ML20083L060

PECO Energy Co 1994 Annual Rept

ML20083L060
Person / Time
Site:	Peach Bottom, Limerick
Issue date:	12/31/1994
From:	Hunger G, Paquette J PECO ENERGY CO., (FORMERLY PHILADELPHIA ELECTRIC
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
NUDOCS 9505180017
Download: ML20083L060 (48)

Text

{{#Wiki_filter:,, 7 g .. _ ~ f Ctatlen support Department A 10CFR 50.71 g PECO ENERGY 2; yz!!3e :;Le,, 965 Chesterbrook Boulevard Wayne. PA 19087 6691 1 May 12,1995 Docket Nos. 50-277 50-278 50-352 50-353 Ucense Nos. DPR-44 DPR-56 NPF-39 NPF-85 U. S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555

SUBJECT:

Peach Bottom Atomic Power Station, Units 2 & 3 Umerick Generating Station, Units 1 & 2 PECO Energy Company Annual Financial Statements

Dear Sirs:

F Attached is the 1994 Annual Report of PECO Energy Company, operator of Peach Bottom Atomic Power Station and Umerick Generating Station. This Annual Report contains the annual financial statements for 1994. Very truly yours, G. A. Hunger, Jr., Director-Ucensing Attachment cc: T. T. Martin, Administration, Region 1, USNRC N. S. Peny, USNRC Senior Resident inspector, LGS W. L Schmidt, USNRC Senior Resident inspector, PBAPS o:\\eac\\gah\\pecoefs.ltr i )hh F 9505190017 941231 i PDR ADOCK 05000277 1 PDR A \\\\ 1

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4 Company Profile PECO Energy Company is an operating utility which provides electric and gas service in southeastern Pennsylvania. Two subsidiaries own, and a third subsidiary operates, the Conowingo flydroelectric Project, and one distribution subsidiary provides electric service in two counties in northeastern Maryland. The total area served by the Company and subsidiaries covers 2,475 square miles. Electric service is supplied in an area of 2,340 square miles with a population of alx>ut 3,700,000, including 1,600,000 in the City of Philadelphia. Approximately 95 percent of the electric service area and 63 percent of kilowarthour sales are in the Philadelphia suburbs and in northeastern Maryland, and 5 percent of the service area and 37 percent of such sales are in the City of Philadelphia. Natural gas service is supplied to a population of about 1,900,000 in a 1,475-square-mile area of southeastern Pennsylvania adjacent to Philadelphia, e Y I COMPANY SE RV8CE TERRITORY COUNTIE S SE RVE D l su.k., PENNSYL V ANIA m,meomerv l Pheladelplete Deteween NEWlfJERSEV Harf or rs C et il I le i r r n.uid (. n N rs e - !.lf4 f T li. N'Ti li < q ill h \\ ( m %-rw e ooh Df t. AWARE 3 +

= to Our Sharchesidears The year 1994, our first under the name of PECO Energy, will be remembered as one of mixed results for our Company. Operationally, it was a very p>sitive year as new records were set for both electric and gas sales, as our nuclear operations achieved milestones in safety and perfor-mance and as our energy supply organization responded to the worst ice storm to ever hit our service territory in a manner that achieved wide-spread customer compliments. Financially, the Company continued to recover from the adverse 1990 Pennsylvania Public Utility Commission (PUC) rate order, allowing the dividend to be increased for the fourth consecutive year. Ilowever, earnings per share of $2.42, excluding a one-time charge, were 1% below the prior year. In addition, the market price of the Company's stock, as well as other utilities, decreased significantly as a result of higher interest rates and concerns about the potential for increased competition in the utility industry. Including the effect of the one-time charge,1994 earnings were $1.76 per share. On the pisltive side, sales to other utilities and in the residential and small I commercial market increased over 1993. These gains were offset by reduced sales and lower prices in the large commercial and industrial market. Strategically, the Company accelerated its plans and activities to prepare for a i more competitive future. Major events includal a voluntary retirement and separation l program which was accepted by 27% of the employees, an industry-first decision to outsource a major part of our Information Systems activities, and a concentrated focus I on developing new sales and marketing tools and techniques. l Watershed Yest On the national scene, this was a watershed year for the electric utility industry. The possibility of open competition in our industry took a significant step forward as a result of a prop > sal by the California Public Utilities Commission to permit utility customers in that state to have access to alternative electricity suppliers by the year 2002. This prop > sal, although still under study, has set off a series of reactions throughout the country. Utility companies have begun many initiatives to prepare for 1 competition, state regulators are focusing on the issue and the stock market reacted negatively to the prospects of higher risks for the industry. In April, the Pennsylvania PUC opened its own investigation to review the prential advantages and disadvantages of competition in the retail electricity market. The Company has taken the position that retail competition should not be enacted because it clearly would not pnxluce net benefits for the overall public and cotdd, in fact, rnluce the reliability of electric supply and cause the market value of utility investments to enxle. Most of the other parties to the PUC investigation support the position taken by the Company. For PECO Energy, these regulatory events validate the numerous a, ions we have taken in recent years to build a stronger Company to meet the challenges of a competitive market which were discussed in last year's Annual Report. To reinforce our commitments, we adopted a new vision for the Company which has the goal of transforming PECO Energy into a competitive energy supplier with high customer loyalty by the year 2(X)0 and to seek out emerging opportunities for growth which capitalize on our skills and assets. 4

- - - - - - ~. l Becoming A Competitive Supplier With High Customer Loyalty During 1994, a number of new steps were taken to improve the Company's cost efTectiveness. .k +g + The voluntary retirement and separation program will produce estimated savingr in wages and benefits of approximately $66 million in 1995 and $100 million per y ear thereafter, but it required a one-time charge of $254 million ($145 million after taxes { or about $0.66 per share)in 1994. + The decision to outsource a significant part of our Information Systems Department, 4 the first such major arrangement in our industry, will enable the Company to improve the level ofIS technology throughout the Company while saving approximately Corbin A. McNeilt Jr. $l50 million over the life of the 10-year contract. Preeldent and Chief Operating Offiser , g g g {j g g pg g gj gg g refueling outages ofless than 36 days in 1994, a reduction of about 65% in just 2 years. Because of these and other improvements, the Company produced a record amount of nuclear energy, saving our customers over $500 million in fuel costs and resulting in a bonus of $14 million for our shareholders.

• A comprehensive review of administrative and general overhead costs identified over s

$50 million of potential savings which are expected to be realized by 1996. + In order to build the high-performance work culture required to succeed in the competitive marketplace, standards are being raised for hiring and promotion and performance is becoming the driver for merit increases and incentive pay in more jobs. + The Company has agreed not to request a base electric rate increase before April 1999 except for unusual circumstances. The transition to a competitive environment will require new skills and techniques Joseph F. Paquette. Jr. Chairman of the Board and for satisfying customers' needs and increasing Customer loyalty. During 1994 major a Chief Esecutive Officer j g g a complete reorganivtion of the way we service our major industrial and commercial customer accounts. Through the cooperation of the Pennsylvania PUC, the Company now has the flexibility to offer pricing alternatives for the large customer accounts 4 which have competitive alternatives. We also initiated a study to reengineer the delivery of energy to our customers. This effort is expected to improve the efficiency of a major component of our cost structure. We were fortunate to have been able to elect Robert Subin to the Board of Directors. Bob is Senior Vice President, Campbell Soup Company and President, l Campbell Soup Company-Bakery and Confectionery Division. Ilis extensive i experience in consumer sales and marketing will provide valuable insights as we expand our marketing activities. Emerging Opportunities During the year we were also successful in exploring and implementing various emerging opportunities for growth by capitalizing on our existing strengths and assets. For example, we successfully completed, safely and ahead of schedule, the transfer of slightly irradiated nuclear fuel from the Shoreham, New York, nuclear power plant c c... e. c.

A to Limerick. This " win-win" transaction benefitted our shareholders to the extent of over $50 million (halfin 1994) and will save $70 million in fuel czts for our customers over the next 15 years. Our new strategic business units are building capabilities to profit from a variety of new activities such as becoming a major participant in the expanding national wholesale power business, developing customized energy solutions for larger retail customers, becoming a participant in the natural gas brokering business and contracting out our tecMical expertise. Another area which contains interesting possibilities is in the telecommu-nications field. We are studying various alternatives for profitably utilizing the Company's infrastructure and customer base in this evolving and changing industry. i Top Management Succeselon As a significant step in assuring an orderly management succession, the lioard of Directors has announced its intention to elect Corbin McNeill to the additional position of Chief Executive Officer at the Company's Organization Meeting on April 12. I will continue as Chairman of the floard and Chairman of the Executive Committee and will i focus on strategic issues as well as regulatory, legislative and financial activities until my retirement in 1997. PECO Energy is extremely fortunate t- "orbin McNeill, an executive with unique leadership skills and high person ards, available to lead the I Company during the challenging years ahead. He has played an instrumental role in raising the level of performarre of PECO Energy operations, especially its nuclear department, and has exhibited a focus on quality, an ability to manage change and a bias for customer satisfaction, all of which are essential for successful leadership in reday's business environment. 7 Future Prospects As I predicted in last year's report, the future is certainly turning out to be interesting and somewhat chaotic. Based on 1994 events, more of the same is in store. The cover on this year's Annual Report is intended to depict the challenging environment that exists teday in the utility industry. Despite the obstacles and chauenges that lie before us, I am convinced that PECO Energy has the resoarces and the determination to " harness the winds of change" as we move from today's choppy waters to a more stable future. Our employees are ccmmitted to the Company's success; our facilities are ample and efficient; and our strategic plan is credible and achievable. These strengths give us confidence that the years ahead will be successful. We appreciate the support of our investors and are dalicated to enhancing the value of your investment in PECO Energy. I J. F. Pequettsi Jr. Chairman of the Board and Ch6ef Enocutive Of6cer January 30,1996 raco e..,,,c.

e Report of 1994 Operations Financial and Operating Review Earnings for the twelve months ended December 31,1994 were $1.76 per share, which is $0.69 per share below last year. This decrease was primarily due to the one-time charge of $0.66 per share for the Company's special retirement and separation programs. Also contributing to the decrease in earnings were strategic and nr,n-recurring operating and maintenance expenses. The decrease in earnings was partially offset by the benefits of the Company's ongoing debt and preferred stock refinancing and eanniuae auo fo s$nsbso redemption program. In October, the Board of Directors increased the annual common stock 2.so. - - - - dividend by 7% from $1.52 to $1.62 per share, beginning with the December 1994 payment. This is the fourth increase since the 1990 dividend reduction and reflects the Company's continuing fmancial improvement. am - Total electric sales increased 5% in 1994, setting a new record. This sale. increase was primarily due to increased sales to other utilities and over 9,400 new customers. Natural gas sold and transported also set a record, increasing M primarily due to an increase in gas transported for others which was partially off et by lower interruptible sales.

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~ - - PECO Energy to Sell Conowingo Power Company in May, the Company announced that it had agreed to sell its Maryland retail electric subsidiary, Conowingo Power Company (COPCO), to Delmarva Power & Light Company (Delmarva) for $ 150 million. The sale of COPCO, which is subject to state and federal regulatory approvals, will bring value to Company shareholders while providing lower rates to COPCO customers. COPCO, witt.1994 revenue of $78 ' so si ~ ~ s' 4~ million, supplies electric service to about 35,000 customers in portions of Cecil and oz Harford counties. Customer service functions now provided by COPCO to York a nrnings er dure a luiamis guid gr aure County, PA customers will be provided by PECO Energy. The transaction includes a ten-year contract fbr PECO Energy to sell wholesale power to Delmarva. The COPCO sale does not involve the Conowingo Hydroelectric Station which is owned by Susquehanna Power Company, another PECO Energy subsidiary. Rate Matters in December, the Pennsylvania Public Utility Commission (PUC) approved a settlement which resolved the litigation concerning the Company's Septernber 1992 request for a 1.59f, $50 million electric rate increase which the PUC had denied and the Company had appealed to the Commonwealth Court of Pennsylvania. Under the settlement, the Company was allowed to increase rates by $25 million (less than one percent) effectiveJanuary 1,1995 to cover postretirement benefits. As part of the 4 ...e.............

E L E C TQlc s A LE s (BIL UON KILOWArTHOURSI 50 ~ ~ ~ ~ settlement, the Company agreed not to 61e for an electric base rate increase before April 1,1999. This will extend to almost ten years the period from PECO Energy's last electric base rate 61ing to its next possible 6ling. During this period, the Company 30 - - -- -- - - is twrmitted to 6le for recovery of certain cost increases beyond its control, such as fuel and taxes. Also, in another December action, the PUC approved a petition concerning gas operations which recognizes the environmental costs for former manufactured gas plant sites ($1.5 million) and mstretirement bene 6ts ($2.8 million). These increased i costs are lwing offset by a reduction in annual gas plant depreciation so that the net result is no increase in rates to gas customers. Hetirement and Separation Programn _# _i _'*_*i_ I' The Company's commitment to cost reduction and continued cost control was evident again in 1991. In April, the lloard of Directors approved a package of fmancial e Sales to other utilities " ""

• i ' "I" incentives that permitted eligible employees to participate in either a Voluntary Retirement Incentive Program (VRIP)or a Voluntary Separation incentive Program (VSIP). In September,2,182 employees, or 27% of the work force, accepted either VRIP or VSIP. To ensure an orderly transition, the retirements and separations are oas eaLE: auo taking place in stages through December 31,1995. The Company recorded a one-time,

((^g",' cue e c[ after-tax (harge at;ainst earnings of approximately $115 million, or $0.66 per share, in the third tiuarter of 1991 to refkxt the costs of these programs. The Company estimates that the savings of salaries and Irne6ts will amount to approximately $100 million per year by 1996. 80 P:wer Sales Agreement Signed During the second quarter, the Company fmalimi an agreement, subject to regula- - ~ ~ tory approval, to sell 110 megawatts of capacity and energy to llaltimore Gas and Electric Company for 25 years beginning in 1997. PECO Energy's successful bid was one of 28 bids submitted. The Company expects sales under this agreement to generate

• * ~

~~ ~ - ~ annual revenues of approximately $.15 million, or at least $1.2 billion over the life of the contract. Entreme Weather Conditions Affect Justomers ~ ~ ~ ~ ~ ~ PFCO Energy customers set records on January 18,1991 for winter electric peak demand of 5,957 megawatts, up 7%, and on January 19,1991 for daily gas sendour of 618 bilhon cubic feet, up 101 in addition to meeting record demand, the Company ~ - ~i It s-90 si 92 successfully responded to a number of operating challenges caused by the extreme cold and ice. During the four-day period beginning January 7,1991, a severe ice storm caused se vice interruptions to nearly 600,000 customers, the most in the Company's history. Most service was restored within two days. This storm was followed on January 17 by another ice storm that caused service interruptions to 120,000 customers. eaeo ....,c.

I The Company has a dual approach to increasing share-holder value through improved financial performance. On the one hand, the Company continues to focus on the cost-cutting required to be competitive in the utility marketplace 6f the future. On the other hand, the ," A;' N, ' I. AR3h N ' M %$F @M. E + J* j;,.;, "X Q4. s Company is seeking -J L W 10 ga. m,fL + ~,. o ;er;. .y -., ';i } s Innovative ways f' ~ ? '-5 'T][ to increase revenue, , J$' " > s such as entering into % s..v% c%wa long-term contracts C' with key customers ?' and increasing off- .w;jgm.gg;nw system sales. l. t 6 + ..c..............

Unprecedented winter electric demand throughout the service territories of the member companies of the Pennsylvania-NewJersey-Maryland Interconnection (PJM), the regional power pool, created severe demands on the companies' power systems. This demand, compounded by the unavailability of some of the companies' generating plants due to scheduled maintenance and difficulty in supplying fuel to fossil-fuel sections due to impassable rivers and roads, caused the PJM companies, including PECO Energy, to initiate 45-minute rolling blackouts on January 19. Nevertheless, cousvnueriou throughout the cold spell, the Company's nuclear, hydroelectric and fossil-fuel plants ,'(((([, [,[g performed in an outstanding manner and supported the energy requirements of the moon counsi other utilities in the power pool. t"8 On July 8, a new hourly record for electric energy use of 7,227 megawatts was established by the Company's customers, surpassing the record of 7,100 megawatts sm - ----- established on the same day in 1993. Nuclear Operations The 1994 combined capacity factor for the Company-operated Limerick and Peach llottom nuclear units was 89%. This capacity factor is not only well above the nuclear industry average but also exceeds the nuclear performance standard established by the - - ~ PUC, enabling the Company to earn a performance bonus of $14 million, which is reflected in 1994 income. Since it began operation, Limerick has been one of the top-rated U.S. plants, '"~ ~ -- - ~ and Peach 110ttom's performance continues to improve. Peach llottom attained a Systematic Assessment of Licensee Performance (SALP) rating of"1" for Operations from the Nuclear Regulatory Commission for the first time in its 20 years of operation. 0- --s2-es- -es' This is a significant achievement, reflecting improved training, pnelures and si e4 teamwork at the station' s Gneen @m in the first quarter of 1994, Limerick Unic No I completed a refueling outage a Internal cash in slightly less than 36 days, the shortest ever for a U.S. boiling water reactor (BWR). i . gg, pg in the fourth quarter, Peach Bottom Unic No. 2 completed a refueling outage in t 35 h days, surpassing the Limerick record and giving PECO Energy the two shortest refueling outages for comparable BWRs in the U.S. Only one similar European DWR has had a shorter refueling outage. The Company's shorter outages are a result ofimpmved planning and coordination, innovative equipment and work practices, and streamlined management processes. A one-day reduction in nuclear outage time saves approximately $500,000 in fuel costs for Company customers. l 4

l l I t f' 5,;;f', fy,:r J{ 'if,) a The Company is com-mitted to improving customer satisfaction and creating high customer loyalty. As our Industry becomes more competitive, we will guide our customers to innova-tive solutions for all their energy needs. Excellence will be the hallmark of all our operations. e 4

r v = t < in June, the last of 33 shipments of slightly irradiated nuclear fuel from Shoreham Nuclear Power Station on Iong Island, New York to Limerick was completal The fuel transport was completed several months ahead of schedule and without incident. The Company's customers will realize an estimated $70 million in fuel savings over the next 15 years as the Shoreham fuel replaces, at no cost, fuel that otherwise would have been purchasal. In addition to these savings, the Company was paid $50 million to accept the fuel. Customer Satisfaction and Cost Control As the Company moves toward achieving its vision of becoming a competitive energy supplier with high customer loyalty, it continues to focus on improving customer satisfaction by launching a comprehensive reengineering effort of routine services. In one program, teams of employees designed an entirely new business system that esulted in the planned consolidation of seven customer call-taking locations into two, 7 o 7 A t. oeei the reorganization of all customer service work into a single department with fewer and "[o*[,o^$ [" ' bnuder job classifications, and significant information system improvements to increase the spent and precision of the new process. Many of the process changes were implemental through a pilot program involving 50,000 customers. Although some organizational changes were implemented in 1991, most of the new business system will le implemented in 1995. PECO Energy has also begun a major initiative to improve the cost ~ competitiveness ofits support functions. 'Ieams of employees have been examining support-function activities and work processes to reduce costs and improve operating efficiencies. The goal of this elTort is to achieve annual savings of $75 million. To date, a_ these efforts have identified over $50 million of annual savings, the bulk of which will be realizal in 1995. ~ During 1991, the Information Systems group underwent a major reorgani-zation. The Company contractal with an outside vendor to provide selected information Systems functions formerly perforrred by Company employees. The i-outsourcing of these functions will save the Company approximately $150 million over the next ten years. o l- --93 84 To compete effectively in the future wholesale power marketplace, the Company so et 82 has determined that it must reduce the cost ofits fossil-fuel and hydroelectric gener-ation. To accomplish this goal, the Company develoird and implemented a program cdled Vision Quest which rulesignal all work processes at its fossil fuel and hydro-electric stations to achieve annual cost savings of approximately $1(X) million by 1997. eeeo s....,c.-,..,

a PECO Energy is seeking new oppor-tunities for growth which capitalize on our skills and assets. We will replace the ordinary with a verlety of Innovative products and services. We are ready to take the prudent risks necessary to reach S.? Wi%., our higher goals. ..g / iff[ "(._;. ^,.. "'" q g' n.. A - [< < "'W i - ; a j z g-[ ffi* ' t 4 ([ /.. s .e ,..g _-. r '.,;- i. };;> ?YN,Ylhh ' s 1 [_. Q' u 'W a t r 1 .r

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During 1991, capital expenditures for expansion of the electric transmission j and distribution system were reduced by implementing new substation planning criteria. Use of two newly actluired mobile transformers for emergency purposes has reduced capital investment requirements in new and existing substations, while providing optimal reliability of the electric distribution delivery system. During the next ten years, the Company will avoid approximately $60 million in expansion costs, as well as associated operating and maintenance costs, at 15 substations. Future electric ,ee4 AsvE=ua load growth will be servical by existing facilities, while using the mobile transformers to meet emergency nents. The Company is moving to a more aggressive, growth-oriented strategy in the natural gas business, particularly in the industrial markets and the non-traditional areas such as natural gas vehicles and cooling. PECO Energy will increase prornotional act vities and strengthen relationships v ith builders, architects, dealers and contractors i in order to expand the use of gas appliances and equipment. The Company is niso exploring opportunities in non-regulated gas businesses whic h would complement existing activities. m Ein trkal sales-servke Financing Activities territory (8 3r) a Intr aI a e w holesale (7t) The Company is continuing its program to reduce long-term tiebt and refmance high-cost debt and preferred stak. The total annuali7nt savings from 1994 reductions in debt and preferrnl stak and refinancings amount to approximately $34 million or $0.I1 per share. In June, two series of floating-rate debt totaling $96 million were issued through the Montgomery County (Pennsylvania) Industrial Development Authority to replace a similar amount oflxmds carrying an interest rate of 101/2%. Fhiating rates for iee4 REVENUE these new issues averaged 5% in 1991. In July, the Company issual $49 million of Malium-Term Notes with maturities ranging from one to four years and interest rates ranging from 6.05% to 7.41% to refund 10.05% debentures. OnJuly 27, the Company, through its wholly ownni subsidiary PECO Energy Capital, LP., issun! $221 million of 9% Cumulative Monthly Income Preferred Securities. The proceeds of this issuance were used to rnleem six series of the Company's preferred stock. l Odd Lot Sl# ares Buy-Back Program ) l In September, the Company initiated a voluntary buy-back program that entitled shareholders of odd lots - that is, holdings of fewer than 100 shares - to sell their e Ogwrating expenws hohlings of PECO Energy common stock without paying brokers' commissions or fees. ,,an,nn,,,,,, wy Through the program, which expired in October, more than 380,000 shares were ' TaxcM arsal "> h operat eons (13t) tendered, resulting in aonual savings of approximately $120,000-e Intercsr sharges (lor) m Preferrn! stoa k thwhlen(Is (l() e !!arrungs per airnmon share (lnt) escoe....,c. e.., m.-- r - +

Managemeret a Desovoseon and Analyses of Fmencial Condation and Results of Opeesteens i' EARNINGS AND DIVIDENDS Other Operating and Maintenance Expensee Other operating and maintenance expenses increased $304 millan in 1994 compared to 1993 primarily due to a one-1994 Comparod to 1993 time, pre-tax charge of $254 million in the third quarter of l 1994 lbr VRIP and VSIE in addition, other operating and I Earning per common share in 1991 were $1.76 compared to maintenance expenses increased due to higher environmen. $145 in 1993. The decrease in camings was primanly due to tal, customer and employee-related charges, and other stra. the one-time charge of $0.66 per share associated with the tegic and non-recurring operating and maintenance charges. l Company's Voluntary Retirement Incentive Program (VRIP) These increases were partially offset by lower generating sta-l and Voluntary Separation incentive Program (VSIP). Of the tion charges resulting from fewer and shoner refueling and l estimated 2,135 employees eligible for VRill 1,474 employees maintenance outages. elected to accept early retirement. An additional 1,008 employ-ces ehcted to separate under VSIR These programs were Depreciation Expense accepted by 27W of the Company's work force. Also contribut-Depreciation expense increased in 1994 compared to 1993 ing to the decrease in earnings were other strategic and non-due to additions to plant in service. recurring operating and maintenance charges which decreased 199 i earnings by $0.13 per share. These decreases AHowance for Funds Used During Construction were partially offset by savings from the Company's ongoing Allowance for Funds Used During Construction (AFUDC) debt and preferred stock refinancing and redemption pro-decreased in 1994 compared to 1993 primarily due to a gram, which increased earnings by $014 per share. decrease in the 199 i AFUDC rate, partially offset by an The Company increased its annual common stock divi-increase in Construction Work in Progress. l-dend by 7% to $1.62 per share, effective with the dividend paid in December 1994. Income Taxes income taxes charged to operations decreased in 1994 com-Operating Revenues pared to 1993 pnmarily due to the charge for VRIP and increases /(decreases) in electric sales and operating revenues VSIP and lower operating income. These decreases were par. for 199 i vs 1993 by classes of customers are set forth below: tially offset by lower interest expense allocated to operations. 1% tm W. Elatm kevene <mdWm of kwM imdWm a s> Other Taxes Residential 160 15 Other taxes increased m 199 4 compared to 1993 primarily Small Commercial and due to an increase in the real estate tax base and increased Industrial 335 28 Pennsylvania gross receipts tax resulting from higher operat-Large Commercial and ing revenues. Industrial (88) (21) Other 20 (25) Totalentereet charges Service Territory 427 (3) Total interest charges decreased in 1994 compared to 1993 Interchange Salas 311 9 primarily due to the Company's ongoing program to refi-Sales to Other Utilities _ l,369 13 nance and redeem higher-cost,long-term debt.

• lotal 2,107 19 Preferred Stock Dividende Electric revenues increased $19 million in 1994 compared to Preferred stock dividends dec reased in 1994 compared to 1993 primarily due to increased sales to other utilities and 1993 primarily due to the reduced number of preferred increased interthange sales. These increases were partially shares outstanding and the refinancing of higher-cost pre-offset by lower revenue margins obtained on these sales.

ferred stock. Elfecive April 7,1991, the Energy Cost Adjustment (ECA) was changed from a credit value of 7.600 milk per kilowatt-hour (kWh)to a credit value of 5.627 mills per kWh which 1993 Compared to 1992 resulted in an increase in annual revenue of $63 million. Gas revenues inc'reased $33 million in 199 i compared Earnings per common share in 1993 were $2.45 compared to 1993 primarily due to higher fuel-dause revenues. to $1.90 in 1992. The increase in earnings was primarily due to the settlement of the litigation in connection with the Fueland Energy lnterchange Expense 1987 chutdown of the Peach Bottom Atomic Power Station Fuel and energy interchange expenses increased $ 14 milhon (Pexh Bottom), whnh reduced 1992 earnings by $0.27 per in 1994 compared to 1993 primarily due to increased elec-share; mor favorable weather in 1993, which increased tric output assoi.iated with interchange sales and increased enning by 'O.26 per share; and the Company's ongoing sales to other utilities. A portion of this increase is bein8 debt and preferr-d snxk refinancmg and redemption pro-deferred pending regulatory action.The increase was als gram, which increased earnings by $018 per share. These attributable to an mcicase m gas fuel costs. escos... orc.....r...so.ies.,,c.=,..i..

Mensp.maat'a f)iecussion and Analyele of Financial Condition and Results of Operetions (coNmuco>. P improvements were partially offset by non recurring federal Allomnce for Fuods used During Construction

income tax settlements, which increased 1992 camings by AFUDC increased in 1993 compared to 1992 primarily due

$0.10 per share, and the higher 1993 federal income tax rate, to an increase in Construction Work in Progress, partially which decreased earnings by $0.01 per share. offset by a decrease in the 1993 AFUDC rate. Opereting Revenues income Taxes ~ Increases /(decreases) in electric sales and operating revenues Income taxes charged to operations and to other income for 1993 vs 1992 by classes of customers are set forth below: increased in 1993 compared to 1992 due to the cost associat-ed with the 1992 settlement of the Peach 110ttom co-owners' nmdDw$ NN",3, litigation, higher pre-tax income, lower interest expense, the Residential 763 50 reduction in 1992 income taxes as a result of the settlement Small Commercial and of the Company's 1984-1986 federal income tax returns and industrial 406 9 the change in the federal income tax rase from 34% to 357c 1.arge Commercial and in 1993. These increases were partially offset by the first Industrial 165 (59) quarter 1993 change in estimate to ratably decrease deferred Other _j 91) g) federal income taxes in accordance with the tax-rate decrease Service Territory 1,143 (7) mandated by the Tax Reform Act of 1986. Interchange Sales (774) (18) Sales to Other Utilities 2,MO H Other taxes increased in 1993 compared to 1992 primarily 1,93 33 other Temos Total due to a settlement of the 1990 Pennsylvania Capital Su>ck Electric revenues increased $8 million in 1993 compared to Tax, an adjustment of the 1991 Pennsylvania Capital Stock 1992 primarily as a result of higher residential sales due to Tax in 1992, and an increase in the real estate tax base. ' favorable weather conditions and higher sales to other utili-ties, partially offset by the pass-through of lower fuel costs to Totallaterest Charges customers and lower revenues from large commercial and Total interest charges decreased in 1993 compared to 1992 industrial customers. primarily due to the Company's ongoing program to re6-Gas revenues increased $17 million in 1993 compared nance and redeem higher-cost,long-term debt. to 1992 primarily as a result of higher interruptible sales resulting from favorable market conditions and an increase Preferred Stock Dividende in the use of gas at the Company's electric generating sta-Preferred stock dividends decreased in 1993 compared to tions. 1992 primarily due to the reduced number of preferred shares outstanding and the refinancing of higher-cost pre. Fuel and Energy interchange Expense ferred stock. Fuel and energy interchange wsts decreased $50 million in 1993 compared to 1992 primarily due to reduced higher-cost interchange purchases resulting from increased nuclear gen-LIQUIDITY AND CAPITAL RESOURCES eration and lower fuel costs. Nuclear generation utilizes the ~ The Company's capital requirements are primarily for capi-Company's lowest-cost fuel These decreases were partially offset by increased output. tal expenditures for its construction program and for debt service. Capital resources available to meet these mquire-Other Operating end Maintenance Expensee ments and dividend payments are funded from cash provid-Other operating and maintenance expenses decreased $44 ed by utility operations and, to the extent necessary, external million in 1993 compared to 1992 primarily due to lower Gnancing. charges for uncollectible accounts, lower administrative and The Company meets its sho t-term liquidity require-general expenses primarily as a result of a reduction in the ments primarily through a $150 million commercial paper number of employees and the 1992 charge for the Nuclear program and bank lines of credit which were $351.2 million Group Voluntary Early Retirement Program and Voluntary at December 31,1994. The Company did not have any com-Separation Package. These decreases were partially offset by mercial paper outstanding at December 31,1994, and had mcreases m other operating and maintenance charges related $11.5 million outstanding under existing bank lines of cred. to the Company's generating units. it. The Company believes these sources of short-term liquidi-ty are adequate. Ikpreciation expense increased in 1993 compared to 1992 due to additions to plant in service. ricos....ec.-,..e...s.n.i

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l Management'o Discuesion and Analysie of Financial Condition and Resuits of Operation) (CONTINUED) o Construction program expenditures for 1991 were $557 OUTLOOM million and are estimated to be $195 million in 1995 and $1 A billion for 1996 to 1998. Certain facilities under con-The Company's financial condition and its future operating struction and to be construtted may require permits and resuhs are dependent on a number of factors affecting the licenses which the Company has no assurance will be granted. Company and the utility industry in general.These factors The Company expects its level of capital investment in include increased competition, the regulation and operation utility plant to remain relatively stable since it has sufficient of nuclear generating facilities, off-system sales, compliance electric generating capacity to meet the anticipated needs of with environmental regulations, and regulatory and account-its service territory well into the next decade. ing changes. Sin e 1990, the Company's internal sources of cash have exceeded its capital requirements, which has improved the competition Company's financial wndition. Contributing to this improve. The National Energy Policy Act of 1992 (Energy Act) ment in internal soortes of cash were revenues from sales of encourages competition among utilities and nonutility gen-capacity and energy to other utilities and the Company's erators for sales of energy and capacity to wholesale cus-ongoing program to refinance and redeem higher-cost, long-tomers by allowing access to utility transmission facilities. term debt and preferred stock. Net cash provided by operat-The Energy Act directs the Federal Energy Regulatory ing activities for 1991 wa, $1.3 billion. For 1995 through Commission (FERC) to set prices for wheeling :o allow utili-1998, the Company expects that internally generated cash ties to recover all legitimate, verifiable and economic costs of will eneed its capital requirements, allowing further reduc-pmviding wheeling services, including the cost of expanding tions in the Company's debt. their transmission facilities to accommodate required trans-During 1991, $366 million oflong-term debt and mission access. The Energy Act prohibits FERC from order-monthly inmme preferred securities were sold to replace debt ing wheeling for sales to retail customers. This does not, and preferred stock carrying higher rates ofinterest and divi-however, prohibit state regulatory commissions from order-dends. Also during 1991, the Company utilized internally ing wheeling to retail customers within their jurisdiction. generated cash to repay $253 million of debt and to redeem Currently a number of states, including Pennsylvania, are $18 million of preferred stock.These transactions resulted in assessing the issue of retail competition. a reduction of approximately $26 million in annualized In May 1994, the Pennsylvania Public Utility interest and $8 million in annualized preferred stm k divi-Commission (PUC) instituted an investigation into electric dends. At December 31,1991, the Company's embedded cost power conmetition issues. The PUC invited utilities,inde-of debt was 7.29f and 16.7'( of the Company's long-term pendent power producers and other interested parties to debt had a floating rate. The ratios under the Company's respond to a number ofissues related to competition, includ-mongage indenture and Articles ofIncorgeration at ing the impact of retail wheeling. In November 199 4, the December 31,1994 were 3.18 and 2.05 times, respectively, Company filed its comments with the PUC. The Company tompared with minimum issuance requirements of 2.00 and responded that access by retail customers to alternate elec-1.50 times. The ratios, although significantly above mini-tricity suppliers (retail access)is not in the public interest mum requirements, are adversely affected through the third and should not be implemented unless there is a reasonable quarter of 1995 by the one-time charge incurred in the third expectation that the total benefits created will exceed the quarter of 199 I for VRIP and VSIP total cost of the changes. During 1994, the Company purchased more than The Company believes that retad access should not be 380,000 shares of the Company's common stock through a adopted ifit represents a mere shifting of costs from one voluntary odd. lot buy-back program which entitled share-class of custon ers to another. The Company believes that ~ holders with fewer than 100 shares, or odd lots, to sell their retail access does not currently provide a net benefit. emire holdings of PECO Energy common stock without pay-Regulatory changes permitting retail access may also create mg any brokerage commission or fees. Dividend Reinvest- " stranded investment," investment by a regulated utility in ment and Stock Purthase Plan requirements were satisfied by assets currently included in rates that are not recoverable if the reissuance of the odd lot shares and purtbase of shares of its customers are served by another energy supplier. common stock on the open market. Depending on the Investments by the Company in assets which are not recov-Company's spetific requirements, the Company will decide erable from customers may have to be written off, which w hether to issue shares or portbase shares on the open mar-write-oRcould ha've a material adverse effect on the ket in the future. Company's financial condition and results of operations. The The Company's capital structure as of December 31' Company believes other alternanves are available for 1991 was wmmon equity,4154; preferred stock and enhancing the current regulatory system. The Company monthly income preferred securities of a subsidiary (which npressed its willingness to work with others to explore mmpnws 2.24 of the Company's total capitalizat on struc-potential enhancements, such as performance-based turet 6.09; and long-term debt,50.54; mmpared to its capi' tal structure as of Detember 31,1993 of common equity, 42fM; proferred ww k,6.1% and long-term debt, 51.31 The Company anticipates that it will further reduce its debt. ,acos....,c.....,..es.m.m.,,c..,..i..

- -y 1 Management's Discussion and Analysl3 of Financial Condition and Re: ulta ti Oper: tion 1 (coNnNUE D) ' ratemaking, flexible pricing and the continued development Group is responsible Ihr operating the Company's fossil-fuel of efficient bulk-power markets. The PUC is currently and hydmelectric generating units. The Nuclear Generation expected to release the findings from its investigation in the Group is responsible for operating the Company's nuclear spring of 1991 The Company is not able to predict whether generating stations. The Gas Services Gmup is responsible retail access will be implemented and, ifimplemented, what for managing the Company's gas operations. The Company impau it would have on the Company's financial condition is currently planning to have each business unir eventually z or results of operations. operate as an individual profit center, separate fmm the The Company believes that through interruptible rates other business units. and long-term (ontra ts with cost-based rates that are avail. able to most of its larger-volume industrial customers, retail Regulation and Operation of Nuclear Generating Facilities access would not adversely affect that portion ofits retail The Company's financial condition and future operating business. liecause the Company is a high-cost producer due results are in part dependent on the continued suuessful to its capital investment in nudear facdities, retail access operation of its nudear generating facilities. The Company's could adversely affect other segments of as retail business, nudear generating facilities represent approximately i VI of particularly other large commercial and industfial customers. its installed generating capacity. liccause of the Company's The wlmlesale clutric utdity industry,in particular substantial investment in and reliance on its nudear gener-power generation to serve the needs of large users such as ating units, any changes m regulations by the Nuclear municipal customers and to provide for of f-system sales, has Regulatory Commission (NRC) requiring additional invest. become increasingly competitive. Such competition has per-ments or resulting in increased operating unts of nudear mitted the Company to increase off-system sales but has generating units could adversely affect the Company. redu<cd the Company's margin Ibr off system sales. During 199 4, the Company-operated nuclear plants Companies that are able to provide energy at a lower cost are operated at an H97 weighted average capacity factor and the likely to benefit from this (ompetition. These fauors will Company-owned nudear plants operated at an H27 weight-u>ntinue to challenge the Company to maintain current rev-ed average capacity fauor and pmduced 60S; of the enue lesels. Company's output. Nuclear generation is the most cost-ef fec-As part of the Companis mmmitment to cost reduaion tive way lbr the Company to meet customer needs and mm-and stringent mst control, in April 1991, the Company's mitments for off-system sales. Continued operation ofihe lioard of Direuors Approved a package of financial incen-nudear plants above 6001 of capacity is necessary to avoid rives permitting eligible employees to participate in either penalties under the ECA. In addition, the terms of the 1991 VRIP or VSIP Of the estimated 2,135 employees eligible for settlement of the Limerick Generating Station (Limerick) VRIP 1,171 employees ele ted to auert early retirement. An Unit No. 2 rate case afford the Company the opportunny, additional 1,008 employees eleurd to separate under VSIP through sales to other unlities and ihe cf ficient operation of The retirements and separations of the 2,182 employees timenck, to increase future earning > See note 2 of Notes to accepting VRIP or VSIP are takmg place in stages through Consolidated Financial Statemcnts (br a descripnon of the Duember 31,1995. The Company expeus VRIP and VSIP ECA and the terms of the Limerick Unit No 2 rate case set-to provide savings in wages and benefits to the Company of tiement. approximately $100 million annually. The Company would ultimately seek to recover through in May 199L the Company entered into an agreement the raremaking process all capital msts and any increased to sell Conowingo Power Company (COPCO), its w holly operating costs,induding those associated with NRC regula-owned Maryland retad electnc subsidiary, to Delmarva tion of the Company's nuclear generating stations and envi-Power and Light Company (Delmarva) fbr approximately ronmental mmpliance and remediation, ahhough such $150 million. The transaumn also indodes a ten-year con-remvery is not assured. tract ihr the Company to sell capacity and energy to The staff of the Securities and Exchange Commission Delmarva. The sale is subieu to state and federal regulatory has questioned the eleuric utility industry accounting prac-approvals Recognition of the gain on the sale, w hich the rices regarding the remynition, measurement and dassifica-Company expects to be approximately $ 10 million after tion of decommissioning costs ihr nudear generating stations taxes,is contingent upon the mmpletion of the sale, in financial statements. The Fmanual Auounting Standards The Company has implemented its plan to reorganize lioard (FASii) has agreed to review the auounting for the Company's operations into five strategic business units to removal msts, indudmg decommisuoning (see note 3 of better enable it to meet the (hallenges of a mmpetitive envi-Notes to Consolidated I'mancial Statements). The Company ronment. The Consumer Energy Services Group distributes does not expect this review to have a matenal ef teu on the energy products and servnes to the Company's retail t us-Company's financial condinon or resuhs of operations. tomers and mnsists primanly of the operating divisions, marketmg, sales, engineenng and support services. Ilulk Power Enterpnses is responuble for marketmg and selling (nergy produ ts to wholesale customers inside and outude the Company's servite terntory. The Power Generation ..en.....c.............i.i..,e....... A

. Manage inent'O Discussion and Analysie of Financial Condition and Reeuito of Opwrations acoNTWutoi ' i r Off SystemSales Regulatory Assete The Cornpany has agreements with other utilities to sell its At December 31,199 4, the Company had deferred on its i excess installed generating capacity and/or associated energy. balance sheet certain regulatory assets for which current .These agreements are primarily for weekly purchases of recovery has not yet been approved by the PUC.These regu. energy. The Company expeus to sell over $100 million of latory assets include $91 million of operating and mainte-capacity and/or energy through such agreements in 1995. nance expenses, depreciation and accrued carrying charges Due to rerates, the Company currently has 989 megawatts on its investment in Limerick Unit No. 2 and 50% of ~(MW) of excess installed generating capacity and expects to Limerick common facilities, deferred pursuant to a have 1,201 MW of excess installed generating capadty by Declaratory Order of the PUC, and $107 million for the - 1997. The Company's future results of operations are depen-effect on deferred taxes of the change in the statutory federal dent in part on its ability to successfully market its excess income tax rate from M% to 35% in 1993. See notes 2 and generating capacity and/or associated energy. 13, respectively, of Notes to Consolidated Financial In May 199t the Company entered into a ten-year con. Statements. tract to sell capacity and energy to Delmarva as part of the These and other regulatory asuts are deferred pursuant Company's agreement to sell COPCO to Delmarva. Revenue to PUC action. Any deferred costs that are not recovered rneived under this contract is expected to offset the revenue through base rates would be charged against income imme-lost as a result of the sale of COPCO. This contract is subject diately. The Company has agreed not to seek a retail electric to state and federal regulatory approvals and the sale of base rate increase before April 1,1999, except under speci-COPCO to Iklmarva. The Company also finalized an agree-fied circumstances (see note 2 of Notes to Consolidated ment to sell 110 MW of capacity and energy to llaltimore Financial Statements). Gas and Eleuric Company for a 25-year term lxginning in 1997, subject to state and federal regulatory approval. The other Factors Affecting the Company's outlook Company's bid was one of 28 bids submitted, and the sale is Although 1994 was essentially a weather-neutral year, expeued to generate approximately $15 million in revenue annual and quarterly operating results can be significantly annually. affeued by weather. An extremely hot or cool summer can increase or decrease earnings for a year by as much as $0.20 Compliance With Environmental Regulatione per share compared to a year which has normal weather. Under federal and state environme ual laws, the Company is ' Intiation affects the Company through increased operat-generally liable for the costs of remediating environmental ing costs and increased capital costs for utility plant. During mntamination of property now or funnerly owned by the periods of high inflation, the Company could be adversely Company or of property contaminated by hazardous sub-affected ifit is unable to offset increasing costs with stances generated by the Company. The Company owns or improved productivity. In addition, the replacement costs of leases a substantial number of real estate parcels,induding the Company's utility plant are significantly higher than the panels on which its operations or the operations of others historical costs reflected in the financial statements. may have resulted in contamination by substances which are The Company's budgeted capital expenditures through mnsidered hazardous under environmental laws. The 1997 include all costs of compliance with Phase I of the Company is currently involved in a number of pnxeedings Clean Air Act of 1990 (Clean Air Act), including its share of relatmg to siter where harardous substances have been the costs of scrubbers being installed at Conemaugh deposited and may be subjeu to additional proceedings in Generating Station. As a result ofits prior investments in the future. scrubbers Ihr Eddystone and Cromby Generating Stations An evaluation of Company sites fbr potential environ-and its investment in nuclear generating capacity, the i mental clean up liability is ongoing, including approximate-Company believes that compliance with the Clean Air Act 1 ly 20 sites where manufauured gas plant activities may have will have significantly less impact on the Company than on resulted in site contamination. Past activities at several sites other Pennsylvania utilities which are more dependent on j have resuhed in actual site contamination. The Company is coal-fired generation. presently engaged in perfbrming detailed evaluations at cer-In 1991, Standard & Poor's (S&P) rating agency revised tain of these sites to define the nature and extent of the wn-its rating outhmk on the Company from " negative" to "sta-tamination, to determine the necessity of remediation and to ble." S&P revised the rating as a result of the Company's identify possible remediation alternatives. material cost-cutting initiatives, plans for a more rapid debt As of De(ember 31,199 i and 1993, the Company had reduction, well-controlled construction spending, and accrued $2 4 and $17 milhon, resgutively, for environmen-prospects fbr additional sales to other utilities. tal investigation and remediation wsts that currently can be For a discussion of other contingencies, see notes 2 and reamnably estimated. The Company cannot currently pre-. 3 of Notes to Consolidated Financial Statements. diu w hether a will incur other significant liabihties for any addnional remedianon wsts at these or additional sites iden-titled by the Company, environmental agencies or others. escos....,c....,..as.s.ini.,,c.,..e..

n. ,o. .,_ o 4 m...... To the Sharch'olders and floard of Directors PECO Energy Company: We have audited the accompanying consolidated balance In our opinion, the financial statements referred to sheets of PECO Energy Company and Subsidiary Companies above present fairly, in all material respects, the consolidated as of December 31,1994 and 1993, and the related consoli-financial position of PECO Energy Company and Subsidiary dated statements ofincome, cash flows, and changes in com-Companies as of December 31,1991 and 1993, and the con-solidated results of their op' rations and their cash flows for mon shareholders' equity and preferred stock for each of the e three years in the period ended December 31,1994.These each of the three years in the period ended December 31, financial statements are the resgensibility of the Companies' 1991,in conformity with generally accepted accounting management. Our responsibility is to express an opinion on principles. these Gnancial statements based on our audits. As discussed in Note 4 of the consolidated financial We conducted our audits in accordance with generally statements, the Company changed its methods of accounting accepted auditing standards. Those standards require that we for non-pension postretirement employee benefits and plan and [x rform the audit to obtain reasonable assurance income taxes in 1993. about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, f ggf evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial 2400 Eleven Penn Center statement presentation. We believe that our audits provide a Philadelphia, Pennsylvania reasonable basis for our opinion. J nuary 30,1995 0 4 ..e......e..................e........

i

• C osiwtut.itest Staintne,sies of leu.oene i

(THOUSAND5 0F DOLLARS) FOR THE YEARS ENDED DECEMBER 3L is94, 1 57 i 5 tW2 ePER ATINo REVENUES lilectric $ 3,624,79 7 $ 3,605,425 $ 3,597,141 . 382,704 3g328 Gas 415,835 TOTAL OPERATING REVENuts 4,040,632 3,988,129 '3,962,469 OPER ATING E XPENats Fuel and I!nergy Interchange 703,590 659,580 709,115 Other Operating 837,849 851,254 906,346 liarly Retirement and Separation Programs 254,106 Maintenance 327,714 364,409 353,502 Depreciation 442,101 424,952 413,779 Income Taxes 234,033 354,391 264,483 Other Taxes 311<689 298,132 281,868 TOTAL OPER ATIN0 5XPENass 3,211,082 J952,718 _2,929,093 oesRAtmo mCoMe 829,550 1,035,411 1,043,376 OTHER INCOMs AND DEDUCTIONS Allowance for Other Funds Used During Construction 10.180 11,885 10,461 Settlement of Peach liottom Litigation (103,078) Income Taxes l15,291) (11,808) 40,160 Ocher, Net 23,121 11,980 3 392 1 _49,065) TOTALOtHERINCOME ANODEDUCTIONs 18,010 12p57 ( sNcoME DEFORE MTEREsT CHAnots 847,560 '1,047,468 981,311 INTEREsf CH ARGEs Long-Term Debt 387,279 432,707 484,153 Dividends on Preferred Securities of Subsidiary 8,570 Short-Term Delat 38p87 36,002 31d19 TOTAL WTEMtsT CHARQss 432,836 468,709. 515,572 Allowance for liotrowed Funds Used During Construction _J11,989) (11,889) _ {l0,202) NsT wTEResT CHARoss 420,847 456,820 505J]O Net income 426,713 590,648 478,941 Preferred Suxk Dividends 37,298 49,058 60,731 E ARMNOs APPUCAsLE TO COMMON STOCK 4 389,415 541,590 $ 418,210 Average Shares of Common Stock Outstanding GHOUMNDS 221,554 221,072 220,245 a ARNmos PsR AvtR Aos COMMON sHARs ;DottAnsi 4 1.70 2.45 1.90 osvtOsNos P:A COMMON SHARE iDOttARSI 4 1,545 IA 4 $ 1.325 Sa Notes to Onbl.ad nosamialStatemeurts. I ,iCo.....,C.,..,.....s....,C.....i..

c o,,,,t. ..<s s.o.,n. sba.i. frHouSANOS OF 00ttAft9) DECIMHf R 31, 19_94 1974 Assets U TILif Y PL A N T, AT ORIGIN A L C O S T Electric $13,283,888 $ 13,102,088 Gas 895,946 843,205 Common 234,769 201 7S 14,414,603 11,149,04G Less Accumulated Provision for Depreciation ,_4,242,576 __3,916,8{)] 10,172,027 10,202,235 Nuclear l'oel, Net 184,161 179,529 Constru< tion Work in Progreu 472,612 381,217 Leased Property, Net 174,585 194,7J)2 Nar uttuTyrLANT 11,003,265 102)5 171) CURRENT ASSETS Cash and Temporary Cash investments 46,9'/0 46,923 Accounts Re(civable, Net Customers 90,987 122,581 Other 49,854 47,768 Inventories, at Average Cost 170uil l'uel 72,732 67,010 Af aterials and Supplies 118,230 1-12,132 Deferred Income Taxes 12,002 30,185 Other 58,069 58,205 TOTAL CURRENT ASSETS _ _45_4,844 51;ljl34 DSF ERRED DERIT S AND OTHER ASSE TS Recoverable Deferred Inmme Taxes 2,138,079 2,297,368 Deferred Limerkk Costs 413,885 433,605 Deferred Non Pension l'ostretirement Ilenefit Costs 261,912 44,691 Investments 236,587 218,636 Loss on Reacquired Debt 320,879 343,004 Other 263,30_8 222gl7(i 10TALDEFERREDDESafS ANDOTHER ASSETS ._3,63465_0 _)t559 780 2 TOTAL $ 15,0 92,7 59 $ 15.0 4 2.4 27 k Narr n Guhl.ited l'anarui.il St. stem,,rtu. o ..eD...... e. ...... S.... e.,.......

p.... 7, L t 8"Setestee Weeste eCONTtNUEDI 5.

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t I' . ITHoOSAP,0$ 0F DOLLAAS) DECM8ER 31, 1994 199) Capitestellest esed ListsWees 'l . C A PlTALIE ATION ' L Common Shareholders' Equity ~ Common Stock ' 8' 3,490,728. $ ' 3,488,477. - Other Paid in Capital 1,214 1,271 Retained Earnings s1o so? 773227 i 4,302,506 .4,263,418 " Preferred and Preference Stock . Without Mandatory Redemption 277,472 422,472 With hiandatory Redernption s2,700 186,500 Minority Interest in Preferred Securities of Subsidiary 221,250 . Long-Term Debt 4,7 s s,e s t_ 4p8134}. total CarnAuranow _s,s7s,sse 9256,7,33 CURRE NT Ll/ i ILITIE S Notes Payable,llank 11,4ss 119,350 Long-Term Debt Due Within One Year 201,213 252,263 Capital Lease Obligations Due Within One Year < eo,47s 60,500 Accounts Payable 30s,s32 ' 242,239 Taxes Accrued 87,1 ss. 24,939 Deferred Energy Costs 15,4se 48,691 ' Interest Accrued 93,159 97,540' Dividends Payable 15,oss 18,345 0:her as,e4s_ 90A0 Torat tunneNT uAen.nas s7s,ses - _ _ _954,577 i sEFERRED CREDITS AND OTHER LI ASILiflES Capital Lease Obligations 114,03s 134,202 Deferred Income Taxes 3,225,s t s 3,386,136: Unamortized Investment Tax Credits 374,100 386,162 l Pension Obligation for Early Retirement Plans 238,250 135,286 l Non Pension Postretirement Ilenefits Obligation 354,4 ss -51,781 ) Other-227Js3 227A50 foTAL oseenneo CneceTS ANo oTHER uAelutet _ _443 4,e_o.s. 4J21p_17 l COMMITME NTS AND CONTINGENClf S (NOTE S 2 AND 3] .,$ 15,092,7ss_ $ 15,032,3 27 TOTAL Sa Notes k Conelut.sk,ITieamialSLakmenti, a - e 1 I 1 1 1. i. l eice.....,e.....,..........,c.......

Cosmohdated $tatementa of Cash Fh4nts (THOUSAND$ OF 00(LAPS) FoR THE YIAPS ENDED DECEM8fR 31, 1994 PrH Pr71 l C ASH PLOWS PROM OPER ATING ACTIVITIES Net Inmme 4 428,713 590,648 $ 478,911 Adjustments to Remncile Net inmme to Net Cash Provided by Operating Activities: Depreciation and Amoitization 517,681 507,069 491,186 Deferred Income Taxes (23,306) 139,816 81,913 Early Retirement and Separation Programs 254,100 Unrecovered Phase-In Plan Rev(nue 142,267 Deferred Energy Costs (33,205) (21,308) 52,959 Amortization of leased Property 61,900 58A00 $ 1,600 Changes in Working Capital: Accounts Receivable 23,500 31,102 82,151 Inventories 18,210 11,222 1,395 Accounts Payable 5,342 777 (47,403) Other Current Assets and Liabilities 52,940 (31,691) (136,627) . Other items Affhting Operations _ _ [9,175) _J18,287) (2&5,69) Net Cash 1: lows Provided by Operating Activities 1,294,714 lj261,775 1,172,81.3 COSH FLOWS PROM INVSSTING ACTIVITIE S Investment in Plant (570,903) (568,076) (571,829) Increase in Other Investments }17,951) ,J16,21_1) H2 769) 1 Net Cash 1 lows Used by Investing A(tivities __[5 8_8.,8 5 4) (584 290) (601,598) 1 COOH FLOWS FROM FIN ANCING ACTIVITIES Change in Short/lbrm Debt (107,861) 8,850 110,500 Issuance of Common Sux k 2,308 29,316 12A65 luuante of Preferred Stmk 142,700 140,000 Retirement of Preferred Stock (238,800) (187,330) (221A62) hlinority Interest in Preferred Securities of Subsidiary 221,250 Issuante of Long-Term Debt 245,100 1,991,765 1,369,540 Retirement of Long Term Debt (397,703) (2,118,963) (1,501,877) Lms on Reacquired Debt 22,125 (69,881) (85,380) Dividends on Preferred and Common Stmk (377,883) (366,081) (319,856) Change in Dividends Payable (3,249) (1.114) (16,607) Expenses of luuing Long/lkrm Debt and Preferred Semk (9.150) (24,820) (11,660) Capital Lease Payments [81,900) (58dOO) (51,600) Net Cash 1 lows from l'inancing Activities __j 0 5,813) (680/L11) __J614,93 7) Increase /(Decrease)in Cash and Cash Equivalems 47 (3A16) (46,692) Cash and Cash Equivalents at twginning of peri.d 46 923 50d69. 97,061 t Cash and Cash Equivalents at end of period 4 48,970 46,92; $ 50,469 Sa,%te to Conddard nuaw.d 5satownte i ) () escos....,c.....,..es.i.iei.,,c.,..i..

Consi,lutateel St,etenients of Changes in Cornrnen Shareholdeea' Equety ased Preferted Stock t h her Osmmun h k Pa,d.In itesamed Prefernd % k (ALL A1A0VN181N DCUSANDS) %hafen A mou nt layeral Farsung Sha,rs Ammme lialance, January 1,1992 220,030 $ 3,446,666 $ 1,214 $ 444,399 7,381 $ 738,061 Net Income 478,941 Cash Dividends Declared Preferred Stock (at s[uified annual ratn) (58,021) Common Su>ck ($1.325 per share) (291,835) Expenses of Capital Stock Activity (11,660) Issuance of Stock Long-Term Incentive Plan 501 12,465 Issuances 1,400 140,000 Redemptions __(2,2_4 5 )_R24c162) llalance, December 31,1992 220,531 3,159,131 1,214 561,824 6,536 653,602 Net inwme 590,618 Cash Dividends Declared Preferred Suwk (at sprificd annual ratn) (49,919) Common Stcwk ($1.43 per share) (316,162) Expenses of Capital Snxk Activity (5,625) Issuante of Sn>ck Long Term incentive Plan 983 29,316 (7,039) Issuances 1,427 142,700 (IM7_3) _J 87 3 }0) Redemptions _ 1,214 773,727 6,090 608,972 lialante, December 31,1993 221,517 3,188477 Net Income 428.713 Cash Dividends Declared Preferred Soxk (as s[u-illed annual rates) [35,706] Common Soxk ($1.545 per share) (342,177) Expenses of Capital Sn>ck Activity (11,682) Issuance of Stock Long 'llrm incentive Plan 92 2,251 l388] issuances 57 Redemptions [2,388)__ [2 3 8,s_0 0] llalance, Decemtw>r 31,1991 2 21,C 39 $ 3,490,728 4 1,271 4 810,507, 3,702 4 370,172 % N un sa OrnabJskJ nn.,rsial Staumnn. h esco snees, company one subtleleey Companies

i Notes to Consolidated Fmanc6a4 Statemente 1.Significant Accounting PoHeles Depreciation and Decommleoloning The annual provision Ihr depreciation is provided over the seneres estimated service lives of plant on the straight-line method. The consolidated financial cratements of PECO Energy Annual depreciation provisions for financial reporting pur-Company (Company) include the accnunts ofits utility sub-poses, expressed as a percent of average depreciable utility sidiary companies, all of which are wholly owned. Non-plant in service, were approximately 2.77% in 1994 and utility subsidiaries are not material and are accounted for on 2.75% in 1993 and 1992. the equity method. Accounting policies are in accordance The Company's share of the 1990 estimated costs for with those prescribed by the regulatory authorities having decommissioning nuclear generariag stations currently jurisdiaion, principally the Pennsylvania Public Utility included in electric base rates is being charged to operations Commission (PUC) and the Federal Energy Regulatory over the expected service life of the related plant. The Com mission (FERC). amounts recovered from customers are deposited in trust accounts and invested for funding of future costs and credited nevenues to accumulated depreciation (see note 3). Customers' meters are read and bills are prepared on a cycle basis. At the end of each month, the Company accrues an income Taxes . estimate for the unbilled amount of energy delivered to cus-In 1993, the Company adopted Statement of Financial comers. Accou nting Standards (SFAS) No.109, " Accounting ihr Pursuant to a phase in plan approved by the PUC in its income Taxes," which requires an asset and liability electric base rate order dated April 19,1990, the Company approach for financial accounting and reporting of income recorded revenue equal to the full amount of the rate taxes. The effeus of the Alternative Minimum Tax (AMT) increase approved; based on kilowatthours rendered to cus-are normalized. Investment Tax Credit (ITC)is deferred and comers.On April 5,1991, that plan was amended by the amonized to income over the estimated useful lives of the PUC as part of the settlement of all appeals arising from the related utility plant. ITC related to plant in service, not Limerick Generating Station (Limerick) Unic No. 2 rate pro-included in rate base,is accounted for on the flow-through ceeding to permit recovery of the remaining unrecovered method (see note 13). revenue by December 31,1992 (see note 2) As of December 31,199 L 1993 and 1992, the Company had no unrecovered ^H'**"** Funde Used During Construction (AFUDC) phase-in plan revenue. AFUDC is the cost, during the period of construction, of debt and equity funds used to finance construction projects. Fueland tnergy Coet Adjustment Clauses AFUDC is recorded as a charge to Construction Work in The Company's classes of service are subject to fuel adjust. Progress, and the credits are to interest Charges for the cost ment clauses designed to recover or refund the differences of borrowed ftmds and to Other Income and Deductions for the remainder as the allowance for other funds. The rates between actual costs of fuel, energy interchange, and pur. chased mwer and gas, and the amounts of such costs includ. used for capitalizing AFUDC, which averaged 7.74% in i cd in base rates. Differences between the amounts billed to 1994,9.395T in 1993 and 10,61% in 1992, are computed customers and the actual costs recoverable are deferred and under a method prescribed by the regulatory authorities. ruovered or refunded in future periods by means of prospec. AFUDC is not included in regular taxable income and the tive adjustments to rates. Generally, such rates are adjusted depreciation of cap talized AFUDC is not tax deductible. every twelve months. In addition to reconciling fuel costs and revenues, the Company's Energy Cost Adjustment Nuclear Outage Coste (ECA), established by the PUC, incorporates a nuclear per. Incremental nuclear maintenance and refueling outage costs thrmance standard which allows for financial bonuses or are accrued over the unit operating cycle. For each unit, an penalties depending upon whether the Company's system accrual for incremental nuclear maintenance and refueling nuclear capacity fa tor exceeds or falls below a specified outage expense is estimated based upon the latest planned range (see note 2). utage schedule and estimated costs for the outage. Differences between the accrued and actual expense for the Nuclear Fuel outage are recorded when such differences are known. Nutlear fuel is capitalized and charged to fuel expense on the unit of production method Estimated costs of nuclear Capitaused software costs fuel disposal are charged to fuel expense as the related fuel is Software pmjects which exceed $5 million are capitalized. At consumed The Company's share of nuclear fuel at Peach Duember 31,1991 and 1993, capitalized software costs llottom Atomic Power Station (Peach liottom) and Salem tocated $51 million and $56 million (net of $10 million and Generating Station (Salem)is accounted for as a capital $3 million accumulated amonization), respectively. Such lease. Nuclear fuel at Limerick is owned. capitalized amounts are amortized ratably over the expected lives of the projects when they become operational, not to exceed ten years. e s c o s.., e, c..e..,..e s o.in s.., c..e..i..

" NotesleConeelldatedFinancialstatemente tcognNutop 1.Signifteent Accounting Policies (CONDNutDi also provides that the Company will not file for an ' increase in retail electric service rates before April 1,1999, except ] Geine and Lossee on Reeceguired Debt under specified circumstances for items such as energy cost j Gains and losses on reacquired debt are deferred and amor-adjustments, changes in state taxes, changes in federal taxes, tired to interest expense over the stated life of the reacquired demand side management surcharges, and increases in - debt. nuclear plant decommissioning expense or funding require-ments and spei,e nuclear fuel disposal expenses. The retail Reesee ifteetiene electric SFAS No.106 operating expense, including the Certain prior year amounts have been reclassified for com-annual amortization of the transition obligation (over 18 parative purpmes years) deferred in 1993 and 1994, will be included in the new rates. Subsequent toJanuary 1,1995, and prior to the Company's next base rate case, no portion of retail electric SFAS No.106 operating expense in excess of the amount

2. Rete Mettere allowed to be recovered under theJoint Petition will be Limerlek Unit No. 2 Electric Rete Order deferred for future rate recovery. Also, beginningjanuary 1, As pan of the April 19,1990 PUC onier, the PUC approved 1995, the Company will be required to deposit in trust recovery of $285 million of deferred Limerick costs repre-accounts funds equivalent to all of its retail electric SFAS No.

senting carrying charges and depreciation associated with 106 costs. These costs include amounts charged to operating 509f of Limerick common facilities.These costs are included expense and capitalized on and afterjanuary 1,1995. in base rates and are being recovered over the life of In aanrdance with theJoint Petition, any of the parties to Limerick. The PUC also approved recovery of $137 million theJoint Petition may elect to void the settlement in the event of Limerick Unit No. I costs which had previously twen current rate recovery of SFAS No.106 expense is ultimately deferred pursuant to a Declaratory Order dated September disallowed through the OfGce of Consumer Advocate's appeal 28,1984.These costs are being recovered over a ten-year to the Supreme Court of Pennsylvania of cases involving other period without a return on investment. Pennsylvania utilities. In such event, the Company would On April 5,1991, the PUC approved the settlement of refund to customers, with interest, anyincreased base rate - all appeals arising from the Limerick Unit No. 2 rate order. amounts collected. Under the terms of the settlement, the Company is allowed to retain for shareholders any pmceeds above the average see Accountine settlement energy cost for sales of up to 399 megawatts (MW) of capaci-On December 15,1994, the PUC approved the Company's ty and/or associated energy, since the PUC had ruled that petition for an accounting order associated with gas utility the Company had 399 MW of near term excess capacity in operations permitting recognition of $2.8 million of SFAS the Limerick Unit No. 2 rate order. Under the settlement, No.106 costs annually and recognition of $1.5 million of the Company began on April 1,1991 to share it the bene-environmental costs annually for the remediation of sites of fits w hich result from the operation of both Limerick Unit former manufactured gas plant facilities using a cost of Na 1 and Unit No. 2 through the retention of 16.50( of the removal methodology,in exchange for a reduction in depre-energy savingt Through 1991. the Company's potential ciation rates to reflect the results of a current life study.The 3 benent from the sale of up to 399 MW of capacity and/or Company will deposit in trust accounts funds equivalent to 1 associated energy and the retained Limerick energy savings s retail gas SFAS Na 106 costs beginningJanuary 1,1995. was limited to $106 million per year, with any excess accru- . his settlement will not result in any increase in rates to cus-ing to customert ikginning in 1995, in addition to retaining comers. See notes 3 and 6. the first $106 mdlion,the Company will share in any excess above $106 million with the Company's share of the eness Limerick Unit No. 2 Declaratory Order twing 107 in 1995,209 in 1996 and 30% in 1997 and Pursuant to a Declaratory Order of the PUC, the Company thereafter, During 1991,1993 and 1992, the Company deferred the operating and maintenance expenses, deprecia-rtsorded as revenue net of fuel costs $68, $38 and $34 mil-tion and accrued carrying charges on its capital investment lion, respatively, as a result of the sale of the 399 MW of in Limerick Unit Na 2 and 50% of Limerick common facil-capacity and/or amciated energy and the Company's share ities during the period fromJanuary 8,1990, the commer-l of Limerick Unit Na 1 and Unit Na 2 energy savings. cial operation date of Limerick Unit Na 2, until April 20, 1990, the effective date of the Limerick Unit Na 2 rate sine e.leeve Electric seee Rete lncrease order. At December 31,1994 and 1993, such costs included s Under aJoint Petition dated October 3,199 6, the Company in Deferred Limerick Costs totaled $91 million. Recovery of has been permitted to increase eleuric base rates by $25 mil-such costs deferred pursuant to the Declaratory Order will be lion per year, eH'e tive January 1,1995, to recover the addressed by the PUC in a subsequent electric base rate case, increased costs associated with the implementation of SFAS although such ruovery is not assured. Any amounts not Na 106. Employeri Auounting for Postretirement (knefits recovered would be charged against income. Other Than Pensions ~ See notes I and 6. TheJoint Petition l l escos....,c.....,..de.n.idi..,c.....i.. l

heeseencen adee dFinenes.1seseements ecoemNutop t - 2.nete Mattere scomutoi is to submit to Congress a plan for providing additional compensation to the injured parties. Congress could impose anergy Coet Adleetment further revenue-raising measures on the nuclear industry to 4 The Company is subject to a PUC-established electric ECA pay claims. The Price-Anderson Act and the extensive regu. which,in addition to reconcding fuel costs and revenues, lation of nuclear safety by the Nuclear Regulatory ' incorporates a nuclear performance standard which allows Commission (NRC) do not preempt claims under state law for financial bonuses or penalties depending on whether the for personal, property or punitive damages related to radia. Company's system nuclear capacity factor exceeds or falls tion hazards, below a speciGed range. The bonuses or penalties are based Although the NRC requires the maintenance of proper- . upon average system replxement energy costs. If the capaci-ty insurance on nuclear power plants in the amount of $1.06. . ty factor is within the range of 60-70'J, there is no bonus or billion or the amount available from private sources, ' penalty. If the capacity factor exceeds the specified range, whichever is less, the Company maintains coverage in the progressive incremental bonuses are earned and,if the amount ofits $2.75 billion proportionate share for each sta-capacity factor falls below the speciGed range, progressive tion. The Company's insurance policies provide coverage for incremental penalties are incurred. decontamination liability expense, premature decommis-for the years ended December 31,1991,1993 and sioning imd loss or damage to its nuclear facilities. These 1992, the Company's system nuclear capacity factors were policies require that, following an accident, insurance pro-H27,787. and 717, respectively. This entitled the Company ceeds first be applied to assure that the facility is in a safe to bonuses redected in 1991,1993 and 1992 income of $11, and stable condition and can be maintained in such condi. $10 and $1 million, respectively. tion. Within 30 days of stabilizing the reactor, the licensee must submit a report to the NRC which provides a clean-up plan, including the idenndcation of all clean-up operations 3.Commitmente and Continsoncles necessary to decontaminate the reactor to either permit the resumption of operations or decommissioning of the facility. Constructier.Empendituree Under the Company's insurance policies, insurance proceeds Construction expenditures are estimated to be $195 million not already expended to place the reactor in a stable condi-for 1995 and $1A bilhon for 1996-1998. For 1995 1998, the tion must be used to decontaminate the facility. If the deci-Company expects that all ofits capital needs will be provided sion is made to decommission the facility, a portion of the through internally generated funds. Construction expenditure insurance proceeds will be allocated to a fund which the estimates are reviewed and revised periodically to reDect Company is required by the NRC to maintain to provide for changes in emnomic conditions, revised load forecasts and decommissioning the facility. These proceeds would be paid other appn priate factors. Certain facilities under construction to the fund to make up any difference between the amount and to be constructed may require permits and licenses which of money in the fund at the time of the early decommission-the Company has no assurance will be granted. ing and the amount that would be in the fund if contribu-The Company's operations have in the past and may in tions had been made over the normal life of the facility. The the future require substantial capital expenditures in order Company is unable to predict what effect these requirements to (omply with environmental laws: may have on the amount and the availability ofinsurance proceeds for the benent of the Company's bondholders Nucleoe ineurence under the Company's mortgage. Under the terms of the vari-The Price Anderson Act, as amended (Price-Anderson Act), ous propeny insurance agreements, the Company could be sets the limit ofliability of approximately $8.9 billion for assessed up to $11 million for losses incurred at any plant claina that could arise from an incident involving any insured by the insurance companies. The Cornpany is self-licensed nuclear facility in the nation. The limit is subject to insured to the extent that any losses may exceed the amount increase to reDett the effects ofin0ation and changes in the of insurance maintained. Any such losses,if not recovered i number of licensed reactors..All utilities with nuclear gener-through the ratemaking process, could have a material ating units. including the Company, have obtained coverage adverse effect on the Company's Gnancial condition or for these potential claims through a combination of private results of operations. insurances of $200 million and mandatory participation in a The Company is a member of an industry mutual - Gnancial prutection pool. Under the Price-Anderson Act, all insurance company which provides replacement power cost nuclear reactor licensees can be assessed up to $76 million insurance in the event of a maior accidental outage at a per reactor per imident, payable at $10 million per reactor nuclear station. The premium for this coverage is subject to per incident per year. This assessment is sul:iect to inflation, assessment for adverse loss experience. The Company's max-state premium taxes and an additional surcharge of M if imum share of any assessment is $11 million per year. a the total amount of claims and legal msts exceeds the basic assessment. If the damages from an incident at a licensed nuclear facihty exceed $8.9 bilhon, the President of the United States 4 ..ee.....,e.....,..........,........

. Meese to Coneelldeted Mnenoiel Statements (CONTINUED) '

3. Comndemente and C

xrng ulee icoNnNut ot until 2010, at the earliest. The DOE stated that the delay was a result ofits seeking new data about the suitability of Nuclear Doeommiseloning and Spent Fuel Storage the proposed repository site at Yucca Mountain, Nevada, in wnjunction with the PUC's April 19,1990 electric base opposition to this location for the repository and the DOE's rate order,the PUC recognized a revised decommissioning revision of its civilian nuclear waste program. The IX)E stat-cmt estimate based upon total cost.The Company's share of ed that it would seek legislation from Congress for the con-this revised cost is $613 million expressed in 1990 dollars.

struction of a temporary storage facility which would accept Under current rates, the Company collects appmximately spent nuclear fuel from utilities in 1998 or soon thereafter. $20 million annually from customers for decommissioning Although progress is being made at Yucca Mountain and ..the Company's nuclear units. The Company had recovered several communities have expressed interest in providing a. $174 million as of December 31.1991, from customers temporary storage site, the Company cannot predict when which has been deposited in trust accounts fbr funding the temporary storage facilities or permanent repository will future decommissioning costs. The most recent estimate of become available. The IX)E is exploring options to address .the Company's share of the cmt to decommission its nuclear delays in the currently projected waste acceptance schedules. units is approximately $900 million in 1994 dollars. Any The options under consideration by the DOE include offset-increase in the 1990 demmmissioning cost esdmate being ting a ponion of the financial burden associated with the ruovered in base rates is to be recoverable in the Company's costs of continued on-site storage of spent fuel after 1998 next base rate case. As a result,the Company expects to and the issuance by the DOE to utilities of multi purpose receive rnovery of a higher level of decommissioning canisters for on-site storage. expense in its next base rate proceeding. Peach liottom and Limerick have onaire storage facili-The stalf of the Securities and Exchange Commission ties with the capacity to store spent fuel discharged from the has questioned the electric utility industry accounting prac-units through the late 1990's and, by further modifying tices regarding the recognition, measurement and classifica-spent fuel storage facilities, capacity could be pmvided until tion of decommissioning cmts for nuclear generating stations approximately 2010. Salem has spent fuel storage capacity in financial statements. The Financial Accounting through 1998 for Unit No. I and 2002 for Unit No. 2.' $tandards Ik>ard has agreed to review the accounting for Public Service Electric and Gas (PSE&G)is implementing a removal wsts including decommissioning. If current electric plan to extend the fuel storage capacity of Salem Unit No.1 .j utility industry accounting practices for decommissioning to 2008 and Unit No. 2 to 2012. are changed, annual provisions for decommissioning could The National Energy Policy Act of 1992 (Energy Act) increase, the estimated cost for demmmissioning could be provides, among other things, that utilities with nuclear rnurded as a hability rather than as accumulated deprecia-reactors must pay for the decommissioning and decontami-tion, and trust fund income from external decommissioning nation of the DOE nuclear fuel enrichment facilities.The trusts could be reported as investment income rather than as total costs are estimated to be $150 million per year for 15 a reduction to decommissioning expense. The Company years, of which the Company's share is estimated at $5 mil-does not expect this review to have a material effect on the lion per year. The Energy Act provides that these costs are to Company's financial condition or results of operations.. be recoverable in the same manner as other fuel costs.The EffectiveJanuary 1,1991, the Company began recogniz-Company has recorded the liability and a related regulatory ing in the financial statements unrealized gains using the asset, which at December 31,1994 and 1993 was $59 and average wst method as part of the value of the demmmis- $69 million, respectively. sioning trust accounts and as a deferred liability (see note 4). The Company is currently recovering in rates costs for Under the Nudear Waste Policy Act of 1982 (NWPA), nuclear decommissioning and dewntamination and spent the U.S. Department of Energy (DOE)is required to take fuel storage. The Company believes that the ultimate costs of imssession of all spent nuclear fuel generated by the decommissioning and decontamination, spent fuel disposal Company's nuclear units for long-term storage by no later and any assessment under the Energy Act will continue to than 1998 Under the NWPA, the DOE is authorized to tw recoverable through rates, although such recovery is not assess utilities for the cust of nuclear fuel disposal. The cur-assured. rent cost of such disimsal is one mill ($,001) per kilo-watthour of net nuclear generation. The fee may be adjusted Environm.neell. u.e prospectively in order to ensure full cost recovery. Under federal and state environmental laws, the Company is The DOE has stated that it is under no legal obligation generally liable for the cmts of remediating environmental to begin accepting spent fuel absent an operational regmsito-wntamination of propeny now or formerly owned by the ry or other facihty constructed under the NWPA. The DOE Company or of property contaminated by hazardous sub-acknowledges, howeser, that it may have created the exiwc-stances generated by the Company. The Company owns or ration of such a commitment on the part of utilities by issu-ing certain regulations and projnted waste acceptance whedules. The IX)E has stated that it will not be able to open a permanent, high level nu lear waste storage facihty eseo s....,e..,,..,. 4 e 6.iai..,c. ,..i..

Notes to Consoudated Financial Statemente (coNnsuroi

3. Commitments and Contingencies (CoPmNUIDI Court Will try the Case on the issue of damages. The ultimate outcome of this matter is not expected to have a matcrial leases a subuantial number of real estate parcels, including adverse effect on the Company's financial condition.

parcels on which its operations or the operations of others On hiay 2,1991,37 former employees of the Company may have resulted in contamination by substances which are filed an amended class action suit against the Company, the considered hazardous under environmental laws. The SAP and three former Company officers in the Eastern Company is currently involved in a number of proceedings District Court, on behalf of 147 former employees who relating to sites where hazardous substances have been retired from the Company betweenJanuary andJune 1987. degosited and may be subject to additional proceedings in The lawsuit was filed under ERISA and concerns the August the future. An evaluation of Company sites for potential 1,1987 amendment to the SAR The plaintiffs claim that the environmental clean up liability is in progress, including Company concealed or misrepresented the fact that the appmximately 20 sites where manufactured gas plant activi-amendment to the SAP was planned to increase retirement ties may have resulted in site contamination. Past activities benefits and, as a consequence, they retired prior to the at several sites have resulted in actual site contamination. amendment to the SAP and were deprived of significant The Company is presently engaged in performing detailed retirement benefits. The complaint does not specify any dol-evaluations of these sites to define the nature and extent of lar amount of damages. On March 24 and 25,1994, the case the contamination, to determine the necessity of remediation was tried in Eastern District Court on the issue of liability, and to identify imssible remediation alternatives As of On May 13,1991, the Eastern District Court issued a deci-December 31,1991 and 1993, the Company had accrued sion, finding the Company liable to all plaintiffs who made $24 and $17 million, respectively, for envimnmental investi-inquiries about any pension improvement after htarch 1, gation and remediation costs that currently can be reason. 1987 and retired prior toJune 1987.The Eastern District ably estimated. On December 15,1994, the PUC approved Court will try the case on the issue of damages. The uhimate the recognition of $1.5 million of environmental costs annu-outcome of this matter is not expected to have a material ally lbr the remediation of sites of former manufactured gas adverse effect on the Company's financial condition. plant facilities (see note 2). The Company cannot currently On May 25,1993, the Company received a letter from predict w hether it will incur other significant liabilities for attorneys on behalf of a shareholder demanding that the additional investigation and remediation costs at these or Company's Board of Directors commence legal action against adthiional sites identified by the Company, environmental (ertain Company officers and directors with respect to the agencies or others, or whether all such costs will be recover. Company's credit and collections practices. The basis of the able ihmugh rates or from third parties. demand is the findings and conclusions contained in the Credit and Collection section of the May 1991 PUC other utigation Management Audit Report prepared by Ernst & Young. At its On April !1,1991,33 former employees of the Company June 28,1993 meeting, the Board of Directors appointed a filed an amended class action suit against the Company in special committee of directors to consider whether such legal the United States District Court for the Eastern District of action is in the best interests of the Company and its share-Pennsylvania (Eastern District Court)on behalf of approxi. holders. On March 14,1994, upon the recommendation of mately 141 persons who retired from the Company between the Special Committee, the Board of Directors approved a res-January and April 1990. The lawsuit, filed under the olution refusing the shareholder demand set Ibrth in the May Employee Retirement income Security Act (ERISA), alleges 25,1993 demand letter, and authorizing and directing offi-that the Company fraudulently and/or negligently misrepre. cers of the Company to take all steps necessary to terminate sented or concealed facts mncerning the Company's 1990 the derivative suit discussed below. Early Retirement Plan and thus induced the plaintifTs to OnJuly 26,1993, attorneys on behalf of two sharehold-retire or not to defer retirement immediately beibre the initia-ers filed a shareholder derivative action in the Court of tion of the 1990 Early Retirement Plan, thereby depriving Common Pleas of Philadelphia County against several of the the plaintiffs of substantial pension and salary benefits. In Company's present and Ibrmer officers alleging mismanage. June 1991, the plaintiffs filed amended wmplaints adding ment, waue of wrporate assets and breach of fiduciary duty additional plaintif fs. The lawsuit names the Company, the in connection with the Company's credit and collections Company's Service Annuity Plan (SAP) and two Company practices. A similar suit by the same plaintiffs previously had officers as defendants. The plaintiffs seek approximately $20 been withdrawn while on appeal after dismissal by the court million in damages representing, among other things, for failure to first serve a demand on the Company's Board of increased pension benefits and nine months salary pursuant Directors. This action is also based on the findings and con-to the terms of the 1990 Early Retirement Plan, as well as closions contained in the Credit and Collections section of punitive damages. On March 2 i and 25,1991, the case was the May 1991 PUC Management Audit Report prepared by tried in Eauern Diunct Court on the issue of liability. On May 13,1991, the Eastern District Court issued a decismo, finding the Company liable to all plaintiffs w ho made inquiries about any early retirement plan after March 12, 1990 and retired prior to Apnl 1990. The Eauern District e s c o s.., s, c..,..,... s. 6. i e s.,, c..... i..

Notes to Consolidated Financial Stat.mente (CoNDNutop

3. commitm.nte and contingencies iconnNutoi EffectiveJanuary 1,1994, the Company adopted SFAS No.115," Accounting for Certain Investments in Debt and Ernst & Wung. The plaintiffs seek, among other things, an Equity Securities," which requires the fair value of invest-unspecified amount of damages and the awarding to the ments in certain debt and equity securities be recorded in plaintiffs of the costs and disbursements of the action,includ-the financial statements. The amounts which the Company ing attorneys' fees. On April 12,1991, the Company filed a recovers from customers for the Company's share of the esti-motion for summary judgment seeking termination of the mated costs for decommissioning its nuclear generating sta.

action pursuant to the Board of Directorf resolution of March tions are deposited in trust accounts and invested for fund-14,1994. Any monetary damages which may be recovered, ing of future costs. As of December 31,1994, the Company net of expenses, would be paid to the Company because the recognized $1 million of unrealized gains using the average lawsuit is brought derivatively by shareholders on behalf of cost method, which are recorded as a deferred liability (see the Company note 3). The Company had no other such investments as of The Company is involved in various other litigation December 31,1994. matters, the ukimate outcomes of which, while uncertain, are EffectiveJanuary 1,1993. the Company adopted SFAS not exguted to have a material adverse effect on the No.106," Employers' Accounting for Postrctirement Benefits Company's financial condition or results of operations. Other Than Pensions,' which requires the recognition of the l expected costs of the benefits during the years employees l render service, but not later than the date eligible 'or retire-l

4. Changes in Ac. counting ment using the prescribed accrual method. For 1992 and prior, the Company recognized these costs on a pay-as-you-EffectiveJanuary 1,1991, the Company adopted SFAS No.

go basis. For 1994 and prior, the Company recovered in base 1 112," Employers' Accounting for Postemployment Benefits," rates the pay-as-you-go costs. Adoption of SFAS No.106 l which requires current recognition of the expected costs of resulted in a transition obligation of $505 million, which is l the obligation to provide benefits to former or inactive being amortized on a straight-line basis over 20 years. I employees during the period after active employment but Adoption of SFAS No.106 had no impact on the Company's before retirement. For 1993 and prior, the Company recog-results of operations as the Company deferred these nized these costs on a pay-as-you-go basis. The Company is increased costs pending rate treatment (see notes 2 and 6), currently recovering in base rates the pay-as you-go costs. EffectiveJanuary 1,1993, the Company adopted SFAS The Company's tramition obligation under SFAS No. I 12 No.109," Accounting for Income Taxes," which requires an was $10.9 million, which represents the previously unrecog-asset and liability approach for financial accounting and nized accumulated postemployment benefits obligation.The reporting for income taxes utilizing the cumulative method Company's increased SFAS No. I12 costs for 1994 were $1.4 of adoption. As a result, the Company recognized a charge of million. The Company exguts to recover all increased $3 million during 1993.The Company has also recorded an expenses resulting from the adoption of SFAS No. I 12, and additional accumulated deferred income tax liability along auordingly, has deferred all such expenses. with a corresponding recoverable deferred income tax asset of $2.1 and $2.3 billion at December 31,1994 and 1993, respectively (see note 13).

5. Hetirement Benefits The Company and its subsidiaries have a non-contribumry trusteed retirement plan applicable to all regular employees.The benefits are based pnmarily upon employees' years of service and average earnings prior to retirement. The Company's fund.

ing policy is to (ontribute, at a minimum, amounts sufficient to meet ERISA requirements. Approximately 859,71% and 7H4 of pension costs were charged to operations in 1994,1993 and 1992, respectively, and the remainder, associated with comtruction labor, to the cost of new utility plant. nwouse.os ce counsi . _ _1_s s4 y _ wa Pension costs for 1991,1993 and 1992 included the following components: Servac (ost - benefits earned during the period 33,403 33,673 $ 30,191 Interest cost on projected benefit obhgations 136,690 134,658 129,000 Actual return on plan assets 12,946 (226,240) (122,869) Amortisation of transition awet (4,536) (4,538) (4,539) Amortisation and deferral .(161,955) _ _H 7,7M _ _ _ _ (5,7 41 ) Net pension iost 8 16,546 25,286 $ 26,042 I ..co s.. s, ........ s.o. m.,,...... j

Metes to Censolidated Financial statements (con rWUED) s, t 5.RetirementBenente acoemNUED) 1 The changes in' net periodic pension costs in 1994,1993 and 1992 were as follows: ' rrHOUSAhDS OF 00cWS). 1ss4_ 1991-199J. Change in number, characteristics and salary levels 1 . of participants and net actuarial gain 8 (6,004) '$ (756) $ -(840) Change in plan pmvisions (1,777) ._4542 Change in actuarial assumptions (a,740),$ '(756)' $ 3,702 - [9ss) t f-Net change s ' Plan assets consist principally of cornmon stock, U.S. government obligations and other Axed income instruments in determining pension costs, the assumed long-term rate of return on assets was 9.50% for 1994,1993 and 1992. The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 8.25% at December 31,1994,7% at December 31,1993, and 7.75% at December 31,1992. The average rate ofincrease in future compensation levels ranged from 4.25% to 6.25% at December 31,1994, from 4% to 6% at December 31,1993, and from 4.5% to 6.5% at December 31,1992. Prior service cost is amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plan. The funded status of the pla'n at December 31,1994 and 1993 is summarized as follows: mcousAnos or ootwsi ies4 e Actuarial present value of accumulated plan benefit obligations-l Vested benefit obligations $ (1,s os,ss2] $ - (1,482,868) Accumu. lated benefit obligation _11,ejt2 e_es{ Og600,768) l ' Pmjected benent obligation for services rendered to date (1,s14,209) -(1,972,332) ( 1 Plan assets at fair value _1 741,211 IM44,281 1 Funded status 172,93s) (128,051) Unrecognized transition asset (49,327) (53,865) Unrecognized prior service costs 73,33s 95,728 Unrecognized net gain J230,105) _(7_7,245) Pension liability $ (279,032) $ (163,443)

6. Non-Pon.lon Retirement Benefits The Company provides certain health care and life insur-the transition obligation)is $81 million.The Company's ance benen" for retired employees. Company employees will comparable pay as you-go costs for these beneGts, which income elipole for these benefits if they retire from the were recovered in base rates, were $32 million in 1991 Company with ten years of service. These benefits and simi-EffectiveJanuary 1,1995, the Company will be permitted by lar benefits for active employees are provided by an insur-the PUC to recover SFAS No.106 costs associated with the l

ance company whose premiums are based upon the benefits Company's retail electric and gas operations (see note 2). l. paid during the year. Prior to 1993,the Company recognized The transition obligation was determined by application the cost of providing these benefits by charging the annual of the terms of medical, dental and life insurance plans, j insurance premiums to expense. including the effects of established maximums on covered The transition obligation resulting from the adoption of costs, together with relevant actuarial assumptions and SFAS No.106 was $505 million atJanuary 1,1993, which health care cost trend rates, which are projected to range represents the previously unrecognized accumulated non-from 10% in 1995 to 5% in 2002.The effect of a,1% annual pension postretirement bene 6 obligation. The transition increase in these assumed cost trend rates would inchase the I obligation is being amortized on a straight line basis over an accumulated postretirement benefit obligation by $56 mil-allowed 20 year period. As a result of the Voluntary lion and the annual service and interest costs by $7 million. Retirement incentive Program (VRIP) and the Voluntary Total costs for all plans amounted to $81, $83 and $17 mil-l Separation Incentive Program (VSIP), the Company acceler-tion in 1994,1993 and 1992, respenively, for 6.000 retirees I ated recognition of $180 million of non pension gestretire-during 1994,1993 and 1992 and for 3,539 active employees i ment benefits obligation (see note 22). The annual non-pen-during 1991 The cost was higher in 1994 and 1993 than in sion postretirement benents e ists (including amortization of 1992 primarily due to the adoption of SFAS No.106. o ..ee.....,e.....,....... m..,e........

7. qy.

Q ' ^ ^ ~ 'e um; j j o 4 } NoemsheCenoemdeesdFinanotelStetsmente (CONDNUED) ' Gs tl $ f, ..I r t i e S.Non-Penelon Retirem-W Benente ICONTINUED) ' .1

The net periodic benefits costs for 1994 and 1993 included the following components:

rrHouSANDS OF DouMS) 1994 199) C 2 Service cost - benefits earned during the ped-J 17,oss $ '15,615 Interest cost on projected benefit obligations 41,1 ss ' 41,708 ' . Amortization of the transition obligation 22,65s . 25,251 ~ Actual return on plan assets ' . Amortization and deferral- ~- Net periodic pwtretirement benefits costs - 8 so,si t - $ 82,574 l N The funded status of the plan at Dee:mber 31,1994 and 1993 is summarized as follows: [ (THOUSANDS OF DOLLARS) 1994 1995 l . ' Accumulated postretirement benefit obligation: Retirees .4 sse,12s 476,059 l Fully eligible active plan participants 7,sss 39,367 Other active plan participants 1s,cos 72108-Total 500,o29 595,234 - j Plan assets at fair value (1,2001 } Accumulated postretirement benefit obligation in excess of plan assets sas,sas 595,234 Unrecognized transition obligation (2s7,s71F (479,778) i - Unrecognized net gain 33,500 ' '(61675) Accrued postretirement benefits cost recognized on the balance sleet 4 354,45s, $ 51,781 j 'i 1\\feasurement of the accumulated emstretirement benefits obligation was based on an 8.5% and 7.25% assumed discount rate as # December 31,1994 and 1993, respectively. i s

7. Ao.ounta R.c.avebs.

I l Accounts reivable'at December 31,1994 and 1993 December 31,1994 and 1993, the Company had sold a ' included unbilled operating revenues of $100 and $115 mil- $325 million interest in accounts receivable under this lion, respectively. Accounts receivable at December 31,1994 agreement. The Company retains the servicing responsibility. and 1993 were net of an allowance for ur.milectible for these receivables. - accounts of $17 and $15 million, respectively. By terms of this agreement, under certain circumstances,, ' The Company is pany,to an agreement with a financial a portion of deferred Limerick costs may be included in the - institution whereby it can sell on a daily basis and with lim. pool of eligible receivables. At December 31,1994, $37 mil-ited recourse an undivided interest in up to $325 million of lion of deferred Limerick costs were included in the pool of designated accounts receivable untilJanuary 24,1996.At eligible receivables.

8. Common Stock b

. At December 31,1994 and 1993, common stock without Company. The types of long-term incentive awards which par value consisted of 500,000,000 shares authorized and may be granted under the LTIP are non-qualified options to. 221,608,984 a,. t 221,517,099 shares outstanding, respec. purchase shaws of the Company's common stock, dividend , tively At December 31,1994, there were 4,800,000 shares equivalents and shares of restricted common stock. Pursuant J 8 resener Or issuance under stock purchase plans. to the LTIP,2,651,397 shares of stock were authorized for The Company maintains a Long-Term Incentive Plan issuance upon exercise of options at December 31,1994. - (LTIP) for certain full-time salaried employees of the , s c o s...., c...,..'s s. m. i e s.., c.,.. i.. s

JJ [ssnese w conseedend renenotes steemmenee scourmutV ' - s.cenunen eteek <courmuroi - i The following table summarizes option activity during 1994,1993 and 1992: l [ ( 1*** um 1992 ' 13alance atJanuary 1 1,961,882 2,445,833 1,656,244 Options granted 909,000 ~(981,551)- $33,800 1,380,000 Options exercised (so, ass). ' Options cancelled, J12s,600]' Q6J00) ' (504,411) (86,0_00) lialance at December 31 2,651,3s7 1,961,H82 2.445,8 B Exercisable at December 31 1,ses,3s7 1.447.282' l.162,833 Options wem exercised at.werage option prices of $22.91 per share, $22.66 per share and $24.73 per share in 1994,1993 and 1992, resptcrively.The average exercise prices of shares under option were $26.73 per share, $25.12 per share and $23.18 per share at December 31,1994,1993 and 1992, respectively. o S. Preferred and Preference 5tock At December 31,1994 and 1993, Series Prefernice Stock consisted of 100,000,000 shares authorized, of which no shares were outstanding. At December 31,1994 and 1993, cumulative Preferred Stock, no par value, consisted of 15,000,000 shares ..i authorized. Curvem Sha,es Amoum P Redempum _ Out.andmg (Thousands of rMlaro I Series (without mandatory redemption) Pme (at 1994 192)_ '. 1994 1993 $7.85 500,000 50,000 $7.80 750,000 75,000 20,000 - I $7,73 200,000 $4.68 104.00-150,000 150,000 15,000 15,000 $4.40 112.50 274,720 274,720 27,472 27,472 $4.30 102.00 150,000 150,000 - 15,000' 15,000 $3.80. 106.00 300,000 300,000 30,000 30,000 $7.96(b) (c) 1,400,000 1,400,000 140,000 '140,000 : $7.48 .(d) _ 500,000 500,000_ 50,000 __j 0f 00 2,774 720. 4,2.2_4R0_

2774_72, 422,412 2

Series (with mac.i. tory redemption)(c) 39,000. $9.875 390,000 + $7.325 300,000 30,000 $7.00 248,000 24,800 $6.12 ' -(0 927,000' _, (L27 000_ 92,700 92 70p 1 927,000 _1,865,000 92,700 I86,500 0 Total Preferred Stock 3,701,720 6.089.720 s 370,172 $ 60s.972 (a) Redeemable, at the option of the Company, at the indi-(d) None of the shares of this series are subject to redemp- [ cared dollar amounts per share, plus accrued dividends. tion prior to April 1,2003 t (b) Ownership of this series of preferred stock is evidenced (e) There are no annual sinking fund requirements in the by depositary receipts, each representing one-fourth of a period 1995-1998. Annual sinking fund requirements share of preferred stock, in 1999 are $18,540,000. (c) None of the shares of this series are subject to r-demp-(0 None of the shares of this series are subject to redemp-tion prior to October 1,1997, tion prior to August 1,1999. - ? t 4 ,.ee.....,e.................ere.......

. Neeee*te Coneeedeced Financial Statemente (CoNTWUED) i

10. Monthly income Preferred Securitiee of Sul oldiary OnJuly 27,1994 PECO Energy Capital, LP, a Delaware limit-resenting limited partnership interests with a stated liquidation ed partnership of which a wholly owned subsidiary of the value of $25, totaling $221 million, all of which were outstand-Company is the sole general partner, issued 8.85 million of 9%

ing as of December 31,1994. Cumulative Monthly Income Preferred Securities, Series A rep-

11. Long-Term Debt AT_ DECEMBER 3t i

(THOUSANDS OF DOLLARS) smes

Due, 19s4 1993 First and Refunding Mortgage Bonds (a) 4 1/2% - 13.05%

1994 170,000 61/8% 1997 8 7s,000-75,000 53/8% 1998 22s,000 225,000 71/2%-91/4% 1999 32s,000 325,000 5 $/8%- 10% 2000-2004 1,310,0s9 1,310,069 j 63/8%-101/4% 2005-2009 127,813 131,875 (b) 2010-2014 154,200 167,540 8 7/8 % - 11 % 2015-201c 14s,2s1 ' 227,841-65/8%-101/2% 2020 2024 1,s65,2 s0 1.(,(t5,280 Total First and Refunding Mortgage Bonds 4,027,s 4,297,605 Notes Payable - Banks (c) 1994-1996 1s7,000 167,000 Revolving Credit and Term Loan Agreements (d) 1995.996 52s,000 '425,000 Pollution Cantrol Notes (e) 1997.10'.) 181.4ss 65,565 Debentures 10.05 % 1994-2011 62,000 Medium *krm Notes (f) 1994-2005 134,200 150,000 t Sinking Fund Debentures - PECO Energy Power Company, a Subsidiary 4 1/2% 1995 9,750 10,550 las,214) (41,114) j IJnamortized Debt Discount and Premium, Net 'Ibral Long-Term Debt 4,988,s44 5,136,606 Due Within One Year (g) 201,213 252,263 ? 2 Long-Term Debt included in Capitalization (h)

• 4,7 ss,s31 $ 4.8s4343 (a) Utility Plant is subject to the lien of the Company's instruments. The average annual interest rate for this mortgage.

revol_ving credit agreement was 6.5% at December 31, (b) Floating rates, which were an average annual intere-t 1994.The Company also has a $150 million revolving a rate of 3.7% at December 31,1994. credit and term loan agreement with a group of banks. - (c) The Company has entered into interest rate swap agret. The revolving credit agreement converts into a term ments to 6x the effective interest rates on these notes. A-loan inJuly 1996 and the wmmitment terminates in December 31,1994 and 1993, the Company had two 1998. There is an annual commitment fee of 0.2% on interest rate swap agreements outstanding with commer-the unused amount. At December 31,1994 and 1993, cial banks, for a total notional principal amount of $167 no amounts were outstanding under this agreement. million, respectively.These agreements are subject to (e) Floating rates, which were an average annual interest performance by the mmmercial banks, which are coun-rate of 4.9% at December 31,1994. terparties to the interest rate swaps. The Cornpany does (f) Medium-term notes collateralized by mortgage bonds. ] not anticipate nonperformance by the counterparties. The average annual interest rate was 8.2% at December The annual interest rate for these notes, giving effect to 31,1994. the interest rate swaps, was 10.51% at December 31, (g) Long-term debt maturities, including mandatory sink. 1994. ing fund requirements,in the period 1996-1999 are as (d) On October 3,1994,Imrrowings by the Company under follows-1995 - $393,463,000; 1997 - $266,063,000; its $525 million revolving credit and term loan agree-1998 - $241,463,000; 1999 - $359,063,000. ment with a group of banks convened to a term loan. (h) The annualized interest on long-term debt at December The term loan is due in six semi-annual installments 31,1994, was $362 million, of which $303 million was commencing April 3,1995. Interest on outstanding bor-associated with mortgage lmnds and $59 million was mwings is based on speciGc formulas selected by the associated with other long-term debt. Company involving yields on several types of debt p s c o s m.e s, c e a,p e n, o n e s e n eis t o r y c.,m p a nt e.

n-qc, 1 i leseos se Ceneelldseed Pinenelet Sesesniente (counNUED) -

• *E d

t i 4

i p

o 12.Short Term Debt i

(tKDusANos or Doums 1se4 iwi iw2-

'i Di.,, Average Borrowings. $ 130,539 $ 113,193 $f 50,161 Average Interest Rates, computed on daily basis . 4.03% 3.35 % 3.72%. Maximum 11orrowings outstanding 8 41s,soo $ '368,400 $ 255,500 ' Average Interest Rates at December 31 s.73% 3.4 5% ~ 3.72% [ l The Company has a $150 million commercial paper program and at December 31,1994, there was no commercial paper outstanding. At December 31,1994, the Company had formal and informal lines of credit with banks aggregating $351 million against which $11 million of short-term debt was outstanding. The Company has compensating balance arrange-ments for $158 million of these formal and informal lines of credit. During 1994, the Company was required to maintain a 5% average compensating balance for these credit lines. 13 Income Tames .r (THOUS,*Nos oF DouARs) 1es4 Iwi

• g2 Included in Operating income:

l 4 ' Federal ' Current 4 1s4,472 $ 117,535 $ 131,054 I Defirred (2 set) .I13,054 66,281- + ' Investment Tax Credit, Net 2s,cos 43,344 (3,495). ' State-Current 77,754 70,740 . 78,546 Deferred (33,508) 37J (7,903) 234,033 354,391 264 48J Included in Other Income and Deductions: ~ Federal Current 1,989 _ 3,650) (45,295) ( ' Deferred 9,722 15,926 20,237 State 6 Current 40s. (1,615) (18,430)- i ' Deferred 3all 1 14] 3328 15,291, ll 8J08 - (40,160). 1 'Ibral '4 249,324 $ 366,199 $ 224,323 i. ? I 5 r 4 ..ee...... e. ..........i.... e.

D' . Notes to ConeoHdetod Financial Statements (CoNTiNUEDI i l e

13. Income Taxes (coNr NutDi i

In accordance with SFAS No.109, the Company has record-1986 with the exception of transition property.The s ed an additional accumulated net deferred income tax liabil-Company believes that Limerick Unit No. 2 qualifies as sty and pursuant to SFAS No. 71," Accounting for the Effects transition property eligible for ITC. cf Certain Types of Regulation," a corresponding recoverable All remaining general business credits were used by the deferred income tax asset of $2.1 and $2.3 billion at Company during 1994. December 31,1991 and 1993, respectively, representing pri-The Internal Revenue Service (IRS) has completed its marily the cumulative amount of federal and state income examinations of the Company's federal income tax returns taxes associated with the elimination of the net-of tax through 1986.The 1987 through 1990 federalincome tax AFUDC accounting methodology. returns are under examination. The IRS completed its field The accumulated net deferred income tax liability examination in February 1994 and subsequently issued an reflects the tax effect of anticipated revenues and reverses as assessment that the Company has appealed.The Company the related temporary differences reverse over the life of the expects resolution of the appeal by mid 1995. related depreciable assets concurrent with the recovery of For the years 1987 through 1990, the Company's cur-their cost in rates. Also included in the accumulated deferred rent tax liability was determined under the AMT method income tax liability are other accumulated deferred income resulting in a cumulative tax credit of $176 million which taxes, principally associated with liberalized tax deprecia-can be utilized in future years when regular tax liability tion, established in accordance with the ratemaking policies exceeds AMT liability. of the PUC based on flow-through accounting. The tax ef fect of temporary difTerences which give rise to ITC and other general business credits reduced federal the Company's net deferred tax liability as of December 31, income taxes currently payable by $43, $60 and $41 million 1994 and 1993 are as follows: in 1994,1993 and 1992, respectively. Under the Tax Reform Act of 1986,ITC was repealed effectiveJanuary 1, t.iabihry or (A_wo MLUONs of Dot.LARS 1994 199J Nature of Temporary Difference: Utihty Plant Accelerated Depreciation 8 1,377 $ 1,270 Deferred Investment Tax Credits 374 34(3 AMT Credits (17e) (176) Other Plant Related Temporary Differences 1,305 1,335 Taxes Recoverable Through Future Rates, Net 882 980 Deferred Debt Refinancing Costs 132 142 Ot her, Net [30s) _ _(155) Deferred income Taxes per the Balance Sheet 8 3,588 $ 3,742 The net deferred tax liability shown above as of The Omnibus Budget Reconciliation Act of 1993 December 31,1994 and 1993 is comprised of $4.127 and changed the federal income tax rate for corporations to 35% $4.1H2 billion of deferred tax liabilities, panly offset by $539 from 347, effectiveJanuary 1,1993, This change resulted in and $140 milhon of deferred tax assets, respectively, an $8 million increase in income Taxes in the Consolidated The 1994 amendment to Pennsylvania tax law changed Statement ofIncome for the year ended December 31,1993. the corporate income tax rate from 12.257 to 11.99% for This change also resulted in a $107 million increase in the 1994,10.997 for 1995,10.759 for 1996, and 9.997 for Deferred Income Taxes liability in 1993, included in the 1997 and thereafter. This change re.ulted in a $2 million December 31,1994 and 1993 Consolidated Balance Sheets, j decrease in income Taxes in the Consolidated Statement of because the Company expects to receive recovery of all taxes Income for the year ended December 31,1991 This change when paid. aho resulted in a $174 million decrease in the Deferred Income Taxes liability on the December 31,1994 Consolidated Balance Sheet. The decrease in the Deferred Income Taxes hability is returned to customers through the i State Tax Adjustment Clause in the year rea!ized. escos....,c. ....isi..,c.

( r bios se Consondated Financial Statements (coNTiNUtDi

13. Income Tease (CONTINutDi Provisions for deferred income taxes consist of the tax effects of the following timing differences:

(THOUSANDS OF DOLLAAS). 1994 1993 l992 Depreciation and Amortization 8 85,772 78,324 93,469 Deferred Energy Costs 13,777 19,013 (18,033) Early Retirement and Separation Programs (a2,00s) 1,865 Incremental Nuclear Maintenance and Refueling Outage Costs (2,751) (827) (1,627) Uncollectible Accounts (23,096] 625 (2,629) Reacquired Debt l12,954) 28,959 39,123 Unrecovered Revenue l2,239) (806) (56,050) Environmental Clean-up Cost - l3,949) (2,479) Obsolete Inventory (8,192) (6,887) Limerick Plant Disallowances and Phase-In Plan 12,804 17,073 .15,118 Other __[2,5 80) 6,850 10,707 Total 4 (23,30s) $ 139,845 81,943 The total income tax provisions differed from amounts computed by applying the federal statutory tax rate to income and adjusted income before income taxes as shown below: mlOUSANDS OF DOLLAPS) 1994 1991 1992 Net income 4 426,713 $ 590,648 $ 478,941 %tal Income Tax Provisions 249,324 366,l_9') 224,323 Income Before income Taxes 87s,037 956,847 703,264 Deduct: Allowance for Punds Used During Construction 22,169 2p74 20,663 Adjusted Income Defore Income Tayes 4 653,888 $ 933,073 $ 682,601 Income Taxes on Above at Federal Statutory Rate of 35% in 1994 and 1993 and 34% in 1992 4 228,a54 $ 326,576 $ 232,084 Increase (Decrease) due to: Depreciation Timing Differen,es Not Normalized 12,767 9,721 10,427 Limerick Plant Disallowances and Phase-In Plan 1530) 5,094 2,159 Unbilled Revenues Not Normalized (5,766) State income Taxes, Net of Federal Income Tax Benefits 31,086 51,994 36,657 Amortization ofInvestment Tax Credits [14,57e' (13,470) (24,624) Prior Period Income Taxes (14,524) (3,942) (20,655) 0:her, Net a,241 (9,7._74) Q,959) 5 %tal Income Tax Provisions 6 249,324 $ 366.199 $ 224,323 Provisions for Income Taxes as a Percent of: Income Before Income Taxes 36.9% 38.3% 31.9% Adjusted income Before Income Taxes 3 s.1 % 39.2% 3 2.9% ' 10, Tames.other Thanincome operating UHoVSANOS OF 00uARS) _1,994 19'M 199] Gross Receipts 8 160,704 $ 155,407 $ 158,314 Capital Stock 39,957 38,990 28,013 Real Estate 77,571 71,445 63,593 Payroll 31,556 31,490 29,410 1 Other 1,901 800 2M8 Total 8 311,689 $ 298,132 281,868 1 e s c o e..., c. p..,. e s n im a., c. ...i..

e ee t

fenesehe Ceneesdated Rnensist eentemente ecosmNutot i 2,; ; i.

4 1.~

L. .15,Leeees' l [ 'p 5, eased property included in Utility Plant at December 31, was as follows: 1 (THOUSANDS OF DOLLARS) .1994 199L

a.

1 L; - Nuclear Fuel $ 445,33s '$ 448,203 ~ l-Electric Plant 2d10-2.169 .i Gross Leased Property 447,44s 450,372 l' Accumulated Amonization' [272,s83) (2)J.(270) g' Net leased Property. 4 174,ses $ 194.702 . The nuclear fuel obligation is amonized as the fuel is consumed. Amonization of leased property totaled $62, $58 and $55. i millien for the years ended December 31,1994,1993 and 1992, respectively. Other operating expenses included interest on. capital lease obligations of $7, $8 and $7 million in 1994,1993 and 1992, respectively. Minimurn future lease payments as -of December 31,1994 were: JTHouSANoS of DoLLARSp. YEAR ENDING DECEMBER 31. Capgal[.g,es_ . oversungJgases Total. 1995 69,777 $ 97,608 $ 167,385 1996-60,752 61,349 '122,101 1997 50,213 60,208 110,421 1998 9,675 56,347 66,022 - 1999. 92 -53,900 53,992 Remaining Years 11).8 2 578.412 572 108 Total Minimum Future Lease Payments 191,528 $ 907,MI $ 1,099,429 imputed Interest (rates ranging from 6.5% to 17.07) (17.,03J). 1 u Present Value of Net Minimum Future Lease Payments $ 174.565 q Rental expense under operating leases totaled $101, $99 and $94 million in 1994,1993 and 1992, respectively.

14. Jointly Owned Electric Utmty Mont The Company's ownership interests in jointly owned electnc utility plant at December 31,1994 were as follows:

1 Transmission and Pimlurtwn Planis other Plant Pm h thwmm salem Keymone Ginemaugh, i PMU I nergy Pubhc servue Electru Pennsylvana Pennsylvans Vanous OPEMATOR 0,mpant end Gen Compg _Flerttu Gmmany, Fimru Compriy, CompanM Participating Interest 42.49% 42.59% 20.99% 20.72 % 21% to 43% (THOUSANDS OF DOLLARS) i Com pany's share of Utility Plant 732,291 $ 1,184,271 $ 86,845 $ 147,479 $ 88,276 . Accumulated Depreciation 274,452 374,354 47,840 48,719 28,060 ' Construction Work in Progress 22,283 47,280 21,484 27,658 1,101 The Company's panicipating interests are financed with million, net of taxes) in the first quarter of 1992. 4 Company funds and, when placed in service, all operations in 1990, the Company received net proceeds of $28 mil- . are accounted for as if such panicipating interests were wholly lion ($16 million, net of taxes)in settlement of a shareholders' owned facilities. derivative suit in connection with the 1987 Peach Bottom On Apnl 2,1992, the United States District Court for the shutdown. Recognition of the $28 million had been deferred District of NewJersey appraved a settlement of the lawsuits pending the resolution of the co-owners' litigation. As a result tilal against the Comptny by the other co+wners of Peach of the settlement of the co-owners' litigation, the $28 million ikittom concerning the 1987 shutdown of Peach Ibrtom was recognized as other income in the first quaner of 1992 ordered by the NRC. As part of the settlement.the Company and reponed as an offset against the amount of the above-paid $131 million to the other cimwners on October 1,1992 mentioned charge relating to the settlement of the co. owners' and the Compmy ntognized a charge against income ($76 litigation. escos .re,c.n....,. 4s n.edi.,c.m..i..

'. (.. Messeto8' Pinemele19tetossiosste (coNiiNutot. .is b / "17.SegmentIntersnetion (fHouSANoS CW pot.tAAS). 1994 lW 199.1 - SLECTRIC OPER A7lONS-Operating Revenues A 3,s24,797' ] ],605,4_25 j-3,5J7,141 Operating Expenses, excluding Depreciation 2,429,452-2,228,507 2,236,907 L , Depreciation 415,854 400,851 J90,H4{6 ' ' Operating Income. 4 779,491 97fg]67 j_ (169 388 . Utility Plant Additions 4 457,72s $ 45H,125 $ 461,407 -'$ AS OPER ATIONS 4 415,s35,$ 382,7J)4 J J 6),}28' Operating Revenues ' Operating Expenses, excluding Depreciation 339,529 299,259 278,407 Depreciation 28,247 24_,lJ01 22/14J ' Operating income 4 50,059 j_ 52,344.J 63/188 Utility Plant Additions 4 67,090 $ 72,481 $ 74,85 H identillable Assets * $ 10,395,488 $ 10,393,419 Electric 4 10,410,461 . Gas - . 7ss,279 727,690 658,825 Nonallocable Assets _ 3,914,01s 3,901142._ 1,$l5,953 : Total Assets 4 15,092,759 $ 15,0 4 2,327 $ 12,57H,227 1m hnla litihty Plant len,stsmal.stal,lafrxistion, intentaria an,1 sllisated neman asshty yruperty. I's.Coch and Cooh Equivalents - For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a ' maturity of three months or less to be cash equivalents. The following disclosurcs supplem-m +he accompanying Statements - of Cash Flows: trHousAmos or oottAnsi im wy, 4 Cash Paid During the Year: Interest (net of amount capitalized) 437,096 $ 474,735 $ 515,696 Income Taxes (net of iefunds) 205,316 182,751 224,352 Noncash Investing and Financing < Capital 1. case Obligations Incurred 41,710 42,484' 40,757 W / L l l ,acoe....,c.....,.....s.m.,,c........

f e Meese'toCeneoudocodPinenoielStatemente CONTINUtDt r4 s t

19. Investments rNOUsAN08 OF DOLLAAS)

DECEMBER 31, 1994 199,} Trust Accounts for Decommissioning' Nuclear Plants 175,326 149,932-I Real Estate Developments and Other Ventures. 42,29s 46,741 ' Nonutility Property -19,609 21,262 L Gas Exploration and DevelopmentJoint Ventures [722) 625 Other Deposits - 76_ -76 Total 236,ss7 218,636-s 1 i - 20.Financiallnetruments j Fair val'ues of financial instruments, including liabilities, are estimated based on quoted market pnces for the same or simi- ' lar issues. The carrying amounts and fair values of the Company's financial instruments as of December 31,1994 and 1993 were as lilllows: (THOUSANDS OF DOLLARS > 1994 1993 Carrymg Fair Car,ymg ' Fa,r Amoum %Iuc Amg, ru %lue Cash and Temporary Cash Investments 4 4s,s70 $ 46,970 $ 46,923 ' $ 46,923' l_(mg-Term Debt (induding amounts due within one year) 4,sse,s44 ' 4,730,00s 5,136,606 5,375,427 l Trust Accounts for Decommissioning Nuclear Plants 175,32s -175,32s 149,932 160,141 l - Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of tem-l porary cash investments and customer accounts receivable. The Company places its temporary cash investments with high. ) credit, quality finandal institutions. At times, such investments may be in excess of the Federal Deposit Insurance Corporation limit. Concentrations of credit risk with respect to customer accounts receivable are limited due to the i Company's large number of customers and their dispersion across many industries. l

21. Nuclear Fuel Agreement with Long leland Power Authority (LIPA]

' In March 1993, the Company entered into an agreement

The payments from LIPA,in excess of related costs, were

, with LIPA and other parties, subsequently revised in recognized in income. The Company recognized $26 and - September 1993, to rtteive $46 mi' lion as compensation for $20 million as other income in the Consolidated Statements - accepting slightly irradiated nuclear fue! from Shoreham ofIncome for the year ended December 31,1994 and 1993, Nudear Power Station. The Company has received the pay. respectively. The Company incurred $4 million of costs ments in installments as the shipments of nuclear fuel were related to accepting the shipments pursuant to this agree- . uccepted. As ofJune 30,1994,the Company had accepted ment. The acquisition of the fuel will result in estimated . all of the nuclear fuel shipments, and pursuant to the agree-benefits to the Company's customers of $70 million over the o ment, earned a $ 4 million bonus as a result of receiving all next 15 years due to reduced fuel-purchase requirements. shipments prior to the September 5,1994 target date. i 4 ..c. s...s,e.....,... e.....l... c.....l..

Notes to Consolidated Financial statements (COWNutD)

22. Voluntary Retirement and Separation incentive Progroms in April 1994, the Company's Board of Directors approved a As a result of VRIP and VSIP, the Company incurred a package of financial incentives permitting eligible employ-one-time pre-tax charge of $254 million ($145 million net ces to participate in either VRIP or VSIR of taxes)in the third quarter of 1994. This charge consisted All regular, part-time and intermittent employees who of the following $190 million for the actuarially deter-would be 50 years of age and have at least five years of cred-mined pension and other postretirement benefits costs; $51.5 ired service as of December 31,1995 were eligible for VRIE million in cash payments for severance and accrued vaca.

All regular and part-time employees of the Company, tion / sick pay to be paid upon separation; and $12.5 million regardless of age or seniority, were eligible for VSIE for outplacement services costs and, for those electing VSIP Employees who voluntarily separate from the Company the continuation of benefits for one year, under VSIP receive a lump-sum payment based on years of in addition, as a result of VRIP and VSIP the Company service. Of the estimated 2,135 employees eligible for VRIP accelerated recognition of $180 million ofits non-pension 1,474 employees elected to accept early retirement. An addi-postretirement benefits obligation. The Company recorded a tional 1,008 employees elected to separate under VSIP The corresponding regulatory asset as it expects to receive recov-retirements and separations are taking place in stages ery of all non-pension postte:irement benefits cost through through December 31,1995. the raremaking process. This recognition of $180 million of non-pension postretirement benefits obligation and the recordati a of the corresponding regulatory asset did not impact earnings. 23.Ouarterly DatalUnaudited} The data shown below indude all adjustments which the Company considers necessary for a fair presentation of such amounts: 0 my_ng hwnm Oggysypg l.Kome Net lncome 5 (rHouSANDSof DOLLARS) 1994 IW1 1994 IW4 1994 IW4 Quarter ended March 31 4 1,128,409 $ 1,071,492 $ 260,313 $ 281,734 159,384 $ 162,356 June 30 951,541 901,703 202,784 223,196 116,050 107,691 September 30 1,041.162 1,073,134 128,477 290,937 22,195 181,683 December 31 919,520 941,800 237,976 239,544 129,084 138,918 fammy Appiaable Average shares I!asnmp , __., __.. #.".*'n_ senii [ _ _,,. Omyanding Per Average share _ miousANOs of DoLLARsl 1994 IW4 1994 19y4 1994 IW) Quarter ended 220,609 4 0.07 0.68 March 31 4 148,553 $ 149,305 221,517 June 30 105,264 94,540 221,531 220,856 0.48 0.43 September 30 12,577 169,727 221,570 221,318 0.06 0.77 December 31 123,021 128,018 221,596 221,493 0.55 0.58 1994 third quarter results include a nei charge of $254 million ($145 million, net of taxes), or $0.66 per share, as a result of VRIP and VSIP (see note 22). o

f in. u I tt.tistu.. ~ (MituCNs OF 00LLARS) Fon THE YEAA ENrXD 1991 _!pi 1992. IW1 17K) 19 9 Summary of Earnings and Financial Condhion ' Opcrating Revenues 4 4,040.6 3,988.1 $ 3,962.5 4,018.6 $ 3,786.7 $ 3,473.8 Operating income 829.6 1,035.4 1,033.4 1,081.2 767.7 809.3 income from Continuing Operations 426.7 590.6 478.9 534.7 105.8 590.5 Net income 426.7 590.6 478.9 534.7 214.2 590.5 Earnings Applicable to Common Snxk 389.4 541.6 418.2 468.6 123.9 493.9 Earnings Per Average Common Share From Continuing Operations <oottAns> 1.76 2.45 1.90 2.15 0.07 2.36 Earnings Per Average Common Share ioouAnsi 1.78 2.45 1.90 2.15 0.58 2.36 Dividends Per Common Share toou4asi 1.545 1.43 1.325 1.225 1.45 2.20 Common St(x-k Equity eta ssAnt> 19.41 19.25 18.24 17.69 16.71 17.67 Average Shares of Common Stock Outstanding iMidONSl 221.0 221.1 220.2 218.2 214.4 208.9 A T D E C E M B E R 31, Net Utility Plant..t Original Cost 4 10,828.7 $ 10,763.0 $ 10,691.2 $ 10,598.4 $ 10,591.3 $ 10,720.8 Leased Propeny, Ne' 174.6 194.7 210.0 223.8 241.3 273.5 'Ibtal Current Assets 454.8 514 8 550.0 783.2 745.0 655.0 Total Deferred Debits and Other Assets _. 3,634.7 _jj 59.8 1,127.0_ 918.1 9384 912# Total Assets 4 15,092.8 $ 15.042.4 $ 12.578 2 $ 12.5245 $ 12.516.2 $ 12.6221 Common Shareholders' Equity

• 4,302.5 4,263.4 $ 4,022.2 3,892.3 3,624.5 $

3,744.8 Preferred and Preference Stock Without Mandatory Redemption 277.5 422.5 422.5 422.5 422.5 622.4 With Mandatory Redemption 92.7 186.5 231.1 315.6 330.9 351.1 Minority Interest in Preferred Securities of Subsidiary 221.3 Long-Term Debt _ 4,785.6_ 4,8843 5,203 9 5,41).6 _ _5,830.8 51(32J Total Capitalization _.,,_9,6 7 9.6 2 25.6.7 9,872]. 10,046.0 10,208.7 10,4.8_1.0 Total Current Liabilities 878.6 954.6 830.6 823.4 783.8 790.5 Total Deferred Credits and Other Liabilities 4,534.6 4d 21;0 1.867.p_ 1,654.1 lj23] 1,350.6 Total Capitalization and Liabilities 4 15.092.8 $ 15.032.3 $ 12.578.2 $ 12,5215 $ 17,516.2 $ 12,622.1 4 escos....,c.-,..,..as.k.isieryc=,.... I

op.n e,ng stamentet. i tom THE YEAlt ENDEO _,1994 19yj ' _t 9n _ tWI Um le j Doctric Operations c u 7 P u T iMILLIONS OF KILOWArT's0URS) Fossil 11,239 10,352 8,082 7,376 7,913 10,470 Nuclear 28,195 27,026 21,428 25,735 23,715 12,890 Ilydro 1,970 1,699 1,803 1,388 2,266 1,743 Pumtwd Storage Output 1,596 1,478 1,597 1,653 1,137 1,354 Pumivd Storagr input [2,250) (2,192) (2,217) (2,355) (2.059) (1,937) Purchase and Interchange 0,164 6,417 8,675 8,603 5.787 11,192 Internal Coml ustion 106 56 29 79 152 3 18 Other 180 1])61 TOTAL t4 EcTRic output 47,014 44,866 42.497 42,479

49. 49 l 47,123 s A L E S iMILLONS Of Kit.OWATTHOURSp Residential 10,817 10,657 9,894 10,311 9,815 9,974 Small Commercial and Industrial e,108 5,773 5,367 5,281 5,066 4,921 Large Commercial and Industrial 15,847 15,935 15,770 16,177 16,554 16,749 Other 791 771 962 1,029_

1/110 . 1/)Jl Service Terrimry 33,563 33,136 31,993 32,801 32,415 32,675 Inten hange Sales 768 457 1,231 1,612 2,751 2,027 Sales to Other Utilities _10,039 8,670 6,699 _ 5,4 15 1,865_ total ELECTRIC SAtts 44,370 42,263 39,924 39.858 47,061 34,702 Nuussa or cusTourns, osciussa it. Resid(ntial 1,350,210 1,341,873 1,333,926 1,321,795 1,320,126 1,309,717 Small Commercial and industrial 143,s05 142,363 141,253 140,901 140,305 138,244 Large Commercial and industrial 3,603 3,742 3,972 4,162 4,344 4,449 Other 944 888 857 840 817 775 ToTAt tLacinac custouens 1,498,362 1,488,866 1,480,008 1,170.698 1,465,592 1,453.185 o p s R A T I N G R E V E N U E 8 (MILLIONS OF DOLLARS) Residential $ 1,3 69.6 $ 1,354.1 1,301.5 $ 1,342.3 $ 1,229.8 $ 1,157.0 Small Commercial and Industrial 700.8 678.9 669.8 641.0 595.2 537.1 Large Commercial and Industrial 1,142,9 1,164.0 1,223.2 1,278.9 1,247.1 1,182.0 Otlier 136.0 161.2 168.0 170,1 166.9 143.9 Servie.e Territory 3,355.3 3,358.2 3,365.5 3,432.6 3,239.0 3.020.0 Interchange Sales 23.0 14.3 32.1 42.8 81.5 68.2 Sales to Other Utilities __24_8 5. _ 2 1 2.9 3J97.1 $_,Jf 62.6, ( Q101.6,_ $ 3 08&2, 1991 1871 81.l_ Totat itscinse navsNuts 8 3,624.8 $ _},605.4 o P B R A T I N O E X P R N $ E S IMitLONS OF D0tt AAS) Operating Exgwnses, ex(luding Depreciation $ 2,429.4 2,228.5 $ 2,236 9 $ 2,253.2 $ 2,325.2 $ 2,077.4 Depret iation 415._9 400.8 390.8 379.6 337.7 257.4 total oPER ATING E XPENsts $ 2,845.3 $ _2,629.3 2,627.7 $ j 632.8 $ 2,662.9 $ 2,,344.8 ELactnec oPanAttNo lNCoME 779.5 $ 976.1 969c1 $ l.0298 $ 7 ;8.7 754.4 Aven Ae5 use PER RESlo&NTI AL c u a T o u a n <utowA11Houns Without Electric licating 6,736 6,727 6,259 6,707 6,376 6,188 ' With Electric Ileating 17,527 17,09(> 16,298 16,201 16,038 17,250 'lbtal 8,041 7,970 7,113 7,801 7,4(>4 7,655 Electrical Peak Load, Demand iTHousAmos oF utowaris) 7,227 7,100 6,617 7,096 6,755 6,467 Net Electric Generating Capacity - Year-End Summer Rating enousANos or utOwATTo 8,956 8.877 8,836 8,766 8,766 7,759 Cost of Fuel per Million litu 0.89 $ 0.90 $ O.82 $ 0.92 $ l.13 1.37 lhu per Net Kilowarthour Generated 11,617 10,675 10,657 10,8i9 10,814 10,894 r a c o s o.e s y c.,n e e n, a nd s eine ssa.e, c. p e n s..

, Operedneig Statietics < cont,Nuton iss4 19M 1992 1991 1990 19W Gas Operations s A L a s (MituoNS of CuelC FEET) ' Residential 1,636 1,637 1,819 1,746 1,778 1,951 IIouse Heating 31,974 30,687 29,750 26,423 25,303 28,301 Commercial and Industrial 21,520 22,943 21,497 20,492 '23,228 30,038 'Other __ __5,0 7 9_ 5/>$,6 2,146 ,,__ $ 34 1,567_ 2,311 TOTAL oas sALas 60,209 60,923 55,212 49,195 51,876 62,634 Gas Trans;mrted for Customers 29,801 22,946 '22,060 21414 24,413 18,033 ToTALoAssAless TRANSPORTS 0 90,010 83,869 77.272 '70,609 76,289 80.(>67 N U M a s R O F C U n f o M a p s, 0 s C M a s R 31, Resi&ntial 57.122 59,573 59,859 62,444 63,267 65,544 . ilouse lleating 287,481 277,500 269,577 260,473 254,564 246,273 Commercial and Industrial 32,292 3 J,53 _30,95(> .,_ 30,204 29/156 _.28,362 Tofat oAs custoMans 376,895 368,646 360.492 35;,121 A47,287 340,186 C P s R AT I N o R a V s N U s s (MituoN5 07 DottARS) Residential 4 16.0 15.0 16.4 17.0 18.1 18.0 flouse IIcating 235.4 205.5 201.9 192.4 200.8 195.8 j Commercial and Industrial 133.1 124.2 121.1 123.6 144.7 152.5 1 Other 14.0 15.2 2.8 2.2 5.6 7.3 ] Subtotal 4 398.5 359.9 342.2 335.2 369.2 373.6 j 9 Other Revenues (induding Transported for Customers) 17.3 22.8 23.1 20.8 15.8 12.1 ToTAt oAs RavsNuts 4 415.s 1_3 H 2.7 1 _ 365.3_ J 356 0 $__385.0 $ _385.7 / o p s R A T iN o s u r s N s t s iuittioms or oottansi {f Operating Expenses, exduding Depreciation 4 339.5 299.3 278.4 283.7 - $ 336.2 310.2 Depreciation 26.2 21.1 22.9 21.0 19.8 194 total oPsR ATWo s MPsNsas $_3_6 5.7, $_J 23zl $J013 } _ 304.7 356.0 $.__3.22 8 j ) oAs oesRATno ncoms e 50.1 59A 64.0 51.3 29 0 $ 5.9 ( ssCuRITiss STATISTICS Ratings on PECO Energy Company's Securities Wnpge H.al. Delenturre Preferred hk q lhee Date Ihre i AGINCY Remy twhl.sbed Raimg Enablahmt Rasmg Fual lphed Duff and Phelps,Inc. BBB+ 4/92 BBB 4/92 IlBB- ' 8/91 Fitch Investors Service, Inc. A-9/92 BBB+ 9/92 BBB+ 9/92 l [ Moodyi lnvestors Service Baal 4/92 Baa2 4/92 baa2 4/92 j Standard A Poor's Corimration BBil+ 4/92 BBB 4/92 BBB 4/92 q NYSikComposite Common Stm k Prices. Earnings and Dividends By Quarter (PER $HAAf t ~ 'il ed hond M Nunh Thml snund Bnt Nunh _ _E.a" ._9"a m .A"" J'.a"" ._ 9aa" ._ _9atm _9"am __9"!"" lligh Price $25 7/8 $281/4 $29-3/8 6 30 $32-7/8 $ 33-1/2 $ 31-1/8 $30-3/8 ' Low Price $23 5/8 $23-5/8 425 3/8 $25 3/8 $27-3/8 $30-3/8 $27-3/4 $251/2 Close $24-1/2 425 3/8 426 1/4 $27 3/4 $30-1/4 $32-3/4 $30-5/8 30 l'arnings ESC 6c 48C 67c $8( 77( 43e 68t DividenJs 40.5 c 38c 38c 38c 38e 35c 35e 35c h r a c o s ne r s, c. p e n, a n d s e n e 4 er y c enip e n se e

I Seard of Deencter. and Officera y Board of Diroctor. Susan W.Catherwood(51) James A.Hagen'(62] Joseph A McLaughlin'(66) Robert Subinl56) i Chairman, Trustee Ikjard, Chairman, President and Former President and Chief Senior Vice President, The University of Chief Executive Officer, Executive Officer, Beneficial Campbell Soup Company / Penmylvania IIcalth System Conrail, Inc. Mutual Savings Bank and President, Campbell r Soup Company, Bakery and M.WeMer D'Alenio!61) Nelson G.Harrie * (68) Corbin A. Mchin, Jr.(55) Confeaionery Divmon President and Chief Chairman of the Executive President and Chief Executive Officer, Legg Committee, Tasty Baking Operating Officer of the hiason Real Estate Services Company Company DirectorChange : (Commercial mortgage Joseph C.Ladd(68) John M. Palma, PhD.{59] Robert D. Harrison's term hanking and pension fund Former Chairman, The President, University of expired on March 31,19M advisd Fidelity Mutual Life South Carolina Richard G. Gilmore '(67) Insurance Company gp j.{60) member of the Board, effec-Former Senwr Vice Edithellevit,M.D.(68) Chairman and Chief g y39g President, F nance and Chief President Emeritus and Life Executive Officer of the Financial Officer of the Member of the Board, Company

• P""I National Board of Medical RonaldRubin'(631 N

} R6c rd H. Gianton, Esquire Examiners Chief Executive Officer, The AdmiralKinnaird R.McKee(65) Rubin Organization,Inc. Partner of the law firm Reed Direno. Emeritus, U.S. Navy (Real estate development Smith Shaw & McClay Nuclear Propulsion and management) Officer. Joseph F. Paquette, Jr.160) Robert J.Patrylo(48) Katherine C. Holland (42) WilliamJ. William l53] Chairman and Chief Senior Vice President and Vice President, Information Vice President, Transmission Executive Officer Group Executive, Gas Systems and Chief and Distribution Services "E Nancy J.Zauenerl41) ,i Corbin A.McNeill,Jr.(55) President and Chief D6ckinson M. Smith l61) Garret C. Miller (50) Vice President, Power Operating Officer Senior Vice President, Vice President, Pniladelphia Transactions "' Nuclear Generation Group Region Katherine K.Dodd(44) William L Bardeenl56) and Chief Nuclear Officer "' Senior Vice President and AsorryMitch H(47) Corporate Secretary

• Group Executive, Consumer Alvin.L Weigandl56)

Vice President, Finance and Edward J. Cullen, Jr.(47) Energy Services Group"' Senior Vice President and Treasurern Assistant Corporate E '" WHeiam E. Powell, Jr. (58) Secretary "" James W.Durhaml57) Power Enterpnses V P sidmSp p Senior Vice President and General C,ounsel JoAnn M.sauer(48) Services

• Assistant Corporate Wi1 Ham J.Kaschubl52)

Gerald R.Rainey (45) Secretary b'" I fenior Vice President, Vice President, Peach lluman Resources Gregory A.Cucchi(45] Bottom Atomic Power C' D*'d* ** N *""I"8 S**" Gwendosyn s. King (54) Senior Vice President. William H. Smith,IH (46) Corgerate and Public Affairs David R.Helwig(43) Vice President, Station Q UY"" f Kenneth G. Lawrence l47) "T&tne Aprd I3. I' M "E '#N"" ThomanC.stapt ford (57)

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~I/kant Sm/vr 1. iW John M.Madara Jr.151) Damian A. Thomas (48) ' Y #"' b "9 * # Senior Vice President and Vice President. Marketing Group Executive, Power and Sales

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