record Sales of Electricity. by stockholders amounted to $1.30 per costs, amounting to $585.6 million com-Total electric operating revenues were share of common stock for 1978 com-pared to $575.2 milhon last year when $1,414 million from sales of 37.067 i pared to $1.24 in 1977, up 4.8% fewer kilowatt-hours were generated re-thousand Mwh, a significant increase in Revenues increased during the year, flected an increase of $10.4 million. consumption over 1977. Electric cutput i despite the lack of substantial rate re-The overall economy of nuclear gen-was up 4.5%, topping the nationa! av-1:cf. due primarily to increased customer eration was realized by the reduced fuel erage increase of 3.7% The number of demands for electric service. In meeting cost per revenue dollar-down this residential customers increased to this demand, a 4.5% increase in electri-year to only 38.5% of the revenue dollar, 1,138,470. These customers consumed cal output was required with over 35% compared to 40.8% of the revenue 12,405 thousand Mwh ($564 million in of the total being generated by nuclear dollar in 1977. revenues). I units. Both figures were substantially A large share of the customer dollar The Company achieved another in- & j above national averages. went to pay increasing Taxes, up 18% novation in Financing for utilities in 19M inflation and other factors pushed for a total of $166.2 million. State and by being the first utility in the nation to sell l Expenses up by 6% for the year,in local taxes amounted to $93.5 rnillion commercial paper notes directly toinves-spite of lower fuel costs resulting from of which gross receipt taxes were tors. Significant savings were realized i I N '(Wt aw ,- r xc p.

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b i .in the cost of funds for daily operations countries. Over 30% of our stockholders stick of efficiency was 67.2% for 1978. j through the sale of these short-term are residents of the Company's three-Measured in terms of fuel economy, l notes, which were placed directly with state service area. the three nuclear units generated en-l regionalinvestors. This has an adds-Common Stock Prices and Dividends ergy that would have used 25.4 million tional benefit of promoting wider sup-for the last two years were: barrels of oil at an additional cost to j port for the Company with large inves-customers of om W m@on. MS 1978 High Low Dividends l First Quarter 14 % 13', 5.31 same power produced by coalinstead tors in our area Major sources of long-term money for second Quarter 14 h 133 33 of oil would have added over $170 mil-new capital totalling over $439 rnillion Third Ouarter 15% 14ts 33 lion to operating expenses and cus-included $105 million from bank and in-Fourth Quarter 14 % 13 % 33 tomers' bills for the year. surance company loans; $37 million 1977 The picture in types of fuel has from Preferred Stock, $205 mil! ion from First Quarter 15% 14 .31 changed dramatically since 1972, when First and Refunding Mortgage Bonds; second Quarter 15n 14'.. 31 our first commercial nuclear operation and $8 million from Pollution Controf Third Quarter 15 % 14 % 31 began. The ratio of fuel oil used has i Bonds. The sale of 5 million shares of Fourth Quarter 153 14 31 dropped from 61% in 1972 to a 39% 1 CommonStock in December provided Vepco's Energy Picture was placed in level in 1978. Over the same six years, j $68 million in funds. An additional $11.7 a very f avorable perspective at year-end nuclear generation has steadily grown million was obtained from the issuance because of the efficiency cemonstrated from 2% to about 36% This represents of Common Stock through the Auto-by our three in-service nuclear units. a long step forward in reducing the matic Dividend Reinvestment Plan and Both the North Anna and Surry units Company's use of oil, now being im-l $4 8 million through the Employees' performed well above the average for ported at spiraling costs. Savings Plan nuclear stations nationally. In operation For greater energy flexibility and op-( The number of stockholders increased for seven months. North Anna Nuclear erating economy, Vepco's plans for the t uring the year by 13.600 to a total of unit 1 operated at a capacity factor of future, which include nuclear, lower l 180.800. They represent a broad spec-81.3% The two Surry units performed cost coaland pumped storage hydro i trum of investors living in all 50 of the with a capacity factor of 74.2% for the generating facilities, are reviewed on l United States and numerous foreign year. The national average in this yard-the following pages of this Report. I l i an "b 4 G ,O 5

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. North Anna NucisarPowerStation biuion gauons of oil or 75 milhon tons of lator installed at the former information Game fish nosed into favored ieeding coal Planned construction of North center at Su,ry An exact duplicate of spots and new homes were spnnging Anna s secor d phase units 3 and 4 is the control room at Sarry unit 1. the up along the shorehne of Lake Anna moving along toward scheduled opera-simulator reproduces the operation of as Virginia s second nuclear power tion when needed in the mid or late 1980 s the actual equipment As a trainee facility generated its first commercial With North Anna unit 1 now in opera. responds to realistic situations (both output on June 6 1978 tion Vepco can proceed with planned routine ano unexpected) his reactions When Vepco planned the 13 00() acre replacement of steam generator lower are evaluated by an examiner at a Lake Anna to supply cooling water for assembhes at Surry units 1 and 2 Ap-control corsole behind a one-way vision ( the four-unit North Anna Nuclear Power proved by the Nuclear Regulatory Com-glass screen ( Station it was designed to become an mission (NRC) the process is timed to In the first six months 28 reactor environmental asset to our area as well coincide with scheduled fueling and operators were trained on this simulator as a functional water source Today maintenance Outage of the two units Savings of over $1 million are expected that promise is being fulfilled as North will be spaced so that loss of generat-each year with a program to train 15 Anna unit t commenced operahon of ing capacity is held to a minimum new operators and retrain some 100 a facility which will ultimately have a Significantly. in this replacement hcensed operators annuany Other types capacity of 3 / million Kw Vepco will for the first time manage the of training will also be done at the Surry Located strategically along the North project itself rather than have an agent Center as the NRC requires a ngorous Mna River between Washington D C orovide the management This empha-and extensive program for reactor and Richmond Virginia Vepco s newest izes our commitment to assume more operators which ends in their testing nuclear station represents a capital responsibility for major projects through and the issuing of a license that must outlay of $17 billion through 1978 It closer control over construction and be renewed regularly Qime since its in. service date in June as available for operation 92% of the should also minimize outage time Environmental investment Dunng 1978. toe NRC approved the The building of North Anna and its and produced energy at a capacity Company's new Nuclear Training Simu-huge reservoir has involved a tremen-factor of 813% for the year dous out!ay of Vepco's resources % Vew omonnoi u hect samou < if North Anna unit 2 is scheduled for manc + as u,ut of contirong envmnmenta A considerable portion hasbeen invested commercial operation in mid-1979 and sin ws voonn %?h Anna in Canng for and protecting the tota! will complete the project s brst phase environment-both natural surround-The scope of this initial phase includes ings and manmade public pnvate the pounng of some 320 000 cubic 4 additions yards of concrete and the laying of 993 Lake Anna serves many functions miles of electncal cable-enough to Year-round and summer homes have reach from Richmond to Oklahoma City been built aiong its shorekne together Each of the four units at North Anna with mannas conveniently placed for will use over 5 000 tons of uranium public access to excellent boating and oxide over its life. which will produce fishing I he reservoir is essentially a run energy equal to that of more than 12 of the nver facihty but its waters are also .. At a tt t se Ann.ie wnsetn am ine,fmany Below Daminor in one way observation txx1th . ( mat e inm t.enet N vah 9> mesi U vs1anl2 m t ia. v >un. t rmns s on the new Surry ornulator W* j D ev.,- '?. ZX:r v .,p Lti jN Q%

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Rising 460 fmt. the upper dam at Bath County wdl span this valley to store water energy equal to 23 7 milhon Kwh released at penods of low flow to main-Bath County Pumped Storage Station higher utilization of our facilities at mini-tain the vitality of the North Anna River Nestled in the rugged Appalachian mum costs and provide a dependable water supply peaks and valleys where Virginia rneets Pumped storage hydroelectnc power for a downstream county water system West Virginia. Vepco is also building one is an economical way to solve a dilem-j A multi-purpose shoreline park is of the world's largest pumped storage ma common to all utilities. It provides planned by the state for the future hydro-electnc generating stations an instantly available reserve capacity More than 30.000 fishermen-days Behind a 460 foot high dam enough of huge amounts of electncity to meet were chalked up in 1978. with reported water will be stored in the upper peak demands without over-building j l ptches of large mouth bass of over 8 reservoir to provide 23 7 million kilowatt-costly fuel burning stations that will - unds Studies have shown that Lake hours of electncity Dunng hot summer be under-utilized. Anna supports a balanced. Well-fed and days when air conditioning demands This project is also being developed fast-growing fish population build to a peak or on cold winter days with concer n for the environment. as For environmental protection Vepco when electnc usage also is high, this more than C13 million will be spent spent $322 million at North Anna on stored energy will be tapped as 7 3 in studies, facilities and action pro-i l such items as five sewage treatment billion gallons of water drop more than grams. Over $4 million of the $13 mil-plants. a waste heat treatment facility. 1.000 feet The rushing waters will dnve lion has already been spent on erosion six massive tur' ine-generators. each and sediment control and sewage and an environmental lab and other waste o management facilities. as well as en-capable of producing 350 000 kilowatts industnal waste treatment. Major efforts vitonmental safeguards required by the of electncity have been successful in preventing Nuclear Regulatory Commission At night and on weekends as energy stream degradation caused by erosion Comprehensive studies keep track of use diminishes. energy is then drawn from work areas. the " health" of Lake Anna much as a from economical nuclear and coal units Tree and game food planting is physician does by examining a patient to reverse the process at Bath County. scheduled for 1979 under plans sub-The Virginia Commission of Game and The turbine-generators function as mitted to the Federal Energy Regulatory Inland Fishenes conducts annual creel motor-pumps to return the water to the Commission (FERC)to minimize effects surveys to determine fishing success upper reservoir. storing it until it is on fish and wildlife Thece programs were Vepco and its consultants study many needed again for generation. developed by the Company and con-phases of the lake's ecology-Functioning in similar fashion to a sultants from Virginia Polytechnic Insti-phytoplankton. Zooplankton. bottom giant storage battery that can oe tute and State University in discussions organisms and aquatic insects These recharged, the Bath County station is with the U S. Forest Service, the U.S ongoing studies, estimated to cost designed to maximize the use of the Fish and Wildlife Service and the Vir-nearly a half million dollars in 1979. Company's large base-load units. ginia Cnmmission of Game and inland have one aim-to detect and remedy Pumped storage in combination with our Fishenes. any imbalance in the take ecosystem nuclear and fossil units will achieve a Ongoing surveys are monitoring a left Bath County powerhouse win contain six 350 Mw generating units 9 i i

sediment load and water quality in Back ers in Virginia. Applications filed with going down this street of yours. Creek and Little Back Creek. Both FERC for wholeMe service to coopera-O.Well, aren't you asking for a 20% streams will benefit from control over tives and municipalities totalled $27.6 increase right now?Is it 20% or 25%7 flow and flooding when the dams are million, and settlement was reached A. It works out to be 20%. And that will completed. Dunng natural droughts, with cooperatives for $11.8 million. be our first one in about two years, and planned releases from the two reser-North Carolina's Utilities Commission during that period the cost of living has voirs will maintain a good environment approved an increase of $10.8 million gone up exactly that same amount. So for aquatic life downstream. In flood annually, or 82% of the rate relief that gets back to what you were saying. seasons, the project can particularly requested. At the request of the Gover-we ve allgot to try to bring inflation reduce down stream flows for the com-nor of North Carolina, the Commission under control. monly occurring floods on Back Creek. has instituted an examination of the dif-Designs for Efficiency The reservoirs will be unsuitable for ference between the Company's rates As a theme, " Working Together for recreation because of their extreme and other utihties in North Carolina. The Service" describes Vepco's approach water level fluctuation. However, as matter is set for public hearing in April. to the management of human skills and required under the Federal Power Act, With every increase in rates, the Com-technical resources in providing reliable Vepco will develop a 325 acre recrea-pany experiences an increase in cus,spower most efficiently and economically. tion area downstream from the lower tomer reactions. In view of this, Vepco During 1978 this goalwas realized in de.n. Two large ponds covering 85 program for responding to customers a literal way. Our corporate headquarters acres will be available for fishing, boat-has been strengthened. For example, moved to a more efficient new home at ing and swimming. Visitors will also be specially-trained " customer contact One James River Plaza-just three able to enjoy picnic and camping facil-employees follow up phone calls to sat-blocks from its 1913 office tower in itles and hiking trails. isfactory solutions. downtown Richmond. Bath County's pumped storage units, A new concept has taken Cha.irman Though short in distance, the move together with North Anna's four nuclear T. Justin Moore, Jr. to some of our cus-a long step forward in efficiency. For the units, represent a substantial capital tomers' homes for spontaneous video f rst time in years, our administrative outlay over the next six years. They are tape interviews. Excerpts from these people are working togetherin one the major elements,in our efforts to totally unrehearsed interviews will be building with allthe advantages of assure adequate energy for the future shown on television since they deal with centralized operations. Current arrange-at practicable cost. the most often asked questions about ments also provide space for other Rttss and Responsibility Company operations. occupants-space which will be avail-Emergency repairs to ice-damaged The following questions and answers able for Vepco expansion in the future. power lines bring a public spotlight to are representative samples of this in recent years, our personnel have bear on Vepco's responsibility, and " Ongoing Dialog' with our customers. been forced to operate from seven commitment, for adequate electric O. Can you tell me why Vepco rates separate buildings because of rapid service at all times. have gone up-doubled in the past growth as use of electricity increased Behind this dramatic scene is our five years? eightfold. In the past fifteen years our continuing effort to build new facilities A. I'll start off by saying we don't like it ranks have increased by almost 4,000 to meet increasing demands, while deal-any more than you do. But we're faced to a year-end total of nearly 9,400. ing with the daily problems of operation with two very serious problems. First, in-Since it interacts with every other de-and maintenance. In both areas, the flation has run up the cost of everything partment, our corporate computer cen-persistent effects of inflation add a we buy. And secondly, we have to build ter is an excellent illustration of the ne heavy burden of increasing costs. for the new customers and new busi-effectiveness level. Previously, due to Vepco is also committed to acting as a nesses that are moving into this area. space limitations, our programmers responsible steward for 9e investments w e n a WWg acose sheet Q. These nuclear plants,I feel like of its stockholders and for providing from our computers. Many other depart- ,re just a waste of money, them with a reasonable return on their ments using computer services also investment. Improving performance in we fwced 2 communsa%om scab 're actually the cheapest kind of this area will improve our ability to ac-tered locatans. lants going. They are our base-load quire new capital on favorable terms. ne mes her Raza, aH cow To offset rising costs and strengthen lants, the ones we run right around puter-related aperations are housed to-the clock. Right now a nuclear plant our financial posture, management con-gether-includi.7 the carefully con-can produce a kilowatt hour at a much tinues to seekincreased revenues en nmen essa W om lower totalcost than coalor oil and through timely rate relief. Our efforts in computers. These computers provide environmentally it's a whole lot better, 1978 met with mixed success as we capacity for maintaining all company sought totalincreases of $313.6 million. Q. In my opinion really a monopoly can records along with daily operations. The major request in Virginia was for do what it pleases. If we had competi-The computer center has on-site stor-a $246 millbn increase in permanent tion in this state, I do believe we could age with security for all master tapes, rate relief. The State Corporation Com-get a whole lot better rates. and duplicates are also stored in an mission of Virginia granted an interim A. That's a popular misconception, sir, off-site vault. $62 million at the same time North Anna because Vepco is a very regulated pub-Centralizing the computer operations went into service in June 1978. Although lic utility. We can't raise our rates or provides greater versatility in utilizing hearings on the remainder were com-change our way of serving customers these resources. Our engineers use pleted in September, a decision is still unless the regulatory authorities approve computer programs to assist in the de-pending. it. On the other hand, look at it this way. sign of stations and calculate the per-The Company negotiated a $17.2 mil-Think of what a mess it we'ild be if you formance of system construction. Such lion increase with governmer'al custom-had two or three sets of po. 3r lines information as stockholder records und to

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c c,. r-, personnel files can be ponted out on every b seconds Allinformation is re-changing power supply cond'tions r6scrofilm for study and storage corded and accounts posted by the com-As the Company continues to grow. The computers are also important in puters and venfied against deposits a pnme goal continues to be the opti-customer relations since they are used made daily at vanous banks This auto-mum use of our human resources Sev-to print monthly bills These bills are mated centralized system results in a eral specific programs. many of them inserted thrragh an automated system substantial Savings each year over underway for years. are aimed toward at about 60 000 per day. and mailed to manual methods reaching this goal 1389 POO customers When someone in-One James River Plaza will also even-Among these are plans for evaluating quires about a bill. the computer flashes tually house Vepco s new System Oper-the skils of our present employees for a complete history of the account to the ations Center This modern nerve functions formerly provided by contrac-customer contact employee who center will be used to control the gen-tors recruiting expenenced personnel answers the call eration and transmission system to f rom industry and entry level profes-Another automated system intercon-insure both reliability and economy The sionals from colleges and universities; nected with the computer results in the huge command center with its own tuition refunds for employees who want most efficient handling of bill payments dual computers and advanced tech-to enlarge their skills by education. and Key to the Vepco method is combining nology. has been designed to replace evaluattng salary and benefit !evels to the speed of machines that automat-Vepcu s present System Operators remain competitive scally open envelopes and handle the Office and computer now located else-Vepco is committed to a concerted contents with electronic reading and where Interesting features of the new effort to train and develop men and matching of payments to records system include a panoramic diagram women to help them increase their skills On the heaviest mail days up to wall to display the cornplete transmis-and general potential for advancement 60 000 payments are processed and sion system layout and color television We believe tnat continued success will Orrators average recording one entry displays to alert the operator to come f rom ' Working Together for Service" = @h k O

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13

M:nagement's Discurinn End An:lyzi3cf th0 St: tem:ntJ cf inc:ma Balance for Common Stock increased $8 2 million in 1978 over Fuel expenses have fluctuated from 1976 through 1978 as a 197/ as compared to a $19.1 million increase in 1977 over 1976. result of changes in fuel costs (see Notes A and G to FINANCIAL Tha shght increase in 1978 Balance for Common Stock resulted STATEMENTS), increased sales and changes in requirements principally from increased sales and lower fuel expenses for purchased and interchanged power to meet the increased achieved through improved nuciear operations at Surry during sales (see below) For information with respect to unrecovered 1978 and the start up of North Anna 1 in June. Regulatory delays deferred fuel costs wntten-off in 1977, see Note C to FINANCIAL in the Company's request for rate rehef prevented further improve-STATEMENTS. Purchased and interchanged power expenses ment The additional revenues v ere offset in part in 1978 and have fluctuated from 1976 through 1978 as a result of tem-1977 by continued inflation and rapid escalation of operating porary outages of major coal and nuclear units during the last and capital costs quarter of 1976 and the first quarter of 1977 and the avail-Compansons of the STATEMENTS oF lNCoME for the years 1978 ability of additional generation in 1978 from North Anna Unit 1. (as compared to 1977) and 1977 (as compared to 1976) appear Maintenance costs increased for 1977 due to repair costs b fow incurred for the above rnentioned coal and nuclear unit outages during the last quarter of 1976 and the first quarter of 1977. Electric Revenues Maintenance expense increased for 1978 due to major mainte-El ctnc revenues increased over the prior year principally as a nance at the Chesterfield, Yorktown, Portsmouth and Surry result of the following-Power Stations. Federalincome taxes have fluctuated from 1976 Revenues increase through 1978 primarily due to changes in book income and to o a$s) the increase in the provision for deferred taxes from normaliza-(M ions tion accounting. For the year 1974, the Company incurred a 3,7, ,977 operating loss for tax purposes, which, after carry-back to pr Rate increases and fuel cost recovery $38.7 $206.5 years, resulted in a loss carry forward of $55.1 million The t x Unit sales (excluding effect of above). 59.2 45 6 effect of the entire loss carry-forward, in the amount of $26 4 Other. net 2.0 1.2 million, was used to reduce the Federal income taxes currently Total $99.9 $253.3 payable for 1975, and deferred income taxes of $22.8 million were reinstated in respect of the 1974 deferred fuel adjustment. See Page 10 for information with respect to current requests (See Notes B and D to FINANCIAL STATEMENTS.) For information for increased rates, including intenm increases already in effect. with respect to taxes other than Federal income taxes, see Note F to FINANCIAL STATEMENTS. Gns Revenues Other operating costs for 1978 and 1977 include $6.8 million Gas revenues increased over the prior year principally as a re-and $3.2 million, respectively, of amortization of abandoned sult of the following: project costs relating to the cancellation of Surry Units 3 and 4. For information with respect to these costs, see Note E to FINAN-nevenuesir creawoecrease) From Pnor Year CIAL STATEMENTS. (Mdhons ot Douars) Continuation of the Company'slarge capital expenditures and ter8 19/7 the related financing together with increases in construction Rate increases and purchased gas and uranium costs and changes in the cost of capital, have re-cost recovery $5.2 $ 6.3 sulted in the following increases: Unit sales (excluding effect of above) .9 (4.8) increase Frorn Pnor Year Total $6.1 5 1.5 (Mdhons ot Doitars) 978[ [ ]9 Operating Expenses and Other Charges Depreciation. _ _.. $19.0 $ 3.3 I *' e nd other charges have changed principal-p e,'erredan pr [ ere ed idends e eM E xpenses tncream(Decrease) The amounts of allowance for funds used during construc-From Pnot Year tion (AFC) capitalized since 1974 have increased substan-(Mdhons ot oonars) tially, reflecting, pnmarily, greater levels of investment in con-1978 1977 struClion work in progress. Although AFC increased by more Fu 1. $ 10.5 $128.2 than $19 million in 1977, this increase was more than offset by Purchased and interchanged power (42.9) 36.5 increased interest costs and Preferred and Preference divi-Maintenance. 20.4 16.1 dends. In 1978 AFC decreasea by $10.8 million, and depre-Federalincome taxes 12.9 11.0 ciation increased by $19 milkon primarily as a result of the termi-Other taxes 12.3 9.8 nation of AFC applicable to North Anna Unit 1 and the accrual of Other operating costs. 34.0 25 2 depreciation when that Unit was placed in-service. Description of Business The electric business of the Company is conducted in most of atives and municipalities. Gas service is provided only in the Virginia and in parts of North Carolina and West Virginia. In its Norfolk-Newport News area (except Portsmouth) and in the area service area it sells electricity to retail customers (including extending from Newport News to and including Williamsburg. governmental agencies) and at wholesale to rural electric cooper-14

, Virginia Electric and Power Company Statements cf Income t Years [ 1978 I977 1978 _ _ 1975 1974 ~~ [ (Thousands of Dollars) Oper ting revenues (Notes A, B and L): Electric, $1,413,866 $1,313,937 $1,060,663 $ 998,933 $735,962 Total. 1,464,905 ~ 28,050 ~ 44,923 43,413 34,403 Gs. 51,039~ 1,358,8C0 1,104,078 1,033',3f6 76 LOT 2 Oper ting expenses: Operation: Fuel used in electric generation (Notes o A, C and G), 585,625 573,151 446,984 449,883 300,384 sj Purchased and interchanged power. 9,384 52,273 15,747 5,540 44,609 Other (Note G). 183,906 153.514 131,485 113,833 95,399 Miintenance(Note A) 90,317 69,885 53,749 59,906 38,324 Depreciation (Notes A and H) 117,481 98,527 95,191 89,805 77,757 Amortization of abandoned project costs (Note E). 6,760 3,173 Texes-Federalincome (Notes A and D). 72,658 59,736 48,751 27,378 (6,612) -Other (Note F). _ 93,499 81.17_4 _71,413 57.169 _ 8.216 4 Total. 1,159,630 1,093,433 863,320 803,514 598,077 Oper,tting income. 305,275 265,427 240,756 229,822 165,935 OtnIr income: Allowance for other funds used during construction (Note A). 64,002 72,361 Allowance for funds used during construction (Note A). 80,429 66,873 65,735 Miscellaneous net, 2,209 (305) 283 601 938 Income taxes associated with miscellaneous, net. (867) (358) 208 (57) (527) Total. 65,344 71,698 80,920 67,417 66.146 Incom2 before interest charges. 370,619 3177125' 35i!876 297 f39 2327081 ~ ~- i ntirest charges: V Interest on long-term debt 184,947 168,885 147,481 122.951 94,058 Other. 6,677 5,748 7,409 19,556 23.214 Allowance for borrowed funds used during construction (Note A). (24,869) (27.301) Total. 166,755 147,332 154,890 142,507 117,272 incom3 before cumulative effect of change in tecounting method. 293,864 180.793 166,786 154,732 114,809 Cumulltive effect (to January 1,1974) of accruing estimated unbilled revenues, net of Federal income taxes of $6,810,000 (Note B). 12,353 203,864 189,793 166,786 154,732 127,162 N;t income (Note B). Pr:f:rred and preference dividends. 53,588 47,719 43.821 35,971 30,419 ( Biltnce for common stock. $ 150,276 s 142,074 $ 122,965 $ 118,761 $ 96,743 Shires of common stock-average for year (thousands). 80,060 74,025 68,137 60 854 52,100 Eirnings per share of common stock: Income before cumulative effect of change in cccountmg method. $1.88 $1.92 $1.80 $1.95 $1.62 Cumulative effect (to January 1,1974) of accruing es'imated unbilled revenues. J4 B; lance for common stock. $1.88 $1.92 $1.80 $1.95 $1.86 CisfidTdnds Midhr~ common share. $1,30 $IT24 $f22% ~ ~ fi8 $l718- [' ) Denotes red figure. ~ The cccornpanying riotes are an integral part of the financial staternents. 15

.I- ~? Virginia Elsctric and PowcrCompany 7'f Balenco Shocts i~. Assets ~Decemidr~ 31, December 31, 1978 1977 (Thousands of Dollars) UTILITY PLANT (Note A): Electric. $5,343,985 $4,852.295 Gas. 60,654 60,042 . _.. _ $ 0 *

• o_n.

g. 16,592 13.058 construction (1977-$1,682,768,000]). 5,421,231 4,925,395 Less accumulated depreciation (Note H). 887,383 779,731 4,533,848 4.145,664 Nuclear fuel (less accumulated amortization of $53.575.000 (1977-$23,873,000)) 151,865_ 1,5_9,831 4,685,713 4,305.495 Net utility plant. INVESTMENTS: Nonutility property at cost or written-down amounts (less allowance of $5,323,000). 3,857 3,260 Subsidiary companies at equity (includes advances of $15,718,000 [1977-$11.372,000])(Notes A and N). 19,426 15.081 Net investments. 23,283 18,341 CURRENT ASSETS: Cash (Note J). 4,668 4,936 Temporary cash investments. 31,783 Accounts receivable. Customers. $120,658 $106,483 Other. 8,498 2,383 129,156 108,866 Less allowance for doubtful accounts. 1,101 128.055 1,123 107,743 Accrued unbilled revenues (Note B) 61,407 63,930 -Deferred fuel surcharge (Note C). 11.028 Materials and supplies at average cost or less: Plant and general (including construction ma-terials). 32,429 26,760 Fossil fuel 96,567 128,996 94,952 121,712 Prepayments: Taxes 36,523 29,962 Other. 4,090 40,613 1,669 31.631 Total current assets 395322 340,980 ~- ~ $FERRE6 DEBITS: D Unamortized abandoned project costs (less ac-cumulated amortization of $9,933,000 [1977- $3,173,000]) (Note E). 66,156 70.285 Deferred fuel costs (Notes A and C): Surcharge. 7,878 Other. 3,383 25,403 Unamortized expense on debt. 7,480 7,179 Other. 29,506 26.448 Total deferred debits. 106,525 137,193 $5,2_11,043 $4,802,009 ( ) Derotes red figure The accompanying notes are an integral part of the financial statements. 16

Capital and Liabilities g 1978 1977 (Thousands of Dollars) CAPITAL STOCK (Note 1): Preferred stock-$100 par, cumulative; authorized 7,500,000 shares. S 593,091 5 560,566 Preference stock-no par, cumulative; authorized 30,000,000 shares. 57,360 57,360 Common stock-no par; authorized 95,000,000 shares. 1,235,105 1,150,366 OTHER PAID-IN CAPITAL (Note 1). 27,859 24,648 EARNINGS REINVESTED IN BUSINESS, as annexed. 36_4,215 318,507 Total stockholders

• equity.

2,277,630 2,111,447 LONG-TERM DEBT (Note K). 2,376,796 2,141,883 CURRENT LIABILITIES: Securities due withirs one year (Notes I and K). 75,293 89,433 Loans payable,pending permanent financing (Note J) 3,437 53,050 Accounts payable, trade 54,413 73,763 Customer deposits. 12.310 10,349 Payrolls accrued. 10,109 9,133 Taxes accrued 33,790 13.364 O' Interest accrued. 64,651 53,263 Deferred income taxes.other (Notes A and D) 18,780 23,437 Other. 38,784 31,537 Total current liabilities. 311,567 357,329 DEFERRED CREDITS: Accumulated deferred income taxes (Note D): Libera;tzed depreciation (Note A). 76,341 37,832 Abandoned project costs (Note A) 29,352 31,175 Accelerated amortization. 13,130 14,678 Other (Note A). (2,016) 13,808 Deferred investment tax credits (Notes A and D). 103,304 71,675 Customer advances for construction. 2,945 1,533 Other (Note G) 21,994 19,649 Total deferred credits. 245,050 191,350 COMMITMENTS AND CONTINGENCIES (Note N) $5,211,043 54,802.009 17

Virginia Electric and PowcrCompany Statomonts of Earnings Reinvested in Business Years (Thousands of Dollars) Balance at beginning of year. $3i 8',507 $32B,115 ~ 390 260 $242,742 $206,586 Net income (see " Statements of income"). 203,864 189,793 166,786 154,732 127,162 Total; 522,371 517,908 457,046 397,474 333,748 . _. _ _ _ _. _... Cash dividends: Preferred and preference stocks (at annual rates indicated below). $5.00 preferred. 533 1,447 1,447 1,447 1,447 $4.04 preferred. 52 404 404 404 404 $4.20 preferred. 62 420 420 420 420 $4.12 preferred. 134 515 515 515 515 $4.80 preferred. 351 1,440 1,440 1,440 1,440 $7,72 preferred. 2,702 2,702 2,702 2,702 2,702 $8.84 preferred. 3,094 3,094 3,094 3,094 3.094 $7.45 preferred 2,980 2,980 2.980 2.980 2,980 $7.20 preferred. 3,240 3,240 3,240 3,240 3,240 $7.72 preferred (1972 Series). 3,860 3,860 3,860 3,860 3,860 $7.325 preferred 5,128 5,128 5,128 5,128 5,12 $8.40 preferred. 6,720 6,720 6,720 6,720 5,189 $9.75 preferred. 5,850 5,850 4,566 $9.125 preferred 1,825 1,825 345 $8.20 preferred. 4,920 1,134 $8.60 preferred. 3,392 $8 625 preferred 1,785 $2.90 preference. 6,960 6,960 6,960 4,021 _ __ _C..ommon stocl< 103,474 91,225 82,923 70,786 60,165 Trarisfeito c6rnmirisisck as aufhorized by Board of Directors. 60,000 Other deductions. net 1,094 457 2,187 457 422 ~ ~ ~ ~ ~ ~TotalE.~~... 1,094 60,457 2,187 457 422 Balance at end of year.. _ _ _ $364,215 $318,507 $328,115 $290,260 $242,742 The accompanying notes are an integral part of the financial statements. O .18

Virginia El:ctriccnd PowerCompany Statsments of Changos in Financial Position Years 1978 1977 1976 1975 1974 _ _. SOURCE OF FUNDS:_ (Thousands of Dollars) Funds provided by operations: Net income (Note B). $203,864 $189,793 $166,786 $154,732 $127,162 Items not affecting working capital: Provision for depreciation (Notes A and H) 117,481 98,527 95,191 89,805 77,757 Amortization of nuclear fuel (Note A). 29,702 14.526 8,962 385 Amortization of abandoned project costs (Note E) 6,760 3,173 AIlowance for other funds used during construction (Note A). (64,002) (72,361) Allowance for borrowed funds used during construction (Note A). (24,869) (27,301) Allowance for funds used during construction (Note A). (80,429) (66,873) (65,735) Deferred income taxes (Notes A and D). 14,668 31,536 14,002 28,686 12.956 Deferred investment tax credits, net _ _ _ _.N_otes A _and D). 34,827 19,009 32,540_ 116_6]_ (5,607)_ ( Total funds provided by operations. 318,431 256,902 237,052 206,569 146,533 Funds provided by financing: Mortgage bonds (Note K). 213,000 150,000 220,000 276,000 175,000 Preferred stock (Note 1). 37,000 60,000 80,000 80,000 Preference stock (Note 1) 57.360 Common stock (Note 1): Pubhc offering. 68,275 70,400 73,875 113,980 54,945 Automatic dividend reinvestment plan. 11,690 9,229 7,727 3,456 Employee savings plan 4,774 4,213 3,900 3,651 3.207 Term notes (Note K). 104,750 108,500 25,000 10,000 122,700 increase (decrease)in loans payable. (49,613) 26,550 (83,550) (146.895) 36 795 1 ____ Tot,a@,nds provided by financing. 389,876 428,892 _32_6,952 317,552 472,647 $708,307 $685,794 $564,004 $524.121 $619,180 APPLICATION OF FUNDS: Utility plant expenditures (excluding AFC). $422,857 $394,875 $343,693 $339,845 $386.271 Nuclear fuel (excluding AFC), 17,458 74,531 57,479 25,421 8,906 Abandoned project costs (Note E). 2,631 16,050 Dividends on common, preferred and preference stocks. 157,062 138,944 126.744 106,757 90,584 O Increase (decrease)in deferred debits, fuel costs (Notes A and C). (29,898) (18,812) 8,427 (32,855) 64,850 Secunties reacquired or repaid, 97,273 58,250 10,000 61,200 9,240 Increase (decrease) in investment (net of repayment of advances)in subsidiary companies (Notes A and N). 4,345 3,137 4,869 (4,873) 2,054 Increase in working capital other than loans payable

• 36,551 14,684 10,968 17,404 48,025 Other, nel 28 4,135 1,824 11,222 9.250 5708,307

$685,794 $564,004 $524.121 $619,180 Changos in the individual amounts comprising working capital other than loans payable' were as follows: Accounts receivable. S 20,312 $ 2,103 $ 13,017 $ (9.333) $ 43,884 Accrued unbilled revenues (Note B) (2,523) 4,965 19,386 3,790 35,789 Deferred fuel surcharge (Note C). (11.028) 628 (1,670) 12,070 Materials and supplies. 7,284 26,392 17,080 21,040 10,622 Accounts payable, trade, 19,350 1,775 (32,963) 13,183 (26,135) Interest accrued, (11,388) (6,916) (7,177) (7,234) (14,366) Deferred income taxes.other (Notes A and D) 4,657 (2,537) (577) (10,496) (3,493) Other, net 9,887 (11,726) 3,872 (5,616) 1,724 ~ ~ $ 36,551' $ 14,684 $ 10.968 S 17,404 5 48,025 ~ - = = = = = = = = = = - =. = = = = = = = - - - - ~ ~ 'Does not include reclassification as current liabilities of maturing long-term debt and cash sinking fund obligations of debt and preferred stock as follows: 1978-$75.293.000,1977-$89,433,000,1976-$58.250.000 and 1974-$61,200.000. The accompanying notes are an integral part of the financial statements. 19 l

d Report of Independent Certified Public Accountants To the Stockholders and Board of Directors of Virginia Electric and Power Company: We have examined the balance sheets of Virginia Electric and Power Company as of December 31,1978 and 1977, and the related statements of income, earnings reinvested in business and changes in financial position for each of the five years in the period ended December 31,1978 Our examinations were made in accordance with gen-erally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. As discussed in Note E to FINANCIAL STATEMENTS, the Company canceled plans to construct a nuclear facility. The Company may also incur substantial contract cancellation costs. At this time, it is uncertain what part of the project costs and contract cancellation costs ultimately to be incurred, will be recoverable. In our opinion, subject to the effect, if any, on the financial statements of the ultimate resolution of the matter discussed in the preceding paragraph, the financial statements referred to above present fairly the financial position of Virginia Electric and Power Company as of December 31,1978 and 1977, and the results of its opera-tions and the changes in its financial position for each of the five years in the period ended December 31,1978, in conformity with generally accepted accounting principles consistently applied during the period subsequent to the change in 1974, with which we concur, in the method of accounting for estimated unbilled revenues as described in Note B to FINANCIAL STATEMENTS. Y COOPERS & LYBRAND New York, February 7,1979. Notes to Financial Statements A. Significant Accounting Policies: General: the reprocessing costs previously recovered of spent fuel The Company's accounting practices are prescnbed by discharged before 1979 over a ten-year period. Effective the Uniform System of Accounts promulgated by the regu-September 1,1978, the North Carolina Commission granted latory commissions having jurisdiction approval to recover such costs in base rates, and effec-tive October 1,1978 the Federal Energy Regulatory Com mis-e es are mcorded on the basis of service sion (FERC) allowed the recovery of these costs through the fuel clause. For periods subsequent to these two dmed decisions, operating expenses include costs of per-Utility Plant and Depreciation: manent storage applicable to North Carolina and FERC Utility plant is recorded at onginal cost which includes junsdictional customers. labor. matenals. services. allowance for funds used dur-Subsidiaries: ing construction and other indnect costs The cost of The Company has two wholly-owned subsidiaries. depreciable utility plant retired and cost of removal, less Laurel Run Mining Company is engaged in the under-salvage. are charged to accumulated depreciation-ground mining of coal, which is utilized solely by the The cost of maintenance and repairs is charged to the Company. On January 1,1979, the first of two portals of appropnate operatmg expense and cleanng accounts. the mine was declared operational and coal from such The cost of renewals and betterments is charged to the portal will be priced to include current production costs, appropnate utility plant account, except the cost of minor amortization of deferred development costs and a return f replacements which is charged to maintenance expense-on the Company's investment in Laurel Run at the last Provisions for depreciation. which include amounts overall rate of return approved by the Virginia State Cor-applicable to estimated decommissioning costs of poration Commission Development costs associated with $22300.000 for nuclear units in service (assuming moth" the second portal are being deferred until it becomes balling in pairs), are recorded on the straight-line method operational Virginia Nuclear, Inc. was organized to ex-based upon estimated service lives piore for uranium reserves. however, no such activities Nuclear Fuel: are presently being conducted Advance payments are being made for f uel to be owned Federal Income Taxes: or leased The Company's practice is to reduce the current pro-The Company has been providing for estimated re-vision for Federal income taxes to reflect the tax benefit processing costs relating to fuel which is presently being resulting from the use of the double-declining-balance burned The Company has requested commission ap-method of depreciation for property additions and the proval to recover on a current basis through fuel adjust-adoption of the Asset Depreciation Range and Class Life ment provisions the cost of permanent storage of spent Systems Effective with property additions placed in serv-fuel to be discharged from its nuclear reactors af ter 1978 ice in 1974, the Company has provided deferred income and to recover through base rates such costs in excess of taxes on the aforementioned benefit and, subsequently, '.o

k

• his provided d f;rred12xtson oth:rdiff r ncts between such fur:ds and c pital ratios us:d by th3 Company prior book income and income taxable for Federal income to January 1,1977 are not equivalent to those prescribed 1 xes to the extent permitted by the regulatory commis-in the new accounting rules, the Company believes that clons having jurisdiction.

retroactive reclassification of AFC in the Statements of Investment Tax Credits: Income for these years would be inappropriate. Accumulated investment tax credits at July 1,1970 are Assuming that funds used to finance construction dur-being amortized over a ten-year period, and credits re-ing the three years ended December 31,1976 were ob-corded after that date are being amortized over the serv-tained 35% from common equity,52% from debt and 13% ic3 lives of the property giving rise to such credits. An from preferred and preference stocks, the common equity tdditionalinvestment tax credit of 1% related to the Tax component of AFC as related to earnings available for Reduction Act Stock Ownership Plan (TRASOP)does not common stock amounted to 15.9%,7.2% and 17.4% for Eff ct net incomo and is recorded as a liability until the the years 1974 through 1976, respectively. contribution is made to the TRASOP trust. Deferred Fuel Costs: Allowance for Funds Used During Construction: The Company is deferring for accounting and rate-Th3 applicable regulatory uniform system of accounts making purposes that portion of the cost of fuel con-d fin s AFC as the net cost for the period of construction sumed which, through the application of the annual fuel of borrowed funds used for construction purposes and a factor may result in increased operating revenues in a rs:sonable rate on other funds when so used. later period. In accordance with a change in FERC accounting rules Retirement Annuity Plan: cff;ctive January 1,1977, the Company is separately The Company has a contributory retirement annuity d t rmining rates and reporting amounts applicable to plan and funds pension costs accrued. Prior service cost p; borrowed funds, calculated on a net of tax basis, and to arising out of amendments to the plan in 1976 and changes vequity funds. In accordance therewith, for 1978 the Com-in actuarial assumptions in 1977 is being provided in the piny employed an aggregate rate of 7.54% for the accrual accounts and funded on the basis of future salaries of of AFC and for 1977 employed an aggregate rate of 7.75%. participants currently covered by the plan. For the years 1974 through 1976, the Company em-Leases: ploy d the rate of 8% and reported AFC in accordance The Company's practice is to account for all leases as with the accounting rules then in effect. Since the as-operating leases in accordance with the rate-making sumptions as to source of construction funds, costs of practices presently in effect. D. Accounting Change: Prior to 1974, the Company did not accrue the es-1974, effective January 1,1974, the Company adopted the timit d amount of utility revenues for service rendered policy of accruing estimated unbilled revenues. As a re-but not billed at the end of each accounting period. This sult, net income for 1974 increased by $16,531,000 or practice, while not providing a matching of costs and 32 cents per share, of which the cumulative effect of the Q rav:nues, did not result in a significant distortion in net change to January 1,1974 was $12.353,000 or 24 cents V income for the years prior to 1974. As a result of rate in-per share (increase in estimated unbilled revenues of crsises granted during 1974, the continuation of such $20,407,000 less related expenses of $1,244,000 and prrctice would have resulted in a significant understate-Federalincome taxes of $6,810,000). m:nt of not income for the year. Therefore, in December C. Deferred Fuel Accounting: Eff ctive December 31, 1978, monthly billings ap-issued an Order prohibiting further surcharge collection plicable to Virginia jurisdictional customers based on fuel and requiring a refund of the approximately $4.9 million costs experienced during a three-month period were that had been collected under the surcharge. The refund t:rminated. Monthly billings after that date will include and the write-off of deferred fuel attributable to FERC and und:r tha new annual fuel f actor, approved by the Virginia retail governmental customers resulted in a charge to Commission but subject to quarterly hearings, the pro-income in 1977, before Federal income taxes, of $14.7 jected fuel costs for 1979, including the amount of fuel million. A petition for rehearing of the FERC refund Order costs unrecovered at December 31,1978 under the pre-was denied and on appeal by the Company, the United vious fuel adjustment clause and the surcharge placed in States Court of Appeals for the Fourth Circuit affirmed cff ct after a revision of the fuel adjustment clause in the FERC decision. I'75. In the event that future developments dictate a change Effective May 2,1976, a new fuel clause under the in the fuel adjustment billing lag period or in the fuel cost jur idiction of FERC automatically took effect and a sur-base, the Company will request regulatory approval to chme became effective, subject to refund, designed to recover through billings to customers any unrecovered recover over a two-year period deferred fuel expenses deferred fuel costs. of approximately $7.2 million. On June 20,1977 FERC 21

\\ D, Federal income Tcxes: Det:ils of Federalincome taxes were as follows: Years 1978 1977 1976 1975 1974 (Thousands of Dollars) C:mputed tax expense on book income before Federal income taxes at statutory rate. . $133,147 $119,946 $103,358 $87,440 $61,386 (Decreases) increases resulting from: Excess of tax over book depreciation not normalized. (16,402) (9,956) (14,840) (18,689) (25,089) AFC. (42,658) (47,838) (38,606) (32,099) (31,553) investment tax credits, amortization. (5,467) (4,539) (3,028) (2,452) (2,412) Other, net 4,038 2,123 1,867 (3,191) (2,134) Fed;ralincome tax expense before utilization of portion of operating tax loss carry-forward. 72,658 59,736 48.751 31,009 198 1974 net operating tax loss carry-forward utilized. (3,631) Fed:ral income tax expense. .S 72,658 $ 59,736 $ 48,751 $27,378 198 Curr;ntly payable (refundable). .$ 23,163 $ 9,191 $ 2,209 $ (1,142) $ (7,151) T x cffects of timing differences: Abandoned project costs. (1,822) 31,175 Deferred fuel adjustment: Current year (21,681) (9,588) 3,243 (9,976) 7,808 Prior year (1974). 22,793 Liberalized depreciation. 38,509 13,101 12,320 9,360 3,202 Virginia gross receipts taxes. 636 2,375 1,379 4,702 3,493 Reprocessing / disposal costs on nuclear fuel (6,791) (6,385) (4,076) Accelerated amortization. (1,547) (1,547) (1,547) (1,547) (1,547) Indirect construction costs. 3,154 2,912 1,796 2,424 Cost of removal of property retirements. 2,484 1,696 1,426 930 Contributions in aid of construction 2,203 (2,203) North Anna nuclear fuel. (487) g Other. 10 (539) 14,668 31,536 14,002 28,686 12,956 Inv:stment tax credits, including any carry-back. 40,294 23,548 35,568 2,286 (3,195) Inv;stment tax credits, amortization. (5,467) (4,539) (3,028) (2,452) (2,412) Net deferred investment tax credits. 34,827 19,009 32,540 (166) (5,607) Fed: rat income tax expense. .S 72,658 $ 59,736 $ 48,751 $27,378 198 Chirged (credited) to operating expense .S 72,658 $ 59,736 $ 48,751 $27,378 $ (6,612) Ch rged to cumulative effect of accounting change 6,810 k Fed rat income tax expense. .S 72,658 $ 59,736 $ 48,751 $27,378 198 Du; principally to the timing differences relating to of $26.4 million, was used to reduce the Federalincome def:rred fuel costs and the excess of tax over book taxes currently payable for 1975, and deferred income depreciation, the Company incurred a net operating loss taxes of $22.8 million were reinstated in respect of the f.1r t:x purposes in 1974, which after carry-back to prior fuel costs deferred in 1974. years resulted in a loss carry-forward of $55.1 million. The The Company has an investment tax credit carry-for-tax offect of the entire loss carry-forward, in the amount ward of $14,246,000 which will expire in 1985. 22

E. Abandoned Pr: Ject Costs: In March 1977, the Company canceleo plans for con-year period and will amortize additional costs as incurred struction of Surry Units 3 and 4, previously planned for and the $7.3 million of nuclear fuel enrichment costs over compl: tion in 1986 and 1987. At December 31,1978, the a ten-year period. The North Carolina Utilities Commission Comp;ny had expended $76.1 million, including $7.3 mil-has allowed the Company to begin recovery of such costs lion in nuclear fuel enrichment services. Additional can-through amortization in rates over ten years. Continuation c ll: tion costs could be as much as $52 million. The of this treatment is based on the Commission's approval, Comp:ny is attempting to reduce such costs through sale within one year, of the Company's construction program. of c rtain equipment and negotiations with suppliers. In The Company has requested the same rate-making treat-July 1977, the Company began amortizing for accounting ment of these costs from the Virginia Commission, FERC purposes costs, net of Federal income taxes, over a ten-and the West Virginia Commission. F. Supplementary income Statement Information: Tha amounts of royalties, advertising costs and research than Federalincome taxes charged to expenses were as and d:velopment costs were not significant. Taxes other follows: Years 1978 1977 1976 1975 1974 (Thousands of Dollars) . Texts, other than Federal income taxes: R:al estate and property. $26,333 $25,257 $22,899 $20,200 $20,821 State and local gross receipts 54,865 49,812 42,382 31,909 23,048 State income 505 248 215 87 175 Other 11,796 5,857 5,917 4,973 4,172 l Totpl. $93,499 $81,174 $71,413 $57,169 $48,216 G. Lcases: Rents charged to expenses consisted of the following: Years 1978 1977 1976 1975 1974 i ( (Thousands of Dollars) l Op: rating leases: Combustion turbines S 5,694 $ 5,935 $ 6,185 $ 6.172 $ 6,329 Nuclear fuel 35,491 29,518 21,447 24,657 15,073 Other (principally buildings and teleprocessing equipment) 8,427 6,648 5,552 4,761 3,691 l Total. $49,612 $42,101 $33,184 $35,690 $25,093 >m ) In September 1971, the Company sold 28 combustion sufficient to pay for the fuel burned during aach quarter turbin:s for $45,285,000 and leased back such turbines (excluding reprocessing and permanent disposal costs) for a t:rm of 20 years (plus two optional five-year renewal plus interest. Had the lease and contract been capitalized, j 1:rms). Annual rental payments were $3,906.000 during the net asset value and present value of these commit-tha first four years. As a result of casualties, the Company ments would be $72,288,000 and $73,935,000, respec-t rminated the lease with respect to two turbines. Con-tively, at December 31, 1978 and $69,161,000 and l sequ ntly, the annual payments have been reduced to $69,880,000, respectively, at December 31,1977, $3,848,000 for 1976, $3,790,000 for 1977 and $3,674,000 In December 1974, the Company sold and leased back for th3 remaining four years of the first ten-year term and three office buildings for $7,300,000 for terms of twenty $6,444,000 during the second ten-year term. Additional years (plus two optional five-year renewal terms). Annual l r:ntils are being accrued during the first ten years, during rental payments are $730,000 during the initial terms of which time payments representmg interest only are re-the leases. In August 1978, the Company leased a newly quired, so that the annual effect on net income will be constructed headquarters office building for a term of l equilized over the twenty-year period. Deferred credits, thirty years (plus four optional five-year renewal terms). l oth;r at December 31, 1978, include $15,997,000 with Annual rental payments are $2,993,000 during the initial i reg:rd to such accruals. Had the lease been capitalized, term of the lease. Had the leases been capitalized, the net th3 n:t asset value and present value of the lease commit-asset value and present value of the lease commitments m:nt would be $26,981,000 and $42,601,000, respectively, would be $40,132,000 and $41,201,000, respectively, at ct December 31,1978 and $29,111,000 and $42,601,000, December 31,1978 and $6,205,000 and $6,795,000, re-respectively, at December 31,1977. spectively, at Deceraber 31,1977, in August 1972, the Company sold and leased back If the Company had capitalized the above noted leases th3 initial core of nuclear fuel for Surry Unit 1 for and contract, the increase in operating expenses for 1978, l $22,800,000. In June 1973, the Company sold the initial 1977 and 1976 would not have been material, cora of nuclear fuel for Surry Unit 2 for $22.100,000 and The Company is responsible for expenses in connection cnt: red into a heat supply contract in respect thereof, with the leased turbines, nuclear fuel and buildings noted Outrt:rly payments are charged to income in amounts above, including insurance, taxes and maintenance. 23

i \\ H. Depreciatiom The provision for depreciation based on mean depreci-The Company received approval from the Virginia Com-Lbl; plant for the years 1974 through 1977 approximated mission to increase the depreciation rate on Gas plant 3.1%,2.6% and 2.3% of Electric, Gas and Common plant, effective January 1,1978. This change resulted in an in-respectively, and for 1978 approximated 3.2%,3.1% cnd crease in the provision based on mean depreciable Gas 2.4% for Electric, Gas and Common, respectively. plant at December 31,1978, to 3.1%.

1. Capital Stock and Other Pald-in Capital:

Preferred Stock: Preferred Stock was represented by 5,942,746 shares outstanding at December 31,1978, as follows: Entitled Per Share Upon Voluntary Redemption Shares And Thereafter To Amounts Declining Dividend Authorized Cutstanding Amount Through in Steps To $5.00 106,677 106,677 $112.50 4.04 12,926 12,926 102.27 4.20 14,797 14,797 102.50 4.12 32,534 32,534 103.73 4.80 73,206 73,206 101.00 7.72 350,000 350,000 106.00 5/31/81 $101.50 after 5/31/84 8.84 350,000 350,000 107.00 8/31/82 101.00 after 8/31/85 7.45 400,000 400,000 106.00 2/28/81 101.00 after 2/29/84 7.20 450,000 450,000 106.00 1/31/82 101.00 after 1/31/85 7.72(1972 Series) 500,000 500,000 106.00 9/30/82 101.00 after 9/30/85 7.325 700,000 700,000 110.00 3/31/83 101.00 after 3/31/88 100.00 after 3/31/0g 3.40 800,000 800,000(1) 115.00 3/31/84 9.75 600,000 600,000(2) 109.75 2/28/81 101.00 after 2/28/91 9.125 200,000 200,000(3) 110.00 9/19/81 102.00 after 9/19/91 8.20 600,000 600,000(4) 115.00 9/20/87 100.41 after 9/20/96 8.60 382,606 382,606(5,7) 107.00 12/20/87 100.00 after 12/20/97 8.625 370,000 370,000(6) 108.63 6/20/83 100.00 after 6/20/02 Total 5,942,74_6 5,942,746(8) L':ss shares due within one year. 11,834(8) B :ance. 5,930,912 (1) Issued March 1974. (2) Issued March 1976. (3) Issued October 1976. (4) Issued September 1977. (5) Issued December 1977. (6) 355,000 shares issued in May 1978 and 15,000 shares issued in September 1978. (7) No redemption prior to December 20,1982. (8) Sinking Fund requirements call for annual redemption at $100 per share as follows: Percentage of S; ries. Shares issued Beginning Ending $8.60 3% Dec.1978 Dec.2010 9.125 4 Sept.1981 Sept. 2000 8.20 5 Sept.1983 Sept.1996 7.325 4 April 1984 April 2008 8.625 5 June 1984 June 2002 8.40 4 April 1985 April 2009 Upon involuntary liquidation, all shares are entitled to are cumulative and payable March 20, June 20, Sep-receive $100 per share plus accrued dividends. Dividends tember 20 and December 20. 24

L. a Preference Stock: Preference Stock was aethonted for issuance effective prior to May 1,1980, and thereafter declines in steps to Apol 17,1975. On May 22,1975. the Company issued $25.25 on May 1,1990. Upon liquidation, all shares are 2,400,000 shares of $2.90 Dividend Preference Stock at entitled to receive $25 per share plus accrued dividends. $23.90 per share which aggregated $57,360,000. Dividends are cumulative and payable March 20. June 20, The Preference Stock is redeemable at $27.90 per share September 20 and December 20. Common Stock: Common Stock was represented by 85,241,100 shares Debentures due May 1,1986. During the years 1974 outstanding at December 31,1978. In addition,2,051,282 through 1978 the following changes in Common Stock shares (based on the conversion price of $24.375 per occurred: share)are reserved for conversion of the 3% Convertible ? Autornahc Du,rnd Y e ar Put#c Ohne rij Hem.estenent Pran Sa,.ngs Pian Totai Outs'cnd.ng AM ms To AMoors To Add tes To W es t w.t. A u cunt Shams Cawtai Accour t _5h ece Cc. tai Account snares Cao, tat Account 1978. 5,000,000 $ 68,275,000 827,514 $11,689.651 337,143 $4,774,135 85,241,100 $1,235,104,925 1977. 5,000,000 70,400,000 626,886 9.229,553 284.167 4,212,884 79,076,443 1,150,366,139(1) 9 1976. 5,000,000 73,875,000 541,248 7,726,113 277,798 3,900,245 73,165,390 1,006,523,702 1975. 9,000,000 113,980,000 267,802 3,455,908 301.065 3,651,754 67,346,344 921,022,344 1974.6,600,000 54,945,000 323,825 3.206,975 57,777,477 799,934,682 i 50,853,652(2) 741,782,707 (1)In May 1977, $60,000,000 was transferred from Earnings Reinvested in Business to the Common Stock account as authorized by the Board of Directors. 3 (2) Outstanding January 1,1974. + On Apnl22,1976, the number of authonzed shares wasincreased from 70,000,000 to 95,000,000. l Othar Paid-in Capital: -z in November 1977, the Company solicited tenders of 594.850 shares of the various senes of Preferred Stock, shares of $5.00 Dividend, $4 80 Dividend, $4.20 Dividend, having an aggregate stated value of $59,485,000, were $4.12 Dividend and $4.04 Dividend senes of Preferred tendered for 347,873 shares of $8.60 Dividend series Stock in exchange for shares of $8.60 Dividend Preferred having a stated value of $34,787,000. The difference of Stock. The exchange offer expired January 4,1978. The $24,648,000, net of cash paid for fractional shares, has purposeof thisexchangeofferwastoincreasethebalance been transferred to Other Paid-in Capital. In addition, ~ sheet ratio of Common equity to total equity, consistent 79,482 shares of the various series of Preferred Stock, with the objective of the Company to achieve and main-having an aggregate stated value of $7,948,000, were i tain capitalization ratios in the range of 52% long-term tendered in January 1978 for 46,567 shares of $8.60 Divi-ebt,13% Preferred and Preference Stock and 35% Com-dend series having a stated value of $4,657,000. The dif-mon equity. No determination has been made by the ference of $3,211,000, net of cash paid for fractional Virginia State Corporation Commission as to rate-making shares, has been transferred to Other Paid-in Capital. treatmentof the exchangeoffer Asof December 31,1977, J. Short-Term Loans and Compensating Balances: 7 Daay Monm End A,erage Outstandmq Mas, mum Ou' standing iet..e,i a,. At E nd interes' 1976

IJaturst, Of VeaN 1)

Amount Rate ( 1) Amount Date Commercial Paper. (2) $43,833,690 7.28% $101,636,000 6/30/78 Master Notes (3) 9.10% 1,833,970 8.40 8.234,000 10/31/78 'i '.! "~ Commercial Paper. (2) 6.76 34,356,000 5.88 71,500,000 1/31/77 (1) Weighted average interest. (2) Principally 30 to 90 days. (3) Maximum 180 days. Available bank lines of credit amounted to $259,400,000 maintains compensating balances of up to 10% or pays E at December 31, 1978, including $80,000,000 applica-fees in lieu of balances in connection with its lines of ble to a revolving credit arrangement effective through credit. The balances may be increased if the Company December 31,1979. However, a limitation in that arrange-is utilizing the line of credit. The revolving credit agree-ment on total short-term indebtedness of the lesser of ment provides for commitment and other fees, which ^ $300,000,000 or available bank lines of credit would have would aggregate 7 % of the prime rate plus % of 1% of s permitted the issuance of only $255,963.000 of additional the commitment. short term debt at December 31, 1978. The Company 2s

s ~ K. Long-Term Debt: Long-term debt outstanding at December 31, 1978: (1) The Mortgage provides for sinking funds as foil Comm.ncing Fund R.goi,.m.nt. First and refunding morigage bonds !): ^ Series G through CC $10,400,000 Series G 2%% due 1979. S 20,000,000 Series EE.

a..

June 1979 5,000,000 Series H 2%%, due 1980. 20,000,000 Series FF. Jan.1977 8,250,000 Series 1 3%%, due 1981. 20,000,000 Series KK Mar.1984 2,750,000 Series J 3%% due 1982. 20,000,000 Pollution Control Series A Sept.1986 500,000 Series DD 10%%, due 1983. 75,000,000 Pr llution Control Series B May 1992 250,000 a Series K 3%%, due 1984. 25,000,000 Pollution Control Series C May 1989 375,000 Series L 3%%, due 1985. 25 000,000 gThe Company may satisfy these requirements by waiv-Series A 6%%, due 1985(a) 0 000.000 Series M 4%% duo 1986. .20,000,000 ing the privilege to issue an equal amount of Bonds by substituting property therefor and intends to do so in 1979. O d Substantially all of the Company's property is subject to g de 2 0 the lien of the Mortgage. Series P 4%% due 1990. 25,000,000 Series O 4 h%, due 1991. 30,000,000 (2) Term Notes: Series R 4%% due 1993. 30,000,000 y,,,,,,m,,,,,,n.,. Series S 4%% due 1993. 30,000,000 p.,c.n,,,, %i,o o. Series FF 11% due 1994. 133,500.000 or em wo t= n.n Series EE 11% due 1994. 100,000,000 Dn*,' k*."U Zl.*oi ^" ^T ".',*'n$,'*" u.,o,,,, 2 Series T 4%% due 1995. 60,000,000 $ 13,200,000 Feb.1979 8.15 Series U 5%%, due 1997. 50,000,000 5.410,000 Oct.1979 60%(a) Series V 6%% due 1997. 50,000,000 20,000,000 Dec.1979 8.35 Series KK 8.95% due 1998. 55,000,000(b) 10,000,000 Feb.1980 7% Series W 7%% due 1999. 85,000,000 10,l)00,000 Nov. D80 (b) 8.15% 7%% Series X 7%% due 1999. 75,000,000 60,000,000 Feb.1981 115 8% Series Y 9%, due 2000. 83,725,000 5,000,000 Feb.1981 8.15 Series Z 8%% due 2000. 83,725,000 25,000,000 Aug.1981 (c) 8%(c) Series AA 7%% due 2001. 90,000,000 50,000,000 Jan.1982 115 8% Series BB 7%% due 2001. 50J J0,000 5,000,000 Apr.1982 8% Series CC 7%%, due 2002. 100,000,000 10,000,000 Apr.1983 8% Series C 6.15% due 2003(a). 8,000,000(b) 5,000,000 Oct.1983 8% Series A 8%% due 2005(a) 18,000,000 10,000.000 Apr.1984 8% Series GG 10% due 2005. 100,000,000 20,000,000 Feb.1965 115 8% Series HH 9%% due 2006. 100,000,000 5,000,000 Mar.1985 8% Series B 6%% due 2006(a). 20,000,000 50,000,000 Mar.1980 (d) 9 8 Series 11 8%% due 2006. 100,000,000 $j03.610,000 Series JJ 8%% due 2007. 150,000,000 Series LL 9%% due 2008. 150,000,000(b) (a) Pollution control note. The interest rate may not exceeh Total 2,0S4,950,000 5%% at any time. (b) Base lending rate plus % of 1% Term notes due 1979-88 (including (c) Base lending rate plus % of 1% The 8%% average $100,410,000 issued in 1978)(2). 303,610,000 interest rate expires in August 1979. Convertible debentures 3%% due (d) 118% of the higher of commercial paper rate plus % of 1986. 50,000,000 1% or base lending rate. (3) Pollution Control Revenue Bonds: Randf4v s;n Pollutiori control revenue bonds due s no 1979 2004(3). 51,500.000 ponc.,,, in, anno., ^ " ' " " ' ^ * " " '

• • " d

.7,460,0C0,000(4) Less: Due within one year: $10,000,000 Dec.1979-83* 7.0-7.4% None $250,0001979-1983 Sinking fund obligations (1). 13,250,000 8.0 500,000 1984-1986 Term notes (2). 38,610,000 5,000,000 Dec.1989 First and Refunding Mortgage 750,000 1987-1988 Bonds 20,000,000 22,000,000 Oct. 2002 5% 500,000 1990-2001 Pollution Control Revenue _14,500,000 Dec. 2004 8% 750,000 1990-2003 Bonds (3). 2,250,000 551,500,000 Unamortized discount- $2,006,~ OU~ of the $10,000,000 principal amount net of premium 9,154,000 f Serial Bonds mature annually. Total long-term debt (c) $2,376,796,000 (4)In the first quarter cf 1978, the Company redeemed (a) Pollution Control Series. (b)lasued in 1978. the S88.25.0.000 of. long-term debt and sinking fund (c)No amount of any issue is plWpd held by or for obligatk,ns'due in 1978. Maturities (including cash account of the Company, held by affifiates or, included sinking fund obligations) through 1983 are as fol-in sinking or other special furvis OFthe Compaay. All lows: 1979-574,110,000; 1980-555,500,000; 1981 - amounts are authorized by indenture and aN issued $125,500,000; 1982-S90,500,000; and 1983-and not retired or canceled. 5105,500,000.' 26 ~.

ie Effact cf R:t]In:rcrcsen Cperzting Revenues: R:t] increases which became effective for portions of Electric operating revenues for 1978 include $47.1 mil-th] following years increased operating revenues for the lion subject to refund with interest pertaining to tempo-r;spo4tive years by tne approximate amounts shown: rary surcharges associated with the placing in-service

• • a"' Daa*'"

of North Anna Unit 1 applicable to Virginia jurisdictional 1978 1977 1976 1975 1974 customers and certain nonjurisdictional customers. It is Electric. $56.9 + $3.0 $6.3 $14.8 $52.5 the Company's opinion that the likelihood of a required G:s. .9 .3 refund of any of this amount is remote. 51, Retirement Annuity Plan: Cocts to the Company under the plan were: 1978 - time. At January 1,1978, the date of the latest avail-7 $8,586,000; 1977- $7,594,000; 1976-$5,046,000; 1975-able actuarial reoort, the unfunded liability of the plan $3,720,000 and W74-$2,609,000. Changes in actuarial amounted to approximately $20.3 million. At that date, assumptions in 1977, principally relating to incidence of the actuarially computed amount of vested benefits ex-r;tir:m:nt, salary scale and mortality, resulted in an in-ceeded the cost basis of the plan's assets by $3.7 million. cr;ise in the unlunded liability of $8.9 million at that N. C:mmitments and Contingencies: Tha Company has made substantial commitments in proved for rate-making purposes, does not agree with conn:ction with its construction program, which is FERC and has requested a hearing before the full Com-ricantly estirnated to be in the range of $650-5750 mi!- mission but the outcome of this proceeding is presently [n for 1979, subject to review pending resolution of the uncertain. rita case before the Virginia Commission. Additional fi-In September 1975, Westinghouse Electric Corpcra-nancing is contemplated in connection with this program. tion announced its intention not to perform the contracts In December 1975, Laurel Run Mining Co. sold to a non-it had with the Company and a number of other utilities effiliit:d party and leased back the major portion of its for the delivery of uranium. As a result, suits were insti-coil mining equipment. In 1976, additional equipment was tuted against Westinghouse and on October 27,1978, insed under the same agreement. As guarantor, the the United States District Court for the Eastern District Comp ny has a contingent liability for annuallease pay-of Virginia ruled that Westinghouse was not excused m:nts of $2.3 million in 1979, $2.1 million in 1980, $1.4 mil-from performance under the commercialimpracticability lion in 1981., $1.4 million in 1982 and $1.1 million in 1983. provisions of the Uniform Commercial Code. The court As a result of a routine periodic audit of the Company's also held that the Company had a minimum-maximum compliince with the Uniform System of Accounts for the contract, not a requirement contract which was the posi-y rs 1970 through 1974, which has been in progress dur-tion of the Company throughout the proceeding. This ing th3 past two years, the FERC by letter dated November added substantially to the amount of uranium to be de-20,1978 directed the Company to reclassify $6.3 million livered under the contract. The amount of damages to ($4.3 million of AFC and $2.0 million of other costs)associ-which the Company is entitled has not been determined (t;d with a boiler implosion in August 1974 at Yorktown but is to be considered at a later trial expected to begin dnit 3 at the time such unit was first placed in service in the summer of 1979. The Company is engaged in set- ,hich the Company has capitalized on its books. The tiement discussions with Westinghouse, but no agreement " Comp ny, whose accounting for this item has been ap-has yet been reached. O. Cuartarly Financial Data (Unaudited): Th3 following amounts (not examined by independent opinion of the Company for a fair statement of the results c:rtifi:d public accountants) reflect all adjustments, con-for the interim periods. sisting of only normal recurring accruals, necessary in the Balance Earomgs Baiance Earnings for Fer Share for Per Share Opee ating Oree ating Common of Common Operating Operet.ng Common of Common Qaaetse Revenues income Stock Stock Ouarter Revent es locome Stock - Stock """*a**""" 1977 """* aa ' o"*'" 1978 1st. $391,771 $72,249 $40,699 $.51 1 st. $344,604 $60,639 S31,617 $.43 2nd. 329,340 67,265 32,283 .41 2nd 298,506 59,505 28,139 .38 3rd.. 404,763 90,238 45,700 .57 3rd. 387,006 81.238 49,611 .67 4th. 339,031 75,523 31,594 .39 4th. 328,744 63,985 32,707 .44 R:sults for interim periods may fluctuate as a result of Revenue Act of 1978, of $2.2 million ($.03 per share) w ith;r conditions, rate relief and other factors. of Federal income taxes previously provided for contri-B;lince for Common Stock for the fourth quarter of butions in aid of construction. 1978 was increased by a reduction, as a result of the P. Replacement Cost Data (Unaudited): Th3 impact of the rate of inflationEperienced in recent statements. In compliance with reporting requirements, yzr has resulted in replacement costs of productive ca-estimated replacement cost information is disclosed in pacity thc.t are significantly greater than the historical the Company's Annual Report to the Securities and Ex-c:st; of such assets reported in the Company's financial change Commission on Form 10-K. 27

Ton Year Comparativo Summary of Performance (Thousands of Dollars) 1978 1977 76 1975 Operating revenues Electric. 51,413,866 $,313,937 51,060,663 $ 998,93 Gas 51,039 44,923 43,413 34,40 Total operating revenues. 1,464,905 1.358.860 1,104.076 1,033,33 Enpenses (operation and maintenance). 669,232 850,823 647,965 629,16 Depreciation 117.481 98.527 95,191 89.80 Amortization of abandoned project costs. 6,760 3.173 Taxes: Federal inccme: Currently payable (refundable). 23,163 9,191 2,209 (1,14 investment tax credits, including carry-back 40,294 23,548 35,568 2,28 investment tax credits, amortization. (5,467) (4,539) (3,028) (2,45 Deferred-accelerated amortization. (1,547) (1,547) (1,547) (1,54 -liberalized depreciation 38,509 13,101 12,320 9.36 -other. (22,294) 19,982 3,229 20,87 Other. 93,499 81,174 71,413 57,16' Total operating expenses. 1,159,630 1.093,433 863,320 8 1_ Operating income 305,275 265,427 240,756 2 t Other income Allowance for other funds used during construction. 64,002 72,361 Allowance for funds used during construction 80,429 66,87 Miscellaneous. net 1,342 (663) 491 54 Total other income. 65,344 71,698 80,920 67,41 income before interest charges 370,619 337,125 321,676 297,23 Interest charges: Interest on long-term debt. 184,947 168.885 147,481 122,95 Other 6,677 5,748 7,409 19.55-Allowance for borrowed funds used during construction. (24,869) (27.301) Total interest charges. 166,755 147,332 154,890 _ _ _ _ 142,50 income before cumulative effect of change in accounting method 203,864 189,793 166,786 154.73 Cumulative effect to January 1,1974 of accruing estimated unbilled revenues. net of taxes Net income. 203,864 189.793 166,786 154,73 ~ Dividends. On preferred and preference stock. 53,588 47,719 43,821 On common stock. 103,474 91,225 82,923 t Total dividends. 157,062 138,944 126,744 106.75. Earnings reinvested in business S 46,802 5 50.849 40.042 47,97! Shares of common stock-average for year (thousands) (1). 80,060 74,025 68,137 60,85-Earnings per share of common stock. $1.88 $1.92 $1.80 $1.9: Davidends paid per share of common stock (1). $1,30 $1.24 $1.22 % $1.11 Pay-out ratio. 6S% 64 % 67% 6C Return of capital. Common stock dividends, 72.654% 25 26i. Preferred and preference stock dividends Utility plant at original cost 55,626,671 $5.109,099 $4,609,416 $4,142,90( Utility plant expenditures. S 529,186 $ 569,068 $ 481.601 $ 432,13E Accumulated depreciation and amortization S 940,958 $ 803,604 $ 700,254 $ 609,304 Capitalization: Preferred and preference stock, S 651,634 $ 619,109 $ 583,807 $ 503,80, Common stock, other paid in capital and earnings reinve'sted in business 1,627,179 1,493.521 1,334,639 1,211,28 Debt (excluding short-term debt). 2,460,060 2.238,400 2.038,150 1,803.15C Total capitatization. 54,738,873 $4.351,030 $3,956,596 $3,518.23E ~ Short-term debt-pending permanent financing. S 3,437 $ 53,050 $ 26,500 $ 110.05C Capitalization ratios: Preferred and preference stock. 14% 14% 15% 1< Common stock and earnings reinvested in business. 34 34 34 35 Debt (excluding short-term debt). 52 52 51 51 (1) Restated to reflect the split of common stock (4 for 3) effected Apnl 1968. 28 (2) includes non-recurnng cumulative effect of change in accounting for unbilled revenues of $ 24 per share.

1974 1973 1972 1971 1970 1969 1968 735.962 5 524,953 5 445 668 5 390.370 $ 353,151 S 335,770 $ 278,725 28.050 26.000 25,185 23.302 21,729 20.670 18.817 764,012 550.963 470.853 413.672 374.880 326.440 297,542 478.716 278,750 264,906 218.846 181,434 142.189 122.717 77,757 68.436 53.058 49,950 46.841 41,020 37,944 (7,678) (1,010) (6.850) 8,652 23,784 30,252 33.569 (3.195) 3.901 7.368 1.952 1.163 4,082 3,070 (2.412) (2.413) (2.225) (2.062) (1,318) (516) (424) (1,547) (1.547) (1,547) (1.547) (1,547) (1,547) (1,547) 3.202 5.018 7.265 1,356 1.050 48.216 42.170 36.629 33.514 29.367 26.653 24.603 , '8.077 395.552 352.695 310.355 279.724 242,133 219.932 -.}935 155,411 118.158 103.317 95,156 84,307 77.610 65.735 57,359 58.451 39.993 24,175 13.602 6.682 411 336 (156) 142 274 619 66 66.146 57.695 58.295 40,135 24.449 14.221 6,748 232.081 _ 213.106 176.453 143.452 119.605 98.528 84.358 94.058 78,350 67,554 58.130 44,083 33,653 24.920 23.214 10.684 5.162 3.274 3.368 1,624 1,625 1573 72 89.034 72,716 61,404 47,451 35.277 26.545 114.809 124.072 103.737 82.048 72,154 63.251 57,813 12,353 127,162 124.072 103,737 82.048 72.154 63.251 57,813 419 24,147 16.472 12,216 7.728 5,555 4.226 ,165 54.796 46.905 41,993 39.906 36.923 34.293 0,584 78.943 63.377 54.209 47,634 42.478 38.519 il6,G78 5 45.129 S 40.360 $ 27.839 5 24.520 S 20.773 19.294 52.100 47,021 41,883 37,829 35.881 33,264 32.521 $1.86(2) $2.13 S2.08 $1.85 $1.80 $1.73 S1.65 $1.18 $1.16% $1.12 51.12 $1.12 $1.11 $1.06% 71 % 55% 54 % 60% 62 % 64 % 64 % 100 000 % 49 407% 100.000% 96.724 % 54.243% 100 000 % 55.565% D,739.395 $3.298.447 52,847,614 $2,416,130 $2.082,487 $1.754,776 S1.508,640 460.912 S 486,709 $ 4i2,819 5 380.268 $ 338.074 S 255.493 5 177,967 545.296 5 476,121 S 414.941 5 373,834 S 335.605 S 298.175 S 265.356 446.447 $ 366,447 5 296,447 5 201,447 $ 161.447 S 126,447 91,447 0,042.677 948.369 810.121 680,800 574.633 476,666 453.577 0 578.350 1.289.890 1.242.440 1,070.440 932.000 762.000 602.800 2 1067.474 S2.604,706 $2.349.008 S1,952.687 $1,668.080 $1,365.113 S1,147,824 N56I945 S 220.150 S 88.400 $ 61.800 $ 53.700 $ 53,900 $ 63.100 15% 14% 13% 10% 10% 9% 8% 34 36 34 35 34 35 39 51 50 53 55 56 56 53 29 e

Tcn Yecr Operating Statistics ELECTRIC DEPARTMENT 1978 1977 1976 1975 Operating revenues (thousands): Residential. S 563,561 5 524,336 5 420.150 $ 402,8i Commercial. 392,101 365,340 298,681 288,3f Industrial. 182.901 176,573 144,770 137,1 f Other sales of electric energy 268,213 242,686 193,096 166,8! Other electric revenues. 7,090 5,002 3,966 3.6f _ _.._ __ _ Total operating revenues-e!ectric. ~ ~ ~ ~ ~ 51,413,866 $1,313.937 S1,060,663 $ 998,92 ~ ~ Population se'rved at7etail-estinia~ted7 3,465,000 3,415,000 3.365,000 3.315,0C : Number of customers: Residential. 1,138,470 1,100.876 1,071,528 1.041.23 Comme. cial. 115,121 111,b62 108.197 105,94 Industrial. 920 920 920 91 Other.. 15,446 14,922 14.462 14,88 _ _. _. _ __ Total customers; _...n. = 1,269,957 J228_,3_80 1.195.107 1,162.97 Sales of electricity-Mwh (thousands): Residential. 12,405 11,867 11,137 10.37 Commercial. 9,170 8,762 8.455 7 Industrial. 6,152 6,022 6.011 0 O_ther 9,340 8.806 8,510 4 Total sales of electricity.. 37,067 35,457 34.113 31,48 Losses and miscellaneous sy_ stem uses 2,901 2.792 2,261 2,58 Total distribution-energy supply 39,968 38,249 36,374 34,07 LessL ales outside of service area S Total distribution. 39,968 38.249 36,374 34,07 ~ Solr2e of e5ctricity-Mwi(bbnds):~~ ~ Steam-Fossil. 24,438 26,403 27,090 23,56- -Nuclear. 14,098 9,481 7,740 8,96-Hydro. 967 444 599 98-Other 399 625 407 22 Net purchased and interchanged. 66 1,29G 538 32 Company energy supply. 39,968 38,249 36,374 34,07: S Lessi ales outside of service area System output 39,968 38,249 36,374 34,07; interchange __ deliveries for account of others. 325 325 326 32: .. Company's_se_rvice area output...... 40,293 38,574 36,700 34,39: Company's service area peak load-Mw. 7,805 7,902 7,040 3: Power supply available for peak load-Mw Ger.erating capability: Steam-Fossil, 6,321 6,321 6,321 6,32 ^ -Nuclear. 2,448 1,550 1,576 1,57i Hydro. 326 326 326 3 21 Oth_er 439 439 454 4 65 Total generating capability. 9,534 8,636 8,677 8.69 SEPA power disposed of in Company's service area 165 165 165 16! Available for firm peak load 9,699 8.801 8,842 9,85i Purchase (sale) outside service area. 300 300 313 31f _.. _ _ Ava[lable _fo_r_s_ervice ar_ea. peak load. 9,999 9,101 9,155 9,17f BTU per kilowatt-hour generated........ 11,018 10,933 10.739 10,89 Average fuel cost per KWH generated-mills. 14.04 15.23 12.94 13.00 Electric line-pole mites. 41,698 41,446 41,186 40,663 Underground construction-miles of route 8,395 7.794 6,824 6,266 GAS DEPARTMENT Operating revenues (thousands): Residential........ Commercial and industrial... S 30,621 S 26,640 S 24.914 S 21,280 20,000 17,981 18,308 12,944 Other 418 302 191 179 _.._.__._ Total operating r_.e. venue _s--gas...... S 51,039 5 44,923 5 43,413 $ 34,403 Number of customers... 119,288 120 262 122.103 122.486 Sales-Mci (thousands)....... 15,303 15.065 17,228 15,017 Output-Mct manufactured (thousands). 236 650 138 92 Mcf natural gas purchased (thousands), 16,,,07 15.448 18,519 16,274 Miles of main 2.096 2,099 2,100 2,014

• Excludes the cumulative effect to January 1,1974 of accruing estimated unbilled revenues ($18.842,000 electric-51.565,000' gas) 30 shown as a non-recurnng item on the income statement, net of taxes.

a e 1 1973 1972 1971 1970 1969 1968 _974 308.834 S 229.860 S 191,924 5 169,113 $ 158.698 5 133.506 S 120,515 811.486 150,758 130,599 113.G46 99,957 86,907 79,379 006.309 66,131 58,785 48.375 41,889 39.099 36,974 006.018 75,170 61,440 56,392 50.073 43 323 39.968 3.315 3 044 2.920 2,844 2.534 2.935 1.889 F35.962' S 524,963 $ 445,668 5 390,370 $ 353,151 S 305.770 S 278.725 $70,000 3.225.000 3.185,000 3,150,000 3,100.000 3,025,000 2,975,000 @18.346 989.471 954.374 920,835 895.210 878.206 853,429 205,531 103.253 100,175 98.223 97,113 96,437 94,857 916 910 894 874 873 881 848 13 0_45 12.350 11,817 11.392 10,948 10,216 9,561 037,838 1.105,984 1.067.260 1.031,328 1.004.144 985,740 958.695 9.850 9,911 8,775 8.121 7,873 6,870 6 011 _4,,107 7,330 6.471 5.980 5,617 5.035 4,488 58 5.535 5.136 4,683 4.456 4,256 3.995 120 7.268 6,529 5.902 5.560 4.861 4,517 29.935 30.044 26,911 24.686 23,506 21,022 19.011 _2J18 2.335 2,199 _ 26,705 25.283 22,848 20,823 2,019 1,777 1,826 1,812 32,453 32,379 29,110 216 117 354 32,453 32,379 29.110 26.705 25,067 22,731 20,469 22.819 22.311 23,710 24,335 23,218 22,178 20,525 5.953 6.857 370 774 949 1,071 825 445 443 487 629 459 558 323 350 276 44 2.278 1,803 3,401 1,222 1.270 (49) (233) 32,453 32.379 29,110 26,705 25,283 22,848 20,823 ~ 216 117 354 327453 32.379 29.110 26,705 25,067 22,731 20,469 __3?5 315 312 307 301 315 310 32,778 32,694 29,422 27,012 25.368 23.046 20.779 5.684 4,866 4.306 4.334 4,330 4.330 3.676 1,576 1,576 788 326 326 326 326 326 326 327 _ 530_ 7.298 5,950 5,190 4,998 4,910 4,131 530 530 530 342 254 128 8.116 _ 16,5 165 132 132 131 131 131 8,281 7,463 6.082 5,322 5.129 5,041 4,262 _ 251_ 7.585 6,762 5,932 5.323 4,876 4.331 122 680 610 194 (165) 69 8.53? 10,868 10.673 10.529 10.382 10.268 10,162 9,961 12.43 4.98 4.63 4.28 3.55 2.96 2.80 40,121 39.578 39,055 38.404 37,803 37,336 36,686 5.641 4,772 4.055 3,367 2,763 2.282 1,614 17,265 S 16,038 S 16.132 S 14.847 14,600 14,446 S 13.341 10,598 9,775 8.858 8.252 6,922 5,932 5,272 187 187 195 203 207 292 204 28.050' S 26.000 25,185 S 23.302 $ 21,729 $ 20.670 S 18.817 $h[bbd 853,000 85f0d0 850.000 800.000 655,000 652.000 ~ T24,395 125,525 125,277 124.029 122,489 122.264 119.143 16,888 17,666 17,620 17,772 16,239 15,345 13.809 12 297 247 341 378 288 407 17,938 18,696 18,824 18,563 17.035 16.257 14.961 2,012 1.992 1,993 1,955 1,909 1,850 1,768 31

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Momtiershipof Committeesof the Board Corrmitee Chairrnan Merrter Ex Officio Organization and Employees' Finance Audit Compensation Benefit J"_mes F. Betts, President, The Life insurance Company of Virginia, Richmond Charles F. Burroughs, Jr., Chairman of the Board, Royster Company, Norfolk Milton L Drewer, Jr., President. First American Bank of Virginia, McLean Mrs. Mary C. Fray, Culpeper Dr Allix B. James, President, Virginia Union University, Richmond John M. McGurn, Retired Chairman of the Board T.Justin Moore,Jr., Chairman of the Boardof Directors William S. Peebles, Ill, President, WS. Peebles and Company, Lawrenceville Shirl2y S. Pierce, President, The Ahoskie Fertilizer Company,Inc., Ahoskie, N.C. Stariley Ragone, President f Kenneth A. Randall, President, The Conference Board, New York Williim T. Roos, President, Penn Luggage, Inc., Hampton Roy R. Smith, Chairman of the Board, Smith'sTransferCorporation Staunton Willinn F. Vosbeck, Jr., Managing Partner,VVKR Partnership, Alexandria T. Justin Moore, Jr., Chairman of the Board and Chief Executive Officer, Age 53(22) Stanley Ragone, President and Chief Operating Officer, Age 53(30) William W Berry, Executive Vice President, Age 46(21) Samuel C. Brown Jr.,Powee Station Engineering and Construction, Age 53(25) Lemuel L Eley, Jr., Commercial Operations, Age 62 (41)

/NLeon D. Johnson, lil, Support Services, Ago 61 (39)

VWilli1m L Proffitt, Power, Age 49 (23) Wadsworth Bugg, Jr., Age 57 (32) Charles M.Jarvis, Age 50(31) B.D. Johnson, Vice President and Controller, Age 46 (22) Donald B. McCammond, Age 63(8) John 1. Oatts, Age 49(26) O. James Peterson, Ill, Vice President and Treasurer, Age 43 (8) William C. Spencer, Age 46(11) Carlton M. Stallings, Age 60(36) William N. Thomas, Age 55(30) NewYork Stock Exchange - S. Brooks Robertson, Age 61 (40) United Virginia Bank, Richmond The Chase Manhattan Bank (N.A.), New Wrk Northern Division, James P. Cox, Jr., Age 60 (39) . The Central National Bank of Richmond Ecstern Division Harrison Hubard, Age 61 (39) Southern Division Randolph D. Mciver, Age 48 (19) Manufacturers Hanover Trust Company, New Wrk Western Division, Charles S. Betts, Jr., Age 64 (45) Centrri Division David W Poole, Age 54 (28) - April 18,1979 ~ ( ) veus of utmty expenence

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