ML20084B070

Forwards 1983 Annual Repts for Pse&G,Philadelphia Electric Co,Atlantic City Electric Co & Delmarva Power & Light Co

ML20084B070
Person / Time
Site:	Peach Bottom
Issue date:	04/23/1984
From:	Bradley E PECO ENERGY CO., (FORMERLY PHILADELPHIA ELECTRIC
To:	Harold Denton Office of Nuclear Reactor Regulation
References
NUDOCS 8404260059
Download: ML20084B070 (1)

Text

d PHILADELPHIA ELECTRIC COMPANY 2301 M ARKET STREET P.O. BOX 8699 PHILADELPHI A. PA.19101

• • ^""";,,"^"'""'

I2 Si e41-4ooo AND bENERAL COUNSEL GUGENE J. BR ADLEY April 23, 1984

.ss.............

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DON ALD BLA N KEN IGUDOLPH A. CHILLEMI

3. C. MIR M H A LL T. H. M AH ER CORN ELL PAUL AUKRB ACH assaevant semanaL counset EDW ARD J. CULLEN JR.

THOM AS H. MILLER, J R.

IRENE A. McMENN A assistAnv counssh Mr. Harold R. Denton Director Office of Nuclear Reactor Regulation U. S. Nuclear Regulatory Commission Washington, D. C. 20555 Re:

Peach Bottom Atomic Power Station Units 2 and 3 Docket Nos. 50-277 and 50-278 Operating License Nos. DPR-44 and DPR-56

Dear Mr. Denton:

Pursuant to Section 50.71(b) of the Commission's Regu-lations, I am forwarding herewith for filing with the Com-mission a copy of the 1983 Annual Report for each of the following Companies:

1 Philadelphia Electric Company 2.

Public Service Electric and Gas Company 3.

Atlantic City Electric Company 4.

Delmarva Power & Light Company.

Yours very truly, l

EU E

.B LEY EJB/as

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1983 Annual Report Public Service Electric and Gas Company 80 Park Plaza. Newark, New Jersey 07101 (201)430-7000 Stockholder Information-Toll Free New Jersey residents (800)242-0813 Outside New Jersey (800)526-8050 Public Service Electric and Gas AdditionalReports Available

1. FinancialHighlights Companyis thelargestutilityin Form 10-K

2. MessagetoShareholders New Jersey and serves approxi-Stockholders or otherinterested S. FinancialReview mately S.4 million people, nearly personswishing to obtain a copy of

9. Construction Expenditures three-quarters of the state's popu-the Company's 1983 Annual Report

11. NuclearOperations lation.The Company's service area.

to the Securities and Exchange

15. GasSupplies covering some 2.600 square miles.

Commission, filed on Form 10-K.

17. Customer & Marketing Services runs diagonally across the state's mayobtain one without charge by

19. Conservation Program industrialand commercialcorridor writing to the Vice President and

20. AreaDevelopmot from the New Yorkstate border on Treasurer.Public Service Electric

21. Research & Deve.opment the north to south of Camden.This and Gas Comoany. P.O. Box 570,

23. Employee and Community Relations highly diversified and heavily popu-T68. Newark, New Jersey 07101.

24. Financial Statement Responsibility lated area includes the six major The copy so provided will be with-

25. FinancialStatements cities of New Jersey aswellas out exhibits. Exhibits may be

29. Independent Accountants' Opinion nearly300 suburban and rural purchased fora specified fee.

32. Summary of Significant Accounting commu es.

Policies Financialand Statistical Review

33. Notes to FinancialStatements A comprehensive statistical supple-an gemen scussion and ment to this report.containing Analysis of FinancialCondition and PSEaG's 26-story corporate head.

financialand operating data for the Results of Operations quarters buildingin downtown years 1973-1983 will be available

44. Operating Statistics Newarkscars above Park Plaza, this Spring.lf you wish to receive a

46. FinancialStatistics whichwas completed in 1983.The copy,please write to the Vice Presi-

48. Officers and Directors dent and Treasurer.Public Service plazawas constructed on the site of the Company's former headquarters Electric and Gas Company. P.O. Box building. Dedication ceremonies.

570.T68. Newark. NJ. 07101.

marking completion of the new headquarterscomplex,were held on October 18. Photographs of the dedication are on Page 6.

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w 1983 1982 increase Earnings per average share of p(9; Common Stock

$3.40

$3.24 5

Shares of Common Stock 43 ^

Average 97.467.000 89233.000 9

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Year-end 102.858.000 94.845.000 8

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l Dividends paid pershare of Common Stock

$2.62

$2.53 4

BookValue per share of d$

fMe Common Stock

$2636

$25.90 2

TotalOperating Revenues

$3.962.932.000 $3.873376.000 2

TotalOperating Expenses

$3.468.982.000 $3.419.517,000 1

Eamings Available for Common Stock

$ 331.545.000 $ 288.962.000 15 Gross Additions to Utility Plant $ 890.885.000 $ 813375.000 10 Total Utility Plant

$8.950.476.00G $8.100.579.000 10 The 1983 Income Dollar Where it Came From Where it Went Electnc Revenues

$.63 Fuel. Purchased Gas Revenues

.34 PowerandGas

$.42 Mowance for Salaries & Wages

.08 Funds Used During Materials & Services

.10 Construction

.03 Taxes

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$1.00 Interest

.06 Dividends

.08 Reinvestedin Business

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Message to A trend in New.'2rsey toward a The trend taking place was predominantly service-oriented highlighted hv the beginning of Shareholders economy accelerated in 1983 and wnat is expected to be a major re-your Company continued to make development of N New Jersey side the most of this change.

of the Hudson River waterfront.

l As a welbbalanced. combina-Plans for the waterfront tion e;ectra and gas dilty with a involve more than a dozen projects E

Giversity of fuel sourcet. dSEaG is and the expenf ture by deveiopers pa! sed to meet the changing needs of billions of do ars over the next of the state's economy.

20 years. The ama includes hun dreds of act es M former railroad procerty that have become available.

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which produces millions of dollars Hackensack Meadowlands area

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the state. During the year the

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Electric Demand Sets Record ity assurance procedures and to The petition was refiled c nduct an merview of manage-promptly on July 1 and everything During the heat wave' demand for mmt organization.The firm made possiblowas done by the Company electricityon the Company's system e

se. Wadngs on reached new bi hs. A record peak most f which were carried out by the petition have been completed 9

$t ye -er iand thersthat are being and a decision b/ the BPU is antici-ugust on y o e u as on 98 #

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September 6 when a new peak of

• l 7.244 megawatts was recorded, la a 'dition, the Company es-Meanwhi!e,the cost of pro-The types of fuels used for tablisher i NucleaCOversight Com-viding senhce had continued to electric generationin 1983 mittee emposedof Nependent increase,and a concerted, system-reflected both diver 1ty and bal-outsic'e experts.The committee wide program of budget cuts and ance.During the year.30 per rent ev0atestu effeqiveness of cost controls to hold down the C el ic output fasgene nucle 3r plant operation,with expenses has continued in effectto ed y b i particular emphasis en safety,and help maintain the Company's finan-Purchased power-modt ofit

, reports to management, the Board cial health.

from coal-fueled plants-accoun-of Directors and the NRC.

- Park Plaza Completed ted for 26 percent. Nuclear power

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provided 7 percent.naturalgas Hope Creek Work Progresses Construction of Park Plaza was 19 per cent and oil 8 per' cent.

Although nuclear power At the close of 193.1 the Hope (

completed during die year on the receivesa great dealof attention.

Creek Generating Station wasmore site of the Compay's former head-all fuels used to generate electricity than 80 per cent completed,on quartecs building.

present problemsin one form or schedule and within budget. The A dedication ceremony for the another,and PSEsG's diversity in New Jersey Board of Public Utilities pDza was held on October ' Eat suppliesis a sourcdfstrength.

(BPU)in Julyaoproved a cost con.

Yht.h an amphitheaterin.the plaza Coal, for example.is currently tainment mcentive agreement was named in herv r of RobertL thesubject of a growing contro.

among the Cornpay,the Pubhc SIMth. who retired on September 9 3

versy over acid rain.There is pres.

Advoce:a of New Jersey and state as chairmm and chid executive of-sure for a quick political solution '

Departmentof Energythatisde.

ficerafter rnore than 43 years of that couldincrease electric bills sigr.ej to facilitate economic service with the Company.The dramatically. PSEaG,along with comfetion of the plant.

honorwas especially fittinginas-7 02herutilities.is cooperating in The Company has applied to much as Mr. Smith during his long efforts to solve th'e' problem the N 3C for a Hope Creek operat.

careerserved the Company and the through additional research ard in9 li'ense and the Commission has community with distinction.

scientific analysis.

M begun the review process.

During 1983, as throughout

.ts 80-year history,the Company i

Hope Creekis the Company's Salem Problems Rectified only major construction project.

was able to meetits r4cnsibilities After Hope Creek becomes opera.

onlywith the dedicated service of Aswe reported to shareholders tional, scheduled for 1986,the employeesand tb;sv.pport of Company's financing burden will shareholders.Webok to tne future x r enc e ru ry w ease consiaerably as construction confidentthatvx.n a cont nuaticn unitat theSalem Generating expend;tures are reduced.The of this dedication and sup'portthe/

Com?anydoes not anticipatea Companywillgrow aqd prospe Afteraninvestigation and

' need for any newlarge plant con-t extensive heatings,the Nuclear struction untilefter theyear 2000.

RegulatsyCommission (NRC) authonte1 restart of the unit.and Rat's increase Sought

, itwasrewridtosqrviceon p

. May% During the remainder of A petition was filed with the BPU. in g t k M -(Ter N vr the yearthe unit comp!!ed an excel,, January for an increase of $464.5

, Harold W.Sonn 5

ent capacity and availability record! ' million in annual revenues, or 11.6 in response to the February. per cent. Unfortunately, the BPU President and Chief Exentive Offimr' A

problems, which in'volved failure of, dismissed the petition in February j~

theunit's automatic shutdown sysi on the grounds thatthe Company's L

/r jem.PSEaG retained a consurang <

financialcondition atthattime did 6

r firm to review the Company's qual-not require a fi'ipg before July.

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%gp Verdell L Roundtree, who was newly formers on visit to Palisades Electric visited a number of PSEAG facilities elected to the Company's Board of Transmission and Distribution Division during the year to become more famil-Directors in 1983, hears about latest headquarters from Jack Rosenmeier, lar with operations, as is customary for improvement in distribution trans-division manager. Mrs. Roundtree new directors.

A Balanced Company Pois@d for Growth Electric and Gas Sales Expenses Rise Earnings increase increase Operating expenses continued to Benefiting from higher electric One of the brightest aspects of the risein 1983 but at a slower rate, sales,earningsin 1983 increased to Company's performancein 1983 increasing by $49 million,or 1.4

$332 million, equal to $3.40 a was a gain of S.6 per centin elec.

per cent to $3.47 billion from share of Common Stock, compared tric sales.Theincrease was a major

$3.42 billion in 1982.

with $289 million,or $3.24 a factorin an improvementin earn.

Overall production costs sharein 1982.The Company's ings for the year. Sales were decreased by $29.6 million, a drop program of budget cutting and cost bolstered by demand for air condi.

of 1.4 per cent.

controlalso was a factorin the tioning during hot, humid summer Electric production expenses improvement.The average number weatherand to some extent by the declined by S.S per cent compared of common shares outstanding revivalof the economy.

with 1982, mainly because oflower rose to 97.5 million during the year Gas sales increased slightly,by fueland purchased power costs.

from 89.2 million in 1982.

OS per cent, compared with 1982.

Expenses,other than fuel and Dividend Boosted Additionalgas heating connections power purchases, increased by 9.9 and conversions,as wellas a colder per cent.

The quarterly dividend on Common December, helped offsetlower Gas production expenses.

Stockwasincreased to 66 cents a demand for heating caused by whichinclude the cost of natural sharein the second quarter from milderweather during the first half gas, rose by 43 per cent.

64 cents paid in the first quarter.

of the year.

The price of purchased natu-Theincrease was the eighth in as Totaloperating revenues rose ralgasincreased at a lower rate manyyears and consistentwith to $3.96 billion from $3.87 billion than in 1982, reflecting more than management's objective of raising in 1982.

dequate supplies and efforts by dividends on a regular basis, subject Electric revenuesincreased to pipeline suppliers to stabilize their to adequate levels of earnings.

$2.57 billion,a rise of 1.1 per cent, average cost of gas.

Total dividends paid forthe and accounted for 65 per cent of L borcostsincreased by year amounted to $2.62 a share 5

the overall total. Gas revenues in.

$29.7 million,or 10.0 per cent.The compared with $2.53 in 1982.

creased by 4.6 per cent to $1.39 rise was attributable to increases in Dividends paid in 1983 on all billion and composed the other35 the second year of a two-year classes of stock are fully taxable.

per cent of total revenues.

union contract reached in 1982.

Due to specialcircumstancesin The labor contract,which ended a some prioryears, portions of divi-Bilanced Revenue Sources 41-daystrike,provided forwage dendswere determined to be a increases of 8.25 per centin the return of capital and,therefore, Asin prioryears,the composition firstyear and 8.0 per centin the non-taxable as currentincome.

of overall revenues by customer second.

classification reflected the diversity Decisions on taxability of dividends in PSEs.G's service area that are governed by Internal Revenue provides stability and strength. This Service rules and are based on the diversity resultsin a balancein Company's estimated taxliability.

revenuesources among residential, commercialand industrial custom-m arr P"~

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A clown on stiltsjoined celebration at pooland a seven-foot waterfall.The tember as chairman and chief executive dedication ceremonies on October 18 amphitheaterwas named in honor of officer after a r.areer of more than 43 l

for Park Plaza. The plaza, which fronts Robert 1. Smith,who is shown with yearswith the Company. Park Plaza on Newark's historic Military Park.

Mrs. Smith at plaque unvelled during provides an attractive setting for Includes an amphitheater, a reflective dedication. Mr. Smith retired in Sep-PSEaG's headquarters complex.

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A Balanced Company Poised for Growth Electric Bills Reduced On September 29,the New Rate increase Requested Jersey Board of Public Utilities On March 1,the electric levelized authorized continuation of the cur.

Foreseeing need for rate relief,the energyadjustment clause,which rent adjustment charge through Company filed a petition on Janu-reflects changesin the cost of fuels June 1984.The impact of the ary 7 with the BPU foran increase used to generate electricity and extended outage of Salem No.1 in base rates of $464.5 million,or purchased power,was revised to unit,following problems experi-11.6 per cent, annually. The petition reduce revenues by $135 million enced in February,is being was rejected by the BPU in Febru-over the 16 months ending June consideredin a second phase of the aryon grounds that the Company 30,1984.The reduction, the sec-adjustment charge proceeding.The had not demonstrated thatits ond in less than a year, followed an Company's position is that replace-financial condition required a filing adjustment on June 2,1982,that ment power costs relating to the priorto July 1.

lowered revenues byan estimated outage were offset because the The Company refiled the peti-

$250 million over the esuing 13-Company was able to move to an tion on July 1 for the $464.5 month period.

18-month fuel cycle earlier than million revenueincrease.The The reductionslowered bills originally planned. In addition, the requestincluded an increasein of residential customers on average Company testified thatits actions annualelectric revenues of $397.4 by approximately 10 per cent com-related to the outage were prudent.

million,or 15.8 per cent,and $67.1 pared with those in effect afterthe The New Jersey Public Advocate million in gas revenues, equal to 4.5 Company's base rate increase in contends that the outageincreased per cent.

February 1982.

costs by as much as $50.2 million, Hearings on the petition These decreases have no and should not be recovered from before an Administrative Law direct effect on earnings and were customers.

Judge concluded in December.On based mainly on anticipation ofin-Hearings have been concluded February 14,1984 the Administra-creased low-cost nuclear by the BPU and a decision is tive LawJudge recommended that generation, lower oil prices and the expected by the end of the first the Company be granted an overall completion of the collection of quarter of 1984. Any amount not increase of $221 million.Of this underrecoveries of energy charges recovered from customers would amount, $197 million would be for 7

from prior periods.

be charged to netincome.

electric service and $24 million for gas. A decision by the BPU is antici-pated before the end of March I d fesklAed d E M d l f 5 ES M "a Fo d" 7 a Bills Lowered egedpatThnecf Peak -

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approved a reduction of $873 mil-f,f j k[I lionin the gaslevelized raw 4

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Significant progress was made during inset photo shows Harold W.Sonn, ingtumoverof the control room, 1983onthe constructionof the Hope president and chief executive officer.

Completion of the control room per.

Creek Generating Station. The outside accepting symbolic key to ct,ntrol room mitted extensive testing of major con-wallof the cooling towerwastopped from Alden P.Yates.presidentof trol elements to begin preparatory to outinOctoberand the controlroom '

Bechtel Group, Inc., at ceremony mark-startup scheduled for 1986.

complexwas completedin December.

~

l A Balanced Company Pois::d for Growth C+:nstruction issuing Mortgage Bonds. Preferred dend Reinvestment and Stock Stock and Common Stock.

Purchase Plan. The number Expenditures Rise represented a 16.9 per cent Estimated Construction Construction expenditures, includ-increase from the 67.572 partici-ing Allowance for Funds Used Dur-Expenditures (including AFDC) pating at the close of 1982.

ing Construction (AFDC) payments War 1984 1985 1986 In addition to the reinvest-for nuclear fuel and advances to (M aons) ment of dividends, stockholders in subsidiaries. increased to $902 mil.

Totals

$894

$885

$701 the plan may make optional cash lion in 1983 from $842 million.in investments at any time up to 1982. Expenditures in 1984 are Balanced Financial

$20.000 a year.

estimated at $894 million.includ-Structure Common Stock dividends are ing $154 million of AFDC.

reinvested at 95 per cent of the in the three years through The Company continues to main-market price average.

1986, expenditures for all con-tain a conservative capital structure Holders of record of $1.40 struction projects, including Hope to protectits high credit standing Dividend Preference Common Creek, are estimated at $2.5 billion, and to provide financial flexibility.

Stock and Preferred Stock, both including $550 million of AFDC.

More than $372 million of capital

$100 and $25 par also may partici-Expenditures for nuclear generat.

fundswere raisedin 1983 through patein the Plan. Dividends on these ing facilities and fuelwill be about the sale of Mortgage Bonds. Pre-issues are used to purchase Com-

$1.6 billion,or 65 per cent of the ferred Stock and Common Stock.

mon Stock at 100 per cent of total.

in June,the Company issued market price average.

Hope Creek has a targeted

$64,000.000 principal amount of Under federalincome tax cost t795 billion under a cost 9%%.30-year First and Refunding rules. individuals may defer taxes cor agreement reached in Mortgage Pollution Control Bonds.

on up to $750 in reinvested divi-i'

'e Company with the The Company in August sold dends and those filingjoint returns Pu.

Kate of New Jersey and

$100.000.000 principal amount of may, defer taxes on up to $1.500 of the L.

Jepartmentof Energy 12%%.10-year First and Refund-reinvested dividends under quali-b and approved by the BPUin July of ing Mortgage Bonds. At the same fied public utility plans each year.

1983.

time 300.000 shares of 11.62%

TNs benefitis scheduled to expire Atyear-end the unit was more Cumulative Preferred Stock. $100 at the end of 1985,unless extended than 80 per cent complete and parvalue were sold.

bylegislation.

costs were closely tracking esti.

Two million shares of Com-mates. Under the agreement,there mon Stockwere sold in October Nuclear Insurance would be a penaltyin the form of to a group of underwriters at PSEaG has nuclear propertyinsur-

$24125 ershare.Proceedstothe reduced earningsif the costs P

ance coverage of $1.020 billion exceed $3.795 billion,unless over.

Company totaled $48.250.000.

provided primarily by two industry-runswere due to extraordinary The Company also raised owned mutualinsurance companies events beyond the Company's con.

$105.6 million through the sale of of which the Company is a member.

trol.There would be a benefit to 4.8 million shares of Common The Companyis alsoinsured earnings if the unit should be com.

Stock under the Dividend Re,nvest-i againstthe extra expense of obtain-pleted forless than $3.35 billion.

mentand Stock Purchase Plan,and ing replacement power during The Company owns 95 per centof

$27.6 million through theissuance prolonged outages of nuclear Hope Creek and Atlantic City Elec.

of 12 million shares undervarious power plants. After the first 26 tric Company owns the other S per employeestockownership plans.

weeks of an outage a weekly cent.

Proceeds from the sales of ndemnity of up to $2.5 million is Construction expenditures are thesesecurities were used to repay provided for 52 weeks.and $1.25 projected to decline substantially short-term debtincurred in con-million for an additional 52 weeks.

afterthe completion of Hope Creek.

nection with the Company's With respectto nuclearliabil-During the next threeyears.

construction program.

ityinsurance,the Company has the Company expects with ade' Dividend Reinvestment

$160 million from a poolof com-quate rate relief to generate at mercial insurers and participates in least half of its construction expen.

Plan Adds Partic.ipants anindustry-wide retrospective dituresinternally, excluding AFDC.

Atthe end of 1983 therewere assessmentprogram that together The balance will be provided 79.025 holders of Common Stock provide a total of $580 million,the through permanentfinanc ng by participating in the Company's Divi-limit required by Federal legislation.

Stockholders recession. Total megawatthours A totalof 730 million therms produced, purchased and inter-of natural gas, equivalent to 12.0 Stockholders of record at the end changed amounted to 33.4 million, million barrels of oil,was used at a of 1983 totaled 266,008 compared compared with 31.6 million in 1982.

cost savings of approximately $65 with 268,696 at the close of 1982.

An all-time peak demand of million. Additional savings of $3.4 Theyincluded 230,098 holders of 7244 megawatts was recorded on million were realized through spot Common Stock: 11.311 holders of September 6, passing a high of market purchases of coal and oil.

$1.40 Dividend Preference Com-7.161 megawatts on August 8.The Oiluse was curtailed also by mon Stock: 13.819 holders of Pre-previous record was 7,159 mega-purchases from other utilities of ferredStock-$100 Par and watts set on July 21,1980.

power generated by coal-fired 10,780 holders of Preferred Stock in August a record output of plants,in order to take maximum

- $25 Par.

3.4 million megawatthours was advantage of coal-fueled energy Investor Relations reached.The outputwas 1925 per available from utilities to the west, cent higher than in August 1982.

the PSEaG transmission system During the year, stockholders and The maximum day's outputin was improved byinstallation of the financialcommunity were kept 1983 was 135,775 megawatthours high voltage capacitors. Approxi-informed about developments at on August 8, up 0.8 per cent from mately $42 million was saved by PSE&G through the Company's the 1982 high of 134,654 mega-purchasing power from those utili-investor relations program.

watthours on July 19 but below the ties in 1983.

Atvarious times senior ali-time high of 140591 megawatt-Oiland coal prices declined company executives addressed hours set on July 21,1980.

during 1983.The average price of meetings of financialanalysts and At the time of the system low sulfur heavy oil purchased to stockbrokers.The program also peakload the Company had anin-generate electricity was $30.14 a involves responding to frequent stalled generating capacity of barrel,8.9 per cent less than the inquiries from members of the 8,999 megawatts,or an installed average pricein 1982.Thelower financialcommunity.

reserve margin of 24 per cent. At prices were the result of a world-i 10 in ctober,a regionaistock-year-end tneinstatied generating wide surpius and resuit ng soft holderinformation meeting was capacity also was 8,999 megawatts.

market conditions.

heldin Pennsauken, NJ., attended The accompanying chart The average delivered price of by approximately 600 shareholders shows the electric planning peak coal purchased in 1983 to generate from portions of southern New loads, installed operating capacities electricity was $55.50 per ton,8.4 Jersey and southeastern Pennsylva-and the per cent reserves antici-per centless than 1982's average nia.The meeting was the eighth pated for the next 10 years.The price. Lower coal prices reflected such meeting since 1979, including majorcapacity addition will be the more favorable marketconditions three held in Florida where thereis HopeCreeknucleargenerating unit.

and substantiallylower rates alarge concentration of Company negotiated in railroad transporta-shareholders.

Generating Capacity Forecast tion contracts.

Stockholder Services Depart-Comparative fuelcostsin Pianning installed Per cent year Peak Load Capacity Reserve 1983 per million British thermal ment representatives answered a units were: Oil $5.03: Coal $2.08:

wide range ofinquiriesfrom stock-pomatto holders during theyear. More than 1984 7.140 8.999 26 Gas $4.05,and Nuclear 82 cents.

22,500 calls were received on toll-1985 72.30 8.999 24 p

freeinquiry numbers maintained 1986 7.330 8.999 forthe convenience of stockhold-j98 The Company's electric output by 988 ers.The number forstockholders 1989 7.s90 10.013 32 sourcesin 1983 reflected the diver-calling from outside New Jerseyis 1990 7.660 10.013 31 sity of PSEaG's fuelsupplies.

800-526-8050 and for those 1991 7.720 10.013 30 Sourcesin 1983 compared with within the state,800-242-0813.

1992 7.790 9.888 27 1982 follow:

1993 7.840 9.888 26 sou e 1983 1982 Electric Output Up c,,

m m

Oil Use Minimized oit 8

to Electric outputincreased by S.8 per centin 1983 compared with 1982, The Company continued in 1983 to Iu$ar N

as hot,more humid summer minimize the use of oilas a fuelfor Purchased and interchanged 26 14 weatherboosted demand forair electric generation by substantially conditioning and cooling,and the increasing the use of naturalgas.

Total 100 %

100 %

economy began to revive from the

A Bal nc:d Company Pois;d for Growth The nuclear output came Major domestic producers Formed in 1981, the depart-from four unitsin which the continued their curtailment of min-ment has headquarters adjacent to Company shares ownership with ing and exploration activities which the site of the stations and has the other utilities.Two are at the Salem began in 1981.

responsibility for efficient and safe Station,which the Company built The Company has contracts operation as wellas all other and operates,and two at the Peach for uranium supplies with domestic nuclear activities.

Bottom Station in Pennsylvania.

and Canadian producers thatwill Although nuclear power gen-operated by Philadelphia Electric provide about 90 per cent of esti-eration was lowerin 1983 than in Company. Lower nuclear genera-mated requirements through the 1982,the Company's cumulative tionin 1983 was mainly early 1990's.The balance will be share of the output of the Salem attributable to extended outages met by spot purchases and short-station and Peach Bottom station in for maintenance work on Salem term agreements.

Pennsylvania by year-end had No. 2 and Peach Bottom No. 3, Availability oflower cost exceeded 63 billion kilowatthours.

both of which had outstanding uranium from other sources has If oil had been used to gener-production records in 1982.The resultedin continued deferment ate this electricity there would have lower nuclear outputin 1983 re-of deliveries under a long-term been an additional cost to custom-sulted in greater use of gas for gen-contractwith Sequoyah Fuels ers of more than $2 billion over the eration and of purchased power.

Corporation,a wholly-owned sub-period that the nuclear units have most of which was coal-fueled.

sidiary of Kerr-McGee Corporation.

been operating.

The mining project supplying the PSEaG and Philadelphia Elec-Nuclear Fuel Disposal uranium contracted foris expected tric Company each own 42.59 per C ntracts Signed to remain in standby condition until cent of the Salem station. Atlantic President Reagan signedintolawin January 1986 with resumption of City Electric Company and Del-January the Nuclear Waste Policy production afterthatdate at the marva Power & Light Company Actof 1982 that ultimately option of the Company.

each own a 7.41 per centinterest.

Under the Kerr-McGee con-Ownership of the Peach Bottom provides for the permanent tract $40.7 million had been station,which is operated by Phila-jj disposalof spent nuclearfuel by the advanced as of December 31,1983, delphia Electric,is divided similarly Federal government.The Company, alongwith other operators of to finance mining and milling facill-withonly fractionalpercentage nuclear plants, has signed fuel ties.The Company advanced 70 per differences.

cent of the amount and the co-Despite serious problems disposalcontracts with the U.S.

Departmentof Energy.

owners of the Salem and Hope experienced with Salem No.1 in Creek stations advanced the ba'.-

February,the unit's performance The contracts tequire the ance.0f these advances. $14.5 mil-Federalgovernment to take title was excellent after returning to and provide necessary services to

! ion. including $4.7 million of service on May 21.The unit was interest,has been recovered available 94.7 per cent of the time transport, package and place the spent fuelin underground repos, through credits against the pur-and had a capacity factor of 92.9 itories. Utilities are required to pay chase price of uranium concen-percent through the balance of a fee of one mill per kilowatthour trates delivered by Kerr-McGee.

theyear.

of nuclear energy produced. Funds Recoupmentofunrecovered On February 22 and 25,while collected are restricted bylaw to be advance payments will depend the unit was in startup testing used exclusively forthe spent fuel upon the sale of uranium to the phases followingascheduled disposal program.The Company is Companyor other buyers,or sale refueling and maintenance outage, including disposal feesinits fuel of the project properties by Kerr-operating conditions occurred that McGee.

should have caused an automatic costs.

Consolidation of Nuciear shutdown of the plant. However.

Uranium Market Firms on both dates, reactor trip circuit Operations Continues breakers failed to operate and each During theyear the market for uranium firmed and prices on the The Nuclear Departmentin 1983 timethe unitwas quicklyshut spot marketincreased from a low continued the consolidation of all down manually by operatorswith-out further incident.There was no of $17a pound in late 1982 to nuclear operations atthe site of the about $24 a pound toward the end Salem Generating Station. Further damage to the plantand no release of1983.

consolidationwill be carried outin ofradiation.

conjunction with the completion of the Hope Creek Generating Station.

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Performance excellence is emphasized shows training supervisor at simulator rooms, laboratories, shops and other in courses at the Nuclear Training Cen-console programming a training exer-facilities in which a wide range of traln-ter where training is provided on Salem cise. The center also contains class-Ing courses are conducted.

Control room simulator. Inset photo

A Balanced Company Pois:d for Growth Afterlengthy hearings before to the Nuclear Regulatory Commis-Resource improvement the Nuclear Regulatory Commis-sion which began the review Program Successful sion and an investigation byits process.The final Safety Analysis staff,the Company was authorized Report and the Environmental Earlyin 1983 a division of the Elec-to restart the unit.The authoriza-Report also were submitted.

tric Transmission and Distribution tion required certain short-term Among significant eventsin Departmentlaunched a Resource and long-term actions by the 1983 were the turnover by the improvement Program. The pur-Company.

contractorof the auxiliary boiler pose of the program is to improve in response to one of the building and computer room in job-site work performance through requirements,the Company re-August and the control room com-better use of resources such as tained an independent outside firm plex in December.

labor, material and equipment.This which examined management's per-The reactor cylinder dome is accomplished by tapping the formance with respect to Salem wasinstalled in July and the outside valuablejob knowledge and experi-operations.The firm's study found wallof the cooling tower was com-ence of those employees who per-no significant deficiencies requiring pleted in October.

form the work. Success of the immediate corrective action but did A new program called PRIDE program led to itsimplementation identify some areas requiring (People Respecting integrity, Dedi-at other departmentlocations and attention in the near-term and in cation and Excellence) was initiated the general office.

the future.The Company fulfilled at Hope Creek during the year.The The methods of the program the near-term recommendations program involves the Company,the have been kept simple and it has re-and is implementing the longer-contractor and the work force in a sultedin strengthening the lines of term ones.

Cooperative effort to improve pro-communication between manage-On May 5, the NRC proposed ductivity. job conditions, quality of ment and non-management civil penalties totaling $850,000 workmanship and safety.Signifi-employees. Recommendations and relating to the February incidents.

cantimprovements were realized in suggestions from employees are Although the Company asked for a these areas with tangible gains for given to a local coordinator.The reduction in the penalties, citing the project and overall cost savings.

coordinator,a member of manage-13 mitigating circumstances,the NRC ment, reviews the recommendation Nuclear Tra..ining Center and provides feedback to the denied the request, stating that the penalties would contribute to con-Dedicated employees.

tinued efforts toward long-term The coordinator,who is a key Dedication ceremonies were heldin compliance with the agency's elementin the success of the Aprilfor the Nuclear Training Cen-program,provides an open channel requirements by the Company and ter built and operated by PSEaG to fc mmunicationforideastoflow otherlicensees.The Cornpany paid provide qualified plant personnel the penalties in Octoberinasmuch to those who can implement them.

forthe Salem and Hope Creek asthe expense of appealing the A newsletteris published periodi-Generating Stations. The facility is matter furtherwould not be callylisting the more significant located in the City of Salem.

recommendations and the actions

. justified.

The mostimportanttraining taken Hope Creek 80 Per Cent equipmentatthe centeris a control Completed room simulator for the mstruction they are interested in participating of Salem operating personnel. A in the program toimprove the Construction of the Hope Creek simulator for the control room of erin whic etr workis per-Generating Station was more than Hope Creek station is to be deliv-

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P P UY 80 per cent complete atyear-end.

eredin 1984.These simulators are p rticipationwasasuggestionfor The projectschedule calls for com-replicas of the actualcontrol rooms P

P mercialoperationin December of at the generating stations.

n ea ing erg u o

1986. Construction so far is on The center testifies to the duits for repair of electric circuits schedule and expenditures are Company's dedication to excellence Thetoolwillprovide significant within budget.

In training of nuclear plant opera-savings annuallyin labor and An application for an operat-tors and other personnel.

inglicense was submittedin March materialexpense and a substantial suggestion award was made to the employee.

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A computerized system utilizing bar the system was originated by PSEaG.

Information aboutthe meter. COSMO code technology, the first in the utility Upper photos show a supervisor moni-has significantly improved testing industry for monitoring the testing and toring the plant floor operations and a procedures. inventory control, and repair of meters, was installed dur-gas meter being read with identifying response time to inquiries regarding ing 1983. Called Computerization of bar code. In the large photo a techni-meters.

Standard Meter Operations, or COSMO.

clan enters test results and monitors

A Balanccd Company Pois:d for Growth Gas Sendout Up Slightly of 4.2 per cent was substantially Exploration Subsidiary lessthan in otheryears since the Results Reflect Market The Company's total gas sendoutin passage of the Natural Gas Policy 1983 was 2.15 billion therms.

Act of 1978. Higher allowable well-The netincome of Energy Develop-slightly higher than in 1982. A head prices under the Actwere ment Corporation (EDC),the colder-than-normal December in-partially offset by efforts of pipe-Company's exploration subsidiary, creased demand for heating over line suppliers to stabilize their aver-was adversely affected by a reduc-thatin December 1982,the warm-age costof gas and by Company tionin naturalgas consumption est on record,and made up for spot purchases oflower-cost gas.

that prevailed throughout much of lagging overallsendout during the the nation in 1983. This lower first 11 months of the year.

Supplemental Supplies demand forced pipeline companies The highest 24-hour sendout The Company supplementsits natu-to cut back purchases from EDC's of 15,612.000 therms occurred ralgas supplies with gas purchased partnersin various fields which re-on December 25 when the average from Exxon's Bayway Refinery and, suitedin a reduction in EDC's temperaturewas7 degrees E nthecoldestperiodsof thewinter productionlevels.

This was 3.6 per cent lower than season,with gas manufactured in A positive aspect of these the all-time record of 16.201.000 Company-owned facilities.

conditions was that the cost of therms set on January 17,1982 Refinery gas purchases in exploration has been reduced, when the average temperature was 1983 amounted to 104.8 million which willimprove EDC's ability to 4 degrees F below zero.

therms, compared to 93.8 million obtain long-term reserves for the The Companfs daily gas thermsin 1982. The cost of this Company atless expense.

capacity was 19,129.000 therms gas averaged $4.18 per million Btu Revenues from the sale of as of December 31. It was com^

compared to $4.76 per million Btu natural gas and oil totaled $61.3 posed of,in therms: Natural gas, in 1982.This costis expected to million,a decrease of 16 per cent 14.582,000: liquefied petroleum decline furtherin 1984 as the from 1982.Netincome declined 28 gas,1.981.000: oil gas,1,186,000:

resultof renegotiation of the con-Percent to $8.7 million.

synthetic natural gas,1.125.000 tract pricing provisionsin late During the year EDC drilled a 15 and refinery gas,25S,000.

1983 totalof 33 wells,a decline of 42 Natural gas suppliesin 1983 The total production of manu.

percent from 1982. 0f the total, were obtained under long-term factured gases amounted to 11.1 21 were onshore and 12 offshore.

contractswith threeinterstate million thermsin 1983 compared Atyear-end six wells were still pipelines,from wells owned by to 30.2 million therms in 1982.

being drilled.

Energy Development Corporation, Onshore operations were con-a Company subsidiary,and through Gas Districts Merged for ductedin the Gulf Coast region of severalshort-term arrangements Greater Efficiency Texas, Louisiana and Mississippi.

with other gas companies and The result of onshore drilling was producers.

The Ridgewood and Pompton gas ' eight successfulwells and 13 that For the first time since 1970, districtswere combined in Mayin a were abandoned. Atyear-end five therewere no curtailments of newdistrict headquarters building onshore wells were still being deliveries under long-term pur.

located in Oakland.The new head-drilled

. chase contracts with the three quarters houses allgas operations dffshore activityincluded pipeline suppliers. Virtually full con.

in the northwest portion of the exr' oratory drilling on five un-tractamounts have been available Company's service territory.

te 2d lease blocks and develop-to the Companyduring thelast The mergerwasin line with mentdrilling to delineate prior fouryears.Thelargest cutbackwas efforts to reduce operating discoveries. Development was com-12 per centin 1980.

expenses and streamline servicein pleted on four offshore blocks and The amount of natural gas gas transmission and distribution.

thesewere placed on streamin purchasedin 1983 fordistribution Annualsavings of about $625,000 1983. During the yeareightwells to customers totaled 2.03 billion are expected to be realized by the were classified as successfuland therms, compared with 2.02 billion merger.The Ridgewood district fourwere abandoned.There was thermsin 1982.

had been in existence for 78 years one offshore well still being drilled The average costof natural and the Pompton district for more atyear-end' gas was $3.74 per million 8tu in than 50 years.These district 1983, compared with $3.59 per properties have been sold.

million Btu in 1982.Thisincrease

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A reading from a customer's electric held devices throughout the Company's daily for processing and billing. Use of meter is recorded on a micro processor.

system in 1983. Da+a from the micro the micro processors has improved the Meter readers began using the hand-processors is transmitted to Newark efficiency and reliability of meter reading.

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A Balanced Company Poised for Growth Authorization Sought for practices,to promote customer and tion, appliance purchasing, meter LNG Facilities marketing services objectives and reading and billing.

to assistin finding and implement-Micro Processors Used The Company continued its efforts ing additional cost reduction mea-to obtain the required Federal sures.The department was formea for Meter Read.ing Energy Regulatory Commission by regrouping existing personnel.

After a successful test program in (FERC) authorizations to operate Centralized tracking of 1982,a micro processor system for the twoliquefied natural gas tanks departmental manpower proce-meter reading was adopted and related facilities on Staten dures and work performance is system-wide in 1983.

Island.New York.to store domestic expected to resultin operating sav-Each day more than 400 naturalgas for use by the Company ings as wellas toimprove customer hand-held micro processors are and others during periods of peak and employee relations.

used by the Company meter read-demand.

Customer Relations ers.The devices are employed in Operation of the tanks.

owned by Energy TerminalServices Enhanced c njunction with 14 minicomput-i ers,two in the Computer Systems Corporation (ETSC),a Company A new dimension was added to the and Services Departmentin New-subsidiary, will require construction Company's customer relations ark,and the others at 12 meter of aliquefaction unit and other effortswith the establishment of a reading locations.

facilities including a pipeline under program entitled "The Challenge of Data for reading meters is the Arthur Kill to New Jersey.The Caring."

transmitted daily by telephone lines Company'sinvestmentin its LNG-The program began with a from Newark to each of the meter related subsidiaries atthe end of videotape presentation to all reading offices.The data is then 1983wa $7 9 iceg employeeswho arein contact with electronically sorted and placed customers. Emphas,s m the presen-intothe micro processors for meter i

proceedin9 continued with briefin9 tation was placed on the impor-reading.

byall participants of matters other tance of good customer relations.

At the end of each work day than ETSCs compliance with As part of the effortto data from the micro processorsis j7 certain U.S. Department of mprove the Company's quality of transmitted to Newark for process-nspo o

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service, training programs were ing and billing. In addition to expanded. Effective communication increasing efficiency, quality and regulations,and ETSC certified and customer relations skills were reliability of operations, the system compliance to FERC after having stressedin the curriculum which provides daily reports on meter studies conducted by an outside was designed to improve on-the-reading activities at each location.

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'^ i" C challenge of certain Bill Collection Efforts i cen e equipp to u

NewYork State and NewYork City working conditions were opened.

Expanded laws on the basis of preemption Consumer Advisory Panels was still pending atyear-endin established in 1982' made a nun $- Effortstoimprove billcollections Federal District Court.

nd to preventthefts of energy ber of recommendations thatwere wereintensified during theyear.

Changes improve implemented dun.ng the year.There Alate paymentcharge for Customer and Marketing re three panels, geographically commercialandindustrialcustom-situated to serve the Company's..

ers also helped the timeliness of bill three customer and marketing divi-payments.

Strong emphasis was placed on sions. Membership on the panelsis There was anincreasein the evaluating efficiency, effectiveness drawn from a cross-section of cus-numberofinvestigations of energy and quality of servicein 1983 to tomerand consumer groups.

theftand of amounts billed. New obtain maximum benefitfrom the Company consumer adv.isers computerized case tracking and reorganization and relocation of presented more than 2.500 billing systemswereinitiated and customerand marketing opera.

programs on a variety of subjects the BPU approved charging energy tions completedin 1982.

to over 184.000 persons.Th?

thieves for the cost ofinvestiga-An operations department programs providedinformation on tions and legalwork.

was formed to monitor field office suchsubjects as energy conserva-

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" Seal Up and '# ave-It's Elementary" includes a multi-media advertising in response to an increasing desire of is the themr of a broad promotional campaign. booklets and bill inserts.

customers to conserve energy and also campaign. (eaturing Sherlock Holmes promotes various elements of the expected to reduce the Company's need and Dr. Watson as energy detectives.

Company's Conservation, Cogeneration for capital expenditures for new plant designed to encourage customers to and Load Management Plan. The plan is facilities.

conserve energy. The prograr which

A Balanced Company Pois:d for Growth Competition from 011 Conservation Program weather stripping, caulking and Cruntered Implemented water heater wrapping.

• Various programs forlow-A dropin oil prices caused a loss of The Company during 1983 began income families. Over 5,300 gas sales during the first half of the implementing various programs weatherization kits were supplied year to some industrial and com-contained in a Conservation, to community agencies for distribu-mercialinterruptible customers Cogeneration and Load Manage-tion to needy customers. Free who have dual-fuel capability. Most ment Plan as directed and approved weatherizationinstallations were of these customers subsequently by the New Jersey Board of Public provided to 280 customers under a switched backafter rate changes Utilities.The plan is expected to low-income seal-up program,and approved cy the BPU made gas benefitthe Company by reducing

$250,000 was given to local com-more competitive.

the need for capital expenditures munity action agencies to provide A number of firm service cus-for new plant facilities.

up to $250 of weatherization work tomers also switched to oilwith the Customers were encouraged in low-income residences.

declinein oil prices.Many returned to conserve by using energy more While the major effortis to when gas rates were lowered by a efficiently through an advertising encourage residentialcustomers to reduction in the Levelized Raw and promotional campaign with the conserve energy,another phase of Materials Adjustment Chargein theme " Seal-Up and Save -It's the plan is designed to help manage October.

Elementary."The elements of the electricload placed on Company During the year 2.846 new conservation program include:

lines.This phase includes rebate gasindustrialand commercialcus-

• An Energy Conservation programs on the purchase of effi-tomers were added.

Centerwhich customers can call cient residentialapp:ances and Conversions reported from toll-free for answers to questions.

cogeneration and load management oilto gas for residential heating Staffed by six conservation special-assessments forlarger customers.

totaled 13,189,the fifth highest ists,the center handled 160.000 Over 13,000 rebates totaling number for a yearin Company mailand 60,000 telephone more than $1.7 million were made history. Gas heat also was installed inquiriesin 1983.

in 1983 to customers forinstalling jg in 7,038 newly-constructed homes.

• A mobile van. " Conservation high efficiency window orcentral in the electric heating market, on Wheels," containing exhibits and air conditioners and heat pumps.

2.340 heat pumps were installed as literature on conservation which The potential benefit of rebates for customers continued to find them was visited by 34,000 persons at customers who purchase high effi-to be energy conserving and cost variouslocations throughout the ciency refrigerators will be studied effective systems.

Company's territory.

in 1984.

A total of 11,666 new high

• A Home Energy Audit A cogeneration feasibility pressure sodium vaporlights for program underwhich the number analysis program also will begin in street lighting were installed, most of audits increased to 21.000 in 1984.Under the program a techni-of them replacing less efficient 1983 from S,600 in 1982. Resi-caland economicanalysis of incandescentuna as many munici-dentialcustomers are advised on cogeneration feasibilitywillbe palities modernized. In addition, howthey can save energy and made available to customers at no 6.127 dusk-to-dawn units were in-reduce bills by installing insulation, charge.The program will be cou-stalled, bringing the total on storm windows or otheritemsin pled with aninformation program Companylines to more than their homes.

to be employed by the area devel-95 000.These units benefit cus-

• A conservation loan program opmentand marketing depart-tomers by providing greater night-which granted 383 zerointerest mentsin contacts with customer.

time security and the Company by loans totaling $984,000 to qualify-Aload managementassess-use of electricity during off-peak inglowerincome customers and 78 ment program forlarge customers periods.

loans at one-half the currentinter-has been developed and field Total new gas and electric est rate totaling $200.000.

tested.The program will provide connectionsin 1983 will provide an

• ACustomerConservation statisticaldata and otherinforma-estimated $60 million annuallyin Seal-Up Program under which tion to customers at no charge so additional revenues.

more than 5,000 customers took thatthey may use energy more advantage of services,such as efficiently and economically.

Momentum Picks Up in higher education, quality of life and More than 370 major indus-Area Development g vernment support.

trial and commercial firms.

A key element of an advertis-employing about 33,200 persons.

The Company histoncally has ing and promotion campaign was located or expanded in the Compa-promoted New Jersey's economic the publication of a booklet entitled ny's service area in 1983. Lost were development by encouraging indus-

" Brainpower: High Technology in 45 companies, employing about try to locate and expand in the New Jersey." The booklet focuses 3,600, leaving a net gain of some state. especially in PSEaG's service on high-technology industnes 29.600 jobs.

area. As the economy began reviv-already located in New Jersey.

The 20.000-acre Hackensack ing from the recession, efforts to Efforts aiso were aimed at Meadowlands district continued to attract and retain industry were attracting corporate headquarters, be a growth area The Hackensack intensified during 1983.

regional offices and "back-office" Meadowlands Development Com-During the year the second operations for which New Jersey mission, which oversees the area.

phase of a program to attract high-has advantages of lower cost for issued 190 building permits for technology firms was launched. An space and operations than New construction estimated at $46 independent in-depth study com-York City.

million.

missioned by the Company The Hudson River waterfront, More than nine million per-determined the criteria used by across from Manhattan, began sons attended events during 1983 science-oriented firms to select one developing into a new growth area.

at the New Jersey Sports and Expo-location over another and also particularly in Jersey City and sition Authority's complex in the found that New Jersey is in an Hoboken. There are development Meadowlands. Giants.5tadium especially strong position for high-plans for some 1.000 acres of became the home of the New Jer-technology industry. The state waterfront property and land-use sey Generals of the new United meets all the important criteria for studies are being conducted for States Football League, and the such industry - availability of another 600 acres. These plans call New York Jets completed plans to qualified personnel, exce!!ence of for over 20 million square feet of move to the stadium in 1984.

20 ofee nd otner commenial space and more +han 23.000 housing units.

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?. l f ~.. Q,..y_ -Af*;yg ( [%l;.~,7..;...; Pit.'..' K,;. ) ; % [. J.:..j..x.:,': ^ 3r%,;. s.s ; > L , y... - ?> <..c ~ l[. : ..,C _ ;: G e .x. PSEaG's efforts to attract new industry president and chief executive officer, to the state. The Company's efforts to New Jersey were highlighted at a wasjoined by Governor Kean, on left, complement actions being taken press conference in August at the at the conference which was held to by state government to encourage office of Governor Thomas H. Kean in ar.nounce PSEaG's program to bring science-oriented firms to locate in Trenton. Harold W. Sonn. Company additional high-technology companies New Jersey. l

A Balanc d Company Poised for Growth New Electric Rate research programs, including those a brief period on December 31. Proposed in Urban Areas t Stevens Institute of Technology, 1983 and synchronized with the Pnnceton University Rutgers PSEa0 grid. The Company has proposed a new University,New JerseyInstitute of Thermalenergyin the form area development electric rate Technology,Lehigh University,and of high temperature wateris being which would be availablein a num-MassachusettsInstitute of sold and circulated to heat buiFngs berof major cities, including those Technology. in the state capitol complex ant' designated under the New Jersey Other activitiesinclude other facilities in the area. Urban Enterprise Zones Act.The research funded by outside organ-The operation of the system rate,subjectto New Jersey Board izations,and commercial opera-willbe studiedin detail by the of Public Utilities approval,would tions such as sales of trout from an Company for possible application to be available to companies that aquaculture projectand methane othersimilar projects. expand or relocate operationsin gas extracted from landfills. The generatoris fueled by either natural gas,which PSEaG these cities Landfill Gas May Fuel Rates would be reduced for willsupply,or oil, certain categories of industrial and Generator Laboratory Operations commercialcustomers by 7to 15 Underan agreementsigned with Expanded percent for fiveyears,and half that the Hackensack Meadowlands for the following two years.The DevelopmentCommission PSEaG PSEaG's Research and Testing lower rates are designed to attract and Wehran Energy Corporation Laboratory expandedits testing industryto these urban areas have agreed to recover methane and analysis programsin 1983 with where the Company has under-uti-gas from a iandflit.The gas to be greaterimplementation of lized facilities because of factory taken from a section of the Kings-advanced data collection and pro-closings and relocations. and Landfillin Lyndhurstwould be cessing methods.The Laboratory Extensive redevelopment used to fuela 300-kilowatt electric developed these programs to programs continued during the generator. provide the Companywith the in-year in the state's major cities. Ren-The projectwill provide first-house capability to evaluate the 21 aissance NewarkInc. continued t hand experience in using landfill gas qualityof material,equipmentand encourage redevelopment of the in electric generation and could lead processes usedinits operations. downtown area where the $70 mil-to expansion to otherlandfills An example of the extensive lion Gateway 111 building neared underthejurisdiction of the expertise available as a result of the completion. Commission. Laboratory's efforts, is a steam tur-Research and There is a large potentialfor binetest program.In order to Development Focuses on gasin the Meadowlands area. If the evaluate allaspects of steam tur, results of the one-year landfill test-bine reliability, boresonic inspection Energy Problems ing and feasibility studyshow that capabilities have been developed, as The Company's research activities, gas is available in sufficient quantity wellas mobile vibration analysis coordinated by PSEaG Research and quality, plant construction will and dynamic balancing systems, Corporation,a subsidiary, contin. begin. reinforcing established non-destructive and performance test-uedin 1983 to focus on solving Electricity from Cogeneration Plant I"9 Y" Laboratory's role in r ntandfutureenergy Overall rese'rch and develop-TheTrenton Integrated Community r diologicalenvironmentalmoni-mentexpenditures during theyear Energy System (ICES),a cogenera. toring programs at Artificial Island, l totaled $165 million.The total tion and district heating project, site of the Salem and Hope Creek was partially offset by $3.9 million progressedin 1983 and will be Generating Stations, has been en-obtained through sales and completedin 1984.The projectis larged to include sample analysis, reimbursements.0f the balance, being built and will be operated by previously handled byoutside con- $8.4 million supports research by Trenton District Energy Company.a tractors.The Laboratoryis also industry-sponsored organizations, private partnership. workingin supportof start-up such as the Electric Power PSEaG contracted to pur. ctivities for Hope Creek. Research Institute and the Gas chase 12 megawatts of the electri-Meanwhile,the Laboratory Research Institute. caloutputfrom the system.Two continued during theyearto com-In addition,the Company sup-dieselengines,which supply elec. mercially marketits services, ports university and college tricity and heat,were operated for enabling other utility, commercial

i np se i l [b y' HF 'l U y z gr,. 7- ~ l t 1 ~, h g .i - [ g' s ?$ j .*^ 22 l 4,:: ~ 1 x / K n:n gb Y# i ? t N g k '.l _f ^[ 4-l Technician checks one of advanced battery ' stacks' (lower units) during Facility control room. In foreground is l battery systems being tested at the charging is stored as a hydrate in one of three color video terminals of Battery Energy Storage Test (BEST) refrigerated ' stores'(upper units). At the Facility Monitor and Control Sys-Facility. The system is the zinc-chloride lower left, an operating technician tem, a computerized control and data battery of Energy Development Assocl-reviews procedures during startup of acquisition system. aies (EDA). Chlorine, evolved from the EDA zinc-chloride battery in BEST

A Balanccd Company Poised for Growth andindustrialorganizations to tribution during periods of heavy throughoutits 80-year history,is benefit from the testing and anal-customer demand. made up ofits dedicated employ-ysis programs available.The Labo-The BEST projectis being ees.They make it possible for the ratory provides additional revenues funded principally by the U.S. Company to provide the reliable to the Company from these non-Departmentof Energy and the service upon which customers traditionalsources. Electric Power Research Institute, depend. the research organization of the Employment of qualified peo-BEST FaciliD Has electric utility industry. ple with a variety of talentsis the Successful Year As part of the Company's firststepin ensuring that the The Battery Energy Storage Test ongoingconservationefforts a Company's work force is caoable of (BEST) Facility, located adjacent to Modular Lighting Controlwas in-fulfilling PSEaG's respodbilities. stalled and tested in the Although most new employees are a Company substation in Hillsbor. administration area of the BEST hired locally,the Company also ough Township, NJ.,successfully completedits first fullyearof facility. The control adjusts lighting recruits at over 30 colleges and operation. outputof each fluorescentfixture universities throughout the country This national research center toa level selected for the task being for those with specialized testsload-leveling batteries and performed in the area while auto-backgrounds. support sub-systems in a utility matittly compensating forlight All employees have the oppor-environmentatcommercialscale. contubuted by windows. Test tunityto advance within the Utility personnel also receive opera-results show an energy savings of Company. Any employee may apply tionaltraining in using battery 52 per cent, providing an estimated for most positions that become p yback period of three years. vacant through internaljob-posting storage. During the year, tests were Fusion Research Enters pr gr ms. The Company also has a com-conducted on a state-of-the-art N Ph S prehensive management resource lead-acid battery,a solid-state power converter,and a computer PSEaGis participating in the pl nning and development process which ure tmana enalposi-g for process controland data nationalfusion research program acquisition. asan advisor and as a government DY 4 replacementswhen vacancies occur. The lead-acid station battery contractor. Tra,ning programs fill an i exhibited stable capacity and reli-Fusion research has entered a able operation. Because of the de-new phase.The first of a new gen, important role in keeping employ-pressed price oflead, itis now eration of larger-scale experimental ees prepared to meet the ever-possible that lead-acid batteries can devices,the Tokamak Fusion Test changing operating demands. economically meetsome utility and Reactor (TFTR) began operation at Courses range from those on highly su ts $P s ry energystorage needs untillower-Princeton Plastna Physics Labora-9 e d P costadvanced batteries become tory.The TFTR is expected to lead commercially available later in this to the first demonstration of the A tuition-aid program encour-decade. scientific feasibility of fusion which ages employees to take advantage o uc on P rt es m Near the end of 1983, tests could provide a virtually unlimited a e Cg e-began on two new batteries.These energy supply. batteries are a 500-kilowatthour fit. A total of 678 empI yees par-Employees:The ticipated in the program in 1983. zinc chloride battery developed by Energy Development Associates,a Company's Greatest The Company's compensation subsidiary of Gulf + Western Indus-Resource nd benefit programs contribute to tries,and a 500- kilowatthour, employee effectiveness and produc-advancedlead-acid battery There have been many technolog.i-tivity.The benefit plans provide developed by GNB Batteries,a divi. caladvances by the Company,n financial protection against unfore-i sion of Gould Inc. recentyears that have produced seen problems as wellas for retire-The successfuldevelopmer.t significantimprovementsin opera-ment.The Company has been a of advanced batteries for electdc tions. Computerization,alone,has leaderin introducinginnovative utilityuse would permitlarge provided opportunities for greater health coverage plans that provide amounts of energy produced by efficiency and productivity and con-qualitycare while simultaneously tinues to do so. attempting to contain the costs of nuclearor coalgeneration during off-peak hours to be stored for dis-However,the Company's healthinsurance. greatestresource today,as

A variety of other Company lion in disability benefits and work-during theyear through a broad activitiesalso protectthe health ers compensation. communication program to stock-and safety of employees.Such Affirmative Action Programs holders,the financial community, activitiesinclude a blood pressure in the employment of women and the media and the public atlarge. screening program,a personal members of minority groups con-The Company's Speakers' security awareness program, tinued to be emphasized. At the end Bureau presented more than 290 instruction in first aid and the appli-of 1983 there were 1,974 female talks before 12,000 persons. cation of Cardio Pulmonary Resus-employees and 1,924 minority The Second Sun,the energy citation and Heimlich maneuver group employees. information centerlocated atthe techniques site of the Salem and Hope Creek Community Relations A personalguidance program stations,was visited by approxi-assists employees and their families Asin the past,the Company mately 23,000 people during 1983. experiencing personal problems, reached outin 1983 to the com-An Energy Education Advisory especially those related to alcohol munitiesitserves by participating Committee assisted in the review and rfrug abuse.The program has in various civic, cultural and educa-and coordination of new programs helped a number of employees tionalactivities. Improvementin designed to provide energyinfor-avoid personaltragedies and made the quality oflife,especially in mation to schools.These new them more effective and produc-urban areas,was emphasized. programs have reached more than tive in theirjobs. Company employees filled 15,000 teachers and students and Among the concerns of man-numerousvoluntary positionsin include distribution of energy agementare operationalchanges community organizations. In sup-reference materials as wellas the resulting from the use of new portof the volunteer movementin presentation of teacher energy equipmentand technology. Modi-the nation,the Companyinitiated a workshopsin cooperation with the fications of work practices after programwhich matches employee NewJersey Institute of Technology. discussions between management talents with needs of their communities. In addition,two high school and unions have enhanced the abil-Community affairs represen-assembly shows," Energy Today 24 iues f empioyees to perform their tatives made presentationsto and Tomorrow"and "The Gas work more effectively. 186,000 persons on a variety of Works-Pipeline to the Future" Employees atthe end of 1983 energy and industry-related subjects. have been presented to 115,000 totaled 13283 compared with NewJerseyteachers and students. Communications 13.118 at the end of 1982. Wages I and salaries fortheyeartotaled Information aboutthe Company $422.4 million including $123 mil-andits operations was supplied -,-n Financial Statement Responsibility l Management believes the effectiveness or this system is 1 enhanced by a program of continuous and selective training of i 1he management of PSEaG is responsible fbr the integrity and i employees. In addition, management has communicated to all otdoctivity of the finandal statements of the Company. Thee. employees its Policies on Business Conduct. Company Assets s statements am prepared by the Company in accordance with ; -and internalControl. genera % mfw accounting prindpies apphed on a consistant The arm of Delotte Hadens & Sells, independent certined' pub 4 o beds and induce the use of inebrmed estimates where appro-

m. meountana, b engaged m examine the w anandd priset Management beNeves that tlwy preunt fairty the o

' statements and heue an opinion thereon.Their examination is ' L cbmpanp anendal constion, inebrmation in other perts C conducted in accordance wth generany accepted audting stant

thm Annud Report is enhunt with the Anandd shunwns - due and indudas a review ofinternal accountingUmtrob andi p

I l1heCompemymaintainsan'accountingsystemestablishedwith. L " sound anmunting and business pondes which are communi-1he eased or Directors carries out its reponstety of nnene

catedtotheappropratepomannsi.1hegetsmisdesignedtoE sdeiendoeurethroughthe AustCommitteecurrentlyconskt-(

L. 3 ngoftheerectorswhoarenotemployeesoftheCompery K q pronde reasonsth amurance that transactions are mnM in I o secordance unh inensgement) authorizations'and that asets $ 1hs Aust Commktse meets periodicauy with management a[ f

sesehguarded.Theconesptof masonsbisassurance recog-weg as wNh representathes of the internd audtors and indo ?

I' L niess that the costs ofinternal controle should not exceed the L pendentcertifiedpubRcaccountantsandreviewstheworkof 3 regnedtenente Thegetem,togetherunthRsrehtedinternal ' eeth to answa that their respecthe repondtStiss are being ' ' '~ arried out, and to docum related matters. Both groups have L ~ cuaren,IseendnustrudewedbytheCbmpen$sbdfcf - ' ' fue and ese accus to the Aust Committee. benesausters ,s i j ' ^ 4

Statem:nts ofIncome For the Years Ended December 31, 1983 1982 1981 Operating Revenues (Thousands of Douars) Electric $2.570.457 32.543.191 $2322.042 Gas 1392.475 1 330.785 1.149.610 Tota 10perating Revenues 3.962.932 3.873.976 3.471.652 Operating Expenses Operation Fuel for Electric Generation and Interchanged Power-net 868.977 959382 1,059.539 Gas Purchased and Materials for Gas Produced 858.018 821.479 692319 Other 503.568 452.115 385.149 Maintenance 238.766 220.456 192.768 Depreciation and Amortization 201,787 192.860 178332 Amortization of Property Losses (note 4) 49.040 43345 15362 Taxes Other than Federal Income Taxes 557.793 553241 474.979 Federalincome Taxes (note 1) 191.033 176.639 118.737 Total 0perating Expenses 3.468.982 3.419317 3.117.385 Operatingincome 493.950 454.459 354267 Otherincome Allowance for Funds Used During Construction - Equity 85.591 58367 51.877 Earnings of Subsidiaries - net (note 2) 7.061 10.460 9.490 Miscellaneous-net S.544 7.118 6290 Total 0therincome 98.196 75.945 67.657 Income BeforeInterest Charges 592.146 530.404 421.924 25 Interest Charges Long-Term Debt 228,189 198.413 184,133 Short-Term Debt 3.480 13.978-16.574 Other 13.699 8246 882-Totalinterest Charges 245368 220.637 201.589 Allowance for Funds Used During Construction - Debt (43.001) (33.060) (43.802)' NetInterestCharges .202367 187.577 157.787 Net income 389.779 . 342.827 264.137 Dividends on Cumulative Preferred Stock and ' $1.40 Dividend Preference Common Stock S8234 53.865 51.538 Earnings Available for Common Stock $ 331.545 $ 288.962 - '$ 212.599 Shares of Common Stock Outstanding End of Year 102.857.989. 94.844.596 86.089.491 Average for Year ' 97.467.431 89233.028 80.962344 Eamings per average share of Common Stock $ 3.40 $ 324 $ 2.63 DMdends paid per share of Common Stock . $ ' 2.62 $ 253 - $ 2.44 See Surnmary of Significant Accounting Policies and Notes to Financial Staternents. I

Balance Sh::ets Assets December 31. 1983 1982 Utility Plant-OriginalCost (Thousandsof Douars) Electric Plant $4.849,599 $4.638.440 Gas Plant 1,152,159 1,083,183 Common Plant 154.927 137.650 Nuclear Fuel 83,590 60,987 Utility Plantin Service 6,240.27S S,920260 Less Accumulated Depreciation and Amortization 2207,573 2,041,904 Net Utility Plantin Service 4,032,702 3.878356 Construction Workin Progress 2.689.082 2,157,900 Plant Held for Future Use 21.119 22,416 Net Utility Plant 6.742,903 6,0S8.672 Other Property and investments Nonutility Property, net of accumulated depreciation - 1983, $2.711: 1982, $2,675 10 S74 11,702 Investments in and Advances to Subsidiaries (note 2) 304.075 287,934 Total Other Property and investments 314.649 299.636 CurrentAssets Cash (note 3) 7,277 9,981 Working Funds 21,668 24308 Pollution Control Bonds Escrow Funds 13.574 4.108 TemporaryCashinvestments 49,900 Accounts Receivable, net of allowance for doubtful accounts - 1983, $15,578; 1982, $13291 - 368232 376589 26 unbined Revenues 200399 182287 Fuel,ataverage cost 221,762 261,917 Materials and Supplies, at average cost S5313 44,659 Prepayments 9.S29-8.743 -TotalCurrent Assets 897.754 962,492 Deferred Debits (note 4) Property Losses Hope Creek Unit 2 _ 229.468 262,767 Atlantic Project 245.352 260,412 Other 3,027-3330 Gross ReceiptsTaxes 12.899 Underrecovered Electric Energy and Gas FuelCosts-net 96,12S Unrecovered Nuclear Fuel Disposal Costs 13.424 25,471 Unamortized Debt Expense 22,731-23.096 Total Deferred Debits 610,127 587,975 -Total $8.565,433 - $7,908.775 Certain minor rodassifkations have been rnade of previously reported 1982 amounts in order to conform to currmt dassifkations. - See Sumrnary of Signifkant Accounting Polkies and Notes to Financial Statements.

Liabilities December 31. 1983 1982 Capitalization (Thousands of Donars) Common Equity Common Stock (see statements, page 30) $1.792.340 $1,610.879 Premium on CapitalStock S57 557 Paid-in Capital 26.18S 26,185 Retained Eamings (see statements, page 29) 963.617 888262 TotalCommon Equity 2,782,699 2.S25,883 Preferred Stock without mandatory redemption (see statements, page 30) 554.994 554.994 - Preferred Stock with mandatory redemption (see statements, page 30) 139.500 111250 Long-Term Debt (see statements, page 31) 2.684,899 2.579.782 Other Lor,g-Term Obligations (note 4) 61.844 60.430 TotalCapitalization 6.223,936 5.832339 Current Liabilities Longterm Debtdue within oneyear 51,027 48243 Preferred Stock to be redeemed within one year 1,750 381 Commercial Paper (note 5) 153.000 Accounts Payable 245.528 263.913 Taxes Accrued, including New Jersey Gross RE;eipts Taxes - 1983, $510590: 1982, $514.378 S31,867 535.318 Deferred Income Taxes, Unbilled Revenues (note 1) 92,183 83.852 InterestAccrued 64.494 57.925 Gas Purchased 100.397 107,583 Other S6,631' 49.927 TotalCurrent Liabilities 1296,877 1.147.142 27 Deferred Credits Accumulated Deferred Income Taxes (note 1) Depreciation and Amortization 438.480 358545 Property Losses Hope Creek Unit 2 94.644 1.08223 Atlantic Project 103,157 109.493 - Deferred Electric Energy and Gas Fuel Costs - net 44247. (32,595) Other (744) (6.851) Accumulated Deferred investment Tax Credits (note 1) 335.196 301,420 Overrecovered Electric Energy and Gas Fuel Costs (note 4) 66.672 Other 29.640 24,387 Total Deferred Credits -1.044.620 929294 Commitments and Contingent Liabilities (note 7) Total ~ $8,565.433 $7.908.775 - = _ _ _ _ -

Statements of Chang:s in FinanClal Position For the Years Ended December 31, 1983 1982 1981 Funds Provided (thousandsof Doitars) Netincome $389,779 $ 342,827 $264.137 Add (Deduct) Items not affecting Working Capital Depreciation and Amortization 292.532 304319 231,431 Recovery (Deferral) of Electric Energy and Gas Fuel Costs - net (162,797) 164,818 104.199 Provision for Deferred income Taxes (note 1) Depreciation and Amortization-net 79.935 45,950 37,716 Property Losses-net (19,915) (24507) 119,991 Deferred Electric Energy and Gas Fuel Costs -net 76,842 (78214) (48,188) Other-net 6,107 (18,428) (4,640) InvestmentTax Credits-net 33,718 205261 4,998 Allowance for Funds Used During Construction (AFDC) (128,592) (91,427) (95.679) Equity in Net Earnings of Subsidiaries (7.061) (10.460) (9,490) Other 3,583 (963) (1,419) TotalFunds from Operations 564.131 839,176 603,056 Netproceeds from salesof Long-Term Debt 161,081 221.022 99320 Preferred Stock 29,739 34.646 49.456 Common Stock 181276 186.883 171.420 TotalSecurity Sales 372,096 442,551 320,196 Total Funds Provided $936,227 $1281,727 $923,252 FundsApplied Additions to Utility Plant, excluding AFDC $762293 $ 721,948 $588,170 Cash Dividends 313,989 281.459 249,061 Advances to Subsidiaries 9.080 16.464 31.026 Reductions of Long-Term Debt SS.060 50,553 5,572 28 Hope Creek Unit 2 Abandonment (note 4) Total Construction Costs, including AFDC of $33,000 (223,000) Recoverable Costs, including deferred cancellation costs 290.750 Miscellaneous 10278 11,602 17,506 Total Funds Applied 1,150.700 1.082,026 959,085 Changes in Working Capital - Increase (Decrease) Short-Term Debt (153,000) 207.551 (26,686) ~ tong-Term Debt duewithin oneyear (2.784) (46,013) 30.835 Cash (2,704) .-4386 1,844 Working Funds (2,640; 13,643 1,288 Pollution Control Bonds Escrow Funds 9,466 4,108 Temporary Cash lavestments (49,900) 49,900 Accounts Receivable (8,357) (1335)' 25,929 Unbilled Revenues 18.112 5339 13,602 Fuel (40,155) 43.694 - 35.164 Materials and Supplies 10.654 4,588 9.647 Accounts Payable 18,385 - (1,179) (56.838) Taxes Accrued 3,451 .(43308) (55,860) Deferred IncomeTaxes(note 1) .(8331) . (2.456) (6257) InterestAccrued - (6,569) (10,175) (1,794) Gas Purchased 7.186 (23.942) (8,762) Other (7287) (5,100) 2.05S Net increase (Decrease) in Working Capital (214.473) 199.701 (35,833) Total Funds Applied and Changes in Working Capital $936227 $1281,727 $923,252 See Summary of Signmcant Accounting Polides and Notes to Financial statements.

Stat m:nts of Retain:d Earnings Forthe Years Ended December 31 1983 1982 1981 (Thousands of Dollars) Balance January 1 $ 888.262 $ 827.497 $ 813.181 Add Net incon.e 389,779 342,827 264,137 Total 1.278.041 1.170.324 1.077,31 e Deduct Cash Dividends Preferred Stock,at required rates 56,353 S1,984 49.657 $1.40 Dividend Preference Common Stock 1,881 1.881 1.881 Common Stock

• 255.755 227,594 197.523 TotalCash Dividends 313.989 281.459 249,061

~ CapitalStock Expenses 435 603 760 Total Deductions 314.424 282,062 249.821. Balance December 31 $ 963.617 $ 888262 $ 827497 ' Restrictions on the payment of dividends are contained in the Charter, certain of the indentures supplemental to We Corrpany's Mortgage, and certain debenture bond indentures. However, none of these restrictions presently limits the payment of dividends out of current earnings.The amount of retained earnings free of t*wse restrictions at December 31.1983 was $953.617,000. %m See Summary of Significant Accounting Policies and Notes to FinanciaI Statements. N s. %[ ' N.

• t nm

~ Independent Accountants' 0 pinion ~ gg ; Deloh ^ = ~ y p o.'.,,- e Haskins+ Sells s L idy Certified Public Accountants 4 Gateway One / s Newark,NewJersey 07102 To the Stockholders and Board of Directors of Public Service Electric and Gas Cornpany: j,e /. We have examined the balance sheets and statements of .. in our opinion, such financial statemer.ts present fairly capital stock and long-term debt of Public Service Electric the financial position of Public Service Electric and Gas i and Gas Company as of December 31.1983 and 1982 Company as of December 31,1983 and 1C82 and the re-and the related statements ofincome, retained earnings, suits of its operations and the changes faits financial 7 and changes in financial position for each of the three position for,each of the three years in the period, ended C., years in the period ended December 31,1983. Our exami-December 31,1983, in conformity with gener4!!v ac- 't nations were made in accordance with generally accepted cepted accounting principles appiied on a consistent basis. auditing standards and, accordingly, included such tests of x the accounting records and such other auditing proce-Q-[b 3 r dures as we considered necessary in the circumstances. WAL ~ tv- ~ f - 3e February 14,1984 ,e( ., y v .y & a

• u

Stat:m:nts of Capital Stock Current Certain outstanding Redemption Refundings shares Price Restncted December 31. (note A) Per share Prior to 1983 1982 """ # U "'* Nonparticipating Cumulative Preferred Stock (note B) With Mandatory Redemption (note C) $100 parva!ua-Series 1225% \\ 262,500 $112.00 2/1/85 $ 26,250 $ 26.631 13.44% (500000 shares issued in 1981) 500,000 113.44 4/1/86 50,000 50,000 12.80% (350,000 shares issued in 1982) 350,000 112.80 10/1/87 35.000 35,000 11.62% (300.000 shares issued in 1983) 300,000 111.62 9/1/88 30.000 \\ 1,750 381 Less amount to be redeemed within cne yeac Preferred Stock with Mandatory Redemption $139.500 $111,250 Without yhdatory Redemption (r.ote D) s $25 parvalue-Series 1.600,000 $ 2650 $ 40,000 $ 40,000 9.75 % 8.70%.. s 2.000.000 2630 50.000 50,000 $100parvalue-Series 4.08% - \\ 250.000 103.00 25.000 25,000 4.184 i 249.942 103.00 24,994 24.S94 4309o 250,000 102.75 25,000 25.000 S.05 % 250.000 103.00 25.000 25.000 SPE% 250,000 103.00 25,000 25.000 6.00% 250.000 102.00 25.000 25.000 9.62 % 350,000 10450 35,000 35.000 7.40% 500.000 103.00 50,000 50,000 7.52 % S00.000 103.00 50,000 50,000 , 8.08% 150.000 103.00 15.000 15.000 30 >~. m% v 750 m iO3.m 75 m 75 m 7.70 % 600,000 104.64 60.000 60.000 8.16 % 300.000 106.86 30,000 30,000 Pref ~rred Stock without Mandatory Redemption (no changesin 1982 and 1981) $ES4.994 $554.994 Dividend Preference Common Stock and Common Stock 3 $1.40 Dividend Preference Common Stock (no par) 'i,343.999 shares authorid x hsued and outstanding; current redemption price $35.00 per share (note E) w. Common Stock (no par)- authorized 150,000,000 shares (note F); issued and outstanding as > $1,792,340 $1,610,879 of December 31,1983,102,857.989 shares and as of December 31,1982c 94.844,596 shares l (8.013.393 shares issued for $181,401.000 in 1983; 8.755.105 shares issued for ; j -$187,140,000 in 1982: and 9.474,496 shares issued for $171.636.000 in 1981) / Notes: vs A.In addition,there are 1,437,558 shares of $100 oar value and ' Finimum i Effective Aggregate Number of. 6.400,000 sharts of $25 par value Cumulative Prefer [ed Stock - i Shares Date of Qhares Purchasedand whict, are authorized and unissued, and which upon issuance may \\aedeemable Mandatory - RedemedDuringtheYears. or may not provide for mandatory sinking futd redemption. Annually Redemption 1983 1982 '1981 serits i B. As of Dr.mber 31. J983 the annual dividsnd requirement and 1225%- 17.500 2M/80 3.806 -12.822. 27.672 embedded dnddend costiwere $17,902.000 and 12.88%, respec. 13.44 % 25.004, 3/31/87 12.80 %. 17.500T 9a(V88 tively, for Pgferred Stock with mandr/.ory redemption and 11.62 % 15.000 - h $40,629,000 and 7.38%, respectively for P'tferred Stock with. D. Preferred Stock without mandatory redemption is subject to re- - outmandatoryredemption. ' ~

• mption solely at the option of the Compaay upon payment of the If dividends upon any shares of such stock are in arrears in an applicable redemJtion price plus accumulated and unpaid dividends amount equal to the annual dividend thereon. voting rights for the tothe date fixWor reemption.

elec*:on of a majority of the Board of Directors become operative ., and ccntinue until all accumulated aqd unpaid dividands thereon W.E. Each share of $1.40 Dividend Preference Common Stock is enti- % ied to cumulative dividends, to two votes, and on liquidation or t iwve Men paid,whereupon all such voting rights cease subjectto dissolubon,to twice as much as each share of Common Stock.There i - bdrogain revived fromtimo to time. were no changes in outstanding shares in 1983.1982, or 1981. W.The Company is required to pughase or redeem a specified c minimum number of shr.:es of Curt ative Preferred Stock with E includes 12.239,069 shares of Common Stock reserved for. l . Idandatory redemption' annually commencing on the effective dates l possible issuaN under the Company's Dividend Reinvestment and shown balow. Such rederr.ptions are cumulative. The Company may Stork Purchase Plan. Tax Reduction Act Employee Stock Ownership annually redeem, at its of,M an aggregate of up to twice the Plan, Employm Stock Purchase Plan and Thrift Phn.- ' number of shares shown for each such series. All such redemptions See Surdr$ry'Ohionificant Accounting Policbs and No es to Financiai - - " " ~ are at a redemption prFe of 3100 per share. A redemption of - Statements. shares of any series also requires payment of all accumulated and 3

• x aunpaid dividends to thedate fixed for redemption.

w

a F _ r# Stat me.qta cf Long-Tcrm Debt December 31 _y 1 i983 1982 1983 If>C First and Hefurb[!'9 ' @ "'*"d' # "** / (PS'"d' # "'" Debenture Bonds unsecured MortgagQ 'g(note A) 4%% October 1,1983 [ 37.907 $ 24.800 es 5%% June k1991 39.597 3%% October 1.1983 $ 21.294 7%% Deceinber 1,1993 W 27,432 28385 3%% May 1 1984 50.000 50.0C0 p 9 % November 1.1995 S2.819 54.694 4%% Hovecnber 1,1986 50.000 50.000 7%% August 15,1996 '.55.949 57340 4%% Sep*dmber 1,1987 . 60.000 60.000 8%% Novemkr 1,1996 40.827 42.010 4%% Augst 1,1988 [ - 60.000 60.000 6 % July 1,1998 18.195 18.195 5%%.hre 1Q989 S0.000 50,000 Total Debenture Bonds " 233.129 265.021 ^ 4%%,bsb.dber 1,1990 50.000 50.000' ' 6%% Note 720 4h% Augis1,1992 ~40.G00 40.000 4%% June 1,1993 - 40.000 40.000 Totan.ong Te:n Debt i. t 4%% Sdptemba 1,1994 60.000 60.000 Principal 3 mount out-stan6ng (notes B and C) 2.743.470 2.633376 4%% September l'.1995 60,000 60,000 Less a nount due within 6%%.Nne b 1997 7S.000 75.000 oneyear(note D) . 51,027 48.243 7 % JLne U 1998 75.000 75,000 7%96. Agil 1.1999 75.000 75.000 Long Term Debt excluding amount due within one 9%% Mdch 1.2000 , 98.000 98.000 year (note D) 2.692,443 2.585.133 8%% A May 15,2001 6 9,3'10 69300. Net Unamortized Discount . (7.544) (SSSI) 7%% BNovember15.2001 - 80,000. 80.000 '7Y C April 1 ?,002 125,000 ' 125,000 Long-Term Debtless g Net Unamortized I 8' D March 1,2004 ~ 90.000 90.000 Discount $2.684.899 $2579,702 / 12 %',E October 1.2004 10.730 10.730 8%% FApril1,2006 60,000 60.000 ~

_J 8.45% GSeptember 1.2006,; 60.000.

60,000 Company may terminate the commitments, in whole or in part. 8%% HJune1.2007 125,000 125.000 m ut penah or premWmMme agemt, any bonow-ings outstanding at April 1.1984 are convertible, at the Company's 8%% 1 September 1,2007 59.900 59.900' option. into three year term loans. The Company is required 0%% J November 1,2008 100.000 100.000 to pay commitment fees of % of 1 % per annum on the first 9%% KJuly 1.2009 100.000-100.000 - $125.000.000 and % of 1% per annum on the next $75.000.000 12x % LNovember1,2009 125.000 - 125.000 f any unused portion. He Company has the right, with the con,

• "I"*

9*"I * * ### "" 8' 12%% M June 1,2010 100.000 100.000 and a one-year extension has been requested. 15%% N August 1.1991 -14%% 0 September 1,2012. 100,000 100,000 100.000 100,000' ne aggmgate pedpal aunts of requirements for sink.ing funds ar'd maturities f ar each of the five years following December 12%% P Decerr.ber 1,2012s -100.000 100.000 3L1983 are as fonows( 12%% ~ Q August 1.1993i T 100.000 Sinhing 8 % June 1,2037 L / ' 7,463 s / 7.463 Year Funds Maturities Total 5 % July 1,'2337. 7.538 7538 pdsmds of Donars) - % c. 1984

$ 1.027.

$ S0.000 $ 51,027 3 PollutionControlSeries N^m 1985 5.707 J.. .S.707 1986 6200-630% AOcober1,2006 _ T14.300 ,14300 g 50.000 56200 1987-6200 a 60.000' .66200 6.90% $ September 1,2009 42.620 42,620 1988 6200 t W60.000 ' 66200 6.90% C September 1.2004 2.990 2.990 - $25334 ,$220.000 - $245334 : 12%% D April 1,2013

• q2 -

23,500- _ 3500 2 9%% EJune1.2013/ 64.000 ForsirAing fund purposes,certai;1h stand Refunding Mortgage - 5 Total Firstpod Refunding

Bond istbes require annually thrpetirement of $21.900,000 princiJ

Mcrtgage Bonds'

$2.510341 $2367,635 - pa! amount of bonds or the utilization of bondable property add - tions at 60% ofcost.The portion expected to be met by property - Notes:. ' addiuons has been'exduded from the table above. Also, the. A.Re Company's Mortgage, securing the First and Refunding Company may, at its opton, retire additional amounts up to Mortgage Bonds, constitutes a direct first mortgage lien on sub- $6200.000 anrmGy Wough sinking funds of certain debenture stantially all property and franchises.^. bonds. The election of any such option is induded in long. term debt B.' As of December 31,1982 the annual interest requiremeni on dueein mepan ~ ~ 1.ong-Term Debt was $237341.000 of which $219.419,000 was See Summary of Signincant Accounting Policies and Notes to Finandal the requirement for First and Refunding Mortgage Bords.The - Statements. ' 'e embedded interest cost on 1.ong-Term Debt was 8.90%. - C. Asht D(.demtbr 31,1983.the Company had unexercised com- ~ = mitments undera Credit'Agreementwith 12 domestic banks for issuance of revoMng Imns up to an aggregate amount of - . $200.000.000 *o be outstanding at any time to April 1,1984. The 2.

V Summiry of Significant Utility Plant and Related Depreciation and. Accounting Policies Amortization

The cost of replacements of units of property is charged to Accounting Principles

utility plant. The cost of maintenance, repairs and replace-Financial statements are presented in accordance with ments of minor items of property is charged to appropriate generally accepted accounting principles (GAAP). As a result -

expense accounts. At the time units of depreciable properties of accounting requirements imposed under rate-making are retired or otherwise disposed of, the original cost less i decisions by the Board of Public Utilities of the State of New net salvage value is charged to the appropriate provision for i Jersey (BPU) and the Federal Energy Regulatory Commis. accumulated depreciation. sion (FERC), the applications of GAAP by the Company differ in certain respects from applications by non-regulated busi-Depreciation and Amortization, for financial reporting our-nesses. The Company is under thejurisdiction of the FERC poses, are computed under the straight-line method.

• nd the BPU and maintains its accounts in accordance with Depreciation is based on estimated average remaining lives their prescribed Uniform Systems of Accounts, which are the of the several classes of depreciable property. Amortization

) same. of leasehold improvements is based on the term of the J lease. Depreciation applicable to nuclear plant includes esti-InveStmentSin Subsidiaries mated costs of dismantling or decommissioning. These The Company's investments in its subsidiaries, which in the estimates are reviewed on a regular basis and necessary aggregate are not significant as defined by the Securities and adjustments are made as approved by the BPU. Depreciation Exchange Commission, are reported in the accompanying provisions stated in percentages of original cost of deprecia-financial statements on the equity method of accounting. ble property are 353% for 1983,3.52% for 1982 and The carrying value of investments in subsidiaries is reported 3.49% for 1981. under Other Property and Investments in the Balance Sheets, and under the equity method of accounting is ad-Amortization of Nuclear Fuel Justed for earnings.or losses of such subsidiaries as reported Nuclear energy burnup costs are charged to fuel expense on under Other Income in the Statements of income the basis of the number of units of thermal energy produced as they relate to total thermal units expected to be produced Revenues : over the life of tne fuel. The rate calculated for fuel used at 32 Renue am raw &d based m estimated savicmnemd, all W the Company's nuclear units indues a preim d me but are bilN to customers monthly on a cycle basis. mill per kilowatthour of nuclear generation for estimated spentfueldisposalcosts. Amortization of Deferred' Items [ Deferred detuts are amortized and recovered through rates incomeTaxes i as prescribed by the BPU. See'aiote 4 of Notes to Financial The Company a_nd its subsidiaries file a consolidated Federal Statementsforfurtherinformatun income tax return and income taxes are allocated, for reporting purposes, to the Company and its subsidiaries FuelCoSts - based on taxable income or loss of each. The Company prqlects the costs of fuel for electric genera-Deferred income taxes are provided for differences between tion,' purchased and interchanged power, gas purchased and. book and taxable income to the extent permitted for rate-D materials for gas produced for tuhe-month periods. Ad7 [ Justment clauses in the Company's rate structure allow the making pwposes i s recovery of any excess of suchfprojected costs _ over those ' investment tax credits are deferred and amortized over the j included in the Company's_ base rates through levelized useful lives of the related property including nuclear fuel.- [ monthly charges over the period of prqjectim. Any under or o 's tax normalization practices are in compliance - overrecove:1es, along with Interest in the case of an over-1 Wthe Em'dwov@Actd < s recovery, are deferred and included in operabons in the ~ 1981* period in which they are reflected in rates ' wc~.. t.; { T-4 L N .:5,# ,3 ^ 7 ".) f g s a r a .u. sm; .m Y. f y ' (x 4 y m 4 ~.' ~ / 7 - W k y

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.%my'% - .,~ ' i R, ' f. lW,mlkW'R; W p% sw. ? v> A: M N ' / 7' 7 4 ,f ' [?Q *,, _ & _ m, ', ~ Mk. S ~ 'l&'s

3.,

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Allowance for Funds U5ed During Construction Notes to Financial Statements Allowance for funds used during construction (AFDC) is a

1. FederalIncome Taxes cost accounting procedure whereby the cost of financing o

ehe - construction (interest and equity costs) is transferred from the income statement to construction work in progress and of Federal income tax expense with the amount computed by multiplying pre-tax income by the statutory Federal income (CWIP) in the balance sheet. The rates used for calculating tax rate of 46%is as follows: AFDC were 8%% for 1983 and 1982 and 8% for 1981, 1983 1982 1981 which were within the limits set by FERC. As a result of BPU rate orders, the Company is allowed to Net income $389.779 $342.827 $P.64.137 include a portion of CWIP in rate base on which a current wuncome taxes return is permitted to be recovered through operating reve- .vluded in: nues. Starting in 1982, the BPU allowed the Company to Operating income include in rate base an additianal $125 million of CWIP. rais. Current provision 6.015 34.762 2.603 Provs nfordeferredincome ing the total amount to $37S million. No AFDC is accrued on the amount of CWIP which is included in rate base. Investment tax credits-net 33.718 214.620 4.998 Pen 5 ion Plan T talincluded in operating income 191.033 176.639 118.737 Pension costs are determined on the basis of an acceptable Miscellaneous other actuarial method and are charged to operating expenses and income-net 4.825 3265 3586 utility plant. The Company's policy is to fund pension costs Total Federalincome tax accrued. Prior service costs are being funded over a period provisions 195.858 179.904 122323 of 35 years which began January 1,1967. Subtotal 585.637 522.731 386.460 Eamings of subsidiaries-net (7.061) (10.460) (9.490) Pre-tax income $578.576 $512271 $376.970 Tax expense at the statutory rate $266.145 $235.645 $173.406 Adjustments to pre-tax income, computed at statutory rate, for which deferred taxes are not provided under current 33 rate-making policies: Tax depreciation under book depreciation 27.806 21.837 18.608 Allowance for funds used durirq construction (59.152) (42.056) (44.012) Overhead costs capitalized (13.810) (11.500) (8.858) Other 3.853 (277) 445 Subtotal (41303)- (31.996) (33.817) Amortization of deferred tax items (28.984) (23.745) (17266) Subtotal (70287) (55.741) (51.083) Total Federalincome tax provisions $195.858 $179.904 $122323 'The provision for deferred income taxes represents the tax effects of the followingitems: Current Uabilities Unbi!!ed revenues $ 8331 $ 2.456 $ 6257 Deferred Credits Hope Creek Abandonment (13.579) (18.104) 126327 AtlanticAbandonment (6336) (6.403). (6336) Add;tionaltax depreciation 61348 48.791 - 41.479 Repairallowance property. 17.482 l(4524) '(5236) Gross receiptstaxes (5.838) (2.912) (2.033) - Deferred fuel costs-net 76.842 - (78214) (48.188) Nuclear Plant Decommissioning Costs. (5.408) (4.651) Nuclear Fue: DisposalCosts 20.433.(10.150) (1.775) Loss on reacquired debt (417)

(415)

(571) Other-(1.558) 1383 '1212 Subtotal 142.969 -(75.199) 104.879 Total $151300 $(72.743) $111,136 e

m As a resuR of Internal Revenue Service (IRS) audits for taxable I The Company had ori inally intencied to utilize the terminal forj years 1976 through 1980, the IRS has proposed an increase in the importation of LNG. However, due to uncertainties and ~ taxable income which would increase tax liability by $72 mil-delays relating to the importation project, including lack' oft ~ lion. Such liability would be reduced by using $66 million of in-regulatory approvals which resulted in a loss of a supply of, - vestment tax credits available. This is primarily the result of LNG. the terminal has not been placed in operation. ETSC is including unbilled revenues as taxable income in the year esti-now pursuing the utilization of the two storage tanks at the mated services were provided. The taxability of unbilled reve-terminal to provide an LNG peaking service for the Companyi nues is an industry issue.The Company has appealed the tax and others. This will necessitate the construction of a liquefac- . assessments related to unbilled revenues, and the IRS has sus-tion facility at the site. The additional construction will not pro-

pended any action on the appeal pending the outcome of vari-ceed until the necessary permits are obtained from the ous court cases involving other utilities. Deferred taxes have appropriate federal, state and local regulatory agencies. The,

been provided for unbilled revenues and. if the Company is proposed service will increase the Company's capability to store ' unsuccessful in its appeal, the effect on earrings would not be - supplies of domestic natural gas in order to meet the demands

• material.

of its customers for gas on the coldest winter days. Investment tax credits - net for 1983 includes credits carried if necessary permits are not received and the facilities are not1 forward from 1982. The balance of investment tax credits not placed in service, the Company would anticipate seeking favora-i utilized as of December 31,1983. in the amount of $72 million, ble rate treatment from the BPU to recaver its investment. Any . is available as a carryover to future years and will expire as fo!- amount not recovered, in the opinion of management, would lows: 1997 - $2 million.1998 - $70 million. Investment tax not have a material effect on the financial position or results of credits can be utilized to offset 85% of 1983 tan liability before operations of the Company. investment tax credit 90% of 1982 tax liability and 80% of 1981 tax hability. ~

3. Compensating Balances Cash consists primarily of compensating balances under infor-The Company has a Tax Reduction Act Employee Stock Owner.

mal arrangements with vanous banks to compensate them for ship Plan (TRASOP) under provisions of the Internal Revenue services and to support lines of credit of $186.1 million and Code of 1954, as amended (the Code). Such provisions permit $ 180.9 million at December 31,1983 and December 31.1982, the Company to elect an additional 1 % investment tax credit if respectively. There are nc legal restrict,ons placed on the with-i the Company transfe3 to the TRASOP an equivalent amount. drawal or other use of these bank balances. In addition, at De-of cash for the purchase of shares of Common Stock.The cember 31,1983 and December 31,1982, the Company had M Company may also claim an additional %% investment tax lines of credit of $35.0 million which were compensated for by credit if it contributes an equivalent amount of cash to the - feesc TRASOP but only to the extent that such amount is matched by. j contributions by participants. Under present provisions of the

4. Deferred items Code, the additional investment tax credits, which form the basis of the TRASOP are generally available only through the Abandonmentof Hope Creek Unit No.2 1982 tax year. However. unused TRASOP credits may be.

In December 1981, the Company abandoned the construction of - o carried forward and used on a tax return for a subsequent year. - Hope Creek Generating Station Unit No. 2. In March 1982, the The Company presently estimates that all TRASOP credits - BPU authorized the transfer of $112 million of Hope Creek 2 claimed will be used no later than its 1984 tax return.- costs to Hope Creek 1 and recovery of all after-tax abandon- - ment costs for Hope Creek 2 from customers through the elec- - 2. Investments in and Advances to Subsidiaries'

tric levelized energy adjustment clause.The recovery is over 15 Investments in and advances to subsidiaries are summarized as years on an accelerated method which commenced June 1982.

During 1984, the amount to be recovered will be $32.1 million. l ~ follows: laWesoM mHon. December 31. '1983 /1982' 1981 l l (nmandsofDona@ Abandonment of Atlantic Project 2 [p$n P in December 1978, the Company cancelled its floating nuclear investment $ 46.366 $ 37.628 $ 25.663 plant project which was to have consisted of four generating. Advances ' 183.737 172368 151.168' ' units. The BPU has authorized the Company to recover the 230.103 ~ 209.996 176.831 costs of the project over a period of 20 years commencing on Other Subsidiaries,primarily . 1 April 17,1980. Costs are being recovered at the rate of $15.1 1.NG Project Advances - ' 73.972 L 77.938 :84.179 - million annually,less related taxes of $63 million. Total - $304.075 $287.934 $261.010 2 h The major subsidiary included in Pother Subsidiaries" above is ; Energy Terminal Services Corporation (ETSC).' its principal - asset,which has not been placed in operation. is a Liquefied. Natural Gas (LNG) terminal on Staten Island in the New York - City harbor area. Annual expenditures for protection,mainte : nance and licensing efforts for the terminal. including local real - estate taxes, are approximately $3.9 million.L h

Unamortized Debt Expense 1983 1982 These costs, associated with the issuance or reacquisition of (Thousands of Dollars) debt, are deferred and amortized over the lives of the related Maximum amount outstanding at any issues. Amounts shown in the balance sheets consist principal ly month end $161.900 $216.015 of costs associated with the Company's tender offer for its 12% Average daily outstanding $37.004 $107.950 Series E Mortgage Bonds which will mature in October 2004. Weighted average annual interest rate 9.40 % 12.95 % The Company expects to amortize $1.1 million of these costs Weighted average interest rate for in 1984. c mmercial paper outstanding at year end 9.87% None Underrecovered Electric Energy and Gas Fuel Costs-net

6. Pension Plan The net underrecovered costs as of December 31,1983 consist The Company has a non-contributory, trusteed plan covering all of underrecovered electric energy costs of $146.4 million and employees who complete one year of senace. As of December 31.

$503 million of overrecovered gas fuel costs. The electric costs 1983, the unfunded prior service costs were aporoximately will be recovered in subsequent periods to the extent permitted $311.310.000. Information on accumulated plan benefits and by the BPU. The gas overrecovery will be refunded to custom-net assets follows: ers through reduced bills during the remainder of the current December 31. 1983 1982 levelized period. (Thousands of Dollars) Nuclear FuelDisposalCosts Actuarial present value of in conformity with the Nuclear Waste Policy Act of 1982 (the cQu tedplanbenefits Act), the Company entered into contracts with the Department Nonvested 56.066 45.782 of Energy (DOE) on June 13,1983 for the disposal of spent nuclear fuel from the Salem and Hope Creek nuclear generating $457.161 $403.072 stations. Similarly. Philadelphia Electric Company contracted Assumed rate of return 9.0% 10.0% with the DOE in connection with the Peach Bottom nuclear Marketvalue of Plan Net Assets $458.551 $367.875 generating station. Under these contracts, the DOE will take tit:e to the spent fuel at the site, then transport and provide for its permanent disposal at a cost to utilities with nuclear facilities The Company's annual contribution is actuarially determined to of 1 mill per kilowatthour of nJclear generation. Under the Act, provide for full funding by December 31. 2001. Pension costs obligations for nuclear fuel disposal costs incurred after April 6. for the past three years were charged as follows: 35 1983 are being paid quarterly. The Company is presently study. 1983 1982 1981 ing three options permitted by the Act for payment of such (Thousands of Dollars) costs incurred prior to April 7.1983. Interest expense of ap-Operating Expenses $56.360 $50317 $47.505 proximately $4 million has been recorded in connection with Utility Plant 12.109 10.344 10.954 the liability for such costs and is reflected in Deferred Credits Total Pension Costs $68.469 $60.661 $58.459 - Other. The latest available payment date is 1998. Other Long-Term Obligations represents the amount payable to

7. Commitments and Contingent Liabilities DOE for Salem and Peach Bottom disposal costs incurred prior Construction and FuelSupplies to April 7,1983. The amount of $13.4 million in Deferred The Company has substantial commitments as part of its con-Debits represents the unrecovered balance of disposal costs struction program as well as commitments to obtain sufficient.

incurred at Peach Bottom prior to April 7,1983 which is ex-sources of fuel for electric generation and adequate gas sup-pected to be fully recovered from customers over the next plies. Construction expenditures of $2.5 billion. including $539 thirteen months. less related taxes of $6.2 million. million of AFDC, are expected to be incurred during the years S. Bank Loans and Commercial Paper Bank loans represent the Company's unsecured promissory Uranium Contracts notes issued under credit arrangements with various banks and A contract with Kerr-McGee Nuclear Corporation to supply have aterm of eleven monthsorless. uranium concentrates was amended in 1980 to substantially Commercial paper represents the Company's unsecured bearer wrtan open pit mine operations. In November 1982 an agree-ment was reached with Kerr-McGee which calls for an extension promissory notes sold to dealers at a discount with a term of em d pa&ns Manuay L NRecWe L nine months or less. Certain information regarding short-term debtfollows: October 1.- 1983, the Company's conversion and uranium con-tracts are with Sequoyah Fuels Corporation, a wholly-owned subsidiary of Kerr-McGee Corporation and are guaranteed by - Kerr-McGee Corporation. As of December 31,1983,the '. Company and the co-owners of the Salem and Hope Creek Generating Stations had advanced $40.7 million to Karr-McGee against deliveries of uranium concentrates. A

I Credits have been received amounting to $14.5 million, includ-thus sustaining the Company's position as to the current level of ing interest of $4.7 million. The recoupment of $30.9 million, the LEAC. A second phase of this proceeding is continuing, and the balance of such advances, of which approximately 30%s the Public Advocate of New Jersey, one of the parties in the the responsibility of the other co-owners, is dependent upon proceeding. filed testimony on December 1.1983. recommend-the sale of uranium concentrates by Kerr-McGee to the ing that the replacement power costs associated with the exten-Company or other buyers or upon the sale by Kerr.McGee of sion of a refueling outage of Salem nuclear Unit 1 from January the project properties. The Company cannot presently predict - 1983 through May 1983 should not be permitted to be recov-the extent to which such advance payments will ultimately be ered from customers.The Public Advocate's testimony asserts recovered. that the additional replacement energy costs associated with such extension of the cutage amounted to $45.461280 or NuclearInsurance Coverages $50214,700, depending upon the method of calculation. How-ever, the Company's testimony in this proceeding indicated that, The Company s insurance coverages for its nuclear operations e g ne uehng u ge eu and meg to are as follows: Maxirr.um an 18-month fuel cycle earlier than originally planned, which g Maximum Assessment for a Was permitted by the extension of the previous outage, there Type andsource of coverage coverage sir.se incident are no additional replacement energy costs associated with the (Mdhonsof DoHars) extension of such outage when compared with the original ex-Public Uability pected generation of the unit. The Company has also testified American Nudear Insurers $160 $None that its actions with respect to the outage are sufficient to Federal Government (A) 420 85(B) justify the recovery from customers of all costs associated with $580 (C) $ 85 the outage. Nuc ear t Umited (D) $500 $335 in addition to the issues relating to Salem 1 referred to above, the second phase of the current LEAC proceeding may address Nuclear Electric insurance Umited(D) 435 8.0 the additional replacement energy costs resulting from addi-American NuclearInsurers 85 None tional outages of Peach Bottom nuclear Units 2 and 3 during $1.020 $415 1983 associated with inspecton and repair of cracks in the pip-ing of the residual heat removal and reactor recirculating Replacement Power systems of such units. The Company is ajoint owner,n the i Nuclear Electric insurance Umited(D) $ 25(E) $13.0 Peach Bottom units which are operated by Philadelphia Electric Company (PE). During 1983, inspections of these systems re-36 (A) Retrospectivepremiumprogramunderthe Price-Andersonliabi!- vealed crack indications in some pipe welds which is a generic ity provisions of the Atomic Energy Act of 1954. as amended. Subject problem with boiling water reactors. The current repairs at l to s en u>pecuve assessment with respect to loss from an incident at Peach Bottom are not permanent, and PE has advised that addi-any licensed nudear reactor in the United States. tional repairs which will involve the replacement of certain (B) Ma' ximum assessment would be $17.0 million in the event of traepiping, will be undertaken during each unit's next refueling out-than oneincidentin anyyear. age. Peach Bottom 3 is expected to be out of service for ap-(C) Umit of liability under the Atomic Energy Act of 1954, as proximately 35 weeks commencing in the first quarter of 1984 amended, for each nuclearincident. for refueling and correction of such problems,'and Peach Bot- '(D) Utility-ownedmutualinsurancecompaniesof whichtheCompany tom 2 is expected to have a similar type extended outage during 1985. is a member. Subject to i eu vapecUve assessment with respect to loss at any nuclear generating station covered by such insurance. A decision on the Salem 1 issues in the LEAC proceeding is ex-(E) Maximumweeklyindemnityfor52weekswhichcommencesafter pected in the first quarter of 1984, and any consideration of: me eeks an outage. Also provides $125 million weekly for the Peach Bottom outages would follow. The Company cannot predict the outcome of this proceeding. Any amounts which are lieplacement Energy Costs - not permitted to be recovered from customers would be charged against netincome. ' On September 29,1983 the New Jersey Board of Public Utili-v tles (BPU) authorized continuation of the current electric Level-Ized Energy Adjustment Clause (LEAC) until June 30,1984, ~ p p ~ v t cL4 k i. L .i 7 k____ _i

- 8. Accounting for L. eases Current Cost data purports to show the estirnated cost of cur-The Company has certain leases for property and equipment rently replacing existing Utility Plant and was measured by that meet the accounting criteria for capitalization but. in ac-applying primarily the Handy-Whitman Index of Public Utility cordance with rate-making treatment, are accounted for as Construction Costs to the higorical costs of Utility Plant. operating leases. In 1983 the Financial Accounting Standards Board adopted accounting standards requiring regulated enter-Depreciation and Amortization expense, and Amortization of prises to record capital leases on their balance sheets. The Nuclear Fuel (included in Electric Fuel. Interchanged Power and standard requires capital leases entered into in 1983 to be Gas) were adjusted for Constant Dollar and Current Cost using recorded in 1984 and capital leases entered into prior to 1983 the rates and methods for computing book depreciation and to be recorded by 1987. The capitalization of leases would not amortization applied to the appropriate inflation adjusted have a material effect on the Company's financial statements. Utility Plant balances. In accordance with FAS 33. income tax expensewas notadjusted.

9. SupplementaryInformation Conceming the Effect of Inf'ation (Unaudited)

FAS 33 requires the disclosure of the amount required to re-The Company's financial statements are prepared in accordance flect Net Utility Plant at its Recoverable Cost if that cost is with generally accepted accounting principles and are stated on lower than the inflation ad.,usted amounts. Also required under the basis of historical costs, namely, the prices that were in ef-Current Cost is the disclosure of the increase in Current Cost of fect when the underlying transactions occurred. The following Net Utility Plant held during the year and the related effect of supplementary financial information, prepared in accordance general inflation. The amounts shown in the following table with Financal Accounting Standards Board Statement No.33 illustrate that during 1983 the increase in general inflation was j (FAS 33), is an estimate of the effects on the Company of less than the increase in the Current Cost of Net Utility Plant general inflation (Constant Dollar) and changes in specific prices after adjustment to Recoverable Cost. In addition. the amounts (Current Cost), shown as Adjustments of Net Utility Plant to Recoverable Cost (both Constant Dollar and Current Cost) are adjustments to The Company advises readers of the imprecise nature of this Historical Cost in average 1983 dollars Historical Cost is the data and of the manysubjectivejudgments requiredin the amount permitted to be recovered under the rate regulatory restatement ofselected historical costs to Constant Dollarand process for utilitiesin NewJersey. Curmnt Cast. This data should not be used to make adjust-ments to the Company's primary financialstatements and the During inflationary perms. holders of monetary assets such as - related eamings per average share of Common Stock other cash and receivable, outer losses of general purchasing power than those adjustments shown in the following supplementary while holders of monetary liabilities experience gains. In 1983 -37: IInancialdata. the Company's monetary liabilities primarily long-term debt,' exceeded its monetary assets resulting in a gain. Since this gain Constant Dollar costs were determined by adjusting historical is primarily attributable to long-term debt which has been used. costs of Utility Plant and certain other items into dollars of the to finance Utility Plant,it is netted against the Adjustment of same general purchasing power by using the Consumer Price Net Utility Plant to Recoverable Cost for Constant Dollar and : ~ Index for All Urban Consumers (CPI-U). the Amount by which the increase in general inflation is ' (higher) lower than the increase in Current Cost of Net Utility Plant after adjustment to Recoverable Cost for Current Cost in the following table. "1 F 6 d N o t ,.. + 1 . j E t

Supplementary Financial Data Adjusted for the Effects of Changing Prices for the Year Ended December 31,1983 (Unaudited) HistoncalCost Constant Dollar Current Cost (Condensed from the (Average (Average FinancialStatements) 1983 Dollars) 1983 Dollars) (Thousands of Dollars) Operating Revenues $3.%2.932 $3,962.932 $3.962.932 Operating Expenses Electric Fuel, interchanged Power and Gas 1,726.995 1.728,082 1,729.584 OtherOperation and Maintenance 791,374 791374 791374 Depreciation and Amortization 201.787 467,425 521.237 Taxes 748.826 748,826 748.826 TotalOperating Expenses 3.468.982 3.735.707 3.791.021 Operatingincome 493.950 227225 171.911 Other (including Interest Expenses) (104.171) (104.171) (104.171) Income from Continuing Operations (excluding Adjustment of Net Utility Plant to Recoverable Cost) $ 389.779 $ 123.054' $ 67,740 increase in Current Cost of Net Utility Plant held during the $ 407236 year" Adjustment of Net Utility Plant to Recoverable Cost $ 29241 68,323 Effect of the increase in General inflation (391.004) Amount by which increase in general inflation is lower than increase in Current Cost of Net Utility Plant after 84,555 adjustment to Recoverable Cost Gain from decline in purchasing power of Net Monetary Liabilities 118253 118253 Net $ 147.494 $ 202,808

• Includin3s%ustrnent of Net Utility Plant to Recoverable Cost, income from Continuing Operations adjusted for Co

$1522

• *At December 31,1983 the Current Cost of Net Utility Plant was $10.905560.000, while historical (net recoverable) cost was $6.742.903.000.

+

Supplementary Five-Year Comparison of Selected Financial Data Adjusted for Effects of Changing Prices (Unaudited) (000 omitted where applicable and alladjusted t gures are in average 1983 dollars} i Forthe Years Ended December 31, 1983 1982 1981 1980 1979 Operating Revenues. - Historical $3.962.932. $3.873.976 $3.471.652 $2.994.054 $2,416.707 AdjustedforGeneralInt1ation $3.962.932 $3.998.597 $3.803.014 $3.620.039 $3.317.136 Income (Loss) from Continuing Operations (exduding Adjustment of Net Utility Plantto Recoverable Cost) 1 Historical $ 123.054 $ 95.309 $ 48.440 $ 119274 $ 106.425 $ 389.779 $ 342.827 $ 264.137 $ 275401 $ 233329 AdjustedforGeneralintiation AdjustedforCurrentCost $ 67.640 $ 31.122 $ (13.833) $ 40.781 $ 20.803 Income (Loss) from Continuing Operations per. Average Common Share (exduding Adjustment of Net Utility Plant to Recoverable Cost)* Historical $ 3.40 $ 324 $ 2.63 $ 3.13 $ 2.85 AdjustedforGeneralInt1ation $.67 $ A4 . $ ' (.10) $.87 $.64 AdjustedforCurrent Cost - .$.10 $ (28) $ (.87) $ (21) $ (.67) Amount by which increasein generalintiation is (higher) lower than increase in Current Cost ' - ofNet Utility Plant after adjustment to RecoverableCost ~ $. 84555 $ 100293 ' $ (196.951) $ (409.739) $ (481.977) ' Gain from decline in purchasingpower ofNet : Monetaryliabilities - $ ;118253 $ 107.556 $ 242.716 $ - 341.804 $ 374.002 Net Assets at Year End" Historical $3337.693 $3.080.877 ~ $2.832.930 - $2.646.928 $2.435.S16 AgustedforGeneralintiation and CurrentCost $32dl.620 $3,144.097 $3,003.006 $3.056.669 $3.161,191 3Q Cash Dividends Dedared per Common Share - Historical. $ 2.62 $ 253 $ 2.44 - $ 229 $ 220 AdjustedforGeneralInt1ation - . $ 2.62 $ 2.61 $ 267 $ 2.77 $ 3.02 Market Pr!ce per Common Share at Year End Historical $22.75 - -$2325. $18.00. $17.00 $1925 AgustedforGeneralIntiation*" $22.75 ' $24.13 - i$1941 $19.97: $25.41 ~ Consumer Priceindex (1967=.100) Average, ~ L298A- ~ 289.1 1 272.4 246.8 217A ' YearEnd 3035 '292A. 2815 1 258.4 ' 229.9 'After deducting Curnulative Preferred Stock and $1 A0 Dividend Preference Common Stock dividends on a historical basis in 1983 and in Average 1983 Dollars for prior years. -

• Equals Common Equity and Preferred Stock without mandatory redemption '
  • • Year-end 1983 Dollars..

Prices have been increasing over the last five years. The average. ; Market price per common share at year end from 1979 to . CPI-U Increased from 217.4 in 1979 to 298.4 in 1983, an aver-- 1983 had an average annual increase of 43% or from $1925 - age annualincrease of 82% The increase from 1982 to 1983 to $22.75. Restated in year-end 1983 dollars the 1979 market. ..was 32% an indication that the rate of inflation in 1983 hasi price would have been $25.41 instead of $1925 re:>ulting in an - slowed. average annual decrease of 2.7% from 1979 to 1983. z Revenues for the five-year period increased from $2.417 billion : As shown in the tables above, the gain from decline in purchas-in 1979 to $3.963 billion in 1983, an average annual increase l ing power of net monetary liabilities was not enough to offset of 132% Restated in average 1983 dollars, revenues for the. . the signi'icant effect of inflation on capital costs (utility plant). - same period would have incosased from $3317 billion to ' - nuclear fuel costs and depreciation.

$3.963 billion, an average annual increase of only 4.5%

u r . Lack of adequate recognition of inflation in rate-making in addi-Cash dividends declared per common share went from $220 in ; ~ tion to delayed rate relief accelerates attrition, thereby contrib-1 1979 to $2.62 in 1983 or an average annual increase of 45% . uting to poorer cash flow..- ~ . However, such dividends woulo have decreased at an average annual rate of 3.5% or from $3.02 in 1979 to $2.62 in 1983 : when restated in average 1983 dollars.~ g L, NI} h 3 w

10. Jointly-Owned Facilities The Company has an ownership interest and is responsible for of eachjointly-owned project and the corresponding direct ex-providing its share of the necesary financing for the following penses are included in the Statements of Income as an operat-jointly-owned facilities. All amounts reflect the Company's share ing expense.

Amount of Utility Plant Accumulated Provision Amountof Plant Plant ownership Interest in service for Depreciation Under Construction (Thousandsof Dollars) CoalGenerating Conemaugh 2250% $ 68.046 $ 19296 Keystone 22B4% 58.126 19.091 NudearGenerating Peach Bottom 42.49 % 436.423 127.022 Salem 42.59 % 747346 124.429 Hope Creek 95.00 % $2363260 Nudear Support Facilities Various 28.002 771 14B11 Pumped Storage Generating Yards Creek 50.00 % 17B68 3.845 Tlransmission Facilities Various 89.017 11327 40.722 MerrillCreek Reservoir 13.906 % 4.163 Linden Synthetic Natural Gas 90.00 % 66.160 39228

11. FinancialInformation by Business Segments Electric Gas Total For the Years Ended December 31.

1983 1982 1981 1983 1982 1981 1983 1982. 1981 (Thousands of Dollars) Operating Revenues $2570.457 $2.543.191 $2322.042 $1392A75 $1330.785 $1.149.610 $3.962.932 $3.873.976 $3.471.652 40 Depreciation and Amortization 152.874 146.643 134.050 48.913 46217 44482 201.787 192.860 178.532 Operating income 8eforeincome Taxes 584.508 S33255 378.082 101.052 99.108 94.937 685.560 632.963 ~ 473.019 Gross Additions to Utility Plant 813B72 735.997 615.976 77.013 77378 67.873 890.885 l 813375 683.849 December 31. Net Utility Plant $6.047,185 $5393.535 $4.813.875 $ 695.718 $ 665.137 $ 632218 $6.742.903 $6,058.672 $5.446.093 Gas Exploration Subsidiary and LNG Project 304.052 287.911 261.000 304.052 ' 287.911

261.000 Other Corporate Assets

- 1.122A18 1.126.566 1.168.539 396.060 435.626 401.457 1.518A78 1.562.192 1.569.996 Total Assets $7.169.603 $6.520.101 $5.982.414 $1395B30 $1388.674 $1294.675 $8565.433 $7.908.7/5 $7277.089 : - 12. Selected Quarterly Data (Unaudited) -The information shown below in the opinion of the Company to the seasonal nature of the business, quarterly amounts vary includes all adjustments, consisting only of normal recurring significantlyduring theyear. accruals necessary to a fair presentation of such amounts. Due Calendar Quarter Ended March 31. .fune 30. segenayr 30. D-ber 31. 1983 1982 1983 1982 1983 1982 1983 1982-(Thousands where applicable) Operating Revenues $1.150.076 $1,144277 $860.584 $872.657 $935.156 ' $872292 $1.017.116 - 484,750 Operatingincome 126388 111347 100.098.100B39 l 147.728 - 126.80S 119.736 : -115.468 Netincome 101.772 83389 75377 71.530 119B99 98289 92.731 89.619 Earnings Available for Common Stock S 87.540 $ 70226 $ 61.146 $ 58386 $105231 $ 84.975 $ 77.628 $ 75375 EarningsperAverageShareof Common Stock $.92 $B1 ' $.64 S.67 $1.08 $.95 $.76 '- $.80 AverageSharesof Common Stock Outstanding 94.948 86.181 96,136 87.176 '97.570 89.626 ' 101.146 93.861

m LManagerntnt's Discussion and A discussion of the Company's operating results. liquidity Analysis of FinanClal Condition and and capitai resources follows: R:sults of Operations Earnings and Dividerds The Company's fin' ncial condition and results of operations Earnings per average share of Common Stock were $3.40 a are genera!!y affected by a number of factors. inc uding the for 1983, an increase of 16c or 5% from 1982. The increase timing and amount of rate relief, the extent of sales growth is primarily attributable to base rate increases which went and the level of operating costs and carrying charges on in-into effect in February 1982. greater electric sales due to creased investment in plant and equipment, as more fully the extremely hot weather during the summer of 1983 and discussed below. More specifically, the Company's financia! greater allowance for funds used during construction at the condition reflects the ongoing construction of Hope Creek Hope Creek Generating Station, partially offset by increases Generating Station Unit No.1. a 1.067 megawatt nuclear in operating expenses (excluding fuel costs), and the unit owned 95% by the Company. As of December 31,1983, increased carrying costs of utility plant investment. the unit was approximately 80% complete and the Earnings per average share were $3.24 for 1982, an in-Company had expendSd $2.364 billion with respect to the crease of 61 C or 23% from 1981. Increased revenues, re-project. including $419 millien vf allowance for funds used flecting the February 1982 rate increase. outpaced the rise during construction (AFDC). Construction is proceeding on in operating costs. schedule, with expenditures closely tracking estimated costs. Dividends paid to holders of Common Stock have grown The Company's share of the cost of the project is estimated over the last three years, rising to $2.62 per share in 1983 ' at approximately $3.5G billion. The Company is using its from $2.53 in 1982, and $2.44 in 1981. Such amounts re-best efforts to complete Hope Creek on schedule and within suited in payout ratios of 77%. 78%, and 93% respectively, budget, although such cannot be assured. Successful comple-Total Common Stock dividend payments in 1983 increased . tion of the project is of significant importance to the 12% over 1982 and 29% over 1981 due to the increase in - Company. shares of Common Stock outstanding as well as the higher . - Hearings have been concluded in the Company's current dividend rate. rate case and an initialDecision was issued by an Administra-tive Law Judge (AU) on February 14.1984.The Board of Revenues and Sales Public Utilities of the State of New Jersey (BPU) is expected Total revenues increased in 1983, primarily reflecting the to render a Final Order by the end of the first quarter of benefit of higher sales. In 1982 the increase in total reve-1984. The Company is seeking an additional S250 million of nues was due largely to higher rates. Electric energy and gas construction work in progress (CWIP) earning a current re-fuel costs follow amounts recovered through revenues, as 4: turn, which would bring the total CWIP with a current permitted by rate orders, and therefore have no effect on return to $625 million. in order to provide additional cash earnings. flow for the construction of Hope Creek.The BPU Staff has Electric revenues increased 1.1% in 1983 and 95% in recommended an additional $175 million of CWIP earning a 1982.The components of these changes are highlighted in current return for a total of $550 million, while the Public the table below: Advocate of New Jersey, one of the parties in the rate case, has recommended that the current allowance of $375 mil-en mz mzn m lion be reduced to $250 million.The final positions of the

parties and of the AU for an annual increase in base rates W" "'N L

L are:the Company- $450.8 million, the BPU Staff-Changesin base rates S 41 $291 $233.9 million. the AU - $221.1 million, and the Public Recoveries of energycosts (177) (49) Kilowatthoursales 148 (33) - Advocate--$45.1 million. Regardless of the outcome,sig- . nificant external financing will be _ required to complete Otheroperating revenues 15 12 . Hope Creek. '- $ 27 $221 ~ ^ %. j As a result of the construction of Hope Creek, certain L problems experienced by other utilities which are construct-1983 - Electric kilowatthour sales increased 5.6%.

Ing nuclear generating units could have an indirect effect on Residential. Commercial and Industrial sales increased 9.3%.

l the Company's operatior.s and financial condition, because of 5.7%, and 2.7%. respectively. The warmer and more humid - common regulatory requirements, such as those of the Nu-l clear Regulatory Commission (NRC), and because industry : -weather and the revival of the economy were the main rea- + sons for the improvement in sales. A record monthly output - - events in some cases may affect the price of the Company's of 3.401 million megawatthours was attained in August and securities in the capital markets, where the Company mustf on September 6th a record 60-minute net peak load of ~ compete for investors funds. Reported events in January 7.2 M 1984 by other utilities that are constmcting nuclear gener. s }ating units include the denial of an NRC operating license for 1982 ri kil rsales decreased 2.7%.The < cooler and less humid weather in 1982 and continued cus -

a virtually completed unit, the decision by a utility to with-tomer conservation were the main reasons for the 1.4% -

draw from a plant in which it had invested over $2 billion ^

drop in Residential sales. Industrial sales declined 8.3% as a -

and to reduce its common stock dividends by 65% because 4

result of the economic recession.These decreases were - associateHnandaMens, h decision by anoWr ;

slightly offset by the 1.6% increase in Commercial sales.

} group of utilities to convert a substantially completed nudent plant to coal, and the reduction of credit ratings - ~ " j of certain utilities.with units under construction ~ -. i A h' g

._.-.----m------.-_.-.____....._.____-___ Gas revenues rose 4.6% in 1983 and 15.8% in 1982. The Total energy costs decreased 9% in 1983 and 1982 from principalfactors are show'1below: previousyears,as described below: Increase or (Decrease) Increaw or (Decrease) 1983 vs.1982 1982 vs.1981 1983 vs.1982 1982 vs.1981 (%Ilior.s of Dollars) (Milhonsof Dollars) Changesin base rates $12 $ 39 Changein prices paid for fuel Recoveriesof gas costs 31 136 supplies and power purchases $176 $(125) Therm sales 17 6 Kilowatthour output 48 (19) Other operating revenues' 2 Adjustmentof actualcoststo m tchrecoveriesthrough $62 $181 revenues (314) 44 1983 - Gas therm sales increated by 5%. Residential $ (90) $(100) sales remained relatively unchanged, increasing.1 %. the re-sult of the moderate weather conditions experienced earlier Gas costs were 4% higher in 1983 and 19% higher in 1982. in the year. Commercial sales increased 2.6%, reflecting an Contributing factors are shown below: increase in customers. Industrial sales fell 1.1 %, primarily herease or (Decrease) the result of greater competition from oil causing fuel 1983 vs.1982 1982 vs.1981 switching by customers with duel-fuel capability. pensoms) 1982 - Gas therm sales decreased 1.0%. Industrial sales Higher prices paid for gas fell 9.4% from 1981 primarily as a result of the continued supplies $39 $104 economic recession. Commercial sales were up 4.7%. the re-Refunds from pipeline suppliers 14 4 sult of greater customer usage and an increase in customers. Therm sendout 1 1 Residential sales were held to an increase of.1 % principally Adjustmentof actualcoststo = due to moderate weather conditions experienced late in the match recoveries through yearand continued conservation, revenues (17) 20 $37 $129 Energy Costs Electric energy costs and gas fuel costs are adjusted to match amounts recovered through revenues and have no ef-Uquidity and Capital Resources 42 rect on earnin9s. Tne Company.s iiquidity is affected principeiiy by tne con. In 1983 a total of 33.391 million megawatthours was struction program and, to a lesser degree, by other capital generated, purchased and interchanged, a new record and an requirements such as maturing debt and sinking fund re-increase of 6% over 1982. Megawatthours generated de-quirements. The capital resources available to meet these re-clined 9% while energy purchased from other utilities and quirements are funds from internal generation and external the PJM increased 97% to meet the increased demand. The financing. Internally generated funds depend upon economic decline in generation was mainly due to the unavailability cf conditions and adequate and timely rate relief, while access nuclear generating units during the year, particularly Salem to the long-term and short-term capital and credit markets 2 and Peach Bottom 3. About one-half of the lost nuclear is necessary for obtaining funds externally. generation was replaced by the use of natural gas and gas turbines. Construction Program For information on the disputed recovery of replacement power costs associated with the outage of certain of the The Company maintains a continuous construction program. Company's nuclear units. see Note 7 of Notes to Financial which includes payments for nuclear fuel and investments in and advances to ener0y resource subsidiaries. This program Statements. in 1983 the BPU revised the electric Levelized Energy Ad. is periodically revised as a result of changes in economic justment Clause (LEAC) to reduce customer bills by $135 conditions, and depends on the ability of the Company to mill!on for the 16-month period from March 1,1983 finance construction costs and to obtain timely rate relief. through June 30,1984. The decrease of $314 million in the Changes in the Company's plans and forecasts, price table below is due to the deferral of energy costs and largely changes, cost escalation under construction contracts, and resulted from the reduction in the LEAC. requirements of regulatory authorities may also result in revisions of the construction program. As a member of the PJM and as a party to several agree-ments which provide for the purchase of available power Construction expenditures of $902 million in 1983 and from neighboring utilities, the Company is able to optimize $842 million in 1982 include allowance for funds used dur-its mix of internal and external sources using the lowest cost ing construction (AFDC) of $129 million and $91 mil lion, re-energy available at any given time. spectively. Construction expenditures are estimated at $25 billion for the three years ending in 1986 and include AFDC of about $550 million. Approximately $12 billion of this amount, including about $S00 million of AFDC,is required for the completion of Hope Creek.

These estimates are based on certain expected comple-In December 1983 the Company entered into a Letter tion dates and include anticipated escalation due to inflation Agreement establishing a $75 million Four-Year Revolving of approximately 7.5%. Therefore, construction delays or Credit Facility with a group of international banks. under inordinate inflation levels could cause significant increases in which the Banks have agreed to make revolving loans for these amounts. However, the Company's estimates show one month, three months or six months at a rate based upon that const1uction expenditures will decline substantially the London Interbank Offered Rate for deposits in United after the completion of Hope Creek. The Company expects States Dollars. BPU approval of the Letter Agreement has that, with adequate rate relief, as to which no assurance can been applied for. This Agreement renewed a previous two-be given. it will generate internally approximately 50% of its year agreement and provides the Company with an inter-construction expenditure requirements excluding AFDC mediate term source of funds in addition to that provided by during the next three years. The balance will be provided by a Domestic Credit Agreement for $200 million. permanent financing through the sale of securitics as well as At the end of 1983 customer accounts receivable approx-term bank loans. imated $341 million (excluding unbilled revenues of $200 million). Although this is $20 million lower than last year. the Long-Terrn Financing Company is continuing to finance large receivables from its During 1983 the Company raised more than $372 million customers. Net write-off of uncollectible accounts in 1983 through the sale of $181 million of Common Stock. $161 was $40 million. an $8 million or 25% increase over 1982. million of Mortgage Bonds and $30 million of Preferred These changes reflect intensified collection procedures de-Stock. As a result, the Company's interest and dividend veloped by the Company and, with respect to the reduction requirements have continued to increase. in accounts receivable, an improvement in the economy. At December 31,1983 book value per common share These matters are affected by the level of the Company's amounted to $2636 compared to $25.90 at December 31, rates and a requirement of the BPU prohibiting the termina-1982. The market value of common shares expressed as a tion of electric atd gas service in winter months with re-percentage of book value was 863% and 89.8% at year spect to certain customers with financial need. More end 1983 and 1982,respectively. favorable collection guidelines approved by the BPU in the in addition to periodic sinking fund redemption require. Fall of 1983 are expected to assist in the Company's collec-ments, two mortgage bond issues aggregating $100 million tion efforts. will mature by 1986. Under the terms of the Company's Mortgage and Re-Cash Position stated Certificate of Incorporatioa, at December 31.1983 The Company's cash position declined $198.8 mil! ion since the Company could issue an additional $1.168 billion princi-year-end 1982 as indicated by a lower level of cash and 43 pal amount of Mortgage Bonds at a rate of 12.875% or temporary cash investments and the incrcase in commercial $916 million of Preferred Stock at a rate of 11.750%. paper.This is a temporary condition caused primarily by the Present plans for 1984 call for the issuance of Mortgage underrecovery of electric fuel costs discussed in Note 4 of Bonds, Common Stock and Preferred Stock. Notes to Financial Statements and higher construction The Company has requested a year's extension to April expenditures principally for Hope Creek generating station. 1985 of its present domestic revolving credit agreement for a line of credit to $200 million. The agreement permits the Effects ofInflation Company to convert the outstanding balance at the end of The impact of inflation in the national economy and the the period to three-yeartermlu:ns. Company is not as severe as in several of the past few years In 1982. PSEaG Overseas Finance N.V., a wholly-owned when the Average Consumer Price Index (CPI-U) reflected Netherlands Antilles subsidiary,was formed.The financial increases of over 10%. The downward trend in the inflation subsidiary will be able to provide the Company with access rate in 1982 has continued through 1983. The cpl-U for to long-term capital markets abroad. 1983 was 298.4. only 32% above 1982 compared to a 6.1 % increase in 1982 over 1981. Even though the rate of ' Short-Term Financing inflation has decreased substantially in the last two years the For interim financing. the Company is authorized by the BPU - cost of capital has remained high during a time when sub-to have up to a total of $300 million of short-term obliga-stantial amounts must be raised in the capital markets to ~ tions outstanding at any given time.The availability of short-finance needed construction. term financing provides the Company flexibility in the issu-For additional information on the effects of changing ance of long-term securities. The Company's average daily prices, see Note 9 of Notes to Financial Statements.- short-term debt during 1983 was $37 million - $71 mil- ' lion under last year's average. At year end the Company had $153 million of short-term debt outstanding.- t a

Op: rating StatistlCs % Annual Inc. (Dec.)- 1983 compared with (o00 omitted where applicable) 1983 1982 1982 1973 Electric Revenues from Sales of Electricity Residential $ 829,967 $ 791279 4.89 11.68 Commercial 984,499 981.795 28 14.05 Industrial 686,880 716,662 (4.16) 12.24 PublicStreet Ughting 38,672 37,809 2.28 8.51 Total Revenues from Sales to Customers 2.540,018 2,527.545 .49 12.63 Interdepartmental 1,863 1,709 9.01 9.53 Total Revenues from Sales of Electricity 2341.881 2,529.254 .50 12.63 Other Electric Revenues 28.S76 13.937 105.04 36.16 TotalOperating Revenues $2.570,457 $2,543,191 1.07 12.74 Sales of Electricity - kilowatthours Residential 8.402397 7,686548 931 .48 Commercial 11.753.667 .11.114,655 S.75 2.80 Industrial 10,283,784 10.017.613 2.66 (1.39) Public Street Ughting 302,053 301,603 .15 1.92 TotalSa!es to Customers 30,741.901 29.120,419 S.57 .58 Interdepartmental 27.800 25,154 10.52 (.48) TotalSales of Electricity 30.769,701 29.145,573 S.57 .58 Kilowatthours Produced Purchased and interchanged - net 33.391,011 31,563,231 S.79 .69 I.oad Factor S2.6% 512% Capacity Factor 31.6 % 34.7 % Heat Rate - Btu of fuel per net kwh generated 10,717 10,677 37 .02 44 Net Installed Generating Capacity at December 31 - kilowatts 8,999 8.995 .04 .80 Net Peak Load - kilowatts (60-minute integrated) .7.244 7.042 2.87 .61 Temperature HumidityIndex Hours 17,262 12.155 142.02 (.99) Average Annual Use per Residentb! Customer-kwh 5,602 -5.156. 8.65 (.18)- Metersin Service at December 31 1,757 1,746 .63 '.50 - G:s Revenues from Sales of Gas Residential $ 746,200 $ ' 716308 4.17 14.88 Commercial .396,159 371.027 6.77. 18.67-Industrial 246,408 241,437 ^ 2.06 19.18 Street Ughting 358 350 229 14.93 Total Revenues from Sales to Customers 1,389.125-1329.122 ~ 431 16.54 Interdepartmental 1.011 1.068 (S34)- 8.10 Total Revenues from Sales of Gas 1390,136 1,330,190 . - 451 16.53 OtherGas Revenues 2339 595-293.11-34.92 Total 0perating Revenues $1392,475 $1330,785 4.64-16.55 . Sales of Gas-therms .10 .18 Residential 995,686 994.647 Commercial 596,868 581.739 2.60 2.68. Industrial 460,601 465,835 (1.12) (.70) ' Street Ughting 327 331 (121) (3.01) TotalSales to Customers .2,053,482 2,042,552 . 54 - .62 Interdepartmental -1,857 2.090. (11.15). (6.07) TotalSales of Gas 2.055,339 2,044,642 .52 ' .61 - Gas Produced and Purchased-therms 2.151,417 2.148.839 : .12 .72 Effective Daily Capacity at December 31 -tiierms 19,129-19.139 . ( 05) .80 - Maximum 24-hourGas Sendout-therms -15,612 16201 ~ - (3.64) ' 238 Heating Degree Days 4,677 4.820 (2.97) .97 - Average Annual Use per Residential Customer-therms 850 853 (35)- (.27) Metersin Service at December 31 1392 1384 .58 33

mmm.mm

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'a I_ q 1981 1980 1979 1978 1973 'y $ 728.642 $ 684343 $ 545.049 $ 512.071 $274.974 f 871377 765356 625.596 574.557 264.450 4 684.976 598.716 484.037 444.595 216543 j 33249 32.693 31.437 29.925 17.086 a 2318244 2.081.108 1.686.119 1.561.148 773.053 1.612 1.720 1559 1.670 750 ai 2319.856 2.082.828 1.687.678 1.562.818 773.803 2.186 1.072 2.179 2.016 1305 j $2322.042 $2.083.900 $1.689.857 $1564.834 $775.108 j 7.795.988 8.129.198 7.777369 7.760.868 8.008.127 3 10.940,609 10.726.086 10336.445 10.152.827 8.916.829 = 10.923.042 11.049.642 11.185.952 11.134.634 11.830307 J 275.489 265.126 260.915 260.922 249.837 f; 29.935.128 30.170.052 29.560.681 29309251 29.005.100 m 25567 27.684 26.629 32.638 29.160 j 29.960.695 30.197.736 29.587310 29341.889 29.034260 a 32204.191 32.703504 32.021.737 31.628.876 31.164.926 4 523% S2.0% S43% S4.6% S22% 33.2 % 35.6% 31.8 % 34A% 403 % R 10.725 10.713 10.566 10599 10.695 sii 9.101 9242 9.023 9.061 8306 45 5 7.034 7.159 6.736 6.615 6.816 15.494 16.526 14.545 13.899 19.063 2 5261 S.443 S233 5378 5.703 2 1.739 1.732 1.724 1.713 1.672 g a i $ 604.S21 $ S15.013 $ 415.157 $ 399,134 $186325 302281 228.577 179.970 163.931 71533 240.711 164.762 129.665 90240 42.624 290 282 274 248 89 1.147.803 908.634 725.066 653.553 300.571 = 1.075 925 790 802 464 1.148,878 9095S9 725.856 654355 301.035 732 595 994 596 117 3 $1.149.610 $ 910.154 $ 726.850 $ 654.951 $301.152 i 993.527 1.023.027 970.462 1.013.043 97/A68 i 555.806 506.550 456.902 447.923 457.955 514.136 447.474 410.605-306.672 494320 334 335 350 367 444 I 2.063.803 ' I.977.386 1.838319 1.768.005 1.930.187 4 2.430 2322 2328 2A90 3.472 j 2.066233 1.979.708 1,840.647 1.770.495 1.933.659 2.145325 2.077.653 1.931.549 1.852.869 2.002206 19.010 18A39 18.639 18.639 17.668 ) 14.812 14.444 13349 12235 12341 ii 5.082 S.256 4.677 S317 4245 1 857 875 833 893 873 2 1378 1370 1357 1350 1347 3 4 d

FinanClal Statistics (000 omitted where applicable) 1983 1982 Condensed Statements ofincome (a) Amount Amount ) Operating Revenues Electric $2.570.457 65 $2.543,191 66 Gas 1292.47S 35 1330.78S 34 TotalOperating Revenues 3.962.932 100 3.873.976 100 f Operating Expenses Fuel for Electric Generation and interchanged Power - net 868.977 22 959382 25 Gas Purchased and Materials for Gas Produced 858.018 22 821.479 21 Other Operation Expenses 503.568 13 452.11S 12 Maintenanco 238.766 6 220.456 6 Depreciation and Amortization 201.787 5 192.860 S Amortization of Property Losses 49.040 1 43345 1 Taxes Other than Federal Income Taxes 5S7,793 14 553241 14 FederalincomeTaxes 191.033 5 176.639 4 Total 0perating Expenses 3.468.982 88 3.419517 88 Operating income Electric 421364 10 383213 10 Gas 72.586 2 71246 2 Total 0peratingincome 493.950 12 454.459 12 Allowance for Funds Used During Construction (Debt and Equity) 128.592 3 91.427 2 OtherIncome-net 12.605 1 17.578 1 InterestCharges (24S368) (6) (220.637) (6) income before Extraordinaryitems 389.779 10 342.827 9 Extraordinary items, net of income tax: Cumulative effect of accruing estimated unbilled revenues Unrecoverable costs of Atlantic Project Gain on sale of Transport of New Jersey 46 NetExtraordinaryitems Netincome 389.779 10 342.827 9 Preferred and Preference Stock Dividends 58234 2 53.865 2 Earnings Available for Common Stock $ 331.545 8 $ 288.962 7 Shares of CommonStockOutstanding End of Year 102.858 - 94B45 97.467 89233 Average for Year ' $3.40 $324 Earnings per average share of Common Stock $2.62. $253 Dividends Paid per Share 77 % 78 % Payout Ratio Rate of Return on Average Common Equity (d) 12.68 % 1222% Ratio of Earnings to Fixed Charges Before income Taxes (e) 333 332 $2636 $25.90 BookValue per Common Share (f) Utility Plant ~ $8.950.476 - $8.100.S79 Accumulated Depreciation and Amortization $2.207.573 $2.041.907(g) $8.565.433 $7.908.775(g) TotalAssets Capitalization $2.452.054 39. $2341.142 40 Mortgage Bonds 231.945 4 238.640 - 4 Debenture Bonds Other Long-Term Debt. '2.684.899 43 2.579.782 44 ~ TotalLong-Term Debt 61.844 - 1 60.430(g) 1 Other Long-Term 0bligations Preferred Stock with Mandatory Redemption 139.500 2 111 250 '2 Preferred Stock without Mandatory Redemption 554.994 -9 554.994 10 $1.40 Dividend Preference Common Stock and Common Stock 1.792340 29 1.610.879 28 ' SS7 SS7 Premium on CapitalStock 26.185 . 26.185 Paid-in Capital- ?963.617-- 16 888262 ' 1S Retained Earnings 2.782.699 45 2.525.883 43, TotalCommon Equity $6.223.936 100 - $5.832339 100 TotalCapitalization. (a)See Summary of Significant Accounting Pohcies. Notes to Financial (c) Excludes non-recurnng cumulative effect of accruing estimated un-Statements, and Management's Discussion and Analysis of Financial bdled revenues of $18.540.00o or $Al per share.- ' Condtte and Results of Operatms. . (d) Balance available for $1.4o Dividend Preference Common Stock (b) Excludes the net extraordinary gain of $6.316.000 or $.09 per and Common Stock divided by the thirteen-month average of Common D

1981 1980 1979 1978 1973 Amount Amount Amount Amount Amount $2322.042 67 $2.083.900 70 $1.689.857 70 $1.564.834 70 $ 775.108 72 1,149.610 33 910.154 30 726.850 30 654.951 30 301.152 28 3,471.652 100 2.994.054 100 2.416.707 100 2219.785 100 1.076260 100 1.059539 31 866.802 29 620.546 26 541.802 24 241.103 23 692319 20 513.988 17 384.759 16 327.990 15 119.828 11 385,149 11 322220 11 287.086 12 267.731 12 174.105 16 192.768 6 169.813 6 149.027 6 127,423 6 88257 8 178.532 5 169.987 6 162.989 7 158248 7 98.239 9 15362 11.024 303 1,038 474.979 14 431,890 14 364.411 15 328216 15 167545 16 118.737 3 131.178 4 123.965 5 146.937 7 325P. 3.117385 90 2.616,902 87 2,093.086 87 1,899385 86 892329 83 288.087 8 307372 10 269,443 11 266.513 12 152.492 14 66.180 2 69.780 3 S4.178 2 53.887 2 31,439 3 354 267 10 377.152 13 323.621 13 320.400 14 183.931 17 95.679 3 77,552 2 56593 3 41305 2 56,529 5 15.780 10259 6263 4515 703 (201.589) (6) (189.S62) (6) (153.148) (6) (137.434) (6) (109,680) (10) 264.137 7 275.401 9 233329 10 228.786 10 131,483 12 18540 2 (13219) 19535 6316 18.540 2 47 264.137 7 281.717 9 233329 10 228.786 10 150.023 14 51.538 1 46341 1 46.799 2 46,799 2 30,761 3 $ 212,599 6 $ 235376 8 $ 186.530 8 $ 181.987 8 $ 119262 11 86.089 76.615 68.914 64.120 47.861 80.962 73.069 65.409 61.783 45.680 $2.63 $3.13 (b) $2.85 $2.95 $220(c) $2.44 $229 $220 $2.08 $1.72 93 % 73%(b) 77 % 71 % 78%(c) 9.79 % 11.63 % 10.46 % 11.01 % 8.81 % 2.87 3.14 336 3.77 222 $25.66 $2638 $2626 $26.13 $24.14 $7320,764 $6.881209 $6325.033 $5.810329 $4369,141 $1.874.671 $1.703.960 $1.589.049 $1.447.039 $ 916346 $7277,089 $6.724.860 $6,088.766 $5.508.164 $3.896.667 $2.140.835 40 $2.041556 41 $1.940513 41 $1.692.642 39 $1.236364 36 269268 5 276,590 S 314,726 7 322.682 7 420387 12 720 1200 1.680 2.160 103,600 3 2,410.823 45 2319346 46 2256.919 48 2,017.484 46 1.760351 51 77.913 2 29.750 1 31.500 35.000 1 554.994 10 _ 554.994 11 554.994 12 554,994 13 434.994 13 1.423.739 27 1252.103 25 1,106.824 23 1,014.184 23 -710.078 21 557 557 557 557 550 26.143 ?6,093 1 26.065 1 26.065 1 26.065 1 827,497 16 81.'181 16 747,076 16 704.909 16 483543 14 2277.936 43 2.091,9.51 42 1,880.522 40 1.745.715 40 1220236 36 $5321,666 100 $4,996.024 t00 $4,723.935 100 $4353,193 100 $3.415581 100 (e) Net income plus income Taxes. Deferred Income Taxes, invest nent (f) Total Common Equity divided by year-end Common Stock shares Tax Credits and Rxed Charges divided by Fixed Charges. Fixed Chages plus double the $1.40 Dividend Preference Common Stock shares. Include interest on Long%rm and Short Term Debt. Other Interest E/- (g) Restated to conform to current dassification. p2nse and, starting in 1980. an interest factor in rentals.

Officers Harold W.Sonn Donald A. Anderson Winthrop E. Mange.Jr. President and Chief Vice President-Vice President-Executiveofficer ComputerSystems and Services CorporateServices William E. Scott Lawrence R.Codey Thomas J. Martin Executive Vice President-Vice Presidentand Vice President-Finance Corporate Rate Counsel Engineering and Construction. Stephen A. Mallard Robert M.Crockett Parker C. Peterman SeniorVice President-Planning Vice President-Fuel Supply and President Vice Presidentand Comptroller and Research and Presidentof of Energy Pipeline Corporation and Energy US zi PSEa0 Research Corporation TerminalServices Corporation y. James B. Randel.Jr. FredrickR.DeSanti Marketing Services SeniorVice President of the Vice President-William Saller Companyand President of Rates andload Management Vice President-Governmental Affairs Energy DevelopmentCorporation Robert H. Franklin Robert J.Selbach Richard M. Eckert Vice President-Public Relatics Vice President-Transmiss,on i SeniorVice President-Energy Carroll D. James and Distribution Supplyand Engineering Vice President-R.Edwin Selover Robert W. Lockwood Administrative Planning Vice Presidentand Senior Vice President-Administration Frank P. Librizzi GeneralCounsel. Everett L Morris Vice President-Production Rudolph D.Stys SeniorVice President-Customeroperations Charles E. Maginn,Jr. Vice President-System Planning Vice President-Human Resources Richard A. Uderitz 48 FrederickW.Schneider Senior Vice President-Wallace A.Maginn Vice President-Nuclear Vice Presidentand Treasurer Corporate Planning Secretary - l Changes in Organization-Transfer Agents AllStocks-Morgan Guaranty TrustCompany of Robert 1. Smith, Chairman of the . New York. Y Board and Chief Executive Officer. 30 West Broadway.New York.N.. ; 10015 retired on September 9.1983. after more than 43 years of ser-Stockholder Services. .vice. Harold W.Sonn. President. Public Service Electric and Gas Company > succeeded Mr. Smith as Chief 80 Park Plaza. P.O. Box 570. Executive 0fficer. Newark NJ.07101 ' Registrars AllStocks Fidelity Union Bank. 765 Broad Street. Newark, NJ.07101-Morgan GuarantyTrustCompanyof - New York. ~ 30 West Broadway.New York.NY.10015

Directors James R. Cowan, M.D. Marilyn M. Pfaltz President and Chief Executive Officer. United Partner of P and R Associates (public relations and Hospitals Medical Center. Newark. New Jersey. publicity specialists). Summit. New Jersey. Member of Finance Committee and Nominating Member ofAudit Committee and Nominating Committee. Committee. TJ. Dermot Dunphy James C. Pitney President. Chief Executive Officer and director. Sealed Partnerinthelawfirmof Pitney.Hardin Kipp& - Air Corporation (manufactures protective packaging Szuch. Newark and Morristown. New Jersey. systems). Saddle Brook New Jersey. Chairman ofAudit Committee and Member of Member of Nominating Committee and Organization Organization and Compensation Committee. andCompensation Committee. Kenneth C. Rogers Robert R. Ferguson.Jr. President. Stevens Institute of Technology. President. Chief Executive Officer and director. First Hoboken, NewJersey. National State Bancorporation. Newark. New Jersey. Chairman of Nominating Committee aid Member of Member of Finance Committee and Organization and Organization and Compensation Committee. Compensation Committee. Veraell L.Roundtree MargerySomers Foster Vice President, National Programs. United Negro Pr ofessor of Econnmics Emeritus, and former Dean College Fund. New York. New York. of Douglass Collegt. Rutgers.The State University of MemberofAuditCommittee. New Jersey. New Br.mswick. New Jersey. MemberofAudit Con mittee and Nominating William E. Scott - Committee. Executive Vice President-Finance of the Company. Chairman of Finance Committee and Member of Irwin Lerner necutive Committee.. President. Chief Executiv ? Officer, and director. Hoffmann-La Roche Inc. (manufactures prescription Robert 1. Smith pharmaceuticals, vitamins and fine chemicals and Former Chairman of the Board of the Company. provides health testing serv:ces). Nutley, New Jersey. _ Memberof Decutive Committee and Finance - Member of becutive Commivee and Organization Committee. andCompensation Committee. Harold W.Sonn William E. Marfuggi President and Chief Executive Officer of the Company. Chairman of the Board and director. Victory Optical Chairman of Secutive Committee and Member of the Manufacturing Company (manufactures ophthalmic

FinanceCommittee.

frames) and Chairman of the Board and director. Plaza Sunglasses. Inc. (manufactures sunglasses). RobertV. Van Fossan both of Newark, New Jersey. Chairman of the Board. Chief Executive Officer and Member ofAudit Committee and Finance Committee. director.The Mutual Benefit Life insurance Company.' Newark.New Jersey. Chairman of Organization and Compensation Committee and Member of Decutive Committee and FinanceCommittee. StockSymbol: PEG Common Stock The Company's Common Stock and $1.40 -1983 1982 Dividend Preference Common Stock are - Dividend 66c' -64c" traded on the New York Stock Exchange and Price ~ the Philadelphia Stock Exchange. The Ccm. FirstQuarter - 24W22%. 20 w17% l - pany's Common Stock was listed and trading . SecondQuarter 24W21% 21W19% - began Februaty 3.1984 on the London Stock. MrdQuamr. 24 ' -21 % - ~ 23bl9% F un@mr 2 N 22 2h2% _ Exchange. 64c nrst Quarter only. - - The following table shows the quarterly .'* # "S* 0"**"Y l dividends paid for the periods indicated and the high and low NYSE Composite prices of. . $1.40 Dividend r such stocks: Preference Common Stock 1983 1982' Dividend -35C: 35C - ' Price First Quarter 12W11% 11 - 9% L SecondQuarter 13 -11 % 10 % 9 % ThirdQuarter 12W11% 11 %- 9% fourth Quarter 13 -11 % 12W10% i

O PSIEG Public Service Electric and Gas Company 80ParkPlaza Newark NewJersey07101 MailingAddress: RO. Box 570, Newark, New Jersey 07101 e i e

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m #.; g }g! i w On a crispftalmorning, uater vapor risesfrom the cooling totter ofthe Indian River potterplant. This coal-firedpotterplant, tchich supplies much ofthe electricityfor thepeople ofthe Delman'a Ikninsula, is symbolic ofthe success ofDelmarra Potter's strategy to stritch arrayfrom oil. This strateg is one ofseveral designed to improve the return onyour investment schile managing theprice ofenergyfor the customer. Our report thisyear discusses those strategies andhow they came together in 1983 toyield record earnings tchile reducing the average unit price ofelectricity. For thefuture, flexibility trill he the keyfor continuing thisprogress. f l L I r

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~ Financia Higtig1ts Percal Increase 1943 1 %92 (lkrmise) Revenues $ 649.8 million $ 636.7 million 2.1 Net income 85.1 million 73.6 million 15.6 Eamings Per Share 2.45 2.13 15.0 Dividends Declared 1.68 1.595 5.3 Common Stock Outstanding Average Shares 29,541,415 20,488,623 3.7 Common Stock Book \\'alue 16.87 16.11 4.7 Construction Expenditures 76.1 million $ 110.6 million (31.2) Internally Generated funds $ 117.6 million 77.1 million 52.5 Electric Sales 7.88 billion bh 7.25 billion hh 8.7 Electric Customers (Average) 2%,%5 288,607 2.2 Average Residential l' sage 8,109 hh 7,860 bh 3.2 Gas Sales 16.45 million mcf 15.60 million mcf 5.4 Gas Customers (Average) 73,436 72,H9 0.7 Average Residential l.' sage 81.8 mcf 88.1 mcf (7.1) Contents 2 To ourStockixdJers 4 Completing The System 6 incmuingEpectiteness H Incmuing CustomerSatisfiction 10 Prvelding Energy in The '90s 12 DurSenks Territory 13 FinanckdSwikm 14 Selatedfinanciallhota 15 FinancialRevieu*AndAmdysis 19 Report Of" ,,,,;.I 20 Quarterly Common Stock Dit1ldendAndPrice Ranges 21 ReportofIndependent Accountants 22 Cons <didaldStatements 28 Notes To Consolidated finamlalStatements. 40 C<madidnt& Statistics 42 GeneralInftmnation - 43 Oplcers 45 BonniofDirwtors

To 0urStoccolers j% /n 198.i, screralycars ofpreparatirm A summary of 1983 starts with the financid results. su and />ard reorf paid <g /~arnings Eamings increased 15% to $2.45 per share increa3cd /E to recordIerc/s ubile the from $2.13 per share. Electric sales increased 8.7%. arcragepricepaid by cu3/runcrsfor a unit of Quarterly dividends were increased to 45 cents per share for an Indicated annual rate of $1.80. The c/cctricity decreased 6 6% lhe safe.ty record price of stock increased to $19% per share in improved significantly, and ncn programs to December irom $15% per share in January. />c/p customers began. The quality of eamings continued to improve Much of Delmarva Power's strong financial because of a minimal construction program with performance this year can be attributed, on first n nuclear or other generating units under glance, to the hot summer and improved economy construction. Rates are in place in two jurisdictions on the Delmarva Peninsula. That helped. Ilowever which more closely match operating costs. AFUDC the significance of 1983 is that it was a year where has decreased to 3.7% of net income. The company's the strategies developed and implemented over the bond rating is the equivalent of AA in the language past few years in power production, facilities planning, of the different raters. cost control, customer sen' ice, and personnel came These achievements result primarily from a stra-together to pay dividends for stockholders, customers, tegic plan developed several years ago to make elec-and employees. When the hot summer and economic tric rates more competitive regionally and, at the recovery occurred, Delmarva Power was positioned to same time, improve the return on your investment. take advantage of these circumstances. The key parts of this plan were to reduce fuel costs Our report this year discusses the progress on and operate plants more efficiently; to reduce oper-those strategies and talks about some of the people ating and maintenance costs and increase emplnyee who helped carry them out. The report also tries to effectiveness; to increase customer satisfaction; and, communicate that special feeling -a feeling of through flexibility, to minimize new capital invest-confidence and enthusiasm -which occurs when ment and utilize existing assets more fully. plans and projects come together. We hope you conclude as we do that Delmarva Power is a finan-cially strong company which works for and is concemed about stockholders, customers, and employees. It is a company where people deliver what they promise. 2

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>s a.,'...,,.. ..x.y .w: 3 in N1 arch. the comersion of the Edge N1oor 3 For the future, we wdl continue to scrutinize generating umt from oil to coai wa.s finished. com-capital investment opportunities, beliesing that pletmg a program begun in the mid-19'Os to switch flexibilit) wdl he the ke) to prosidmg energ) at away from costly oil. In 1984. only li"n of the elec-the lowest reasonable cost in the 1990s We will be i tricity generated will come from oil compared with war', of capital investment that could he rendered 53"o in 19'9 Since much of the oil-fired generation unprofitable by technology breakthroughs later in is sold to the regi< nal power grid. the percentage the centurv and will place increasing emphasis on of oil-fired electricity for liehnarsa customers will managing energy from raw material to the customer he even less. The followmg text details the progress in all To operate more effectively, major efforts were these strategies l undertaken this year to reduce accidents and increase Continued success requires additional training, employee participation in decisions affecting their creatise thinking. and hard work from the 2508 job 3 These followed decisions m 1982 to consolidate people who make up the 1)elmarva Power team. f.ve district offices and sesen storerooms and to l They have demonstrated their willingness to take reduce the workforce by n through attrition and on chaheoges and the will to succeed. early retirement. We thank them for the achievements in 1983 The safety program this year reduced lost-time and look forward to working as a team to meet the accident 3 by "A This spared employees and their challenge of the future. families the pain and anxiety associated with injuries. N..ncerely, The programs to switch away f. rom costly for-eign oil, to cut costs, and to improve productivity have resulted in a leveling off of the price of electric-it) over the past 24 months to increases significantly Nevius.\\1. Curtis below the nWional inflation rate Chairman of the Board Finally in the area of minimizing capit:d invest-and Chief Executise Officer l ment, the management Continues to feel comfortable renoms a em with the decision a year ago to postpone until 1995 the next power plant at Vienna,,\\larsland. In the gas business, a major effort was under-taken to attract and connect new customers without significantly increasing investment. l 3

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g !. 3 t: - f ~. A A O 3 i ~ ,I w o8 h, m on a.1: + 7 wu, %; at ,,f., m Vg q__ m ___ _ 7 Q: - a b' Engineers Ken F/eil. Dan Shed:icletc.shi. For example, in August, Ikimnva Power's cus-andjohn.1/i//cr smilec/ hioad/r as /hiy tomers demanded 23% more electricity than the tra/hed across the stage to /be applause of 109 previous August, and 88% of thiidemand vy9 - fulfilled by electricity generat0d frym coal'and co//cagues. / hey u ere being ImnoredjiirIcading' nuclear fuel, the team that completed the coal conversion y g ofEdge.Uvar unit 3 -on time and on budget. this reliable electric power was a reason New The completion of the conversion of Edge Moor York's Margan Bank chose to locate a sub-Unit 3 from oil to coal in March was the final step sidiary in Delaware. in a plan. reduce dependence on oil from 53% in With well-running facilities in place, capital 3' 1979 ". A in 1984. That plan included the comple. expenditures can be minimized. The company had tion ( the 400-megawatt, coal-fired Indian River 4 no major external financing in 1983 and expects no power plant in 1980, completion of the Salem 2 major external financing until the late 1980s. nuclear unit in 1981 (Delmarva Power owns in the natural gas business, strategies which paid 82 megawatts), and the conversion to ccal from off this year were the adding of customers near exist-oil of Edge Moor unit 4 in 1982. Also, the company ing mains and increasing sales to current customers buys coal-fired electricity from midwestern utilities without increasing significantly workforce or capital while selling much of its oil-fired generation to the investment. This will produce about $4.5 million PJM power pool. In increased annual revenues. l This strategy,11ong with PJM membership, has A new natural gas pipeline which tar, supply the l already pmvided customers with about $150 million increasing natural gas requirements of the Chrysler in net savings and reduced foreign oil consumption assembly plant and surrqunding residential commu-i by 14 million barrels from 1980 through 1983. Price nity in northem Delaware was bta!!. increases throughout the senice territory have been other system highilghts iq 1983 include the held to levels less than increases in inflation. completion of the 69 KV line from Wattsville, So, when the hot summer of 1983 occurred along Virginia, to Chincoteague(ith speci# care for ' N with a rebounding economy, Delmarva Power was the natural life smd beauty of the area; the able to supply most of the record demands of its implementation of more sophisticated standards customers with fuel sources that were about two for detennining ilne replacement;ibe increase of \\ times cheaper than the predominant fuel source 7,753 electric customers to the syytun, and, as a of 1979 result of consolidation, the opening of new dbtrict e office buildings in Chestertown, St. Michaels, and Westover, Maryland, and Exmore. Virrmia. ~ ~ J ~ s

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,7 r., .g 7 ' w p};e o, .} l l m iy Q.-s n. a ::. : c 4 '. - . g,4 4 : g n y, , ~.y pv E,.. 1 i E $$$b.. E f ', In 1982, the company intensified its commitment to increase employee participation by providing g-training to increase the involvement employees have m decisions affecting their job. B) 6 o end of 1983, about 20"o of the company's emplogts had panicipated in some fomi of the tr:noing in both phih> sophy and technulue. Evaluators de-cided Rai the program was u successful that train-ing shouhl be accelenned to reach all company empbvees by the fourth quarter.1986 Several exam-oles of poluctivity gains achieved include the reduction of write-offs from unpaid bills, the decreas-An wressive program was pursued not only to Ug of meter reader erron and improvements in the pronde the tools to do jobs safely. but also to m-gas valve maintenance program. crease the awareness of potential hazard 3 both on Not only are ideas flowing and productisity in-us stihe job. creasing, but an unexpected result of this program Specific accident miuction goals were set and is the personal gmwth of many of the participants ' i chievement of them was made a top corporate says lla land M Wakefield, Jr., senior vice president. priority of 1983 investigative committees of top 'Many people who for mata years were afraid to managers of the coinpany were established to review speak in public now lead group discussions. That's all accidents. An employeei safety performance was good for the company and g%d for the people." mxte an increasmgly im[ortant part of talary re-Throughout Delmarva Power,1983 was a year view and the salety performence of a group wat of consolidation. Many of the most significant cost-m:de part of a supuvisor's spiary review. cutting strategies, such as a 6% reduction in work-The restlts were diana:ic. I utime accidents force through attrition and early retirement and were reduced by 77% lost 1orkdvs, hv 7%; and the combining of several company facilities, had oc-recordable accments, by +ht curred in late 1982 and early 1983.b a result,1983 The pogram reduced paMn 1 anxiety caused was a ym when many people were doing sw jobs. hv accidents and saved money for the company It was a year to focus on safety, efficencies, and aiid its customers ex mination of current work ruttods. Another program showing progress is the Par-ticipatory Skills Program. 6

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g e.. r i on tu l e In:. ' t i uls u ; ov.\\ le oj,!a:n cidln n sl s tlI ly + ;ur: vi av Ctr?H{s R) 5 {ri/Nf! ' ' ') ! vln vt!cer l:n qr,ini chris sniith and 6 reg J/alonen Time-of-use rates, previously available in N O nearheling engineers, helped the Delaware, were established in Maryland this year Dorchc3/cr Cencral //o epi /a/ in JIarr/< nn/ to give customers more options. conrert ils air condi//oners / hun an oi/ Besides working to control price, the company offered several information programs to help people to an electricalsystem. the hospitalsaved make wise energy choices. $E9.000 in justjour months, and velnuum The Super E+ program encourages the design, Fon cr's c/cc/ric sale 3 increased. construction, and sale of energy efficient homes, The cost of energy is a major concern of most and the llome Energy Saver Program evaluates the energy efficiency of a customer s existing home. customers. Delmarva Power has developed several strategies to help manage the price of electricity M rketing representatives provide information and and help customers receive the most value for the expertise to help customers who are considering l money they spend on energy. replacing heating or cooling systems. Energy effi-ciency programs for business and industry encourage The fuel-mix and cost-cutting strategies discussed the conversion from oil to gas and heat pumps to l earlier are working. Over the past 24 months, in-reduce overall energy cost. creases in the price of electricity for typical residen-Customer. formation specialists work with m tial customers throughout the Delmarva Peninsula have been in the range of 2% to 5%-significantly human service agencies throughout the Delmarva Penmsula to discover who in the community needs below the national inflation rate of 8% for assistance and to distribute federal funds to them. that period. Delmarva Power customer service representatives Here is how the average total cost (in cents /kWh) help directly by arranging installment payments of of electricity in Wilmington ranks among East Coast previous bills, setting up budget billing, alerting a cities: New York,13.3; Atlantic City,9.7; Newark, NJ, friend if service is about to be disconnected, making 8.4; Boston, 7.8; Philadelphia, 7.4; Wilmington, 6.7; special efforts to inform customers by telephone Baltimore,5.9 when power is about to be disconnected, and keeping l Also, Delmarva Power officials have advocated power on where life support systems or medical consistently before regulators that when current rates emergencies exist. are based on current costs, price can be managed In 1983, the Good Neighbor Energy Fund was more effectively for the customer. The Delaware begun. It brought $125,000 into the community to Public Service Commission and the Federal Energy help people having trouble paying their ene gy bills. Regulatory Commission set 1983 rates on that princi-Every $3 of customer contributions were matched by ple. In those lurisdictions, the company announced l $1 f stockholder contributions. j rate increases would not be requested in 1983. 9

'rovicing EnergyIn"le'90s s ,s b Ini:Ha.m ud Un e v.rer:: ;ct . s NY! ' o 'in t!)'N f C:lifonicy ? dw.scierist:b H=3;=;Et N .n:d (:.twe ncek I W "//ic futu re trill dem< md //e.vib//ilt, will be made in the next few years in order to supply sars Jerius V Curtis. chairman energy in the next decade. The group is charged with s_ of/be boar [ land chiefe.vecn/ ire o/licer /beintegrating forecasting and the several corporate T planning functions so that the evolving needs of the c/ectric pou er n.uius/7 can he agected by a customer and developing technology can be matched. tride varicly ofissues and ci entspr on/ side One energy source which will be evaluated is the the con /rol o[/Jchnart a i'otrer.11'ilh /bc lesson fuel cell. As part of a national demonstration pro- / earned in /be ral/ road indus/rr / bat a huge gram, the company plans to install a demonstration cap //a/ inres/ ment c.m he over/ai/en by lech. fuel cell at a small commercial operation in 1984. nohg breah/broughs or changing economics, This technology enables Delmarva Power to i Dehnarra needs to be /le.vib/c and crealire to dd generation sources in small increments and use natural gas as the fuel source. It can also be meet andjinance Alure eneigt demands. used to evaluate customer reaction to dispersed The scheduling of Vienna 9 illustrates the concept energy sources. of flexibility. In 1982, faced with a growth rate which The company is looking a.t new ways to sell its was not meeting previous projections, the completion products and services. Construction began on facili-date of that plant wr.s delayed five years until 1995. ties to sell steam to a Du Pont Company processing Projections show that if no actions are taken, the facility in Wilmington, Delaware. Electrical design l plant will be needed by 1993. With the implemen-engineering work was performed at a profit for two tation of a load control program, the plant can be major corporations in the service territory. deferred until 1995. The plant can be moved up or The company also has two subsidiaries funded pushed back depending on how the growth projec-1.t,m eamings, Delmarva Energy Company and tions hold or how load management technology Delmarva Industries. They seek and produce oil and develops. The plant size can vary depending on natural gas. changing growth projections and the number of Delmarva Power is continuing its investment partners who may wish to participate in the owner-($1.3 million in 1983) in the utility industry research ship of the plant. pool, the Electric Power Research Institute (EPRI). With this concept in mind, a team of high-level F nally, incentive programs are being expanded managers is prepanng the analyses for decisions that to reward initiative, performance and entrepreneur-ship. A participatory style of management culture is being developed to seek ideas and enable employees to become more involved and motivated about their work. 10

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OurServiceTerritory i l f/f The De!mann Peninsula stands out Y'/9> as one of the tnost tlistinctivegeo-praphicalfeatures on the East Coast-close enough to the Eastern tuegalopolis to ? b:::cl?! jhii; its markets andfinancial centers yet remote enough to have its aien identity and tjuality oflifh The peninsula has a diverse blend of industrial, agricultural, commercial, and recreational activity that makenhe demand for electricity and natural gas here less affected by extreme fluctuations in the l national economy than in other places in the nation. i-l To service this diverse area, Delmarva maintains I an electric system with 2,226 megawatts of generation capacity,1369 miles of transmission lines,7386 miles of distribution lines and a natmal gas system with 1028 miles of gas main. Delmarva Power owns and operates four major fossil fuel power plants within the service territory and shares ownership of two coal plants and two nuclear plants outside the service territory. Our 299,000 electric customers and 74,t90 natural gas customers are served by 2508 employees working in 19 customer service locations on the peninsula, division headquarters in Christiana, Delaware, and Salisbury, Maryland, and corporate headquarters in Wilmington, Delaware. 12

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^ Delmarva Power & I,ight Cornpany Selected Mnanct3 Data i (Do!!ars in Thousands) i For the Yoars EtxialDexmber 31 1983 1982 1981 1980 1979 Operating - Operating Revenues S 649,799 S 636,666 S 608,504 S 520,470 S 424,699 Operating Income 129,138 116,573 107,325 80,716 74,8.59 Net Income 85.063 73,571 58,711 48,957 53,376 Earnings and Dividends Earnings Per Share 2.45 2.13 1.78 1.60 1 91 Dividends Declared on Common Stock 1 68 1.59 % 1.53% 1.49 1.40 % Average Shares - Outstanding (000) 29,541 28,489 25,747 24,682 23,215 Total Assets 1,533,263 1,509.771 1.460,529 1,380,922 1,249,606 Construction Expenditures"> 76,056 110,646 84,206 110,739 112,061 InternalGeneration of Funds 117.582 77,061 72,346 37,866 53,435 Capitalization Long Term Debt'2' 567,935 592,615 596,219 569,724 536,779 Preferred Stock without mandatory redemption 105,000 105,000 105,000 105,000 105,000 Preferred Stock with mandatory redemption'8' 49,383 _ 50,000 50,000 50,000 _ 20,000 Common Equity '503,513 468,073 437,080 ' 395,540 - 385,616 Total S1,225,831 S 1,215,688 : S 1,188,299 S 1,120,270 S 1,047.395 Capitalization Ratios 'Long Tbrm Debt 46% .~ 49% 50% 51% .51% ~ Preferred Stock without-mandatory redemption 9% 9% 9% 9% 10% Preferred Stock with . mandatory redemption '4% 4% 4% 5% 2% Common Equity ' 41% 38 % 37% 35% 37 % gtal - 100 % 100% 100%- 100% 100 %. ~ Electric / Gas Sales Electric Sales (Kwh 000) 7,878,476 7,249,442. 7,395,324 7,460,380 '7,491,800. Gas Sales (Mcf 000) 16,449 15,604 16,520 15,693 13,962 "' Excludes Allowance for Funds Used Dunng Construction. - includes long-term debt due within one year. '81ncludes mandatory redemption due within one year. - E h s p / i1;.. ' ~ 1 9 i j, y

Delmarva Power & Light Company FinancialReview and Analysis Results of Operations Eammgs Earnings per share of common stoch were S2.45 for 1983, an increase of 32: or 15% from 1982. Increased sales, which were impacted by the unusually warm summer weather as well as an improved economy, tunely rate rehef in the form of higher base rates and mduced levels of construction expenditures contnbuted to the re-ord eamings level. Eamings per share of common stock were S213 for 1982, an inctease of 35: or 20% from 1981 The increase in 1982 earrungs, despite a dechne in sales, was pumarily attributed to timely and significant rate relief, strengthening of cost control measures and lower fmancing costs and debt levels. Dwidenas In December 1983, the Board of Directors increased the quarterly dividend 9.8% to 45: per share, the seventh consecutive annual increase. The current indicated annual divi.iend rate has increased to S1.80 per share from S1.64 per share. Tfus increasr rehets a dividend policy which is to gradually increase dividends on an annual basis, e.mirgs permitting, and thus provide stockholders with a fair and competitive retum or their mvestment. ElectricRevenuesandSales Electric rew nues, net of fuel costs, increased S42.7 million or 12.1% in 1983 and S51.3 Earnings and milhon or 17.0% in 1982. The pnncipal factors affecting the net revenue increases in 1983 Dividends Declared were sales growth and rate relief in all junsdictions. These numbers also reflect that the company recently announced a voluntary plan to refund, in March 1984, at least S4 millon to Delaware retail electric customers, in order to bring the 1983 actual camed rate of retum y in hne with the authorized rate of retum of 11.1% The refund was attributed to the warmer g1 summer weather which led to higher electric consumption and greater than anticipated revenues. The increase in 1982 net revenues was attnbuted to timely and significant rate relief. See the accompanying text, " Rate Regulation" and the chart "S atus of Rate l E.M; Cases" for additional information conceming rate case filings. 200 V Q 1 Electric sales increased 8.7% m 1983 due to the unusually warm summer weather, t increased customers, and increased economic activity throughout the company's service area. Sales to all classes of customers experienced increases with the industrial class 150 showing a 15.3% increase. Residential and commercial classes increased 5 4% and 6.6%, respectively. A new system peak of 1625 megawatts was achieved in August 1983, an increase of 2.8% over the historic peak of 1581 set in 1980. Electric sales decreased 2.0% in 1982 primarily due to lower industrial sales in a recession year. 100 The economy of the entire Delmarva Peninsula continues to improve. Construction ~ activity is strong as new residential and small commercial construction is at the highest level since the mid-1970's. Also, in the Wilmington area, new office buildmgs, many in response to the Financial Development Center Act, have been completed or are i underway. Future electric sales will continue to be affected by the overali economic 60 situation and the level of business activity in the company's service territory, as well as by weather conditions, use of altemative fuels for heating, and customer conservation etforts. 0 79 80 81 82 83 CDividends G Eammgs 15

Delmarva Power & Light Company FinancialReviewand Analysis GasSales Gas sales increased 5 4% in 1983 compared to a 5 5% decrease m 1982. The increase m 1983 sales was primarily due to a substantial increase in usage by industnal customers. Warmer winter weather and customer conservation has continued to reduce residential gas sales for heatmg by 7.0% in 1983 and 2.1% in 1982. Future gas sales will be affected by the availability of gas, weather, the deregulation of gas pnces and the price of altemative fuels for which gas is a substitute. RateRegulation The company is subject to regulation with respect to its retail sales of electricity by the Delaware and Maryland Public Service Commissions and the Virginia State Corporation Commission, which have broad powers over rate matters, accounting and terms of service. The Federal Energy Regulatory Commission (FERC) exercises jmisdiction with respect to the company's accounting systems and policies and the transmissioil end sale at wholesale (resale) of electric energy in interstate commerce. The company has been filmg rate increase apphcations on an annual basis in an effort to have rates set that more closely reflect cutrent costs. Rate increases were granted in all retail jurisdictions in 1983 and were structured to recover the capital and operating costs for the conversion to coal of the Edge Moor units, to recover increases in operating and maintenance costs, and to improve the return on utihty investment. A summary of the Generation status of these filings is found in the table below. FuelMix W" " Status of the 1983 Rate Cases (Dolbrsin Thousands) too d Y_i l }} } Requested Granted f f Q Junsdiction Amount Date Amount Date OI d h f Delaware S42,797 7/09/82 528,403 3/16/83 hV Virginia 2,011 3/31/83 944 8/15/83 so R Maryland 7,779 5/27/83 2,966 12/23/83 p 2 1 Electric rate cases for both Delaware and FERC were scheduled for filing during 1983, i ~ but were not needed due to responsive rate rehef in those jurisdictions in previous cases. so Electric casesin Maryland and Virginia and a gas case in Delaware are under con-sideration for 1984. l ao FuelMix 'Ib further reduce its dependency on oil, the company converted from oil to coal unit 3 at the Edge Moor plant in March,1983. Unit 4 was converted in October,1982. With the conversion of these two units, the completion of the Salem 2 nuclear plant in 1981 and the 20 completion of Indian River 4 coal plant in 1980, the portion of tota! generation provided from oil-fired plants is expected to be reduced from 53% in 1979 to 15% in 1984. The savings in fuel costs, from displacing oil with lower cost coal and nuclear fuel, are bemg passed on to our customers. When each new plant became operational and when each 0 conversion was completed, the company lowered the price of electricity to our customers. 3 g n g g In addition to changing the fuel mix, the company has been able to import coal-fired elec-a coal tricity from the Midwest and to continue to sell a large quantity of oil fired generadon to the PJM power pool. The effective customer fuel cost, including net interchange credits, has l declined 26% from 2.64 /kWh in 1980 to 1.96:/kWh in 1983. 1 ( 16 I

i Delmarva Power & Light Company l FinancialReviewand Analysis l OperatJngEXpenSeS Other operation and mamtenance expenses have increased since 1981 pnmanly as a result of higher payroll and associated benehts and the increased costs of materials and supphes. However, these increases would have been greater without the company's offorts of continumg cost control through a 6% reductwn m the work force and the con-sohdation of distnct offices and storerooms. In 1983, the increases also reflect higher production expenses associated with the nuclear units due to refueling and maintenance activities and higher uncollectible accounts due to the write-off of S2.6 milhon associated with Phoenix Steel, a large industnal customer who filed on August 12,1983, a voluntary petition for rehef under Chapter 11 of the U.S. i Bankruptcy Code. Impact offnflation The year 1983 was marked by a decrease in the rate of inflation as measured by the average Consumer Price Index (CPD. Dunng 1983, the increase in the CPI was 3.2% as compared to 6.1% for 1982 and 10.4% for 1981. The company is addressing inflation in the ratemaking process by utihzmg a forecast " test year" and attntion allowances in its rate fihngs, where permitted, so that rates will reflect costs anticipated for the period that they are in effect. For a f urther discussion of the effects of inflation on the company, see Note 12 of the FmancialStatements. Liquidityand Financmg and Capitalization CapitalResources The Company is committed to maintaining its financial strength and flexibihty and beheves that it is important to have a strong capital structure includmg manageable levels Ratio of Eamings of debt. The company's capitaliza"on goals are 45-48% long-term debt,10-12% prefened to Fixed Interest stock and 42-45% common equity. These goals have been attamed by increasing common $cd*w equity through increased ear. t!ngs and the sale of common equity pnmarily through the Dividend Remvestment Plan. New debt has been minimized and has been pnmarily issued on a tax exempt basis. See " Selected Financial Data" for the actual capitalization ratios. u Credit ratmgs on the company's first mortgage bonds have been upgraded during the I, year. Moody's raised its rating to Aa2 from Aa3 and Duff and Phelps raised its rating to 3. which is approximately equivalent to an Aa2 rating. The upgrading was primarily due to l the company's improved retum on equity, substantially increased intemal generation of funds, increased equity capitalization and reduced future extemal financing requirements. The Ratio of Eamings to Fixed Interest Charges, which is measured by the amount of pre-tax eamings as related to fixed interest charges, showed significant improvement in 2o the last two years and is expected to continue to rise, although more moderately. This ratio, as computed on the SEC method, for 1983 was 3.9 as compared to 3.5 in 1982 and 2.7 in 1981. Improved interest coverage ratios are another indicator of the company's improved credit position. I.0 I I i - tax-exempt bond issue due August 1984 was refunded early with short-term tax-exempt In 1983, financmg activity consisted of common equity sales under the Dividend Re-investment and Common Share Purchase Plan and a SS.5 million short-term tax-exempt commercial paper issue to finance future gas facihties. Also dunng 1983, a S10 million commercial paper. These tax-exempt issues, together with S23 million in tax-exempt o 79 80 81 82 83 Commercial paper, are classified as a term ioan agreement. for a total of S38.5 million. and will be refinanced on a more permanent basis. 17

Delrnarva Power & Light Company FinancialReviewandAnalysis Financing and Capnalization (continued) With a reduced constmetion program (see " Capital and Construcuen Requirements" below) and assummg reasonable rate treatment, the company does not expect any further extemal long-term financings until the late 1980's except for the aforementioned refinanc-ing, refundings of maturing debt and through the issuance of common stock under the Dividend Reinvestment Plan. Capital and Constmction Bequirements For tne period 1981-1983, the company had total capital requuements of $379 million, includmg S271 million for construction (excluding AFUDC) During the same period S267 million was generated internally which represents 70% of the capital requirements and 99% of the construction requirements. Capital requirements for the period 1984-1986 are estimated to be S334 million, including S247 million fcr construction (excluding AFUDC). The company presently enticipates that, for the period 1984-1986, intemally generated funds will be S352 milhon which equals 105% of the total capital requirements and 143% of its construction requirements. The company estimates that its annual energ'i and peak load growth for the next 10 years will be at a rate of 1.86% and 1.Gr%, respectively. The company's present generating Censtruction capacity of 2225.7 megawatts provided a reserve of approximately 37% against the peak Expenditures load experienced during the summer of 1983. Delmarva continues to plan for a load and Intemally management program beginning in 1986 and for new generation at Vienna, Maryland Generated Funds in 1995. Umilions of dellars; The construction program and related expenditures may vary from the estimates set forth 125 above as a result of, among other factors, higher than anticipated inflation, regulation and l l, legislation, rates ofload grewth, licensing and construction delays, results of rate proceed-l g q ings, as well as the cost and availability of capital. M y 4( J The company issues commercial paper supported by adequate bank lines of credit to 30g

1. 1 meet seasonal fluctuations in workmg capital requirements as well as the interim financ-ing necessary for constmetion projects. The company hos lines of credit with banks in the amount of S44.5 million. These lines are available for bank loans and to secure commercial paper borrowings as the need arises. At December 31,1983, the company had no commercial paper or bank loans outstanding.

3 i 50 25 0 82 83 84 85 86 3 Construction Expenditures j (excluding AFUDC) l 3 rnternaiir Generated Funds 18

Delmarva Power & Light Company R portofManag:m:nton thsFinanci:15 tat:m:nts R: port ofManagement The consolidated financial statements of Delmarva Power & Light Company have been prepared by company personnel in conformity with generally accepted accounting pnnciples, based upon currently available facts and circumstances and management's best estimates and judgements of the expected effects of events and transactions. It is the responsibihty of management to assure the integnty and objectivity of such financial statements and to assure that these statements fairly report the financial position of the company and the results of its operations. Delmarva Power & Light Company maintains a system of intemal controls designed to provide reasonable, but not absolute, assurance of the reliabihty of the financial records and the protection of assets. The internal control system is supported by wntten administrative policies, a program of intemal audits, and procedures to assure the selection and training of qualified personnel. These financial statements have been examined by Coopers & Lybrand, independent certified public accountants. Their examination was conducted in accordance with generally accepted auditing standards which include a review of intemal accounting controls to determine the nature, timing and extent of auditing procedures, as well as such other procedures they deem necessary to produce reasonable assurance as to the faimess of the company's financial statements and to enabb them to express an opinion thereon. The audit comnuttee of the Board of Directors, composed of outside Directors only, meets with management, internal auditors and the independent accountants to review accounting, auditing and financial reporting matters. The independent accountants are appointed by the Board on recommendation of the audit committee, subject to shareholder approval. ~ ( Nevius M. Curtis Chairmanof theBoardand Chief Executive Officer Howard E.Cosgrove Senior Vice President 19,

m m Delmarva Power & Light Company .Quarteily C:mmon Stock Divid:nds and Price Rang:s Common Stock The company's common stock is hsted on the New York and Philadelphia Stock Exchanges and has unhsted trading pnvileges on the Cincinnati, Midwest and Pacific Stock Exchanges. I The company had 66.463 holders of common stock as of December 31,1983. The company's Certificate of Incorporation and the Mortgage and Deed of Trust securing the company's outstandmg bonds contain restrictions on the payment of dividends on common stock which would become applicable if its capital and retained earnings fall below certain specified levels or if preferred stock dividends become in arrears. The retained earnings available for dividends on common stock as of December 31,1983 were approximately S97,900.000 under the most restrictive of these provisions. 4 1983 1982 Dividend Price Dividend Price 4 Declared High Low Declared High Low First Quarter S.41 16 % 15 % S.395 14 % 11 % Second Quarter .41 17 15% .395 15 13%. Third Quarter .41 17% ' - 15% .395 15% 13 % 1 Fourth Quarter .45 19%. 16 % ,41 - 16 % 13% - i. 4 V ,t '_'ny ~ f a A f ~

Dalmarva Power & Light Company - Riport ofInd: pend:nt C:rtified Pubilc Accountants 7b th3 Board of Directors We have examined the consohdated balance sheets and statements of capitalization of cadStockholders Delmarva Power & Light Company and subsidlary companies as of December 31,1983 Dehnarva Power and 1982, and the related consolidated statements of income, changes in common cad Light Company stockholders' equity and sources of funds for construction expenditures for each of the Wilmington, Delaware three years in the period ended December 31,1983. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessaryin the circumstances. In our opinion, the financial statements referred to above present fairly the consolidated financial position of Delmarva Power & Light Company and subsidiary companies at December 31,1983 and 1982, and the consolidated results of their operations and sources of funds for construction expenditures for each of the three years in the period ended December 31,1983, m conformity with generally accepted accounting principles applied on a consistent basis. COOPERS & LYBRAND 1900Three Girard Plaza Philadelphia. Pennsylvania February 3,1984 / f i 21 -

Dehnarva Power & Light Company Consolidated Stat:m:nts ofIncoms (Dol!a:s in Thousands) For the Years Ended Dewmber 31 1983 1982 1981 Operating Revenues Electnc S M2,252 S 534,770 S 504.119 Gas 94,358 84,747 83,070 Steam 13,189 17,149 21,315 649,799 636,666 608,504 Operating Expenses Operation: Fuel for electric generation 275.117 239,965 284,646 Net interchange and purchased power (108,654) (79,678) (97,950) Purchased gas 72,475 58,690 56,662 Deferral of energy costs (24,507) 20,837 18,679 ~ Other operation 107,496 100,956 89,172 Maintenance 53,781 43,947 37,316 Depreciation 49,596 49,929 46,833 Taxes on income 67,584 58,500 39,903 Taxes other than income 27,773 26,947 25,918 520,661-520.093 501,179 OperatingIncome 129,138 116,573 107,325 OtherIncome Allowance for other fimds used during construction - 2,447 4,548 ' 4,090 - Other, net 2,440 - 2,015 .1,250 4,887 6.563 5,340. Income BeforeInterest Charges 134,025 123.136 112,665 Interest Charges ( . Long-term debt 45,697 48,895 51,622 l Short-term debt and other 3,999 2,181' '5,355 Allowance for borrowed funds used during construction ( 734)-. ( 1,511) ~ ( 3,023)-- 48,962 49,565 - 53,954 Earnings Netincome 85,063 - 73,571 58,711 Dividends on preferred stock 12,818 17 818 12,818 Eammgs applicable to common stock:- - S-72,245 - S 60,753 S-45,893 ~ Common Stock Average shares outstanding (thousands) ' E 29,541. 28,489. - 25,747 Earnings per average share - .S'

2,45 J S

.2.13 S.

1.78

. Dividends declared per share. 'S 1.68 c S 1.59W S - ~ 1.53% : See accompanymg Notes to Consohdated Financial Statements. Je d _ 22:

. Delmarva Power & I.ight Company Consolida ted St:t:m:nts of Sources of Funds for Construction Expenditur:s (Douars mThousands) For the years ended Dowmber 31 1983 1982 b31 Sources ofFunds Provided from operations: Netincome S 85,063 S 73,571 S 58,711 Less-Preferred dividends declared 12,818 12,818 12,818 -Common dividends declared 49,668 45,471 39,857 Eamings reinvested during the year 22,577 15,282 6,036 l Items not requiring (providing) funds: Depreciation 56,599 51,121 46,833 Amortization of credit arising from sale of contracts ( 7,003) ( 1,192) Amortization of nuclear fuel 2,394 6,192 3,187 Allowance for funds used during construction ( 3,181) ( 6,059) ( 7,113) Investment tax credit adjustments, net 3,495 5,718 17,198 Deferredincome taxes, net 42,701 5,999 6,205 Funds provided from operations 117,582 77,061 72,346 Extemalfmancing: Long-term debt: First mortgage bonds 50,000- 'Ibrm loan 15,500 ( 3,550) (23,450) Common stock 12,863 15,711 35,521 (28,475) ' Changein short term debt. Redemption oflong-termdebt (40,100) Redemption of preferred stock .( 617) Extemally financed funds .(12,354) 12,161 33,596: . Other sources (uses): ~ Decrease (increase) in working capital *. (17,709) (13,172) . 48,604 - Net decrease (increase) in pollution 1 controlfunds held by trustee ( 1,041)- .32,507' (35,422) Credit arising from sale of contracts 850 222 ~ (36,088)- Other, net (11.272) -1,867 1.170 Other sources (uses) - z (29,172) 21,424. (21,736) Construction Expenditures . (excluding allowance for funds used - during construction) ' S.76,056 S 110,G46 S 84.206: Decrease (facrease) ' Accountsreceivable S( 7,586) : S -.679 iS (15,064) - ?fjworkingcapital* : Deferred fuelcosts, net (23,12G < - 21,374 18,781: Inventories. ~ 5,428 ( 9,516) 11.482 : Accounts payable. 7,993: ( 3,607) ( 7,89Q 'lhxes accrued - ( 4,488) (21,877). 34,386 Interest accrued ( 1,016) , ( 9,265) '

15,082 =

Other, net. ' 5,086 9,040 L - (- 8,167) -Ibtal S(17,709) $(13,172). S 48,604

• 0ther than short term debt, long-tenn dt bt due and preferred stock redeemable within one year and current -

- deferredincome taxes. See acompanying Notes to Consobdated Financial S:a'ements. 2.$ '

Delmarva Power & Light Company Consolidated Bal:nce Sheets (Dollars m Thousands) ASSETS AsofDecember31 1983 1982 UtiUtyPlant-Electric S 1,499,606 S 1,451,044 &t originalcost Gas 75,067 69,083 Steam 24.108 24,023 Common 65,772 59,522 1,664,553 1,603,672 Less: Accumulateddepreciation 440,079 405,830 Net utility plantin service 1,224,474 1,197,842 Plant held for future use 14,844 22,021 Construction workin progress 36,264 45,702 Nuclear fuel,atamortized cost 22,520 13,272 1,298,102 1,278,837 NonutilityPropertyand Net nonutility property, at cost 12,436 3,289 OtherInvestments Pollution control funds held by trustee 10,645 9,604 23,081 12,893 CurrentAssets Cash 15,585 21,889 Marketable secur; ties, at cost 6,983 2 035 Accounts receivable: Customers 47,938

43;090 Other 22,419 19,681 Inventories, at average cost

Fuel (coal, oiland gas) 51,693 57,921' Materials and supplies 23,532 22,732 Prepayments - 3,943 _ 3,968 Deferredincome taxes 3.128 12,308. 175,221 183,624 Deferred Chages and Refundable taxesandinterest 30,134 27,531' - Othe! Assets Unamortized debt expense 4,915 5.162 Other 1,810 1,724 -36,859 - 34,417 'Ibtal -S 1,533,263. S 1,509,771 See accompanying Notes to Consohdated Fmancial Statements. .-),( ;

Delmarva Power & Light Company - Consolidated BalDnceSheets (Ddlars in Thousands) LIABIL,ITIES As of December 31 1983 1982 Capitalization Common stock S 100,714 S 98,039 (see Statements Additional paid-in capital 225,585 215,397 of Capitalization) Retained eamings 177,214 154,637 Tbtal common stockholders' equity 503,513 468,073 Preferred stock: Without mandatory redemption 105,000 105,000 With mandatory redemption 48,583 50,000 Long-term debt 557,835 562,515 1,214,931 1,185,588 ) Current Liabilities Long term debt due and preferred stock redeemable within one year 10,900 30,100 Accounts payabh 32.109 24,116 Taxes accrued 13,794 18,282' Deferred fuel msts, net 2,880 26,006 Interest accrued 19,289 20.305 Dividends declared 13,409 11,910 Other 16,229 .13.046 108,610 143,765 Deferred Credits And . Credit arising from sale of contracts 33,637 39,790 OtherLiabRities Deferred income taxes, net 98,744 66,200 - Deferred investment tax credits - 63,133 59,638 Nuclear fueldisposal costs 10,888 7,757

Other 3,320 -

7,033-209,722 ' 180,418

Other -

Go nmitments anc Contingencies (Notec 6 and 10) 'Ibtal S 1,533,263 S 1,509,771 See accompanying Notes to Consohdated Finanaal Statements. 125

--= =. Delmarva Power & Light Company - C:nsolidated Stat:m:nts of Capitalization Dollars m Thousands) As of Dewmber 31 1983 1982 Common Stockholders' Common stock, par value S3.375 per share Equity authorized 35,000,000 shares, outstandmg 29,841,182 and 29,048,445 shares S 100,714 S 98,039 Additional paid in capital 225,585 215,397 Retained eamings 177,214 154,637 'Ibtal Common Stockholders' Equity 503,513 41% 468,073 ' 38 % = Cumulative Preferred Par value S25 per share, 3,000,000 shares authorized, none outstanding Stock Par value S100 per share,1,800,000 shares authorized Without Mandatory Redemption: Series Outstanding 3.70 %-4.56 % 240,000 shares 24,000 24,000 5.00 %-7.84 % 330,000 shares. 33,000 33,000 7.88 %-8.96 % 480.000 shares 48,000 48,000 Prefened Stock without Mandatory Redemption 105,000 9% 105.000. 9% With Mandatory Redemption:' 9.00% Series 200,000 shares 20,000 20,000 12.56% Series - 300,000 shares 30,000 30,000 50,000 50,000 4 Less: Reacquired prefened shares held in treasury (at cost) 617 49,383 4%1 50,000-4%- Less: Amount to be redeemed within one year - 800 - Preferred Stock with Mandatory Redemption 48,583 50,000 Long-Term Debt First Mortgage and Collateral'Itust Bonds: Maturity Interest Rates

Jan.1,1983 -

9%%

30,000 May 1,1984 3%% 10,000 10,000

Aug.1,1984

9%%. '10,000 Dec.1,1985 3%%. 10,000-10,000 ' ' Jun.1,1988 -3%% 25,000 25,000 1994-1997 - ' 4%%-6%% ~ 50,000 -50,000 1998-2002-l 7%-11%% 158.100.- -158,100 2003-2007: 6.6%-11%. .121,250' .121,250

2008-2011 9%%-12%

i111.900 111,900 - 486,250-526,250

1. alludon ContmlNotes:

Series 1973, 5.7% effective rate, due' 1983-1998 f . 7,900. . 8,000 Series 1976,7.3% effective rate, due 1992-2006 - s34,500 34,500 42,400 42,500- ' 'Ibrm Loan 38,500- -23,000 '

Unamortized premium and discount, net

-- 785 - 865 567,935 146 % 592,615 ~-49% ' Long-term debt due within one year (10,100)- (30.100) f 1 [N ~ 'Ibtal Long 'Ibnn Debt - 557,835: 562,515 f 4 - $1,214,931 100%' $ 1,185,588 100%; ?Ibtal Capitalization ' Redemption pnces at December 31,1983 are $107 (9% Senes) and $113 (12 56% Senes).- See accompanymg Notes to Conschdated Fmancial Statements. - [26. - = P h

. Delmarva Power &IJght Comf,any Consouda ted Stat:m:nts of Chang:s in Common Stockholders' Equity ( (DoCars in Thousands) Additional for the uw ywig r.n&g Common Pat Paid-m Retained December 3L M3 Shares Value Capital Eamings 7btal Balance as of Janu ry 2,1982 24,931,006 S 84,142 S178,085 S133.319 S395,546 Netincome 58511 58.711 Cash dividends declared: Common stock (S1.53%) (39,857) (39,857) Preferred stock (12.818) (12,818) Issuance of ccmmon stock: Public offering 2,200,000 7,425 20,350 27,775 TRASOP 101,947 344 882 1,226 DividendReinvestment and Common Share Purchase Plan 675,392 2.280 5,460 7,740 Capitalstock expense: Common (1,220) ( 1,220) Preferred ( 23) ( 23) Balance as of. December 32,198? 27,908,345 94,191 203,534 139,355 437,080 Netincome 73,571 73,571 . Cashdividendsdeclared: Common stock (St.59w) (45,471) (45,471) Preferred stock (12,818)- (. 12.818)- Issuance of common stock: TRASOP ~ 290.671 981 3,346 ' 4,327 DividendReinvestment and CommonShare - Purchase Plan 849,429 2.867 8,767 - 11,634 - Common stock expense ( 250) ( 250). Balanceas of December 31,1982 29.048,445

93,039 ~ - 215,3?7 -

154,637..468,073 Netincome 85,063 85,063- ~ Cash dividends declared: - Common stock (St.68) - (49,668). ' (49,668) -- . Preferredstock . (12,818) - -(12,818) Issuance of common stock: Dividend Reinvestment -- and Co.nmon Share -

Purchase Plan 792,737

-2,675 10,526 13,201 i Common stock expense , ( 338) - ( 338)- nazanas asof f,841,182 ^ $100,714 ! $225,585 _ S177,214 L.S503,5131 December 31,1983 29 See accompanying Notes to Consohdated Financial Statements. 4 27 ~ ~ , J.

Delmarva Powrr & Light Company Notes to Consoudated FinancialStat: mints

1. SigniBcant FinancialStatements AccountingPoudes The consolidated financial statements mclude the accounts of the company and its totally-held subsidiaries, Delmarva Energy Company and Delmarva Industries, Inc.

Accounting policies are in accordance with those prescribed by the regulatory commissions having jurisdiction with respect to accounting matters. In December 1982, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 71 " Accounting for the Effects of Certain Types of Regulation" (Statement). The provisions of the Statement are effective with respect to the company's financial statements beginning m 1984. The company beheves that the provisions of the Statement will not have a material effect on its financial position or its results of operations. Certain reclassifications, not affecting income, have been made to amounts reported in 1982 and 1981 to conform to the presentaMns used in 1983. Revenues Revenues are recorded at the time billings are rendered to customers on a monthly cycle basis and include rate increases permitted to be billed subject to refund pending final - approval. At the end of each month, there is an amount of unbilled electric and gas service which has been rendered from the last meter reading to the month-end. FuelCosts Fuel costs (electric and gas) are deferred and charged to operations on the basis of fuel costs included in customer billings under the company's tanffs, which are subject to periodic regulatory review and approval. Depreciation andMamtenance The annual provision for depreciation is computed on the straight-line basis using'com-posite rates by classes of depreciable property. Provision for the costs of decommissioning - of nuclear plant is made to the extent of the net cost of removal allowed for rate purposes - (approximately 20% of plant cost). The relationship of the annual provision for depreciation - for financial accounting purposes to average depreciable property was 3.4% for 1983, 3.6% for 1982 and 3.5% for 1981. The cost of maintenance and repairs, including renewals of minor items of property, is charged to operating expenses. A replacement of a unit of property is accounted for as an - addition to and a retirement from utility plant. The original cost of the property retired is ' charged to accumulated depreciation together with the net cost of removal. For income tax purposes, the cost of removing retired property is deducted as an expense.

NuclearFuel The company's share of nuclear fuel costs relating to jointly-owned nuclear generating stations is charged to fuel expense on a unit oi production basis, which includes a factor for spent nuclear fuel disposal costs pursuant to the Nuclear Waste Policy Act of 1982. The company is collecting future storage and disposal costs for spent fuel as authorized by the

.. regulatory commissions in each jurisdiction and is paying such amounts quarterly.. . 28

Delmarva Power & Light Company - Notes to Consolid:ted FinancialStatim:nts

1. Signifiant Accounting income 7bxes Policies (contmued)

Deferred income taxes result from timing differences m the recogrution of certain income and expenses for tax and financial accounting purposes. The principalitems accounting for deferred income taxes are: (1) use of the Accelerated Cost Recovery System and other accelerated depreciation methods for income tax purposes, (2) unbilled fuel and gas production costs deducted currently for income tax purposes, and (3) other timing differences involymg the capitalization of certain taxes and overhead costs. Investment tax credits utthzed to reduce federalincome taxes are deferred and generally amortized over the usefullives of the related utihty plant. An additionalinvestment tax . credit of 1%% in 1982 and 1981 related to the Tax Credit Employees Stock Ownership Plan (a "TRASOP" plan) and of % % in 1983 related to the Payroll Based Employees Stock Ownership Plan (a "PAYSOP" plan) does not affect net income and is recorded as a liabihty until the contribution is made to the Plan. Allowance for Funds Used Dunng Constmction - Allowance for funds ue.ed during construction (AFUDC) is a non-cash item and is defined in the regulatory system of accounts as "the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds so used." AFUDC is segregated into two components: (1) the interest on debt component - (" allowance for borrowed funds used during construction"), which is net of taxes and classified as a credit to interest charges, and (2) the common stock equity and preferred. dividend component (" allowance for other funds used during construction"), which is classified as an item of other income. AFUDC is considered a cost of utility plant with a concurrent credit to income. It is excluded from taxable income for tax purposes. The rate used in determining AFUDC, which includes semi-annual compounding, was 7.8% : in 1983,9.1% in 1982 and 8.7% in 1981.:

2. 'nures onincome Income tax expense for 1983,1982 and 1981 is as follows:-

~ (Dollarsin Thousands) : 1983 1982 ^ 1981 - Operations: ' ' Federal: .S 37,508 S 10,234 : Current - _ S 16,557' . Deferred - 36,654 4,700. 5,301 : State: Current

4,345 7,672

4,936

- Deferred 6,047 - 1,363- . 1,048 - Investment tax credit adjustments, net 3,981 7,257 18,384 : . Otherincome: Current. 816 '2,046. 1,654 - Deferred (64)- -(144) 'Ibtal $ 68,400 S 60,482 ' S 41,413 Investment tax credits utilized toieduce' federal income taxes payable amounted'to ' $7,654,000 in 1983, $10,445,000 in 1982 and $20,917,000 in 1981. The amounts for 1983,- include PAYSOP credits of $360,000 and for 1982 and 1981 include TRASOP credits of ' $1,553,000 and $3,281,000, respectively.. f ( ' ~ b._1. _2 C_ m J

Delmarva Power & Light Company j Notn to Consolida ted Financia1 Statements i

2. TaxesonIncome The following is a reconciliation of the difference between income tax expense and the (continued) amount computed by multiplying income before tax by the federal statutory rate:

(Dollmsin Thousands) 1983 1982 1981 Amount Rate Amount Rate Amount Rate Statutoryincome tax expense $70,594 46% S 61,664 46% S 46,057 46% Reductionin taxes resulting from: Exclusion of AFUDC for income tax purposes (1,463) (1) (2,787) (2) (3,272) (3) Excessof taxdepreciation over book depreciation not normahzed ( 171) (1,312) (1) . (2,826) (3)- Investment tax credits amortized toincome (3,673) (2) (3,188) (2) - (2,533) (3) State income taxes, net of federaltax benefit 5,682 4 5,065 4 3,365 3 Amortization of credit arising from sale of contracts (3,221) (2) .(548) (1) Other, net 652 1,588 1 622-1 Income tax expense S68,400 45% S 60,482 45% S 41,413' 41% The components of deferred income taxes relate to'the following tax effects of timing differences between book and tax income: (Dollarsin Thousands) 1983 1982 1981 Depreciation '.S22,799 S 19,274 S 15,832 - Deferred fuelcosts 12,480 (10,403 (9,352) - Capitalized overhead costs 1,648 926 992 Nuclear fuelstorage costs ' 5,675 ( 2,054) (1,332) Other, net 99. ( 1,745) - 65. Total S42,701 S 5,999 S '6,205 The company's federalincome tax retums have been examined for the years 1975 through 1979. The company has been assessed additional taxes'and interest resulting predominantly from the taxability, on an ordinary income basis, of the net pioceeds from the sale of contracts for a nuclear steam supply system. The assessment would result in net additional federal and state income taxes of approximately S20.3 million and interest - of S17.4 million. These amounts are net of anticipated refunds that result from the reversal ' of the previous tax treatment applied to the sale of the contracts. The company's appeal : on the taxability of the net proceeds is presently in Tax Court. In the opinion of. Jmenagement and tax counsel it appears probable that this issue will ultimately be' - resolved as taxable in an amount which approximates taxes on a capital gains basis. i . During 1982 the company made federal tax and interest payments totalling S28.5 million,

on a capital gains basis, to prevent the compounding of interest on the tax deficiency. The' L ultimate disposition of this issue will not have a material effect on the company's financial ?

position or results of operations..

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Delmarva Power & Light Company Note 3 to C:nsolidated FinancialStatem:nts (Do!!ars m Thousands)

3. Tax:s Other Thanincome 1983 1982 1981 Delaware utlhty S 12,341 S 11,733 S 11.437 Property 6,483 6.129 5,811 Other gross receipts 4.149 3,601 3,444 Payroll, franchise and other 4,800 5,484 5,226 Total S 27,773 S 26,947 S 25,918

- 4. Pension Plan The company has a trusteed noncontributory pension plan covering all regular employees. Pension contributions for 1983,1982 and 1981 were S4,400,000, S4,895,000 and S4.371,000 including S765,000, S914,000 and S717,000 charged to construction, respectively. The contnbutions provide for normal cost and amortization of prior service costs over periods of ten to twenty-five years. The actuarial present value of accumulated plan benefits, determined as of January 1, 1983 was S72,432,000 for vested benefits and $11,901,000 for accrued nonvested benefits. The market value of net assets, at that date, available for plan benefits were S161,749,000. The actuarial present value of accumulated plan benefits, determined as of January 1,1982 was S60,862,000 for vested benefits and $12,769,000 for accrued nonvested benefits. The market value of net assets, at that date, available for plan benefits were $125,050,000. The assumed rate of retum used in determining the actuarial present value of accumulated plan benefits was 8.0% for 1983 and 1982.

5. Capitalization Common Stock At December 31,1983 there were 1,523,026 shares of common stock reserved for issuance under the Dividend Reinvestment and Common Share Purchase Plan and the PAYSOP.

RetainedEarnings The current first mortgage bond indenture restricts the amount of consolidated retained - eamings available for cash dividend payments on common stock to S35,000,000 plus accumulaticns after June 30,1978, which available amount at December 31l 1983 was '- approximately $97,887,000. PreferredStock. . The annual preferred dividend requirements on all outstanding preferred stock at : December 31,1983 are S12,746,000. If preferred dividends are in arrears the company may - not declare common stock dividends or acquire its common stock. WithoutMandatoryRedemption These series may be redeemed at the option of the company at any time, in who' le or in part, at the various redemption prices fixed for each series (ranging from $103 :o S106 at : December 31,1983). f s i 31. A =

.y ;,.:. Detmarva Power & Ught Company ' N.f ' Notes to Consolidated FinancialStatements .M' Q,;,. jg. - _ b k. S. Capitalization Preferred Stock (contmued) (contmued) With Mandatory Redemption (1) The 9% senes, issued in 1978, has a sinking fund requaement, commencing in December,1984, to redeem 8.000 shares annually at $100 per share plus accrued and unpaid dividends. At the option of the company, an additional 8,000 shares may be redeemed on any sinking fund date, without premium. (2) The 12.56% series, issued in 1930, has a sinking fund requirement, commencing in December,1986, to redeem 9,000 shares annually at $100 per share plus accrued and unpaid dividends. At the option of the company, an additional 9,000 shares may be redeemed on any smking fund date, without premium. (3) Under certain conditions, these senes may also be redeemed at the option of the company. (4) Aggregate mandatory sinking fund redemptions during the next five years are S800,000 in 1984 and 1985 and 31,700,000 in 1986,1987 and 1988. (5) Durmg 1983, the company purchased 7,200 shares of its 9% preferred stock for a total cost of S617,400, which will be held in Treasury. Capita!StockExpenses Capital stock expenses relating to the issuance of common and prefened stock have been reflected as a reduction of additional paid-m capital. Long-Term Debt (1) Sinking fund provisions with respect to substantially allissues of the First Mortgage and Collateral Trust Bonds require that there be deposited annually with the Trustee cash equal to one percent (1%) of the greatest aggregate principal amount at any one time outstandmg. There shall be credited against such cash requirements (a) an amount not exceeding sixty percent (60%) of the bondable value of property additions which the company then elects to make the basis of thie credit, and (b) the aggregate pnncipal amount of bonds which might then be made the basis of the authentication and dehvery of bonds and which the company then elects to make the basis of this credit. For the years 1981-1983, the company elected to certify property additions to satisfy its sinking fund requirements equal to 1% of each series as permitted by the indenture. (2) Substantially all utihty plant of the company now or hereafter owned is subject to the lien of the related Mortgage and Deed of Trust. (3) Pursuant to a bank loan agreement the company has a S38,500,000 revolving credit commitment through December 31,1984, convertible into a term loan due December 31,1987. From time to time, the company issues short-term tax - exempt revenue notes, and,in recognition of the long-term financing commitment, these notes have been classified as long-term debt (term loan). The loan agreement requires a commitment fee of % % on any unused portion of the revolving credit commitment and term loans may be prepaid at any time without penalty and would bear interest at 105% of the prime rate. (4) In January,1983 S30 million First Mortgage and Collateral Trust Bonds were redeemed. In August,1983 the company redeemed S10 million Pollution Control Revenae Bonds duo August 1,1984. (5) Maturities of long-term debt during the next five years are 1984-S10,100,000,1985-S10,100.000; 1986 and 1987-S150,000; J988-S25,150,000 (6) The annualinterest requirements on all borrowings classified as long-term debt at December 31,1983 are S45,249,000. Unamortized Debt Discount, Premium and Expense These amounts are amortized on a straight-hne basis over the lives of the long-term debt issues to which they pertain. 32 s

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Delmarva Pow;r & Light Company Notes to Consolida ted Financial Stat:m:nts

10. Contingencies c)NuclearInsurance (continued)

The Company's insurance coverages applicable to its nuc' ear power units are as follows: (Mdhonsof Dollars) Maxunum Retrospective Maximum Assessmentfora TypeandSource of Coverage Coverage *' singleincident Public Liability: Private S160 None Price Anderson Assessment'" 410 SI.5* S570* Property Damage:* Peach Bottom

• S460 Salem""

S500 S4.3 All units

• S425 St.2 Replacement Power:

~ Nuclear ElectricInsurance Limited (NEIL)"" S2.5 S2.3 '" Retrospective premium program under the Pnce-Anderson habdity provisions of the Atomic Energy Act of 19M as amended Sublect to retrospective assessment with respect to loss from an incident at t ny hcensed nuclear reactor m the Umtcd States. '8' Maximum assessment would be S3.000,000 in the event of more than one incident m any ye:s_ lJmit of habdity under the Price Anderson Act for each nuchtincident. 'a The company is a self insurer, to the extent of its ownership interest, for any property loss in excess of the - stated amounts < "' For property damage to the Poach Bottom nuclear plant facditics, the company and its co-owners have private insurance up to $460 milhon. - "" Nucloar Mutual Limited. a utihty-owned mutual insurance company with which the company and the Salem nuclear facihty co-ovmers are members Subject to retrospective assessment with respect to loss at any nuclear generatmg station insured by the mutual insurance company. .

• All units are insured by Nuclear Electnc Insurance Limited (NEIL !!) for losses in excess of $500 milhon. In the event of losses, the company would be sub}ect to a minimum assessment of seven and a half times the

. annualpremiums.

• Unhty owned mutual insurance company with which the company is a member which provides coverage agamst extra expense incurred in obtalmng replacement power dunng prolonged accidental outages of nuclear -

power units. Mammum weekly indemnity for 52 weeks which commences after the first 26 weeks of an outage. Also provides $1.250.000 weekly for an additional 52 wmksi ' d) Atlantic City Contract The company has entered into a five-year contract, effective October 1; 1980, with. Atlantic City Electric Company to sell one-eighth of the electricity generated by Indian - River unit 4. The major provisions of the contract allow for the company to receive, ' irrespective of the availability of electric genaration,- one-eighth of all operation and c v1 l maintenance expenses incuned and a fixed retum on the plant investment.- Approval of this agreement was received from the FERC and the Delaware Public Service Commission - - ; (DPSC)in 1980. Tne DPSC has postponed until the completion of the contract the issuance - of a final order regarding the extent,if any, that the net benefits from the contract be passed to the stockholders.

e)'Other Thebompany is involved in certain other legal and administrative proceedings before -

various courts and govemmental agencies conceming rates, environmentalissues, taxes,. licensing,- fuel contracts and other matters. In the opinion of management, the ultimate ~ i disposition 'of these proceedings will not have a material effect on the financial position.: or results of operations of the company.. ~ f -v t .35; L 1 1

~ Delmarva Powtr & IJght Company Notes to Consolidated FinancialStat:m:nts 22.SegmentInfonnation Segment information with respect to electric. gas and steam operations was as follows: (Dollars in *!housarvis) 1983 1982 1981 Operating Revenues-Electric S 542,252 S 534,770 S 504,119 Gas 94.358 84,747 83,070 Steam 13.189 17.149 21.315 Total S 649,799 S 636,666 S 608,504 OperatmgIncome: Electric S 122.993 S 109,620 S 100,836 Gas 4,928 5,800 5,294 Steam 1.217 1.153 1,195 - Total S 129.138 S 116,573 S 107.325 Utility Plant:""2> Electric. S 1,242.145 S 1,226,140 $ 1,166,376 : Gas 51.033 147,044-45,608 Steam 4.924 5,653 6.259 '1.298,102 1.278.837 1.218,243 OtherIdentifiable Assets: Electric 106,308 114,931 .134,168 12,351'. -14,710 - -14,741' -Gas Steam: -471 455 419 119,130 130,096 149.328 ~ Assets Not Allocated 116.031' '100,838' 92.958 Total Assets -

S 1.533.263 S 1,509,771 S 1,460,529

' Depreciation Expense;* L - Electric : .S l 52.530 - S _'47,276 .43,238 .S-Gas 3,173. 2,950 2,703_ Steam ~ 896 895' 892~ Total: S 56,599 -S 51.121 S '46,833: . Construction Expenditures:* Electric -.

S 70,927

'S " 107,533 ; S 81,651. > - Gas - 5.070. .3,019 ' 2,531: - Steam. 59 94 24 1 Total 'S= 76,056' S. 110.646 ~ - S-84.206:-

"Yncludes plant held for future usa construction work in prcaress and allocation of common utihty propertys 18 Stated net of the respective accumuhted provisions for depreciation.

• • • Excludes amortization of aerit ansing from sale of contracts. :
  • Excludes alkr,vance for funds used during constructioni Operating income tiy segments 's reported in accordance with generally accepted I

,~ i' - accounting and ratemaking principles within the utihty industry at;d, accordingly, includes E each segment's proportionate share of taxes on income and general corporate expenses. J 4 9. .b '.

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De!rnarva Pow:r a Ucht Company Notes to Consolidated FinancialStat:rn:nts

22. SupplementaryInfonnation The following supplementary financial information, as presenbed by the Financial toDisclose the Effects of Accounting Standards Board m Statement No. 33,is supplied for the purpose of providing Changing Prices (Unaudited) information about the effects of changing prices on the company's operations. The information should be viewed as an estimate of the approximate effect of mflation rather than as a precise measure.

Constant dollar amounts represent historical costs stated in terms of dollars of equal purchasing po"rer, as measured by the Consumer Price Index for All Urban Consumers. Current cost amounts reCect the change in specific prices of plant from the date the plant was acquired to the present and differ from constant dollar amounts to the extent that specific prices have increased more or less rapidly than prices in general. The current cost of utihty plant represents the estimated cost of replacing existing plant assets and was determined by indexing existing plant by the Handy-Whitman Index of Pubhc Utihty Construction Costs. Supplementary Financial Data Adjusted for the Effects of Changing Prices (Dol:arsinThousands) For the Year ended Demmber31. HistoncalCost ConstantDollar - Current Cost (Average 1963 Dollars) Operating Revenues S 649,799 S 649,799 S 649,799 Operating Expenses: Operation and Maintenance 375,708 .375,708 375,708 Depreciation -56,599 102,504 110,055 Amortization-Summit (7,003) (7,003) - (7,003) Thxes 95,357 95,357 95,357 OtherIncome-Net (4,887) (4,887) - (4,887) . Interest Charges "48,962 48,962 48,962 . Net Income"' S 85,063 S 39,158-S 31,607 Earnings per correnon. share (after preferred ~ dividend ~ equirements)'" ~ S 2.45 S.89: S.64: r Increasein current cost of utilityplant held. S'165,061 during the yeaf* Adjustmentto net

(79,800).

recoverable cost. S. (2,135) Effect ofincreasein (79,845) -generalpricelevel. ' Excess ofincreasein currentcostsafter ' adjustment to not recoverable cost + overincreasein. 5,416 : . generalpricelevel - Purchasingpower gain ? 22.680. 22,680 on netamounts owed ( Net - - S 20,545i $ 28.096 ~ I

• Inciuding the adjustment to net recoverable cost, the income (loss) on a constant do!!ar and curren

- - for 1983 would have been $37,023 and 3(48.1937. respectively.

• Excluding adjustment to net recoverable cost. :.

i

• At December 31,1983, current cost of net utity plant was $2,211,873. whde lustorical cost was $1.298,102.

~ In 1983, the method of computing the reserve for depreciation under current cost was changed _ Had this ;

method been apphed in 1982, the current cost of net utility plant would have been $2.080.261..~

~- J. s f 4

i b . Delmarva Power & Light Company - Notes to Consolida ted FinancialStat:ments l 12.SupplementaryInformation SupplementasyFive-YearCompansonofSelectedFmancialData (continued) Adjusted for the Effects of Changing Prices J Gn Thousands"'of Average 1983 Dollus) For the Yearsended Dorember31 1983 1982 1981 1980 1979 Operating revenues Historicalcost do!]ars S 649,799 S 636,666 S 608,504 S 520,470 S 424,699. Constant dollars 649,799 657.147 666,584 629.288 582,936 Netincome Constantdollars 39.158 28,448 22,270 19,371 39,948 Current costs 31 % 7 23.213 16,461 10,111 27.487 Earnings per common share Constant dollars .89 .54 .32 .33 1.18 Current costs .64 .35 .10 (.05) .65 Net assets at year end Historicalcost dollars 608,513 573,073 542,080 500,546 490,616 Constantdollars and current costs 598,288 584,832 574,624 578,030 636,798: Excess ofincreasein general priceleveloverincreasein current costs' ! ~ 5,416 3,735 (65,956) (113,141) (134,926) Purchasing power gain onnet amounts owed 22,680 23,409-54,813 75,358. 81,763 Cashdividendsdeclared per common share Historicalcostdollars-S 1.68. .S 1.59 % S 1.53% - IS 1.49 S 1.40 % - Constant dollars 1.68 1.65 -1.68 1.80 1.93 Marketptice per common - share at year-end ~ -Historical cost dollars. 19.25 - '16.38 12.63-11.75 12.63 Constant dollars 18.93. 16.72 13.39 13.57 16.39- ~ Average Consumer Price Index(1967 = 100)- ' 298.4 - 1289.1 -272.4. 246.8 217.4 "'Except per share amounts. At net recoverable cost. - '8'After adlustment to net recoverable cost. As required by Statement No. 33, the current provisions for depreciation on the constant ' - dollar and current cost amounts of utihty plant were determined by applying the com- . pany's depreciation rates to the indexed plant amounts, even though depreciation is : s ~ limited to recovery of historical costs as further discussed below. Other operating. 1 expenses were either not required to be adjusted er were not adjusted due to rate- ' making considerations.- The corripany, by holding monctary assets such as cash and receivabbs, loses purchasing i;, power during periods ofinflation because these items can purchase less at a future date. i ilO

Conversely, by holding monetary liabihties, primarily long-term debt payments in the '-

q LK future will be made with dollars having less purchasing power. For the years 1979-1983; i the company's monetary liabilities exceeded monetary assets.which resulted in a. purchasing power gain on net amounts owed during the year. s ^* t j' j .; Q : j ~~ ~ = x + l W- ___ __ _ m y

Delmarva Power Cs t.tght Company Notes t3 Consolida ted Financia15 tat:m:nts

22. SupplementaryInformation The rate regulatory pamss hmits the company to the recovery of the historical cost of (continued) plant. Therefore, the excess of the cost of t> stated in terms of constant dollars or current cost ever the historical cost of plann n.t presently recoverable in rates as depreciation and is reflected as a reduction to n t recoverable cost. Based on past practices, however, the company beheves it will be ahowed to eam on the increased cost of its facihties when replacement actually occurs-Since the gain from the decline in purchasing power is attributable to long-term debt which has been used to finance utihty plant, the reduction of utihty plant to net recoverable amount is netted again.:,t the purchasing power gain on not amounts owed during the year.

- 23. QuarterlyFinancial The quarterly data presented below reflect all adjustments necessary in the opinion of Information(Unaudited) the company for a fair presentation of the interim results. Quarterly data normally vary seasonably with temperature variations, differences between summer and winter rates, the timing of tate increases and the scheduled downtime and maintenance of electric generating units. Eamings Eamings Applicable Average per-Ouarter Operating Operating Net to Common Shares Average Ended Revenue Income Income Stock Outstandmg Share (Dollarsin Thousands) 1983 March 31 S 156,749 S 30,164 S 19,906 S 16,702 29,237 S.57 June 30 152,452 27,485 16,218 13,013 29,443 .44 September 30 188,155 45,130 33,687 30,483 29,655 '1.03 December 31 152,443 26,359 15,252 12.047 29.831 .41. S 649,799 5 129,138 S 85,063 S 72,245 29,541 S 2.45 - 1982 March 31. S 179,138 S 31,174 S 20,512 - S 17,308 28,104 S.62 ' June 30. 144,106 24,657 13,948 10,743 - 28,302 =,37 September 30 166,382 36,123 25,303 22.099 28,516 .78 December 31 147,040 24,619 13,808 10,603 29.033 .36 S 636,666 -S 116,573 S 73,571-S 60,753 - 28,489 S 2.13 In the fourth quarter 1983, adjustments were recorded for FERC rate issues which increased income and charges for a voluntary Delaware revenue refund and other i regulatory items. The net effect of these adjustments was to reduce fourth quarter net income by approximately S2,200,000 (7c per share).- s s 39 s

Delmarva Power & Light Company Consolidated St:tistics 10 Years of Revww 1983 1982 1981 1980 DoctricRevenues (thousands): Residential S 193,021 S 183,258 S 164,919 S 144.637 Commercial 140,809 137,434 123,099 112.166 Industrial 126.703 127,441 129,601 116,401 ' Other utilities, etc. 68,991 73,469 73,602 63,698 Miscellaneous revenues 12,728 13.168 12,898 7,025. 'Ibtal electric revenues S 542,252 S 534,770 S 504.119 S 443,927 - Doctric Sales (1,000 kilowatt-hours): Residential. 2,136,265 2,026,398 1,996,647 2,046,546 Commercial 1,844,324 1,729.863 1,660,147 1,648,776 Industrial 2,600,492 2,255,673 2,454,685 2,429,842 . Other utilities, etc 1,297,395 1,237,508 1,283,845 1.335.216 - Ibtal electric sales 7,878,476 7,249,442 7,395,324 7,460,380 Dectric Customers '(end of penod): Recidential 267,357 260,371 255,646 246,887 Commercial 30,751 29,966 29,450 -28,162 Industrial 723 741 788 821 Other utilities, etc. 434-434 434 440 'Ibtal elecuic customers 299,265 291.512 286,318 276,310 Gas Revenues (thousands). - Residential. S 36,694 - S 36,505 ' S 34,123 S 26,525 Commercial 16,527 15,792 14,344 10,342 Industrial 23,232 20,112 22.259 12,404 Interrupt 1ble 17,026 11,733 11,711-9,293 Other utilities, etc. .115 53 61 '46 Miscellaneous revenues 764 '552 572 430- 'Ibtal gas revenues S 94.358 S 84,747 . S 83,070 S 59,040 Gas Sales (mahon cubic feet): . Residential 5.640 6,062 6,193

6',321 Commercial -

' 2,677 2,768 2,704 , 2,683 Industrial . 4,378 4.108 4,809 3.937-4 . Interruptible ' 3,723 2,656 ~ 2,802 .2,738 . Other utilities, etc. - 31 10 ' 14 'Ibtal gassales' 16,449 ' 15,604 16,520 ' 15,693 ~ Gas Customers. _ "(andof penod)i Residential 69,608 69,092 = 68,608 A7.784 - 1 Commercial 4,075 - 4,057 3,967 3.846 Industrial -160 166' 167 155 Interruptible - 19 18 !16 :

16 1

Other utilities, etc. -1 ,1 'l .1 - 'Ibtal gas customers 73,863 73,334 -72,759 71,802 RenneryService ' Electricity delivered 313,086 ' 322,804 L 34iO63 '328,420 = (1,000 kilowatt-hours) Steam delivered.- 6,965,904 7,778,929. 7,673,420 7,570,944 ' (1,000 pounds). ^ ' jg 1

Average Annual Compound % 1979 1978 1977 1976 1975 1974 1973 Rate of Growth S 115,381 S 105,237 S 97,691 S 80,416 S 77,069 S 68,730 S 51,799 14.06 91,798 82,796 74,641 60,111 58,169 51,192 37,888 14.03 98,023 83,972 76,801 64,458 64,141 66.381 41,284 11.87 53,782 40,840 38,974 34,396 35,606 32,976 21,518 12.36 4,682 5.261 3,461 2,398 4,370 9,194 5,287 9.18 S 363,666 S 318,106 S 291,568 S 242,279 S 239,355 S 228,473 S 157,776 13.14 1,968,452 1,979,624 1,924,723 1,787,663 1,672.180 1,597,472 1,629.641 2.74 1,598,299 1,568,600 1,495,796 - 1,412,259 1,359,673 1,303,053 1,360,216 3.09 - 2,624,438 2,418.527 2,277,630 2,260,661 2,142,151 2,461,303 2.512,877 0.34 - 1,300,611 1,281,498 1,207,941-1,199,155 1.218,785 1.230,528 1,252,977 0 35 - 7,491,800 7,248,249 6,906,090 -6,659.738 6.392,789 6,592,356 6,755,711 1.55 242,745 237,925 233,106-230,579 221,780 215,516 208,073 2.54 27,998 28,421 29,648 28,345 27,345 27,132 26,708 1.42 874 858 921 1,002 923 891 867 (1.80) 478 .480 561 550 545 501 506 (1.52) 272,095 267,684 264,236 260,476 250,593 244,040 %,154 2.40 . P '25,719 S 28,370 S 21,829 S 18,826 S 15,365 S 14,298 S 13,018 -10.92 8,954 10,154 7,133 6.062 4,676 4,201 3,715 16.10. 9,884 10,191 6,950-5,984 4,343 3,726 3,505 20.82 4.440 716 169 1,301 1,211 1,532 1,363 28.72 55 93 49 44 33' 26 30= 14.38 270 116 103 31' '45 96 22 42.58. S 49,322 S 49,640 S 36,233 S 32,248. S 25,673 S 23.879 $ 21,653 15.86 6,423 6,941 6,751' 6,956 - 6,540 - 6,863 = 7,134 (2.32) 2,415 2.593 ~ 2,439 2,586 2,429-2,526. . 2,614 0.24 -3,388 - 3.290 2,811 '3,264-2,849 3,215' 13,653 1.83 .1,720 319 81' 953 1,073 2,257 2,346 - 4,73 16 29 17. 20 18~ 16 ~23 3.03 ~ 13,962 13,172 12.099 13,779 12,909 - 14,877 15,770 0.421

66,631' 66,364 66,231 L67,754 68,160:

68,262 68,562 - 1.50 ~ 3,712 ' 3,773 3,738-4,154 4,189 - 4,356 4.418 - (0.80) - ~

131 1163 163 198-198 195 197 (2.06) 16 21-

-21, 21-21 21: .21. (1.00) : 1 1 :1 1- -1 1 .70,491 -70,322 70,154 72,128-72,569 _ 72,835: 73,199 - 0.90- _ 262,159-270,006. ' 289,049' 318,389 - 297,282 350,021 - 341,700 -- (0.87) -,888,366 1 5,301,4211 ' 5,517,000 ' L 5,921,000-5,926,000- .1.63. i6 378 705 . 6,016.095 4 = 41, m a

Delmarva Pow:r & Light Company GeneralInfonnation Trustees Corporate Address First Mortgage and Collateral Trust Bonds-Delmarva Power. ChemicalBank, 800 King Street, P.O. Box 231, New York, New Yark. Wdmington, Delaware 19899. Pollution Control Revenue Bonds-Telephone (302) 429-3011 Girard Bank Delaware, Wilmington, Delaware AnnualMeeting Bank of Delaware, The Annual Meeting will be held on Aptd 24 Wdmington, Delaware at 12:30 p m., in the Grand Opera House, re rmt M Wdmington, Debwam. Wdmington 'hust Company, Wamington, Delaware. AdditionalReports 'Ib supplement information in this Annual Transfer Agents andRegistrars Report, a Financial and Statistical Review Preferred Stock-(3973 1983) and the Form 10-K are available WdmingtonTrust Company, upon request. Please write to Stockholder Wdmington, Delaware. Relations, Delmarva Power,800 King Common Stock-Street, RO. Box 231. Wilmington, Wilmington Trust Company, Delaware 19899 Wdmington, Delaware, Manufacturers Hanover Trust Company, New York, New York StockSymbol Common Stock, DEW-listed on the New York and Philadelphia Stock Exchanges. Regulatory Commissions Federal Energy Regulatory Commission, 825 North CapitolStreet, N.E., Washington, D.C. 20426. Delaware Public Service Commission, 1560 S. du Pont Highway, Dover, Delaware 19901. Maryland PubhcService Commission, American Building, 231 East Baltimom Strmt, ' Baltimom Maryland 21202. Wrginia State Corporate Commission, _ Jefferson Buildmg, R O. Box 1197, Richmond, Wrguua 23209. 1 ~

' Delmcru Power & Light Company ' 061cers Management Changes Robert D. Weimer resigned as chairman of the board and as a director effective December 31,1983. Nevius M. Curtis, president and chief executive officer, has been elected to also hold theoffice of chairman. Frank A. Cook and Howard E. Cosgrove have been promoted to senior vice presidents. Mr. Cook's primary responsibility is production operations, while Mr. Cosgrove oversees I all division operations and engineering. Roger D. Campbell has been promoted to vice president and chief financial officer replacing Mr. Cosgrove. Rounding out the senior management team is Harland M. Wakefield, Jr., senior vice president, whose responsibilities include information systems, personnel, industrial relations, and administrative setvices and H. Ray Landon, senior vice president, whose responsibihties include regulatory practice, marketing, corporate communications, resale services, and legal services. NeviusM. Curtis Executive Committee Chairmanof theBoard. President Nevius M. Cmtis, Chairman; and Chief Executive Officer ' Werner C. Brown; Oscar L. Carey; Dr.E. ArthurTrabant; Frank A. Cook Harland M. Wakefield, Jr. ~ Senior Vice President Audit Committee HowardE. Cosgrove OscarL Carey, Chairman; Seruor Vice President' Wemer C. Brown; John R. Cooper H. RayLandon. NominatingCommittee Senior Vice President Dr.E. ArthurBabant, Chairman; ~ Harland M. Wakefield, Jr.. Nevius M.Curtis: SallyV.Hawkins ' SeniotVice President Compensation Committee Wemer C. Brown, Chairman: RogerD.' Campbell . Oscar L. Carey; Nevius M. Curtis; .Vice President and Chief Financial Officer-William G. Simeral " Donald E. Cain c Division Vice President Northem Division. L Wayne A. Lyons Division Vice President. Southern Division ' Pau1S. Gerritsen. Vice President, Regulatory Practices. - Thomas S. Shaw, Jr. ' ~ VicePresident, Production,. Alfred C. Thawley, Jr. ' Secretaryand Reasurer CharlekMarchyshyn ' j . Comptroller ? ~ .i' u 'c r D 4 G } 1 i a I .., :1 k C ya z 4 k 3 m 5 p_ -n 3 ~ ]

f Mr. Robert D. Weimer retiredas chairman 1i oftheBoardofDirectors ofDehnarra Potter & Light Company efective December 31,1983 Mr. Weimer held numerouspositions during his 36 l years ofservice. He tras elected chiefexecutive oficer one month after the Arab oil embargo of 1 1973. He led Delmarva Pouer through a period of l unprecedented rapid change in the energy business. ~ l The company's strongfinancialposition today is a reflection ofthatleadership. l l Boarco! Directors Nevius M. Curtis Chairman of the Board, President and Chief Executive Officer of the Company b 11y V. Hawkins Werner C. Brown j ector and Resident of Debware i Retired Chairman of the Board of Herculas, Broadcasting Company and President and incorporated (chemical manufacturer) Generamanager of SMon M(radio Wihaington, Delaware broadcasting), Wilmington, Delaware /,), - c ( r Charlotte Lee Cannon James O. Pippin, Jr. l a N Director of H. P. Cannon & Son, Inc. PresidentandDirectorof the A (food processing firm) Centerville NationalBank of Bridgeville, Delaware 3 Maryland.Centerville, Maryland l '1 s OscarL. Carey William G. Sirneral y President and Director of Larmer Corporation Director and Executive Vice President (general real estate and home builders) and a member of the Executive Cornmittee Salisbury, Maryland /'j., of E. I. du Pont de Nemours & Company j-6 z % (energy and diversified manufacturing) ff Wilmington, Delaware j a Frank A. Cook 2 Dr.E. ArthurTrabant l Senior Vice President of the Company Presidentof theUniversityof Delaware Newark, Delaware i ,9 r \\ John R. Cooper Harland M. Wakefield, Jr. {. Manager of Environmental Affairs and

• 7 Senior Vice Piesident of the Company

'g Occupational Health, Petrochemicab J Y., Department of E. I. du Pont de Nemours & Company (energi and diversified manufactunng) Wilmington, Delaware s

Delmarva Power

1. NGr Bulk Rate o

800 King Street l U.S. Postage P.O. Ik)x 231 Paid Wilmington, DE 19899 OE Pe:mit No. 68 + m J k' _L-__------_--!------ - --- l 2------- ^

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OUR HUSINESS: 0 % provide safe and reliable electric energy to our customers. 0 % deliver our product and services at the lowest, reasonable prices. 0 % provide a fair return on invested capital. OUR COMMITMENT: - O % work with our customers to promote the wise use of energy and to control costly growth in peak electrical demand. Oh provide employees with safe working conditions, to afford th:m equal opportunity for training and advancement, and to c:mpensate them fairly on the basis of performance. OTo conduct our operations with regard for both the value of natural resources and the preservation of environmental quality. 0 % work, directly and indirectly, toward the economic vitality of th: Company's service area. 0 % plan for the future in such fashion as to assure consistency of financial performance, and continuous access to additional capital at reasonable rates. i l I I The Corporate Name and Trade. Contents j ' Name: Atlantic City Electric Com-Letter to Shareholders 2 1 pany is the official name of the - The Atlantic Electric Service Area 4- ~ Company as it appears in the Arti. Atlantic Electric's Sound - cles ofIncorporation. The Company - Fhndamentals 6 also uses the registered trade name . Management's Discussion and - Atlantic Electric in various publica- ~ Analysis 14 ' tions to shareholders and custom-

Financial Statements -

17 crs, tnd in its daily operations. 1983-1973 Statistical Review 34 iCorporate Address: Common Stock Price Range 36 Atlantic Electric Board of Directors snd Officers 37 P.O. Box 1264 - "iih6 Black Horse Pike Pleasantville, New Jersey 08232. Notice of Annual Meeting: The 1984 Annual Meeting of Share-holders will be held Tuesday, April 24,1984, at Quail Hill Inn, Smith-ville, NewJersey. A Notice of... ' Meeting will be mailed in March to those shareholders entitled to vote. Vf09M03.W

RESULTS OF OPEllATIONS 1983-1981 9 Change G Change 1983 19sbl982 1982 1982-1981 1981 Electric operating Revenues $ 517,112,000 16 4 $ 414,178,000* (5.4) $ 469,683,000 Operating Expenses $ 421,010,000 11.2 $ 381,40s,000 (3.7) $ 396,172,000 Net Income $ 66,152,000 31.9 49,055,000* 1.4 $ 46.988,000 Earnings Per Common Share 3.18 26.1 S 2.76* (8.9) 3.05 Dividends Paid Per Common Share 2.30 4.5 2.20 7.8 2.04 Total Assets $1,139,978,000 5.8 $1,077,969,000 6.3 $1,013,769,000 Cash Construction Expenditures $ 74,157,000 (37.1) $ 118,460,000 4.6 $ 113,221,000 Sales of Electricity (KWH) 5,851,131,000 4.6 5,592,117,000 (1.5) 5,675,367,000 Price Paid Per KWH-( All Customers) 8.36c 3.3 8.09e (2.1) 8.26e Total Customer Service Installations (Year-end) 398,526 1.7 391,989 1.5 386,046 Number of Shareholders-Common Stock (Year-end) 48,299 (1.0) 48,790 .8 48,424 Number of Emp!ovees (Year-end) 1,995 (1.3) 2,022 (.6) 2,035 Ilook Value 23.58 5.0 22.45 .2 22.40 )

• See Note 1(Change in Accounting for Revenues) of Notes to Financia1 Statements.

l 4 i EARNINGS AND DIVIDENDS h!ARKET PRICE PE R SIIARE OF PERSHARE OF C05fMON STDCK COMMON STOCK Un dollars) (year endin dollars) f D nds s h ~ ~3 15 . l. ~5 to 1 14 76 76 7 7a is m en

• 0 74 75 7a 79 m s1 e e

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TO OUR SHAltEHOLDEllS: On the pages of our Annual Iteports in past years, During the year, Duff & Phelps also upgraded its we have described developments affectiny the ratings of om debentures, preferrvd stock and Company, the challenges set before it, and the commercial paper. The Company's commercial measures of our progress. In many instances, our paper, which is issued for short-term funding reporting has been set within the context of requirements, now has the highest possible credit fundamental corporate strategies relating to: ratings with all major rating agencies. Our excellent a diversity of power supply commercial paper ratings enable us to achieve O managed growth / manageable construction extremely favorable rates on short-term borrowings. I"W""# As you read of our progress in 1983, you'll also O flexible capacity planning rec 0gnize the " story" which transcends evente of a fmancial strength and apability 7 v si > ear The Company's consistent direction Put another w: results from the steady pursuit of our long-teim objectives simp $y, reahzation of our strategicly means gettmg the basics right.. A Whether it's with regard to power supply, We,re proud to sav that these corporate fundamen-construction, fmance or operations, each of.our goais tais are in p* ace. As a result, we believe that we'll apond to hqop funknwnW 6 a un continue to be able to report on the progress of strengths which wdl support the Lompany, its vour Company. customers and its shareholders, m, good times and m, 19X2 had been described as a year of transition, and bad. This decade since the Arab oil embargo has 1963 as the beginning of a period ofimproved finan-witnessed our ability to accommodate changes in cial and operational performance. The improvement fuel supply, electrical demand and capacity plan-which we expected is being realized, as indicated by ning, and has confirmed the prudence of our the increase in earnings per share from $2.7G in 1982 diversity and flexibility, to $3.48 in 1983. Contributing to this improvement F,or the future, we have established capacity plans were the effects of a December 1982 base rate which should prove benefic,al to both our share-i increase and higher-than-expected sales of energy. holders and our customers. Our only generating W'th the Company's improved fmancial perfor, papacity under construction is Hope treek 1, which mance, the Board of Directors took action last is expected to be completed m, 1986. Our a% share of Septemimr to raise the quarterly dividend on that umt will provide 53,000 kilowatts of base load Common Stock from $.57 to $ 59 per share. As a capacity. In addition, we now have arrangements result, the Company's record of consecutive in-f r the purchase of125,000 kilowatts of capacity creases in dividends paid has been extend ed to 31 years. and energy through the year 2000. These purchase Our financial forecasts have indicated that additione arrangements will accommodate additional electrical base rate relief will be required to sustain accept-energy needs by a combination of coal and nuclear able levels of performance. Accordingly, we filed a sources. Our power purchases have permitted us request with the New Jersey Board of Public the time to deploy effective conservation and load Utilities in October for a base rate increase of m:magement practices, and to fine-tune our assess- $25 million, asking that the HPU render a decision ment of future electricity needs before making any and grant increased rates by mid-1984. commitments to new major construction efforts. The rating agencies noted our improved financial Our preparedness is attributable to the active performance, too. Standard & Poor's raised their interest and leadership of a very fine Board of Di-ratings of our long-term debt and preferred stock. rectors. At this year's Annual Meeting, three of With S & P raising our first mortgage bond rating our Directors will be retiring, and they deserve from A + to AA-, we have achieved double-A status special mention: - with all major rating agencies. Our goal for the past 10 years has been to establish a solid double-A ~ rating across-the-board, and this achievement in 1983 is an important milestone in that direction. 2 b

sustain our high calibre of leadership. 31adeline 31cWhinney was elected a Director of the Company g at the October Board 31eeting. Her expertise as l president of a management consulting firm. together g-with prior financial mal economic experience at such j gs a4 institutions as the Federal Reserve Bank of New i p*i York and the American Stock Exchange are most appreciated by the Bord. In January 1981, the Y Board of Directors nominated Doug Huggard, Exec-j utive Vice President of the Company, for election to l s the Boar,1 at the coming Shareholders' 31eeting. l 4 g l Dougjoined the Company in 1955 and has been an Officer since 1971. His responsibilities have encom-passed such corporate functions as production, electric operations, accounting and ratemaking. Og' Since Fehruary 1983, Doug has served as Executive ) h, Vice President and has been responsible for all S aspects of the Company's operations. We believe that his breadth of experience and knowledge of the Company will continue to be assets of great value to E.D. Iluggard, deft) Executive Vice 1%sident with J.D. Feehan, Chairman and President. In 1983 we introduced a new commercial logo which aptly characterizes the Company's employees as Dick Wilson.1omed the Company in 1939 and served .. People Sleeting Your Energy eeds." At year-end, as an Officer from 196:{until 1981, when he retired as there were 1,995 people of Atlantic Electric sharing an employee. bince 194 4 he has served as a Director this service orientation. They are to be commended j of the Company, lending to the Board his compre-for their dedication, concern'and diligence. The hensive expenence and knowledge of the Company's success of the Company, now and in the future, operations. depends upon those charged with pursuing and Frank Wheaton will be completing over sixteen achievmg the " basics." They have exerted great j years as a Director this April. During that period he effort in earning for the Company a reputation for has contributed te the Board his perspective and consistency and excellence and, I trust you'll agree, i i practical knowledge as a multinational manufacturer their efforts are paying off. j and, since 1976, he has chaired the Corporate For the Board 'of Directors Development Committee. l Q Alack Jones has served on the Board of Directors smee 1970. His background in engineering and i electronics has been of great value to the Board, and v l he has served as Chairman of the Energy, Opera. J. D. Feehan tions and Research Committee since 1970. Chairman of the Board and President All of us have been beneficiaries of their time, their i experience, and their concern for the prosperity of the Company. Their presence at the Board meetings will be missed, but their impression upon the shape and growth of the Company willlong be felt. f Since the last Shareholders' 31eeting, we have taken i several steps as part of our continuing effort to l 1 i 3 k

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AT A GLANCE: THE ATLANTIC ELECTRIC SERVICE AREA Atlantic Electric serves over one million people in a 2,700 square mile area in Southern New.lersey. It is a region diverse in economic activity within close proximity to Philadelphia. New York, Baltimore and Washington. Tourism plays a significant role in the economy of the coastal areas while the inland in agricultural and industrial. Customer liase 1983 Electric Consumption Fifteen Year Outlook Residential In 1983, the Company served Residential customers repre-Residential customers are pro. 320,914 customers in 125 munici-sented 489 of the annual peak jected to comprise 47% of the palities in eight counties. About demand. The residential sector total peak in 1998 and consume 197c of these dwellings have elec-consumed 2.5 billion kilowatt-3.3 billion kilowatt-hours, or 44% tricity as their conventional hours last year or nearly 449 of of total projected sales. Average heating source 50% have elec-total sales. The average residen-residential kilowatt-hour con-tric water heaters and 627c have tial customer used 7,715 kilowatt-sumption is expected to increase air-conditioning. About 199 of hours. More than 5,400 new to 8,100 in 1998. The residential all dwellings are occupied residential customers were added sector is estimated to have a on a seasonal basis. during the year and 5We of all new compound annual growth rate in residential " connects" during the peak demand of only 1.4% over year have electric heat. the next 15 years. Ccmmercial Atlantic Electric served 43,152 Total commercial customers The commercial sector is esti-commercial customers in 1983. accounted for 37% of the annual mated to total about 39% of The highest concentrations of peak demand. This sector repre-the total peak expected in 1998, commercial activity are along sented 35% of total sales, con-and commercial sales are ex-the eastern seashore resort suming 2.0 billion kikwatt. pected to increase to 2.6 bil-areas and in Camden,Gloucester hours. Casinos, which are part lion kilowatt-hours, or 377c of and Cumberland Counties. of the commercial group, projected total sales. The casino accounted for about 47c of the portion of the commercial sector e 1 ' hot I-Company's total peak demand will be 5.3% of the total peak n n and 5% of its total sale. demand and 6.4% of total pro-Atlantic City. 'livo additional hotel-casinos were under con-Wed saks. @ entne com-struction in 1983. rnercial sector is expected to expenence a 1.9'/c compound About 1,750 commercial custom-annual growth rate in peak ers were engaged in agricultural demand over the 15 year period. activities. Industrial The Company served 1,021 Industrial customers repre-The industrial class portion of industrial customers in 1983. sented 15'7c of the annual peak total peak demand is norecast as Principal manufacturing indus-demand. They consumed 1.2 bil-147c in 1998. Industrial sales are tries included food, chemircis, . lion kilowatt-hours, or 21% of expected to grow to 1.4 billion rubber and plastic products, total sales. About 32% of all kilowatt-hours or 19% of the ~ . stone, clay, glass and electrical industrial sales were to the total projected sales. The com-and elettronic equipment. stone, clay and glass industries. pound annual growth rate in peak demand for the industrial sector is expected to be 0.9%. s. The area outline <1 repruents the Atlantle City Electric Company wrvice ares.. 5 i

l I sJ I i x p y 1 l T e / g \\ e

ATLANTIC ELECTRIC'S SOUND FUNDAMENTALS i ~ Power Supply and Operations constructor, the New Jersey As reported last year, the Com-Department of Energy and the pany had entered an Agreement New Jersey Public Advocate, with Pennsylvania Power & established a targeted in-service Light Company in 1979 for the date of December 1986, and pro-purchase through 1991 of 125,000 vided for earnings incentives or kilowatts of capacity and energy penalties for proieet costs below / from PP&L's two Susquehanna or above a targeted range. The Units, the first of which began Hope Creek Unit is currently operation in June 19st During more than bo9 complete, and it 1983 the Company was able to will provide the Company with 4 resolve a controversy between 53,000 kilov atts of base load state and federal regulators nuclear generating capability. regarding the Susquehanna i / Agreement by negotiating a see-e nwd for the purchase or N construetmn of any additional ond purchase contract with ~ PP& L to provide a like amount capacity before the end of the distribution lines helps ensure of coal-f, ired capacity and energy century Will depend, in part, Constant upgrading of g gp g, reliable sernce to the Com-from 1991 through 2000. The terms of the combined purchase and load management on the pany customers. growth.m peak demand. h,uch a 0.cft) Mickleton Substation is a arrangements were designed to produce net overall savings for nWd could be accommodated by major point of interconnecti"" between the Company and the construct,on of combustion i neighboring utilities, the C,ompany,s customers.,I,h" Mi 6 h mMd w New Jersey Board of Public Util-ities approved the 17-vear plan, M" " P#" D. Other sources of additional ca-and granted the Com'pany a lev-elized rate increase desig'ned to pacity may also be available at the time needed. recover the costs associated with the first 62,500 kilowatts of the The results of operations for 1983 purchased capacity. In addition, demonstrate the continuing the participants in the rate case importance of power supply agreed that similar rate arrange-diversity and commitment to the ments Ibc the second half of the 'ervice life extension program total 125,000 kilowatt purchase for our generating units. COSTOL GENERNfION should be authorized by the L PER KIIAWNITIIOUR g g Ovet; the past three years, pro-begins comt.ercial operation late dumon costs per kilowatthour

g igy' have changed only moderately, 5

and thH has contributed to the In July 19M3, the HPU appro,ed stability of rates charged our the Hope Creek Cost Contain-customers. Th, changes in pro-ment Agreement. That Agree-dactien cost are dependent upon ment, which had been signed in fuel prices and the relative mix late 19n2 by the Company as 59 of the vmious fuels used. -s owner, Public Service Eiectric & Cmd and nuclear generating Gas Company as 95% owner and units provided approximateiy III_ 7WJ of our total energy r quire-ments in 199, comparei with our record 79'k in 198E The blend of the two sourc>s was 74 76 76 77 is 7v teJ srl, na e 7 __-.,. _. - ~~. - _ . _.._. ~.~ ~m.

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ATLANTIC ELECTRIC'S SOUND FUNDAMENTALS l l different, however. In 19M2, the Salem Unit 1 experienced a level of coal generation was delay in returning to service diminished due, in part, to from a scheduled outage in 1983, ' I 5 scheduled outages of the IIL due to failures of certain control / l England coal-tired units, during systems to operate as required, s which major rebuilding of the and also due to the subsequent

1. 1 M

boilers was undertaken. The investigation by the NIlC of the i I increased levels of coal genera-caases of those failures. The sys-i L tion from those units after their tems' malfunctions did not result i I return to service contributed to in any damage to the unit or any ? i an all-time record for power gen-release of radiation. In October eration at the BL England 1983, Salem 2 was remeved from Station m 1983. service to repair leaks in its (non-nuclear) generator coohng In November 1983 the Company synem. received i five-year renewal of its authorization from the New The effects of the outages of picturea is a new water Jersey Department of Environ-specific units upon our opera-1 purification system used by the mental Protection to burn coal in tions and the costs of supplying Comp ny at its HL England BL Eneland Units 1 and 2. As needed energi have been moder-cenerating station. dh enewal, the DEP ated by the fact that our total (Lefo coat was used to produce fM of the electricity used g gig,d W Gmpany to capacity available for production by our customers in 1981 burn somewhat lower sult.ur coal is distributeo among many dit.- and oil at the station. ferent units. The overall l 4 avaliability of our generating The use of purchased coal-fired capacity affects the amount of i generation m 1983 mereased over costly feserve capacity which we 1982 levels, primarily as the m.e r'equired to have as members i result of increased energy avail-able from Ind,an River Urit 4 of the Pennsylvania-New Jersey-Maryland Interconnection i under our purchased power (PJM. The diversity of om gen-arrangement with Delmarva erating capacity, coiipled with Power F Light Company. Addi-tional power from coal-bred comprehensive maintenance programs to enhance unit avail-sources was purchased from ability, has resulted in our con-Allegheny Power bystem and sistently having one of tbc l AVERAGE AS FIRED Cleveland Electric illummatmg COST 0F FUEL lowest required reserve margins l Company, We tilso began to take (in dollars per million bta) de}jyppy of nuclear capatify and of all PJM c9mpanier. i n ou energy under the 17-year We're especially proud of one N"i arnmgement with PP&L when partiaular achievement with o* Susquehanna Unit 1 began com-respect to fuel supply: We re-merci d operation, duced the use of oil-fired sources to satisfy our tctal energy re-Nuclear production m 1983 was 4 at a lower level than in 1982 for quirements from more than 70% in 1973, at the time or the Arab both the Peach Bottom and oil embargo, to approximately Salem Stations. At Peach Bot-20% by 1983. tom, pipirg work had te be done a on both units, resulting in exten-It is currently estimated that, in sions of their scheduled outages. 1984, coal and nuclear sources i will provide 889 of the Com-pany's total er.ergy require-ments. 4 74 *5 76 77 78 79 m el 14 M 0 N

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ATLANTIC ELECTRIC'S SOUND FUNDAMENTALS L{.> d. Financial Developments year, and to accommodate esti-e. The Company's improved credit mated 1984 energy costs. The

• k ratings, as highlighted in the BPU granted the Company's

{ik,; Chairman's Letter, reflect pro-request in January. u

g.,

, gl. {q gress in achieving the financial 4-The quality of earnings in 1983 goals which we have set fu ..s has improved over past years. ourselves. We have improved our AFDC represented Iff of net to, -4 1); 4 9_ common equity cap,tahzation i and our ability to cover mterest income in 1983, compared with r~ IM in 1982. None of the divi-q charges on debt. Contnylled con-dends paid during the year ,4 struction expenditures m the future, with strong levels of represented a return of capital. internal cash generation, will The increase of the dividend rate result in manageable financing payable on Common Stock in programs and modest needs for October to an annual rate of ~f ,a g j y additional rate increases. $2.36 marks the 31st consecutive An extensive inventory of Factors contributing to the im-year fincreases in the dividend materials and supplies must be proved financial performance of

• • d"Ythe C the Company in 1983 are set out year f dividend payments.

he e na customers. in detail in 31anagement's Discus-The Company's external financ-(Lef0 A Company engineer sion and Analysis. Among the ing for 1983 included the sale of checks the pnagress of work principal factors were higher $50 million of First 31ortgage NcEls"fhe"$$n"Nnit weather-related energy consump-Bonds due 1993, and the issu-rn>m neepwater station. tion and the effects of the De-ance of almost 652,000 shares of cember 1982 base rate increase. Common Stock for $14.3 million The October 1983 request for an through the Company's Dividend additional $25 million in base Reinvestment and Employee rate revenues was based primar-Stock Ownership Plans. Short-ily on increases in the amount term debt was used for interim of the Company's investment in financing during the year, and it utility property over the period was paid off by year-end. from September 1982 to Decem-In 1984, we plan to issue approx-ber 1983. Timely recognitmn by imately $15-20 million of tax-the BI U of this revenue require-exempt Pollution Control Bonds AVERAGE ANNtfALPRICE ment will help sustain acceptable in connection with the refinanc-PER KILOWATTHOUR levels of financial performance, ing of a series of PollutioG Con-on enta A decision on the base rate re-trol Bonds maturing Slay 1,1981. quests is expected by midyear. With 1984 cash construction ex-m In October 1983 the Company penditures estimated at $91 ~ requested a net increase in million and a good level of inter-7 energy adjustment revenues of nal cash generation, we expect $23 million to offset the under-external financing for "new recovery of energy costs which money" needs will be accommo-had been experienced during the dated by the sale of Common Stock through the Dividend Re- .llI1-i investment and Employee Stock Ownersliip Plans, as well as by the use of short-term debt. 74 76 74'77 '7UV Mu' M 0 }{

l ATLANTIC ELECTRIC'S SOUND FUNDAMENTALS l Customers and Service than 20 programs designed to i Total kilmvatthour sales to our inform and assist customers in customers in 19M increased by measures designed to make 4.69 over sales the previous more efficient use of electrical year. The peak load recorded for energy. One of the new pro- -g the period was 1,347,000 ki'o-grams involves incentives to en-y ~~ watts, which was an incr;ase of courage residentialcustomers 6.59 over the 1982 peak and to replace window and central represented a new record for air conditioners with units hav-the Company. UnusuaEy warm ing h!gher energy efficiency 7 weather conditions contributed ratings than standard equip-F$ to this new peak, which exceeds ment. Under this program, the [ the maximum demand which had Company provides rebates to off-l been forecast for 1987. Never-set the added initial costs theless, peak load is still forecast associated with the purchase of to grow at an annual rate of 1.59 the more efficient equipment. s over the next fifteen vears. Employees of the Conservation Implementation of the various a "t a,m

• ""$**d ta One of the Company's major con-programs within the Plan is t

from a Residentia1 Appliance cerns for the future is to manage expected to cost about 83 million saturation survey. the costly growth in peak de-per year. It is believed that these (Left A new residential mand, while providing for the costs will be compensated for by devetepment in the Company's electricity needs of our custom-reducing the amount ofinvest-faNcCo*Na"[e$"siIe tial ers. Conservation and load ment required for additional } and they account for 419 of management programs, which generating and transmission l total sales. Will serve to constrain the need capacity in the future. for additional generatir.g capac-A Good Ne. hbor Fund was ig itv, have been designed and are b$ing implemented. The Com, established m 1981 to help low-pany's experience has been that income households meet their the' residential class of customers energy expenses. Customers contributes most to the system m y make contributions to the peak and, consequently, provides Fund through their bill pay-the greatest opportunity for con-ments. The Com,any matches t servation and load management donations, and ah on the pro-programs. Within the pattern of mds are adrmn,stered by the i I ENERGYSALES residential energy use, air condi-Salvation Army. ( tioners and water heaters are In November, Officers of the l j cn bimon orkilowart. hour,> 6 the maior contributors to the Company answered telephone peak demand. calls from customers during an The Company has received Executive Phone-In, responding approval of its Conservation, to comments about service, Cogeneration and Load Manage-answering questions about rates t ment Plan. It encompasses more and providm, g information regardmg conservation. Based 4 on the success of this initial i effort, additional Phone-Ins are --8 planned for the future. 2 7 t L ag ~ ~0 I3

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION f f General Financing Program The Company has made an investment in property and A total of $200 million was obtained during 1931 through l plant of over $1.2 billion, which is employed to provide 19N1 via the capital markets from the sales of First electric energy service to our customers. The Company's Stortgage Bonds and Pollution Control Bonds, inter-ability to finance its construction program, maintain mediate-term borrowings, sale and leaseback of nuclear i service reli;tbility, meet its working capital requirements fuel and sales of Common Stock, including the issuance of and provide a fair rate of return on investment to its Common Stock through the Company's Dividend Reinvest-i shareholders is dependent upon adequate rate relief. ment and Stock Purchase Plan and Employee Stock Ownership Plan. Interim financing of our construction Liquidity and Capital Resources program and working capital needs was provided by the i Construction Program issuance of short-term debt. l During 1933, cash construction expenditures aggregated Appmm.nately m nhp, cash requirements for o $74 million, w hich is a decrease from the $118 million e nstructi n, debt maturities and smking fund require-expenditure level experienced in 1932. This lower level of ments during the period 1981-1983 were generated from I construction expenditures in 1983 is an indication of the perations after deductions for dividends and working progress the Company has made in the reduction ofits yapital needs, but exclusive of changes m temporary cash I construction program. The five year (1984-1988) cash nvestments. The C ompany estimates that, with adequate ( construction expenditures are currently projected to be rate relief, an average of oo} ofits total cash construction I $42i> million. This level of projected construction expendi-requirements, debt maturities and smking fund require-( tures rettects the Companyh revised capacity plan. The men s wiH be generated internally during the five year l current capacity plan includes a forecast of peak load period from 1984-1988. The balance of the Companvs cash l growth for the t.ive year period 1981-1988 of 1.ro. per year. mquirements 3v uld be satisfied by means of external This forecast also reflects the expected results of an financing. Capitahzation ratios at December 31,1983 were aggressive program for promoting conservation, imple-471 long-term debt,4TW common and 109 preferred I menting ef,fective load management techniques and stock. The Company will continue to use short-term debt promoting economic alternat.ive energy sources. The financing on an interim basis and currently ma. tams m construction program has been developed in response to aggregate lines of credit of $11T> million (see Note 11 of the need to replace existmg pmduction plant, upgrade Notes to F,m.ancial Statements for addit.ional details on i our transmission and distribut. ion system and provide for short-term financing). projected growth. l 1983 REVENUE DOLLAR I i WHERE ITCAME FROM Industrial $.15 Residential $.47 Commercial $.34 I Other SM i i WHERE IT WENT hxes $.22 Fues and Purchased Power $.32 Labor $.08 Depreciation $.07 Preferred and Common Stock Dividends 8.09 Interest 8.05 Reinvested $M Other Materiais and Services $.13 14

L During 1983, the Company's financial position was re-are included in base revenues. The effect of the above evaluated by rating agencies. The ratings of our first factors on 1983 and 1982 revenues is shown below: I mortgage bonds, debentures and preferred stock were (Thousands of Dollars) 1983 1982 raised by Standard & Poor's Corporation; the ratings of Base llevenues $ 92,643 20.8% $ 3,226 .7 9 our debentures, prefe red stock and commercial paper LEC Rate Decreases (40,592) (9.0) (21,811) (4.6) were raised by Duff and Phelps, Inc. Kilowatthour Sales 20,913 4.6 (6.S90) (1.5) { Results of Operations increase (Decrease) $ 72,961 16.4% $(25,505) (5.4)4 The tabulation on page 33 includes key historical indica-tors which we believe are helpfulin evaluating the Itture changes in operating revenues will refleet the performance of the Company over the past five years. timeliness and adequacy of rate relief, general economic 4 conditions in our service area and the results of load i Earnings management and conservation programs. Earnings per share of Common Stock, based on the weighted average number of shares outstanding, were Sales $3.48 in 1983, compared to $2.76 in 1982 and $3.03 in 1981. Annual percentage increases (decreases) fn;m the prior Earnings per. share for 1982 included the cumulative year in kilowatthour sales by customer class were as effect of a change in accounting method of $.92 per share. follow 3: The primary reasons for the increase in per share Increase (Decrease) from Prior Year i earnings between 1982 and 19S3 are the effect of a 4.6G Customer Class 1983 1982 1981 increase in kilowatthour sales experienced during 1983, Residential 5.4% (2.6)9 (1.09 1 and the $74 million base revenue rate increase granted in Commercial 6.6 2.4 4.6 December 1952. Industrial .6 (4.8) (,5) 1 Other (4.4) (2.7) 2.s Revenues Total 4.6 (1.5) .7 Operating revenues increased by 10% from $470 million in 1981 to $517 million in 1983. This increase reflects the net The increases in 1983 are attributed to higher weather-result of base tevenue increases, reductions in Levelized related consumption levels and improving economic condi-Energy Clause (LEC) revenues, and changes in kilowatt-tions for the residential and commercial segments of the hour sales and in 1982 a change in accounting method to service area. The decreases in 1982 kilowatthour sales record unbilled revenues. Changes in unbilled revenues were primarily the result of weak economic conditions l YEAREND CASH REQUIREMENTS PRE-TAX INTEREST AFDC AS A PERCENT I CAPITALIZATION ANDINTERNAL COVERAGE RATIO OF NETINCOME i GENERATION OF FUNDS D Short term Debt 5 Maturities, Retirements and Q Iong-term Debt Sinking Funds O Preferred Stock 5 Construction cash requirements Q Common Equity B InternalCash Generation { ..r n (in millions of dollars) (tirnes coverage) ~ I 100 15 0 5 50 i ~ ~ illi m I' I ~ ~ ~ IllIlli9u.Illllli.I3 60 30 Ill Illlli i ..Ii ~To' l l ao 1 10 0 79 so 81 w s3 M 86 s6 s1 as 0 74 75 76 77 78 79 w 81 w 83 0 78 75 76 77 7s is m at s2 na 0 4jected-33 -.-..- -._ -.... _ -. _ _ -. -.- -.~, -. -

within certain segments of the Company's service area 1933 1933 1981 and increased customer conservation. % c/kwh G e/kwh 9 elkwh Sources: Operating Expenses Coal 62 2.0 48 2.6 45 2.2 The costs of owning the Company's investment in prop-Nuclear 16 .7 31 .5 22 .4 erty and plant (depreciation, taxes and cost ofinvested Oil 21 5.0 20 5.1 20 5.7 funds) were 43% and 38G of operating revenues in 1981 Natural Gas 2 6.6 3 5.1 4 5.2 Interchange (1) (2) 9 and 1982. respectively. During 1953, net energy and 100 2.5 100 2.5 100 31 purchased power costs decreased to a level of 329 of operating revenues versus 409 experienced in 1982. Labor, materials and other costs accounted for the 219 of During 1983, Net Energy Costs were red.uced by Defer-1933 revenues versus 22% in 1982. red Energy Costs of $15,055,000 representing fuel costs l not currently recovered under the energy clause. This The aggregate of fuel, m. terchange and purchased power deferral is iii contrast to 1982. when all previcusiv un-costs have decreased by 119 smee 1981, rettecting a recovered LEC costs were recovered and the CoInpany favorable shift m the Company's mterchange power had overrecovered costs resulting in Deferred Energy' i popition and favorable purchases of capacity from other Revenues of $15,869,000 at December 31,1982. The utdities which have resulted m less use of more expensive amount of $15,055,000 shown on the Balance Sheet as generatmn facdities and sources. Deferred Energy Costs at December 31,1983 represent-The following presents the results of the Company's ing this underrecovery. has been reflected in the 1984 efforts toward greater use oflower cost fuel sources and LEC billing rate (see Note 3 of Notes to Financial the contribution of various fuel sources. The lower con. Statements). tribution by nuclear generation in 1983 is t le result of Power production operation and maintenance costs have planned and forced outages of the jointly-owned nuclear increased, reflecting the higher cost of maintenance of units. both wholly and jointly-owned generating units. Other operation and maintenance costs have increased, reflect-ing increases in the price of materials, supplies and services, as well as increases in wages and employee SOURCESOF ENERGY benefits. Increases in depreciation expense are consistent with the . 3,%, increased amount of electric utility plant in service as ocas E,, well as higher depreciation rates, authorized in December o coat 1982, applicable to certain pollution control investments. (in billions of kilowatt-hours) Net interest expenses have decreased 119 since 1981, 7 reflecting a reduction in the use of short-term borrow-1 M F'1 E ings, as well as a decline in short-term interest rates during that period. The Company has made every effort gE to maintain financing flexibility in support of our reduced construction program. Pollution contml financing and the a I-m intermediate term variable rate debt have been used to dampen the effect of refinancing maturing debt at higher prevailing rates. The embedded cost of long-term debt has risen from 8.M% in 1981 to 9.199 in 1953. s inflation Supplementary unaudited financialinformation showing tae estimated effects ofinflation on the Company's i a operations is shown on pages 31 through 33. This data should be viewed as estimates of the approximate effects of inflation, rather than as precise measures. Trends demonstrated reflect the need to control costs and point ut the responsibility for regulatory agencies to provide n a a n a a 80 si T 88 o timely and adequate rate Nlief.

• 19419811mport,1921983 Export Iti

REPORT OF MANAGEMENT AUDITORS' OPINION The management of Atlantic City Electric Company is Deloitte liaskins & sells one work! Trade Center responsible for the financial statements presented herein.

Certified Itblic Accountants New Wrk, New York 10048 Thise financial statements were prepared by manage-mint in conformity with generally accepted accounting 'Ib the Shareholders and the lloard of Directors principles applicable to public utilities which are consis-of the Atlantic City Electric Company: tent in all material mspects with the accounting We have examined the balance sheets of Atlantic City . prescribed by the State of NewJersey, Board of Pubh.c ._ Utilities and the Federal Energy Regulatory Commis-Electric Company as of December 31,1983 and 1982 and sion. In preparing the financial statements, management the related statements of income and retained earnings made informed judgements and estimates relating to and of changes in financial position for each of the three events and transactions bemg reported. years in the period ended December 31,1983. Our examinations wem made in accordance with generally Th3 Company has established a system ofinternal ac-accepted auditing standards and, accordingly, included counting and financial controls and procedums designed such tests of the accounting records and such other to insure that the financial records reflect the transac-auditing procedums as we considered necessary in the tions of the Company and that assets are safeguarded. circumstances. ' This system is examined by management on a continuing ' basis for effectiveness and efficiency and is aviewed In ur p..imon, the accommying financial statements on a ngular basis by an internal audit staff that reports present fairly the fmancial posit,on of the Company at i December 31,1983 and 1982 and the results ofits

directly to the Audit Committee of the Board of

. Directora. perations and the changes m, its financial position for each of the three years in the period ended December 31,

The financial statements have been examined by Deloitte 1983, in conformity with generally accepted accounting

- Haskins & Sells, Certified Public Accountants. The principles applied on a consistent basis, except for the c.uditors provide an objective, independent review as to change in 1982, with which we concur, in the method of ^ . managements discharge ofits msponsibilities insofar as accounting for unbilled revenues, as described in Note 4 ! they relate to the fairness of reported operating msults to the financial statements. L and financial condition. Their examination includes pro-i cedums believed by them to pmvide reasonable assurance - A l that the financial statements are not misleading and p include a review of the Company's system ofinternal . accounting and financial controls and a test of trans.- January 31,1984 ! . actions.- ~ Th2 Board of Directors has oversight responsibility for

determining that management has fulfilled its obligation Lin the preparation of financial statements and the on-gomg examination of the Company's system ofinternal

- accounting controls. The Audit Committee, which is composed solely of outside directors, meets regularly ; ~ F with management, Deloitte Haskins & Sells and the - L internal audit staff to discuss accounting, auditing and financial reporting matters' The Audit Committee 1 reviews the pmgram of audit work performed by the - - ) internal audit staff. 'Ib insure auditor independence, both - ' a

-Del

itte Haskins & Sells and the internal audit staff have -

~ complete and fue access to the Audit Committee. k f-t N \\ a e -^ W u pl T \\

4 v-STATEMENT OF INCOME AND RETAINED EARNINGS For the Years Ended December 31 1981 1982 1981 (Thousands of Dollars Except Per Share Amounts) Operating Revenues-Electric (Notes 1,3 and 4) $517,112 $444,178 $469,683

Operating Expenses:

Energy: Wel 167,988 153,986 154,652 Interchange (1,697) (7,459) 39,312 Defermd Costs (15.055) 23,273 14,043 Net Energy 151,236 169,800 208,007 Purchased Power-Exclusive of Wel 12,135 7,482 7,238 Power Production-Operation and Maintenance 18,791 44,650 36,206 - Other Operation and Maintenance. 62,800 55,648 50,107 Depreciation and Amortization 38,383 30,216 25,420 Taxes Other Than Pederal Income %xes (Note 14) 61,661 60,548 .44,200 Fed:ral Income ' Pax Expense (Note 2) 18,728 13,064 24,994 'Ibtal Operating Expenses 121,0 to 381,408 396,172 Operating Income 93,102 62,770 73,511 Other Income: - Allowance for Equity Ends Used During Construction 1,320' 3,3r>1 6,045 Miscellaneous Income-Net 833 3,571 3,684 'Ibtal Other Income 5,153 6,925 9,729 Income Hefore Interest Charges 98,255 69,695 83,240 Interest Charges: Interest on Long'Ibrm Debt 33,795 -36,650 30,831 Interest on Short '1brm Debt 2,669 2,362 - 8,150 ' Other Interest Expense ' 535 633 1,323 'Ibtal Interest Charges 36,999 39,645 40,304. Allowance for Borrowed Wnds Used During Construction (t,896) (5,079) (4,052). Net Interest Charges 32.103 34,566 36,252 Income liefore Cumulative Effect of Change in Accounting Method - 66,152 35,129 46,988 - Cumulative Effect of Change in Accounting Method (Note 4) 13,926 Net income ' 66,152 49,055 46,988 Ret.ined Earnings at Beginning of Year 128,825-121,078 108,977 191,977 -170,133

155,965:

Dividends Declared: . On Cumulative Prefermd Stock - 7,171 7,353 ' 7,508 On Common Stock 39,352-33,955 27,379 'Ibtal Dividends Declared ' 16,523 41,308-34,887 Retained Earnings at End of Year - $1 IS,154 ' $128,825 $121,078 ' Earnings for Common Stock:

Net Income

. $ 66,152 '$ 49,055 .$ 46,988 . Less Preferred Dividend Requirements 7,201 7,368 7,531 - ' Balance Available for Common Stock $ 58,951 - $ 41,687 4 39,457 - Average Number of Shares of Common Stock Outstanding - L(in thousands) - 16,923 15,116 . 13,034-. = 1%r Common Share: 1 Earnings Before Cumulative Effect of Change in Accounting Method. 3.48.

$

1.84 ~

3.03 - .92 ' iCumulative Effect of Change in Accounting Method 4'Ibtal Earnings : =$ 3.18 -$E~2.76 3.03 -. Dividends Declared 2.32 2.24 2.08 v Dividends Paid ' - $ < 2.30 - 2.20 ; $ ' 2.04 - 7 1he accompanying Notes to Financial Statements are an integral part of thcae statements. m .w-f- ^'f

STATEMENT OF CHANGES IN FINANCIAL POSITION P r the Years Ended December 31-1983 1982 1981 sfhousands of Dollars) L Source of hnds: 1 Rnds from Operations: Income Before Cumulative Effect of Change in Accounting Method $ 66,152 $ 35,129 $ 46,988 ~ Principal Non-Cash Charges (Credits) to Income: Depmeiation and Amortization 38,383 30,216 25,420 j . Amortization of Nuclear hel 4,863 2,951 Allowance for Ends Used During Construction (9,216) (8,433) -(10,097) Deferred FederalIncome Axes-Net 16,382 11,427. 14,648 Investment Tax Credit Adjustments-Net 6,114 12,547 7,141 i Other-Net 1,353 396 199 p. ~ Total Rnds from Operations 119,168 86,145 87/250 Cumulative Effect of Change in Accounting Method 13,926 hnds fmm Outside Sources: T Long'1brm Debt 50,000 45,000 60,000 Pollution Control Wnds (Held) Released by Trustees - 7,885 15,098 (27,874) Subtotal 57,885 60,098 32,126 Sale of Common Stock 15,060 41,166 32,441 Sale of Nuclear Rel - 21,140 Increase (Decrease) in Short 'lbrm Debt (25,825) 10,525 4 '1btal Ends from Outside Sources - 72,915 96,579 75,092 - L Other-Net - (1,521) 3,287 (3,355) - l 'Ibtal Source of hnds $190,589 $199,937 - - $158,987 Application of hnds: Gross Additions to Utility Plant $ 83,673 $126,893 . $123,318 Property Abandoument Costs (15,956) - Allowance for hnds Used During Construction (9,216) (8,433) (10,097)- N:t 4. 74,457 118,460 97,265 Dividends on Prefermd Stock 7,171 7,353 7,508 ' Dividends on Common Stock. 39,352 33,955. 27,379 Retimment and Maturity of Long'Ibrm Debt 50,300 28,996 ~ 5,682 t Unrecovemd Purchased Power Costs 7,152 = Property Abandonment Costs ' 15,956 - Conversion of Prefer-d Stock - . 2,100 -800 ' 1,993 ~ 711-847 Redemption of Preferred Stock -800' Increase in Working Capital

• 9,346--

9,526 2,404 '1btal Application of hnds- - $190,589- - $199,937 $158,987 L Increase (Decrease) in Working Capital * .$(11,616) .$ 13,286 ~. .$ 3,845 . Cash and Cash Items. Accounts Receivable 7,312-(7,275)- 10,740' Unbilled Revenues . 5,671 18,994 - .' W el. s(5,146) .(2,645)

5,890'

' Materials and Supplies 974 ' (420) 2,365 - l Defermd Energy Costs and Revenues 30,921 (39,016)' ' (14,104) ' Accounts Payable - (1,647) 3,923: 2,969 a %xes Accrued

(3,831)-

1 8,512 (5,285) Deferred %xes ,(9,534): - 7,508 13,894 L ' Other - (3,761) 6,689 ' (7,900) Incmase in Working Capital 8 9,346 $ 9,526 - $ 2,404 (Excludes Short Wrm Debt, Notes and Current Maturities of Long %rm Debt and Cumulative Preferred Stock Subject to Mandatory Redemptio'n.

the accompanying Notes to Financm! Statements am an integral part of these statements.

'w v h ~ 4

? - l BALANCE SHEET. December 31, - 1983 1982 (Thousands of Dollars) Assets - Electric Utility Plant (Notes 1 and 6): In Service: - Production $ 509,192 $ 492,415 Transmission 181,181 170,297 Distribution 308,352 300,079 . General i1,213 37,632 'Ibtal 1,015,971 1,000,423 Less Accumulated Depreciation 271,362 247,008 Net 771,609 753,415 Construction Work in Progress 179,162 152,403 Nuclear Fuel 557 495 Electric Utility Plant-Net 951,328-906,313 Non Utility Property and Investments (Note 7) 7,981 6,432 lbliution Control Construction Funds (Note 10) 1,891 12,776 Current Assets: Cash and Working Ebnds (Note 11) 3,285 3,752 '1bmporary Cash Investments 7,100 18,249 ' Accounts Receivable: Utility Service 33,950 25,967 Miscellaneous 7,666 8,037. Allowance for Doubtful Accounts - (1,500) (1,200) Unbilled Revenues (Note 4) 21,665 18,994 Fuel (at average cost) 21,785 26,931 Materials and Supplies (at average cost) 17,195 16,221 ~ Prepayments 10,981 9,382 Deferred Energy Costs (Notes 1 and 3) 15,055 'IbtalCurrent Assets 110,115 126,333 Deferred Debits: Property Abandonment Costs (Note 1) 18,352 19,680 Unmcovered Purchased Power Costs (Notes 1 and 3) 7,152 eUnrecovered Nuclear Ebel Disposal Costs (Note 6) -1,802 Unamortized Debt Expense 3,163 3,257 Other 2,161 3,178 'Ibtal Defermd Debits 35,633 26,115 'Ibtal Assets $1,139,978 $1,077,969 'Ihe accompanying Notea to Financial Statements are an integral part of these statements. 4 s Y I .a t ? 4

l December 31, 1983 1982 -(Thousands of Dollars). Liabilities and Capitalization . Capitalization: Common Shareholders' Equity: . Common Stock (Note 8) $ 51,753 $ 49,722 Pmmium on Capital Stock 208,279 195,293 Capital Stock Purchase Plan 72 48 . Capital Stock Expense - (1,637) (1,738) Retained Earnings 118,151 128,825 'Ibtal Common Shareholders' Equity. 106,921 372,150 Cumulative Prefermd Stock Not Subject to Mandatory Redemption (Note 9) 11,973 42,684 Cumulative Preferred Stock Subject to Mandatory Redemption (Note 9) 52,050 54,150 ~ Long %rm Debt (Note 10) 380,266 368,220 '1btal Capitalization 881,210 837,204

Current Liabilities

Current Pbrtion: Cumulative Prefermd Stock Subject to Mandatory Redemption (Note 9) 1,050 1,050 Long %rm Debt (Nete 10) 26.000 39,050 . Accounts Payable 21,128 22,477- %xes Accrued 8,299 4,468 Interest Accrued 10,658 5,800 Dividends Declared 11,910 11,278 Deferred Energy Revenues (Notes 1 and 3) 15,869 . Customer Deposits 2,618 2,757 '. Deferred Axes (Notes 1 and 2) 18,271 8,737 Other 1,079 4,137 . Ibtal Curant Liabilities 107,039 115,623 Deferred Credits: Defermd Investment Ax Cmdits (Notes 1 and 2) ' 55,386' 49,272 Deferred Income %xes (Notes 1 and 2) 81,318 64,936 Nuclear Bael Disposal Costs (Note 6) .10,888 Other (Note 6) 4,137 10,984' 'Ibtal Defermd Credits 151,729 ^ 125,142 - Commitments and Contingent Liabilities (Notes 12 and 13) 1%tal Liabilitien and Capitalization - $1,139,978 81,077,969 \\ .y, _l'

r-F NOTES TO FINANCIAL STATEMENTS Not:1. Significant Accounting Iblicies: depreciable property retired together with removal costs ss sa ge aml ther recoveries. Regulation-The accounting policies and rates of the Company are subject to the regulations of the State of Nuclear Fuel-Fhel costs associated with the Company's New Jersey, Board of Public Utilities (BPU) and in participation in jointly-owned nuclear generating stations certain respects to the Federal Energy Regulatory (including a provision for estimated spent fuel disposal Commission (FERC). All significant accounting policies costs) are charged to rbel Expense based on the units of and practices used in the determination of rates are also thermal energy produced. See also Notes 6 and 13. used for fmancial reporting purposes. The financial Federal Income hes-For all property placed in statcments are prepared on the basis of the Uniform service after December 31,1980, the Company provides System of Accounts prescribed by FERC. deferred Federal Income hes for the difference Oper: ting Revenues-Prior to 1982, revenues were between tax depreciation ecmputed using the Accelerated recognized when electric energy service bills were ren-Cost Recovery System (ACRS) and tax straight-line d: red to our customers. As of January 1,1982 the depreciation computed using book lives. Company changed its method of accounting to recognize In addition, the Company provides deferred Federal revenues for services rendered subsequer t to the last Income Taxes relating to the deferral of energy costs, bilhng cycle and prior to the end of the period. See Note accrual of unbilled revenues, as well as unrecovered 4 for additm, nalinformation concerning this accountmg purchased power and nuclear fuel disposal costs. Invest-ch nge. ment h Credits are deferred on the balance sheet and Electric Utility Plant-Property is stated at original are recognized in book income over the life of the related cost. Generally the plant is subject to a first mortgage

property, li:n. The cost of property additions, including replace-Gains on reacquired debt are recognized currently for ment of umts of property and betterments, is capitalized.

book purposes and as a reduction of property accounts for Included in certain additions is an Allowance for Fhnds tax purp ses. Therefore, such gains result m reduced tax Used During Construction (AFDC) which is defined in depreciation expense over the hves of the property, the applicable regulatory systems of accounts as the cost Accordingly, the Company provides related deferred during the period of construction of bormwed funds used Federal Income hes on its books. for construction purposes and a reasonable rate on other fund 2 when so used. AFDC has been calculated using a Retirement Plan-The Company has a, noncontributory rate of 8.5% for 1983 and 1982, as ordered by the BPU, defined benefit retirement plan covering all regular and 8% for 1981. Such rates are less than the maximum employees. Concurrent with a 1979 amendment, the allowed by FERC. Board of Directors established a funding policy providing f r direct payment, from plan assets, of retirement Deferred Energy Costs and Revenues-The Company henefits relating to services on or subsequent to January has e Levelized Energy Clause (LEC) which is based on 1,1979. (Benefits were previously provided by the projected energy costs and m. eludes a 1,.ovtston for prior purchase ofindividual annuities upon the retirement of period under or over receveries. The recovery of energy Plan participants.) Such funding arrangements were also 'l costs is made through levelized monthly charges over the extended to service prior to January 1,1979 for those l period of projection. Any under or over recoveries are employees consenting to the change. Costs of the plan are deferred in Balance Sheet acer ants as a current asset or determined under the aggmgate cost method. current liability as appropriate. Such deferrals are recog-nized in the Statement of Income during the period in Property Abandonment Costs-These costs consist of which they are subsequently recovered through the the Company's unamortized investment in Hope Creek clause. Unit No. 2, a nuclear generating unit which was cancelled in December,1981, and offshore nuclear units Depreciation and Maintennnce-The Company provides which were cancelhxl in 1978. ne deprec. tiv.. bascJ on the estimated for stra. ht-h. ia ig remaining life of transmission and distribution property The Hope Creek No. 2 investment of $15,956,476 is being and, based on the estimated average service life, for all amortized over a 15-year period beginning in 1983. The other depreciable property. Depreciation applicable to offshore nuclear units are being amortized over a 20-year nuclear plant includes certain amounts for decommission-period. ing. The overall composite rate of depreciation was Unrecovered Purchased I ower Costs-These represent appmximately 3.7% for 1983 and 3.3% for 1982 and 1981. purchased capacity costs, relative to a specific purchased Accumulated depreciation is charged with the cost of

power agreement, which are not being recovered cur-Debt premium, discount and expenses are amortized over rently, but for which recovery has been specifically the life of the related debt. All gains and losses relating provided in a levelized component of future rates (See to reacquired debt are recognized currently. Note 3). Certain 1982 and 1981 amounts have been reclassified to Other-Capital Stock expense is being amortized on a conform with 1983 pmsentations. ratable basis over 20 years. Note 2. Federal Income 'Ihxes: Federal income tax expense applicable to current the statutory rats on book income subject to tax for the operations is less than the amount computed by applying following reasons: Yers Ended December 31 1983 1982 1981 (Thousands of Dollars) Ntt income $ 66,152 $ 49,055 $ 46,988 Federal Income h Expense (as below) 19,061 27,004 27,332 . Book Income Subject to h 4 $115.213 $ 76,059 $ 74,320 Income h at Statutory Rate (46%) $ 52,998 $ 34,987 $ 34,187 Mjustments for items for which deferred taxes are not provided: - h Depreciation less than Book Depreciation - 1,b96 - 808 212 . Allowance for Wads Used During Lonstruction (1,211) (3,879)- .(4,645) Crpitalized Overheads (l.215) (1,301) (1,242) Investment h Credits - (1,775) (1,485) (1,075) Other 1,398 (2,126) (105) 'Ibtal Federal Income 'lhx Expense $ 49,061 $ 27,004 $ 27,33E Components of Federal Income h Expense: Federal Income hes Curnntly Payable $ 15,072 $ (1,672) $ 13,950 Deferred Federal Income hes: Liberalized Depreciation 11,013 . 9,879 6,195 Unbilled Revenues 2,609 8,737 Pmperty Abandonment Costs (520) (74) 6,626 Unncovered Purchased Pbwer Costs 3,290 Unrecovemi Nuclear Wel Disposal Costs 2,209 Defernd Energy Costs and Revenues 6,925 (5,904) (8698)- - Gains on Reacquired Debt and Purchased h Benefits 713 2,319 I,512 Other (323) (697) 315 Defermt Investment h Cmlits 6,111 12,547 ' 7,141 - , Employee Stock Ownershin Plan Credits 1,959 1,869 291 'Ibtal Defermi Federal Income h Expense - 33,989 ' 28,676-13,382. - 49,061-27,004 -

27,332 Less: Federal Income hes_0ther income 333'

. 2,077 2,338 Deferred Federal Income hes on the Cumulative Effect of Change in Accounting Method ~ 1,863 1 . Federal Income '!hxes included in Operating Expenses 8 48,72M $ 13,064 $ 24,994 h Company has purchased tax benents on equipment liabilities for all years thmugh 1976 have been determined '- . having an aggmgate tax basis of appmximately -and settled. % IRS has proposed certain denciencies in

$10,Q0,000, $2,900,000 and $2,600,000 in 1983,1982 and.

tax for the years 1M7 thmugh 1979. The Company has 1981, mspectively. Such tax benents inelude 6% invest-protested the proposed denciencies and is of the opinion ment tax credit and an ACRS life of 3 years, that the Anal settienent ofits federalincome tax' E h Company's federal income tax mturns for 1M9 and - liabilities for these years will nct have a material adverse. prior years have been examined by the Internal Revenue feet on its moults of operations or Anancial position, Service (IRS) and the Companyk federal income tax g i< 23 ' sJ. a

Note 3. Rate Matters: During the three year period ended December 31,1983 follows, based in each case on the applicable test year base r ' Nereases have been approved by the BPU as indicated: uN"I E%c in A n R dmono (numno August 1981 $ 14.4 m Jan. 29,1982 $ 11.3 2.4% June 30,1980 Fibruary 1982 172.4 Dec.14,1982 73.7 16.3 Sept. 30,1982 January 1983 30.8 Oct. 7,1983 24.5 4.5 Sept. 30,1982 (1) The Companyi request was to recognize the cost of its share of the Salem Nuclear Generating Station Unit No. 2. In December 1982, the New Jersey Board of Public proceeding, the BPU Staff, the Department of the Public Utilities (BPU) granted the Company an increase of Advocate, Division of Rate Counsel, the New Jersey $73,700,000 in base rates. In reaching its decision, the Energy Users Association and the Company, held a series BPU computed the Company's revenue requirement as if of discussions with a view toward settling the matter. the Company recorded unbilled revenues on its books and These discussions resulted in a joint stipulation which directed the Company to change its accounting treatment was presented to the BPU. On September 29,1983, the to record unbilled revenues as of the time service is BPU announced that it had approved the 17-year pur-furnished (see Note 4). chase power arrangement, accepted the joint stipulation and had granted the Company a net annual increase in In addition, the BPU granted a second phase of the base revenues f $12,400,000 desigud to recover the estimated rate proceed:ng to review the Company's load forecast net costs associated with the purchase of 62,500 kilowatts and c~pacity plans and the revenue requirements associ-fr m Susquehanna Unit No.1 and from coal generation ated with the performance under a Capacity and Energy under the 17-year arrangement. The net increase reflects Sales Agreement dated September 24,1979 (the Sus-a $24,500,000 increase in base rates and a $12,100,000 de-quehanna Agreement), which provided for the purchase crease m energy clause rates. The net increase was made by the Company through September 30,1991 of 5.94% of effective for service rendered on or after October 7,1983. the net capacity and energy output of each of Pennsylva-nia Power & Light Company (PP & L)'s two 1,050 Under the BPU Order and stipulation, the annual costs megawatt Susquehanna nuclear units, the first of which to be recovered through the increased base rates reflect was declared in commercial operation on June 8,1983. a levelization of estimated costs over the 17-year period f the arrangement. During the period June 8,1983 In January,1983, the Company requested the rate relief thr ugh September 30,1991, the estimated costs to be required to perform under the Susquehanna Agreement. incurred by the Company for purchases of capacity In March,1983, the BPU disappmved that request based and associated energy from Susquehanna Unit on a finding that the Susquehanna Capacity and Energy No. I will exceed the levelized costs to be recovered Agreement was not needed and not economic. In April, by the Company from its customers. Such unrecovered 1983, FERC accepted the Susquehanna Agreement for costs wdl be accumulated and deferred. The net unre-i*.* covered costs to the Company as of December 31,1983 The Company and PP&L conducted negotiations in an aggmgate $7,152,000. Such costs are included in the effort to resolve the dispute, due to conflicting regulatory Balance Sheet as Unrecovered Purchased Power Costs, orders, relating to the purchase of capacity and energy along with the related provision for deferred taxes of from PP&L's Susquehanna Units. As a result of the $3,290,000. The level of rates appmved by the BPU is negotiations, the Company and PP&L reached agreement designed to enable the Company to recover these on o new 17 year arrangement providing for the Com-deferred costs and associated carrying charges during the pany's purchase of125,000 kilowatts of capacity and the - balance of the 17 year period. The stipulation provides associated energy from the Susquehanna units through that any difference between actual costs incurnd by the September 30,1991 and thirteen wholly-owned PP&L Company under the arrangement and the estimated costs coal-tired units from October 1,1991 through September on which the increased rates were based will be recog-I1,2000. nized in future base rate pmceedings if such costs are not f und to be unreasonable. The BPU order prescribes a - Based on the new 17-year arrangement, the Company in mvenue reduction formula m the event that both July.1983, updated its filing befom the BPU, requesting : Susquehanna Units fail to meet a comb, ed minimum m rebnues to recover the first year of costs associated perf rmance standard established by the stipulation with the purchase of capacity and energy under the which could subject the Company, under the most arrangement. During the course of the hearings in the adverse circumstances, to a mvenue mduction not to. 24

exceed $15,000,000 per unit per year. The Company's request consisted of a net $28,100,000 The stipulation also recognizes that increased rates to increase in energy clause revenues to become effective mcover the net levelized costs associated with the January 1,19M and a $25,300,000 increase in base remaining 62,500 kilowatts to be purchased from Sus-resenues to become effective no later than mid-19M. The quehanna Unit No. 2 and from coal generation should be BPU has approved a $28,100,000 increase in energy authorized by the BPU upon the commercial operation of c use mvenues, effective January 20,19M, and accepted Susquehanna Unit No. y a jomt stipulation regarding that filing. The Company cannot presently predict the final outcome of the base On October 14,1983 the Company filed a request with the revenue request proceedings or the effect, if any, on the BPU for a $53,400,000 (10.8%) increase in total revenues. Company. Note 1. Change in Accounting for llevenues: As a part of the Decamber,1982 rate decision (See Note with service rendered from the time the meters were last

3) the BPU directed the Company to adopt a policy of read to the end of the period. The cumulative effect of recording revenues based on service rendered to the end this change as of Jamtary 1,1982 was $13,926,000 (after of the period. Previously, the Company recognized the related provisions for federalincome taxes of revenues when bills were rendered to customers based on

$11,863,000) and is separately identified in the 1982 monthly cycle meter readings. In recording unbilled Statement ofIncome and Retained Earnings. revenues, the Company estimates the revenues associated Note 5. Retirement Plan: The cost to the Company in providing a retirement plan January 1 1983 1982 for its employees was $6,563,000, $5,908,000 and crhousands of nouars) $5,476,000 in 1983,1982 and 1981, respectively. Approx-Actuarial present value of imately 80% of these costs were charged to operating accumulated plan benefits: expense and the remaining 20%, which was associated Vested $79,111 $72,156 with construction labor, was charged to the cost of new Nonvested 1.121 1,495 utility plant. 'Ibtal $80.235 $73,651 A comparison of accumulated plan benefits and plan net Net Assets available for benefits $99,100 $85,823 assets (including purchased mnuity contract amounts) for the Company's Plan, as of the most recent actuarial The weighted average assumed rate of retm n used in valuation dates, is as follows: determining the actuarial present value of accumulated plan benefits was 7% for 1983 and 1982. The Company's Plan is in compliance with the Employee Retirement Income Security Act of1974. Note 6. Jointly-Owned Generating Stations and Nuclear Wel: The Company participates with other utilities in the The amounts shown represent the Company's share of construction and operation of severaljointly-owned elec-each jointly-owned plant at December 31, and include an trie production facilities. allowance for funds used during construction. Electric Plant Construction Energy Company's in Service Work in Progress Generation Station Source Shace 1983 1982 1983 1982 1983 1982 (Thousands of Dollars) (KWHs) = Keystone Coal 2.47% $ 6,313 $ 5,808 590 $ 495 211,672 261,237 Conemaugh Coal 3.83- ~ 11,600 11,517 127 92 400,111 273,738 Peach Bottom Nuclear

7.51 74,055 72,584 6,358 1,587 513,629 996,769 Salem Nuclear 7.41 52,639 145,505 3.111 4,140 452,691 883,903 llope Creek Nuclear 5.00 130,390 99,555 The operatorc of the Salem and Peach Bottom Nuclear United States Department of Energy for spent nuclear Generating Stations entend into contracts with the fuel disposal. These contracts require the payment of a 25 k

one-time fee related to the Company's ownership interest has received approval for recovery of unrecovered nuclear in the Salem and Peach Bottore Stations through April 6, fuel disposal costs over a two year period. Current rates 1983, as well as quarterly charges after April 6,1983. are adequate to recover costs since April 6,1983 At December 31,1983 the Company's liability for its share The Company provides its own financing during the of the one-time fee related to nuclear fuel disposal costs is construction period for its share of the jointly-owned $10,888,000, of which $4,802,000 remains to be recovered plants and includes its share of direct operations and from customers. Previous recoveries of nuclear fuel maintenance expenses in its Statement of Income (see disposal costs of $5,650,000 were included in Other Note 13). Deferred Credits at December 31,1982. The Company, in its energy clause effective in January 1981 (see Note 3), Nota 7. Investment in Subsidiary Companies: The Company's investment in Deepwater Operating included in the Company's accounts classified as to Company (Deepwater), a wholly-owned subsidiary which operation, maintenance and taxes. operates generating and procese steam units owned by The Company also has an investment in Atlantic Hous-the Company, was $3,291,000 at December 31,1983 and ing, Inc. (Housing), a wholly-owned subsidiary. Housing's $2,841,000 at December 31,1982. The principal asset of principal investment is a 20% undivided interest as tenant Deepwater is workmg capital in which the equity of the in common in a future generating station and industrial Company is fairly represented by its mvestment. The net site, the amount of which is not material to the Company. production costs of Deepwater (after deductmg contract charges) are charged to the Company. These costs are Note 8. Common Stock: As of December 31,1983 and 1982, the Company's of Comaon Stock ($3 par value). Shares issued and Common Stock included 25,000,000 authorized shares outstanding: 1983 1982 1981 Beginning of Year 16,571,021 14,427,990 12,538,880 bale of Common Stock 1,500,000 1,500,000 Dividend Reinvestment and Stock Purchase Plan 535,611 487,601 302,726 Employee Stock Ownership Plan !16,387 128,797 16,641 Conversion of Preferred Stock 21,900 29,633 69,743 Shares at end of year 17,250,882 16,574,021 14,427,990 At $3 Par Value $51,752:616 $49,722,063 $43,283,970 Premium on Capital Stock was credited in 1983 and 1982 the Dividend Reinvestment and Stock Purchase Plan and with $12,986,000 and $34,793,000, respectively, repre-the Employee Stock Ownership Plan, mspectively. At senting the excess of proceeds over the par value of December 31,1983,69,070 shares of Common Stock were shares of Common Stock issued, sold and converted. At mserved for the conversion of 5%% Convertible Series of December 31,1983 there were 517,554 and 107,494 shares Preferred Stock. of Common Stock authorized for issuance pursuant to Note 9. Cumulative Preferred Stock: The Company has authorized 799,979 shares of Cumula-issuance, in certain circumstances, if dividends on issued tive Preferred Stock,' $100 Ihr Value,2,000,000 shares of Pmferred Stock are in arrears voting rights for the N ; Par Pmferred Stock, and 3,000,000 shams of Prefer-eleetion of a majority of the Board of Directors beco nes ence Stock, No Ihr Value. Unissued shares may, or may operative. not, possess mandatory redemption characteristics upon

Note 9(A). Cumulative Preferred Stock Not Subject 'Ib hiandatory Redemption: Current Cumulative Preferred Stock Not Subject to 31andatory Redemp-Redemption is mdeemable solely at the option of the Company upon payment of the redemption price plus December 31 I c 1983 1982 Per accumulated and unpaid dividends to the date fixed for (Thousands of Dollars) Sham redemption. Premium on such Preferred Stock was $100 Par Value-Cumulative $93,000 at December 31,1983 and 1982. and Non. participating shares issued and outstanding-The 5%% Convertible Series, of which 7,115 and 8,469 4 77,000 Shares S 7,700 $ 7,700 $105 50 shams were converted in 1983 and 1982, respectively is 4.10% 72,000 Shares 7,200 7,200 101.00 convertible (subject to adjustment m certam events) into 4.35 % 15,000 Shares 1,500 1.500 101.00 Common Stock at the rate of 3.5 shares of Common Stock 42% 36,000 Shares 3,600 3,600 101.00 for each share of Preferred' 4.75% 50,000 Shams 5,000 5,000 101.00 5.0% 50,000 Shares 5,000 5,000 100.00 5%4 Convertible Series: 19,729 Shares (1963) 1,973 101.50 26,814 Shares (1982) 2,6&l 7.52% 100,000 Shams 10,000 10,000 104.89 %tal $11.973 $42,684 Note 9(H). Cumulative Preferred Stock Subject 'Ib Afandatory Redemption: December 31 Current Refunding Pur 1983 1982 Redemption Restricted Value (Thousands of Dollars) Price Per Share Prior to Shares issued and Outstanding: Series: 8.40% 100,000 Shares $100 $10,000 $10,000 $115.00 9.90% 136,000 Shares (1983) 100 13,600 106.78 August 1,19&l 152,000 Shares (1982) 100 15,200 $8.25 95,000 Shares (1983) None 9,500 106.99 November 1,1987 100,000 Shares (1982) None 10,000 C.45 200,000 Shares None 20,000 20,000 53,100 55,200 Less Ibrtion due within one yer.r 1,050 1,0TA %tal $52,050 $54,150 On August 1, annually 8,000 shares of the 9.96% Series shares of the 8.40% Series must be redeemed through the - must be redeemed through the operation of a sinking operation of a sinking fund at a redemption price of $100 fund at a redemption price of $100 per share. At the per share. At the option of the Company, an additional option of the Company, an additional 8,000 shares may be 4,000 shares may be redeemed on any sinking fund date redeemed on any sinking fund date, without premium, without premium, up to 32,000 shares in the aggregate. up t: 40,000 shares in the aggregate. The Company redeemed 16,000 and 8,000 shares at par in 1983 and 1982, On November 1,1986, and annually thereafter,40,000 shares of the $9.45 No Par Prefermd Stock Series must respectively, be redeemed through the operation of a sinking fund at a On November 1,1983, and annually thereafter,2,500 redemption price of $100 per share. At the option of the shares of the $8.25 No Par Preferred Stock Series must Company, an additional 40,000 shams may be mdeemed be redeemed through the operation of a sinking fund at a on any sinking fund date, without premium, up to 50,000 redemption price of $100 per share. At the option of the shares in the aggmgate. Company, an additional number of shares not to exceed 2,500 may be redeemed on any sinking fund date without The minimum sinking fund provisions of the above series ium. The Company redeemed 5,000 shares at par in aggregate $1,050,000 in 1984, $1,450,000 in 1985, and $5,450,000 in 1986,1987 and 1988. On February 1,1985, and annually thereafter,4,000 27 k

Note 10. Long 'Ihrm Debt: Deposits in sinking funds for retirement of debentures December 31, 1983 1982 are required on February 1 of each year thmugh 1995 for the 5%% debentures, and on May 1 of each year through (Thousands of Dollars) 1997 for the 7%% debentures in amounts in each case N es S e#( anuah 1) 1983 sufficient to redeem $100,000 principal amount plus, at $ 4,050 9%% Series due (May 1)1983 35,000 the election of the Company, up to an additional $100,000 3% Series due (March 1) 19M 5,000 5,000 principal amount in each year. At December 31,1983 the 9% Nilution Control Series due Company had reacquired and cancelled $1,433,000 and $,281,000 principal amount of the 5%% and 7%% deben-3V4 es due (March 1) 1985 ) tures, respectively, toward its requirements for 19M and 4%% Series due (January 1) 1987 10,000 10,000 3%% Series due (April 1) 1988 10,000 10,000 subsequent periods. 4%% Series due (April 1)1989 2,775 2,775 A sm. km.g fund requirement of $3,000,000 each year 4%% Series due (March 1) 1991 10,000 10,000 4%% Series due (July 1) 1992 10,350 10,350 relative to the 12%% First Mortgage Bonds begins in 1986 4%% Series due (March 1) 1993 9,510 9,M0 and continues through 2010. At December 31,1983 the 11%% Series due (November 1) 1993 50,000 Company had reacquired and cancelled $11,250,000 princi-5%% Series due (February 1) 1996 9,980 9,980 pal amount of the 12%% Series toward its requirements 8%% Senes due (September 1) 2000 19,000 19,000 for 1986 and subsequent pen. ds. Current sm. km.g fund o 84 Series due (May 1) 2001 27,000 27,000 7%% Series due (April 1) 2002 20,000 20,000 requirements of $900,000 in connection with certain First 7%% Series due (June 1) 2003 29,976 29,976 Mortgage Bonds outstanding, are being satisfied by 7%% Wllution Control Series due certification of property additions as pmvided for in the (January 1) 2005 6,500 6,500 related mortgage indentures. 6%% Pollution Control Sen,es due (December 1) 2006 2,500 2,500 During 1983 and 1982 the Company reacquired, at 12%% Series due (January 1) 2010 63,750 75,000 amounts at or below par value, $11,250,000 and 11 11 ion Control Senes due $9,209,000, respectively, principal amount of First Mort-39,000 39,000 gage Bonds. These reacquisitions resulted in a loss in .371 E,m 1983 and a gain in 1982, both net of Federal income taxes inh Nnd Debentures due and expenses, f $8,000 and $1,816,000, respectively. 4 (February 1) 1996 2,267 2,267 The aggregate amount of debt maturities in addition to 7%% Sinking Rnd Debentures due s nking fund requirements of alllong term debt outstand-(May 1) 1998 2.619 2,619 ing at December 31,1983 are $26,000,000 in 1984, 1,886 4,886 $10,000,000 in 1985, $45,000,000 in 1986, $10,000,000 in Notes: 1987 and 1988. Wriable Rate Notes due (April 30)1986 45,000 45,000 The amounts of $3,2M,000 and $2,785,000 as of December 15,000 45,000 31,1983 and 1982, respectively, which represent the accumulated investment earnings on the net available Unamortized Pamium and Discount-Net 9 713 proceeds of certain pollution contml financings, am meluded in Miscellaneous Accounts Receivable. Such 106.266 407.270 amoun s am ms&M for use on b mlaW poHudon Deduct Longterm Debt . due within one year (26,000) (39,050) control pmjects. $380,266 $; 68,220 [

Y 1 4 ' Note 11. Short Term Debt and Compen. sting Balances: The Company is also a member of an insurance program which provides insurance coverage for the cost of replace. _ t ~ As of December 31,1983, the Company

• bank lines of ment power during prolonged outages of nuclear umts cmdit available for use of T115,000,000. Th. 70mpany is caused by certam specific conditions. Under the property i '.

required, with respect to $30,000,000 of the credit and rep acement power insurance programs, the Com-l -lines, to maintain average compensating ba ces of Pany could be assessed retrospective premiums in the . $800,000. These compensating balances art.aintained in event the msurers' losses exceed their mserves. As of demand deposits which are not legally rest :ted. The Company is in compliance with such compt eating December 31,1983, the maximum amount of retrospective d Pmmiums the Company could be assessed for losses . balance arrangements. With respect to the remaining - available credit lines, the Company pays commitment during the current policy year was $7.9 milhon under ~ fees (currently %%) which aggregated $269,000 for Pmgrams. 1983, $390,000 for 1982 and $401,000 for 1981. Certain other In the event of a nuclear incident at any of the facilities i information regarding short term debt follows: covered by the federal government's third-party liability. - (Thousands of Dollars) 1983 1982 1981 indemnification program, the Company could be assessed For the year ended-up to $1.5 million per incident, but not more than $3.0 - 1 Maximum amount of total short million in a calendar year in the event more than one term debt at any month-end: incident is experienced. Commercial Paper $30,000 $22,000 $62,475 Notes Payable to Banks s 7,000 $ 3,000 $ 7,500 The Company has a live-year agreement expiring May 31, i Average amount.of short term 1985, with Delmarva Pbwer & Light (DP&L) for the 4 ~ L debt (based on daily outstand-purchase of 50 MW of power from the output of DP&Lh ing balances): coal-find Indian River Unit No. 4. The Company has an 5N agreement with Allegheny Pbwer System (APS) which ' oIe b Banks 3"

W2ighted daily average interest entitles the Company to 50 MW of coal-fimd capacity

rates on short term debt:

' from the APS Pleasants Station thmugh 1985. This-J Commerrial Paper 9.0% ~ 12.8% 16.4 % agreement was modified for the years 1983 and 1984 to [ ' Notes Payable to Banks 9.3% ' 13.7% - 16.7% provide the Company access to a cogeneration source on l Weig e interest rate an APS subsidiary's operating system. The Company has . for short term debt also agreed to purchase certain capacity and energy outstanding: . output fmm PP&L under the Susquehanna and Coal . Commercial Paper 12.2 % - Units Agreements (see Note 3). ' Notes Pgyable to Banks 12.8%. In July 1983 the BPU appmved an Agnement between the Company, Public Service Electric and Gas Company - . Note 12. Commitments and Contingencies: (PSE&G), the New Jersey Department of Energy (DOE) ' "Ibtal construction expanditures for 1984 are estimated at and the New Jersey Department of the Public Advocate w. approximately $94,000,000, which includes $36,679,000 - (PA) which establishes an incentive program to contain ~ ' O. forjointly-owned facilities. Curmnt commitments for the the continuing construction costs of Hope Creek Unit No. construction of major pmduction and transmission facili-1, which is currently 80% complete and scheduled for L x ties amount to approximately $48,000,000 of which it is. completion in 1986. Under the Agnement, if the final 1 estimated approximately $22,000,000,will be expended in. cost of the facility is less than $3.55 billion, the - ' 1984. Dese amounts exclude allowance for funds used Companyh shareholders could sham in the savings. On, t ' during construction. . the other hand, if the Anal cost of the unit exceeds i' he Company is a member of certain insurance pmgrams . $3.7962 billion, the Company could be penahsed by not 7 ~ being able to earn a return on the entin amount of the. > u 4 which provide coverage for property damage to members' cost overrun. As a part of this Agnement, the DOE and y nuclear generating plants.14cilities at the Peach Bottom - the PA have agreed not to challenge the need fbr the unit - 5 and Salem Stations are insund against pmperty damage in which the Company has a 5% ownership interest. - Iosses up to $1.0 billion per site under these pmgrams. .v l Q jtl Nl .O y 3 - 4 T, ,q

During February 1983, while Unit No. I of the Salem The Company's contractual liability to purchase nuclear Nuclear Generating Station, which is operated by fuel under a nuclear fuel agreement for Salem and Hope PSE&G, was in a low power restart phase, automatic Creek Generating Stations as of December 31,1983 was thutdown controls failed to operate upon signal. The Unit approximately $28,000,000. Under certain conditions of was shutdown manually in accordance with established termination, the Company will be required to purchase puedure, without further incident. While Unit No. I all nuclear fuel then existing at a price which will allow was shutdown, PSE&G, as recommended by the Nuclear the lessor to recover its net investment costs. Nuclear Rcgulatory Commission (NRC), performed the necessary fuel requirements for Peach Bottom Generating Station corrective maintenance and reverifications of the oper-are being provided by the operating company through a ebility of the Unit's safety-related systems. As authorized fuel purchase contract. The Company is responsible for by the NRC, such performance enabled Unit No. I to payment of its share of fuel consumed and interest return to service in May 1983. expense. Such costs have been included in the above nuclear fuel Nn al spense. In proceedings before the BPU, PSE&G has maintained that its additional replacement power costs associated The future minimum rental commitments under all Tzith the extended outage of Salem Unit No. I will be noncancelable lease agreements are not significant. offset by extending the period during which the unit will be operated prior to the next scheduled refueling outage. Note 11. Supplementary Income Statement The Company has also incurred replacement energy costs Information: associated with the extended outage of Salem Unit No.1, Operating expenses include taxes and other items not and cannot predict what action may be ultimately taken separately identified in the Statement of Income as by the BPU with respect to the Company's replacement I E *8 energy costs. The Company cannot predict the final Year Ended December 31 1983 1982 1981 outcome or the effect of the final outcome, if any, of these matters on the Company or its operations. (Thousands of Dollars) %xes Other Than Federal Income Note 13. Leases: Lxes: State Gross Receipts and The Company has certain obligations related to the use of Franchise %xes $55,321 $58,0G1 $39,914 nuclear fuel, property and equipment which, in accor. Real and Personal Property %xes 1,917 1,633 918 dance with criteria established by the Financial Payroll %xes- -Federal and State 2, m 2,455 2,078 Accounting Standards Board (FASB), are capital leases, ,,""'

• Sl"l* " d I

1,638 (1,004) 1,290 but are accounted for as operating leases in accordance Total 561,661 $60,518 $44,200 with the ratemakm, g treatment. An accountmg standard issued by the FASB in December 1982 requires that the Maintenance Expense $35,066 $30,313 $28,087 Company record such leases on its balance sheet by 1987. Charges to income for royalties and advertising are less Recordmg capital leases would not have a material effect than 1% of grass revenue. on assets or liabilities, and would not affect income, since the total amortization of the leased assets and the intemst on the lease obligation would equal the rental expense currently allawed for ratemaking purposes. Rentals charged to operating expenses were as follows:, (Thousands of Dollars) 1983 ~1982 1981 ~ Nuclear Fbel $ 6,368 $ 6,000 $4,002 Other 5,268 6,940 5,652 - ' Total $11,632 $12,030 $9/n1 k I

. Not315. Quarterly Financial Results (Unaudited): Quarterly Anancial data which reflect all adjustments necessary in the opinion of the Company for a fair (which consist of only normal recurring accruals) presentation of such amounts are as follows: Operating Operating Earnings For Earnings

Quarter

' Revenues . Income Income Common Stock Per Share (Thousands of Dollars) 1983- - 1st $121,977 $21,469 $14,526 $12,705 $.76 l2nd-119,476 18,M0 11,874 10,057 .60 3rd 157,450 37,356 30,597 28,808 1.70 -4th 118,239 15,637 9,155 7,381 .43 $517,142 $93,102 $66,152 $58,951 $3.48 m 1982 1st $128,259 $13,875 $ 7,191 m $ 5,337 m $.37 m .2nd 103,M4 14,4GI 8,521 6,668 '.46 3rd 115,794 22,080 13,788 11,938 .81 4th-- 97,081 12.351 5,629 3,818 .23 $144,178 $62,770 $35,129 m $:.).7,761 m $1.84 m m 1981 1st $112,762 - $18,969 $13,760 $11,856 $.M 2nd. 101,908 .15,194 8,739 6,845 .M 3rd 133,552 24,963 17,499 15,627 1.22 4th-121,461 14,385 6,990 5,129 .36 $469,683 $73,511 $46,988 $39,457 $3.03 m (1) The individual quarters may not add to the total due to the quarter) of a 1982 accounting change to record unbilled avvenues (See increasing average number of common shares outstanding at the end of Note 4). each quarter. (2) Results for 1982 do not include the cumulative effect on net income The revenues of the Company are subject to seasonal ' ' and earmngs for common stock of $13,926,000 (net of tax) or on earnings fluctuations due to increased sales and higher residential per share of $.92 (8.96 based on average shares outstanding in the first ' rates during the summer months. . SU'PPLEMENTARY INFORMATION CONCERNING THE EFFECTS OF _ CHANGING PRICES (Unaudited)

%e following supplementary information about the utility plant by applying the Handy-Whitman Index of cffects of changing prices is calculated under two differ-Public Utility Construction Costs to historical cost by l ent methods.

vintage years, reRecting the current' cost of uplacing. resources actually used in the Companyh operations The Arst method, which uses the Consumer Price Index (current e sts). for All Urban Customers (CPI-U), adjusts data for. generalinAntion, providing Anancialinformation in dollars Constant dollar amounts differ from curmnt cost amounts

of equivalent value or purchasing power (constant dol-because, over the period utility plant is held, specific L lars). The purpose of this method is to make Anancial data - prices increase mom or less rapidly than general inna--

more comparable by mporting the Anancial statement - . tion. Both of these methods involve the use of effecta of the Companyb investment in Utility Plant over assumptions, approximations and estimates and therefon . a period of time in terms of a common unit of purchasing the resulting measumments should be viewed in that - power. context and not as precise indicators of the effects of - he second method adjusta the Anancial data for changes - in'specide prices of the components of the Companyh - 'l 31 ' .m _ _L i _2. -_ ;

STATEMENT OF INCOME FROM CONTINUING OPERATIONS ADJUSTED FOR CHANGING PRICES Year Ended December 31,1983 (In Average 1983 Dollars) Results of Operations: In Constant At Current (Thousands of Dollars) Historical Dollars Cost Operating Revenues $517,142 $517,112 $517,142 Operating Expenses: Operation and Maintenance Expenses 336,929 336,929 336,929 Depreciation and Amortization Expense 38,383 79,076 82,787 FederalIncome Tax Expense 48,728 48,728 48,728 Oth:r 26.950 26.950 26.950 Income from Continuing Operations $ 66,152 $ 25,459 $ 21,748 Depreciation and amortization expense expressed in ing the respective cost data by a percentage representing constant dollar and current cost amounts were deter-the expired life of existing facilities of each class at mined using the rates and methods used for computing December 31,1983. book depreciation and amortization applied to utility Fuel inventories, the cost of fossil fuels used in genera-plant balances reexpressed in terms of constant dollars tion, have not been restated from their historical cost. md current costs. New Jersey regulation controls fuel costs, through the Only depreciation and amortization of nuclear fuel have operation of a levelized energy clause, such that recovery been specifically adjusted for inflation in the above is ultimately limited to actual cost. For this reason fuel schedule. Operating revenues and other operating inventories are effectively monetary assets. expenses were generally incurmd ratably over the year. Net Utility Plant Costs Recoverable: Accordingly, the stated amounts already reflect, m, effect,- Under rate making prescribed by the regulatory commis-tverage 1983 dollars. sions to which the Company is subject, only the historical Significant to this data is the impact of a fixed income tax cost of utility plant is recoverable in revenues as depreci-rate. Income taxes were not adjusted because the present ation. Therefore, the excess of the cost of utility plant tax laws do not allow a deduction for depreciation and stated in terms of constant dollars or current cost over amortization adjusted for the impact of inflation. There-the historical cost of plant is not presently recoverable, fore, the Company's effective tax rate rises from 42.6% Due to this feature, the value of utility plant and its effect under the historical cost basis to 72.6% and 75.6% under on income from continuing operation adjusted for chang-th3 respective constant dollar and current cost basis. ing prices must be considered in terms ofits net recover. able cost which is historical cost. While the rate making This supplementary information should not be used to process gives no recognition to the current cost of re-assess the probability of future cash flows when existing placing utility plant, based on past practices the Company utility plant is replaced. The estimates do not reflect the beheves it will be allowed to earn on the mereased cost affects of the regulatory process nor the specific plans of fits net mvestment when replacement of facilities the Company for the replacement or modernization of actually occurs. utility plant. A meaningful estimate of the estimated level of future capital expenditures is set forth on page 14 of Current Year Decline in Purchasing Power of Net the annual report. Amounts Owed: Current Year Effect of Increased Price Levels: The current year decline in purchasing power of net amounts owed was $18,572,000. During a period ofin. . (Thousands of Dollars) 0". on, ers of monetary assets sud as cash and e Increases in General Price Levels on Utility Plant Held $63,838 ceivables suffer a loss of general purchasing power - Increase in Specifle Prices on Utility Plant Held 63,520 while holders of monetary liabilities, generally long term Excess of Increase in General Price Levels Over debt, experience a gain because debt will be repaid in Inervases in Specific Pnces 8 318 dollars having less purchasing power. The Companyh gain At December 31,1983 the cost of utility plant, net of fmm the decline in purchasing power ofits net amounts accumulated depmelation was $1,726,832,000 on a con-owed is primarily attributable to the substantial amount stant dollar basis and $1,764,301,000 on a current cost of debt and cumulative preferred stock subject to man-basis, while historical cost was $951,328,000. The accumu-datory redemption which has been used to finance utility lated provisions for depreciation and amortization under plant. This gain, however, should not be considered as - both constant dollar and current cost methods were providing funds to the Company, since the Company is estimated for each major class of utility plant (production; limited under rate making pmcedure to the recovery only transmission; distribution and general plant) by multiply-ofits embedded cost of debt.

.. r

FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA INCLUDING UNAUDITED SUPPLEMENTARY DATA ADJUSTED FOR CHANGING PRICES (In Thousands of Dollars Except Per Share Amounts-Constant Dollar and Current Cost Amounts Expmssed in 1979 Dollars) Years Ended December 31 1983 1982 1981 1980 1979 Operating Revenue -historical $ 517,112 $ 444,178 $ 469,683 $358,391 $283,106 -in constant dollars (*) 376,639 333,786 374,850 315,697 283,106 Income from Continuing Operations -historical 8 66,152 $ 49,055 $ 46,988 $ 38,538 $ 34,307 -in constant dollars (a) 18,512 3,998 6,223 7,592 12,168 -at current cost (") 15,839 3,036 6,104 4,884 6,989 Income from Continuing Operations per Share of Common Stock (b) -historical 3.18 $ 2.76 $ 3.03 $ 2.62 $ 2.36 -in constant dollars .79 (.10) .01 .18 .51 -at current cost .63 (.17) .01 (.03) .08 Effective Income ' Pax Rate -historical 12.6 % 35.5 % 36.8 % 33.8 % 35.5 % -constant dollar basis 72.6 87.1 81.5 72.2 60.8 -current cost basis 75.6 89.9 81.7 80.1 73.0 Excess of Increases in General Price Levels Over Increases in Specific Prices (*) 232 $ (5,366) $ (20,115) $ 38,368 $ 45,257 Decline in Purchasing Power of Amount Owed (*) 13,526 $ 16,282 $ 31,582 $ 39,654 $ 47,313 Net Assets at Year End -historical $ 118,891 $ 414,834 $ 338,846 $324,127 $310,231 -in constant dollars (avg.) 320,913 306,335 261,688 272,699 293,444 Net Income as a Percent of Operating Revenue -historical 12.79 % 11.04 % 10.00 % 10.75 % 12.12 % -trended in 1979 dollars 9.32 8.30 7.98 9.47 12.12 Earned Rate of Return on Shareholders' Equity -historical 11.19 % 11.20 % 12.21 % 11.62 % 10.70 % -trended in 1979 dollars 10.55 8.41 9.74 10.24 10.70 'Ibtal Assets at Year End-historical $1,139,978 $1,077,969 $1,013,789 $879,795 $779,026 Long Term Debt and Cumulative Preferred Stock Subject to Mandatory Redemption -historical $ 159.366 $ 462,470 $ 447,389 $394,288 $324,848 Dividends Declared per Share of Common Stock -historical 2.32 $ 2.24 $ 2.08 $ 1.93 $ 1.79 -in constant dollars 1,69 1.68 1.66 1.70 1.79 Market Price per Common Share at Year End -historical 23.25 $ 20.75 $ 17.25 $ 15.75 $ 17.235 -in constant dollars 16.93 15.59 13.77 13.87 17.235 Average Consumer Price Index 298.5 289.3 272.4 240.8 217.4 C;rtain comparative per share data trended in average 1983 dollars (without adjustment of earnings for the pro forma effects ofinflation on depreciation amounts) are as follows: Earnings (b) 3.48 $ 2.85 $ 3.32 $ 3.17 $ 3.24 Dividends Declared 2.32 2.31 2.28 2.33 2.46 Market Price (Year End) 23.25 21.41 18.90 19.05 23.51 C) 'lhese amounts will differ from those shown for constant dollar and current costs in Statement of Income From Continuing Operations Adjneed for Changing Prices because a di#ennt base year has been used in the data pmsented above (1979) and in the Changing Price information (1963; in order to illustrate the impact of changing prices in alternative forms. (b) Income from Continuing Operations, Net income and Earnings Per Share data for 1982 include the cumulative effect of change in accounting method (see Note 4 of Notes to Financial Statementsk 33

_ ~- .m STATISTICAL REVIEW 1983-1973 ~ Facilities for Service 1983 1982 1981 1980 Total Utility Plant (Thousands) $ 1,225,690 $ 1,153,321 $1,064,928 $ 962,052

Gross Additions to Utility Plant (Thousands)

$.83,673 $ 126,893 $ 123,318 $ 97,330 Pole Miles of Transmission and Distribution Lines 6,925 6,918 6,910 6,879 . Generating Capacity (Kilowatts) M N 1,591,200 1,531,200 1,524,600 1,434,700 Maximum Utility System Demand-Kw 1,316.700 1,264,200 1,263,800 1,261,700 Capacity Reserve at Time of Peak (% of Instal. Gen.) 15.5 % 17.4 % 17.1 % 12.1% En:rgy Supply (Thousands of Kwh) ' Nat Generation 5,913,196 5,676,118 5,302,023 5,533,178 Purchased and Interchanged-Net 579,188 - 466,667 946,241 643,106 ~ 'Ibtal System Load 6,492,681 6,142,785 6,248,264 6,176,284 ' Electric Sales (Thousands of Kwh) Residential 2,515,351 2,415,292 2,480,225 2,514,738. Commercial 2,019,168 1,894,535 1,849,863 '1,769,208 Industrial 1,225,637 1,218,520 '1,279,724 1,286,205 All Others 60,978 63,770 65,555 ~ 63,753 . Total 5,851,431 5,592,117 5,675,367 5,633,904

Residential Electric Service (Average per Customer)

Amount of Electricity used during the year (Kwh) 7,715 7,444 7,751. 8,003 Amount paid for a year's service 735.66 $ 644.77 $ 670.66 $ 536.99 Price per Kilowatt-hour 9.51e 8.66e 8.65e 6.71e ' Customer Data (Average) Residential With Electric Heating 62,272 59,319 56,100 ' 52,225 Residential Without Electric Heating 267,642 265,124 263,904 261,988 '1btal Residential 329,914 '324,443 320,004. 314,213 Commercial 43,152 42,885 43,219 43,267 ~ Industrial 1,021 1,018 ' 1,032 .1,041 .Other. 549 627' 634 654 Ibtal Customers 374,636 368,973 364,889 . 359,175 L'1btal Service Locations 398,526 391,989 386,046 379,242 Pbpulation Served 1,092,000 1,069,000 1,056,000 - 1,037,000 L Financial Data (Thousands of Dollars) - Energy Sales .$ 242,7051. $ 209,191~ $ ' 214,614 $ 168,733 ' ' Residential Commercial - 175,520 154,792 156,624 '115,973 ' i-Industrial '76,109

71,255

82,908

- 60,512 l' All Others 10,133 9,255 9,700 ~ 7,836 ~ 'Ibtal Energy Sales-Billed 504,467 444,493 463,846 ~ 353.054 - Unbilled Revenues-Net ' 5,671. ' (6,795). t - Other Electric Revenue - 7,004. - 6,480 5,837 ' -5,337, L '1btal. 8 517,142 8 ' 444,178 - $ ' 469,683 -8' 358,391-Investor Information - Earnings per Average Common Sham 8 3.48 2.76 (c)' $ ' 3.08.~ 2.62 Ave Number of Shams Outstanding (in ) - 16,923 1 15,116 13,034 12,372 < Dividends Paid on Common Stock - 8

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iDividend Payout Ratio 8. 23.58 8-22.45. 22.40; 22.22 . Book Value Per Sham (Year End) - i Price Earnings Ratio (Year End) t 4.11. 2.27 (c) ' 2.84 '3.08 'Ihnes Fixed Charges Earned (before income taxes) .. 6 . 7 E8

6 Shareholders and Employees (Year End) -

. Common sharehoklers 48,299-48,790-48,424 ~

47,762 Employees 1,995

' 2,022 2,085 1,968: (a) Emenudos espacity allocated to a large industrial customer ' (b) Includes unit purchase cfesparity under contracts with Delmarva Pbwer & Light Company and Pennsylvania Pbwer and Light Company, _ . b 1900 and 190B, respectively.' ' (e) Earnings saleulation includes the cumulative elleet of an asseuntag change Financial ratio is computed emeluding the eunulative edleet. M x 5 [.,

1979 1978 1977 1976 1975 1974 1973 $ 870,075 3 802,473 $ 753,269 $ 710,343 $ 675,617 $ 637,250 $ 572,555 72,773 $ 58,073 $ 48,733 41,702 46,745 71,200 $ 67,8 4 6,831 6,786 6,735 6,696 6,645 6,580 6,506 1,384,700 1,414,700 1,414,700 1,334,700 1,334,700 1,278,700 1,013,500 1,192,600 1,177,400 1,176,000 1,030,300 1,069,400 1,0M,400 1,051,400 13.9 % 16.7% 16.9 % 22.8 % 19.9 % 21.5% 5,397,338 5,625,988 5,293,019 4,918,906 4,715,357 4,651,334 4,236,083 464,143 130,037 224,169 324,196 190,85') )9,197 665,558 5,861,481 5,756,025 5,517,188 5,243,102 4,906,209 4,880,531 4,901,641 2,411,732 2,377,202 2,221,250 2,070,766 1,938,724 1,882,560 1,899,122 1,580,384 1,586,097 1,478,559 1,392,029 1,346,216 1,298,858 1,351,974 1,255,304 1,250,636 1,220,260 1,143,170 1,036,755 1,136,935 1,119,478 60,799 60,705 58,866 57,667 56,465 57,477 58,129 5,308,219 5,274,640 4,978,935 4,663,632 4,378,160 4,375,830, 4,428,703 7,849 7,951 7,653 7,320 7,018 6,982 7,303 $ 439.92 $ 406.18 $ 378.36 $ 349.64 $ 329.25 $ 291.21 $ 230.19 5.61e 5.11e 4.91e 4.78e 4.69e 4.17e 3.15e 48,339 44,387 40,318 37,581 35,235 32,215 28,627 258,941 254,592 249,927 245,296 241,019 237,397 231,408 307,280 298,979 290,245 282,877 276,254 269,612 260,035 43,219 42,672 42,033 41,170 40,608 40,351 39,810 1,048 1,034 1,047 1,071 1,100 1,0S0 M8 667 673 676 681 684 679 678 352,214 343,358 334,001 325,799 318,646 311,722 301,471 371,362 362,131 352,205 343,147 336,105 330,758 320,834 1,015,000 990,000 961,000 937,000 91.5,000 894,000 865,000 $ 135,178 $ 121,440 $ 109,818 98,9M $ 90,956 78,512 $ 59,856 88,819 80,539 73,354 66,354 63,M4 55,713 42,804 47,590 42,185 40,885 36,438 34,974 33,565 22,008 6,624 5,973 5,630 5,406 4,881 4,207 3.861 278,211 250,137 229,687 207,102 194,355 171,997 128,529 4,895 4,921 5,308 4,925 4,724 4,614 4,365 $ 283,106 $ 255,058 $ 234,995 $ 212,027 $ 199,079 $ 176,611 $ 132,894 2.36 2.21 2.06 2.60 2.41 2.M 2.40 11,980 10,791 10,630 9,747 9,490 8,973 8,453 1.765 1.67 1.62 1.56 1,51 1.50 1.4688 75 % 76 % 79 % 60% 63 % 59 % 61 % 21.63 21.27 20.71 20.25 19.34 18.45 17.85 7 8 11 9 7 5 7 3.62 3.62 3.17 3.14 2.88 2.33 2.62 Q,194 44,490 43,826 42,516 39,232 39,054 36,835 1,903 1,797 1,739 1,714 1,741 1,811 1,810 'this Annual Report has been prepared for the purpose of prwiding general and statistical information concerning the Company and not in connection with any male, offer for sale or solicitation of an offer to buy any securities. 35 h

= _. _ ~ COMMON STOCK PRICE RANGE AND DIVIDENDS CORPORATE DATA ~ The high and low sales prices of the Common Stock as reported in the Wall Dividend Reinvestment and Stock Street Journal as New York Stock Exchange-Composite Transactions for the Purchase I'lan periods indicated were as follows: The Company continues to offer a Dividend Reinvestment and Stock Dividends Paid Purchase Plan which enables 1983 1982 Per Share shareholders and employees to Iligh Low High Low 1983 1982 automatically invest their cash First Quarter 23 % 20% 18 % 16 % $.57 $.53 dividends in Company stock, and also make optional cash payments without Second Quarter 23 % 20 % 18 % 17 $.57 $.53 paying brokerage commissions or Third Quarter 23 20 % 20 % 17 s.57 $.57 service charges. Over 535,000 shares were purchased through the Plan in Fourth Quarter 25 % 22 % 21 % 19 $.59 $.57 1983 with proceeds to the Company in excess of $11.7 million. There were I'or your convenience, listed below are the proposed 1984 record dates and 17,100 participants in the Plan at payable dates, for dividends on Common Stock: year-end. To enroll, please contact ur Investor Records Department. Recon! Dates Payable Dates See address on this page. M:rch 15,1984 September 20,1984 April 16,1984 October 15,1984 June 21,19M December 20,19M July 16,1984 January 15,1985 Share Listings Common Stock of the Company is Ir;vestor Records: Communications regarding stock transfer requirements or listed on the New York Stock lost certificates should be directed to the appropriate Transfer Agent. Changes Exchange, the Philadelphia Stock of address, inquiries on dividends or matters concerning the Dividend Exchange and the Pacific Stock Reinvestment and Stock Purchase Plan should be addressed to: Exchange. The 5%% Cumulative Convertible Preferred Stock of the Atlantic City Electric Company Company is listed on the New York Investor Reconis Department Stock Exchange. P.O. Box 13M Pleasantville, NewJersey 08232 to-K Heport Available The annual report to the Securities or t-lephone Area Code 609*5-4506 or 450'7. and Exchange Commission on Form 10-K is available to shareholders and may be obtained by writing to the Company, Attention: Mr. M. R. Meyer, Secretary. See address on this page. Transfer Agents For Common and Pmferred Stock Morgan Guaranty Trust Company of New York 30 West Broadway' . New York, New Yark 10015 For Common Stock First National State Bank of South Jersey Atlantic City, New Jersey 08404 0

BOAllD OF DIItECTOIts OFFICEllS CO3DII'ITEE LISTINGS = John D. Feehan Mr. Feehan, Chairman of the Boani .d Chairman of the Boani, and President, serves as an ex C President and Chief officio member of all committees. I' Executive Officer except the Audit Committee. i Ernest D. Iluggard Audit Committee g,N y [ p Executive Vice President John M. Miner, Chairman iuni ri..no,s. o i. sar ms i. m tw.,a** *" Frank J. Ficadenti Eleanor S. Daniel i U.'.YJY.tY'C*<"f.D $'$"4N' *' Senior Vice President Jos. Michael Galvin, Jn 31ack C. Jones Engineering and Construction Ining K. Kessler Jerrold L. Jacobs - 1 Senior Vice President Corporate Development Committee i)W F rrank II. Wheaton, Jn, Chairman Operations a [ t / Michael A. Jarrett Eleanor S. Daniel o .t w. Senior Vice President Gerald A. IIale <uneno.r.eh.n.ch.irm.nath.iC.sw,.6inei Grporak Services Matthew IIolden, Jn Mack C, Jones chef Enecutiw ofNet (Rightp Jo Mvh.el G. Inn.Jr. sw.+.na car t.,ot,. omo.,a soi county v.m Dayid V. Honey n.i n.,,=,st.t Vice President John M. Miner Customer and Community Services Energy, Operations and Research y-e L John F. Ilorn Committee Vice President Mack C. Jones, Chairman 1~ Richant M. Dicke Eketric Operations s 6, F Jos. Michael Galvm,, Jn 4 h Thomas E. Freeman Gerahl A. IIale < uni Ger.ui A. ii.i.. rw.6ient. It.i. R,.oo .. in<..n M Ma@m &Mm, h. i lleman Resources Irving K. Kessler w trw n.curai, nom. in.oneni.na m.n.,mn,_ I"JA"I$r".T$,"82$U"*"' " ""'"*"' '"' Meredith I. Ilarlacher, Jr. Madeline II. McWhinney g-ry- = =w Vice President Richant M. Wilson V Engineering Finance Committee a $4 Brian u. Parent John M. Miner, Chairman 4 i Vice President and Treasurer Eleanor S. Daniel Q2 1 s Richara M. Licke ) ,4 i' M Joseph G. Salomone Gerald A. IIale k/ Vice President Mack C. Jones K~ Contr0l IIYiUN K' K008lOI l U,"IrilEIr"$"" dud,TEd"n!"EA l C+"'"""- Ilenry C. Schwemm, Jr. Madeline 11. McWhinney l Vice President Richani M. Wilson Ihluction Pension and Insurance Committee Martin R. Meyer Richan! M. Dicke, Chairman 1 s Secretary and Matthew IIolden, Jn Assistant Treasurer John M. Miner is Frank 11. Wheaton, Jn Lance E. Cooper Richard M. Wilaon < uni w.a.w n. um.mn 7. tw.wn, oa.. twe a Controller A$si ta,r t 1 I ident E anot S.I Operations and Assistant Secretary Richant M. Dicke . M' 1rving K. Kessler 7, g Frank II. Wheaton, Jn 's Shareholder, Community and 9 y W Government Relations Committee 4 Eleanor S. Daniel, Chairman < uni rr.a., m.i n. u. rr..a,* a ww. ina Jos. M chael Galvin' Jr* v.w. a. u. n,m,r s,n6, m iw.* Right) Rich.rd M. Matthew Iloklen, Jn M muflvturer of gl.se.eus pl u, evet.mers. < rn. comp.n,. Madeline !!. McWhinney Frank II. Wheaton, Jn Richard M. Wilson

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l Philadelpbla Electric Cornpany AnnualReport 1983 e-l Financialliighlights 1983 n982 change Operating Revenue $2,596,050,000 $2,644,753,000 (2%) Operating Expenses $2,202,343,000 $2.256,026,000 (2%) Taxes Charged to Operations $ 378,641,000 $ 372,180,000 2% Operating Income $ 393,707,000 $ 388,727,000 1%', Earnings Applicable to Common Stock $ 321,705,000 $ 278,623,000 I5% Earnings per Average Common Share $2.40 $2.39 Cash Dividends Paid per Common Share $ 2.12 $2.06 '3% Average Shares of ~ Common Stock Outstanding 133,852,000 116,480.000 1E% Construction Expenditures $1,040,428,000 $ 883,898,000 18% ^ Total Assets $8,143,795,000 $7,029,269,000 16% +., Contents trtter to Shareholders - 2 Report of 1983 Operations Managementh Diseuuion and Analysis of Financial Condition and Results of Operations ' 21 Accountants' Report 22, Consolidated Financial Statements 2g - Notes to Financial Statementa 27 g Financial and Operating Statistics 36 Shareholder Information ~' 3 Officers and Directors 41 Farnings and Dividends per Share Construction Expenditures g twms. Malkmtute " ', 4 24o i.oua 2(M k 4 i 20 1 k t g, ey ~ w NQ \\* \\ ~ y ~ 'M no si n2 si ?s no ni a2 3 Esmnp Pu 5hne WM hw50mm E Ikv*nda rer $ hare M laternan 50unes a 4 g ,I 3 '. g .s Qk 0h ',f ~N N hih s v .\\ vi f 1

I I In spite of several disappointments,1983 was a year of progress. We To Our Shareholders: note below some of the highlights and invite you to read the balance,j of this Annual Report for additional details.

• Earnings were $2.40 per share, up one cent from last year. Iower wholesale sa'.es from Salem Unit No. 2, which experienced long outages during the year, prevented more substantial earnings growtlb
• Electric sales to retail customers increased 4%, assisted by hot summer weather and the economic recevery.
• Service reliability to our customers remained at a near perfect level of 99.988%.
• The Company established a new incentive electric rate for man-ufacturing customers, providing lower electric rates in exchange for increased employment and additional investment in facilities.

At year-end, 36 customers had taken advantage of this rate and p, s had added about 3,000 jobs in our service area.

• The Company received an electric rate increase in November r

n from the Pennsylvania Public Utility Commission (PUC), esti-s- mated to add $144 million of annual revenue. The Company had k: },4 ~ P requested $228 million. e The construction of Limerick Unit No. I remained on schedule - i I I for commercial operation in April,1985.

• Construction of Limerick Unit No. 2 remained suspended, await-3 j

f ing PUC action on the Company's petition to resume construction. The Company believes that Limerick Unit No. 2 is needed for ~~ fanees L Eterwit ii e ~ 4g v f k 4 ,t 2

capacity and is the most economic generation available. OnJanu-ary 24,1984, the Company responded to the PUC's latest Order and proposed to suspend construction of Unit No. 2 until Unit No.1 is in commercial operation.

• Work continued on the Point Pleasant water pumping facilities in Bucks County which are planned to supply water to Limerick, as well as to communities in Bucks and Montgomery Counties, de-spite strong local political opposition to the proiect.
• The flae gas scrubbing systems that r move more than 90% of the sulfur dioxide from stack gases at the Company's only coal-burning stations, Eddystone and Cromby, operated successfully in 1983. These systems allow the Company to continue to burn coal while meeting stringent air quality regulations.

e The Company spent $1.0 billion on construction during the year. Approximately $800 million of these funds came from the sale of new securities and long-term bank borrowings and the balance . m _7m from internal sources.

• The quarterly dividend rate on common stock was increased by 2 cents to 55 cents, or $2.20 per share on an annual basis, to be effective March 30,1984.

l The Company is proud of its 10,500 employees who serve so well and is grateful for the support of its shareholders, which now number r over 300,000. Your Directors and Management look forward to the l future with confidence. l John H. Austin,Jr. James L Everett Chairman of the Board and CblefExecutive Oficer i m John H. Austin,Jr. President and CblefOperating Oficer 3

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l Earnings Improve share of the output of Salem Unit No. 2 Earnings per share in 1983 amounted toJersey Central Power & Light Com-l to $2.40 per share, one cent per share pany. This jointly owned unit, which is l atxne the 1982 level. Total common operated by Public Service Electric and stock earnings were $322 million,15% Gas Co. of NewJersey, was shut down alxwe last year wbile the number of for an extended refueling and mainte-average shares outstanding also rose nance outage during 1983. It is ex pected 15%. Dividends paid on the common to return to service in early 1984. stock amounted to $2.12 a share,100% Electric sales, excluding sales to of which were not taxable for federal in-Jersey Central, increased 4% to 27.2 bil. come tax purposes. In addition,93% of lion kilowatthours due to higher aver-preferred stock dividends paid in 1983 age residential usage, one of the hottest were not taxable. summers on record and increased busi-Inwer wholesale sales of Salem ness activity. This encouraging result Unit No. 2 output penalized earnings by represuted the first year-to-year gain in approximately 37 cents per share com-retail electric sales in four years. pared with 1982. This was offset by Gas sales declined 6% to 65 bil-higher electric sales to retail customers lion cubic feet due to milder ucather and by the full yearb effect of rate in-during the heating season and lower creases granted in 1982. sales to commercial and industrial cus-tomers. Steam sales decreased 10% to Dividend Increased 4.6 billion pounds. OnJanuary 23,1984, the Ik>ard of Di-rectors voted to increase the quarterly Revenue, Expenses Decline common stock dividend from 53 to 55 Total operating revenue amounted to cents per share effective with the first $2.596 billion, a 2% decrease from quarter payment in March,1984. 1982 levels. This $49 million decline was due to $105 million Icss electric Sales Results Mixed revenue from sales of output of Salem Total electric sales decreased by 7% to Unit No. 2 toJersey Central and lower 27.6 billion kilowatthours primrcity fuel adjustment revenue, which was par-due to lower sales of the Company's tially offset by rate increases and higher uddy Run [~'~ The Cnmpany has apreyear flanforinuproting recrea-ion along the Susquehanna iverin the Concwingo, pach Bottom and Studdy un areas. Fishing, boating T m,d camping are but afew g n l f the many activities avail-I .A f Vble to visitors at 31uddy Run ecreation Park After 15 scars ofoperation, theprst for overbaulofStuddy Run generating units was

ompleted inJune,1983 5

~ Z = Grays Terry Capacitors -m, Electrsc MechanicJoseph h [ liarmerinspects the neuly-Installed high voltage capaci-tors at the Grays Ferry Sub-station. The new capacitors increase the capability to im-port low cost energyfrom the west. E electric revenue from service territory 1983 Financing Program { sales. Gas revenue climbed $27 million The Company raised $1.017 billion in 7 and steam revenue decline d $2 million. new capital and bank borrowings during Operating and maintenance ex-1983 to fund ongoing construction pro-penses before depreciation and taxes jects and deferred fuel costs and to re-were down 5% to $1.658 billion, pri-fund maturing securities. The balance of marily due to lower fuel expenses the funds required came from internal charged to operations. At year.end $149 cash sources - chiefly depreciation, re-million of fuel expenses had been de-tained earnings and deferred taxes. The ferred pending recovery in customers' Company's financings for the year are rates. shown on the table at right. Operating and maintenance ex-penses, excluding fuel, were up 10% shareholder Accounting due to higher maintenance costs at nu-Improvements clear plants, operating and maintenance in March, the Company installed a new costs associated with the new sulfur di-shareholder accounting system in which oxide removal equipment at the coal-shareholder records are maintained on a burning stations, increased labo costs new online computer system. Toll free and expenditures for materials and telephone lines were installed in the supplies. Stock Transfer Section as a convenience to shareholders who have questions Construction Expenditures about their accounts. The new state-of-Investment in new plant and equipment the-art computer system enables the = amounted to a record $1.04 billion in Company to improve its record of 1983, with $710 million or 68% spent providing shareholders with prompt on 1.imerick and related transmission fa-service and timely, informative reports cilities. Outlays for 1984 are expected on Philadelphia Electric shareholdings. to be reduced to $857 million as a re-sult of the wind down of activities on Rate Increases Limerick Unit No.1. A $143.5 million electric rate increase a, Cromby Scrubbers ~ Plant Operator Richard t'ag- ]Qp_f;\\. [$) _j,,' $ &W 7 ' [ l g.f noni controls operations at theflue gas scrubbingplant g' ' i ~ ! '-[ of the Cromby coalfired unitt Thescrubbingplant . Q..[? ?. successfully completeditsfirst El~. year ofoperation in 1983 n# ? 5 = 6

I 1983 MAJOR IIN ANCINGs 4 na m l b. >m,,t I h,li. irs Feb. l)cpositars Preferred stm k - 12 MO t ' 500 000 share-QD $ 10 'S O Mar. ( ommon 5tm k - 6 000 000 shares @ $ l' 40 1044 Retail f.apansion June Mortgage Itonds - 14%

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Pol'ution Control Resenue Honds (variable tax-exempt @ ' 2 5 HT) 50 0 Oct. Common 5txk 5 000 000 shares @ 5l' 4's 86 9 featu re s ma n i /ni. stor, s N v. 1)cpoutary Preferred SuKk - 14 45% '.500.000 shares (c0 $ 10 '50 stu b as luoomingdale s / h. Common Suwk Purt hase Plans Cou rt. n hit b >pe-nc,1 in luxl thvidend Revivestment Employce. TRA50P - 6 044 000 Shares 98 4 adforn3 the A tug of /'rn uns Subtotal $614 6 l'laza and togc;her the n p.rm liank Borrowings 102 8 one of the largest retarinny Trtal $ l.0 l' 4 complew in the u,,rld 4 g n \\- .y e-i .py '4-m._ - e.e 1 , W kt% %hj$ f.., Q;pw. 4 ^ 1,p-s :@ vg wy.w 4 '3_ 7

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j approved by the Pennsylvania Public struciion contractor, will relinquish Utility Commission (PUC) effcctive control of these sysicas and compo-November 23 was 63% of the $228.2 nents to the Company. The initial test million origina!!y requested in Febru. program consists of pre-operational test-i ary,1983. With this increase, the PUC ing, fuel loading and step-by step power established a 16.15% return allowance generation testing to full capacity. The for common stock shareholders' Company's start.up schedule calls for investment. fuel loading of Unit No. I by August,1984 In addition, the Company and commercial operation by April, lowered its electric Energy Cost Rate 1985. The entire start.up and commer-(ECR) by approximately one half cent cial operation schedule is contingent per kilowatthour effective April 1,1983 upon timely licensing by the Nuclear due to expected lower fuel costs. This Regulatory Commission which has re-was the third ECR reduction since Stay ported potential licensing delays. 1,1982 and it reduced customers' bills Work on Unit No. 2 remained in a by approximately $137 million per year. suspended status pending resolution of The ECR recovers the actual cost of fuel the Pennsylvania PUC's August,1982 without profit. This reduction did not Order which directed the Company to affect the Company's earnings. either cancel Unit No. 2 or suspend its The Company's retail rate in-construction until Unit No. I was com-crease activity during 1983 is sum-plete. The Company had appealed that marized in the table below. Order but on stay 27,1983, the Penn-sylvania Supreme Court upheld the Limerick Generating Station authority of the PCC to deny the regis-During 1983, construction work on tration of any new Securities Certificates 1.imerick Unit No. I continued at a rapid that would provide funds for con-pace. As of December 31,1983, Unit struction of Unit No. 2, pending com-No. I and total common plant were ap-pletion of Unit No.1. proximately 91% complete and the On July 21,1983, the Company Company's investment amounted to $1.8 notified the PUC of its election to re-billion for Unit No. I and $827 million sume construction of Unit No. 2 in early for the common plant. 1984 as comparable construction tasks As the systems and components are completed on Unit No.1. At the of Limerick Unit No. I near completion, same time, the Company filed a 4-Bechtel Power Corporation, the con-curities Certificate with the PUC to seek Wansportation Center 7he Company 5 high service l n reliabdity record depends in , [ ,g - j, goodpart on a u cil main-l tainedjeet ofrehicles to n trangort and assist Com. s I s1 '. pany employees. hoten bere 'S is the modern and eficient Transportation Centerin n Beruyn. 1983 RETAIL RATE INCREASES Millions of Dollars Apphcation Date Eftertive Date Annual Revenue Elcetrie - Pennsylvania 2/23/83 1I/23/83 $143.5 Elcetrie - Maryland i1/3/82 2/I/83 2.5 Gas 7/29/83 Pending 40.7 Steam 7/29/82 4/29/83 4.9 Steam 7/29/83 1/1/84 2.6 9 - - ~

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3 u asinx e,nanai < !rity) who banks w hn h would provide the rc hase declared their opposition to the quired debt funds to continue work on proiet t In l~chruar).1984. the NM RA the entire project until l nit No I is m ordered the contractor to stop work on rate base the proicct and the Company began legal On December 16.1984 the Pl ( action to hase construction resumed M. ,[] re;ccted the ( ompany's response and ()ther components of the supp!c- . -( h ' g (larified its previous Order to define mentar) (ooling watet system are also s the suh c(t of legal proceedings 4 - g completion of l'mt No 1 as placing the i gj um' m commercial operation. preclud-t- ing a resumption of l' nit No 2 con. Commercial Operations .je( struction until carly 1985 The The hot summer. the improving econ-p .I 9. S Company was given anothtr 120 days omy and increased average residential to respond. usage had beneficial effects on electric O _JQ, g On January 24.1984. the Com. sales to regular customers in 198 4 Total pany responded to the Pl'C requestmg electric sales excluding sales toJersey that it approve the Company 's election Central. incr(ased 4% to 2' 2 billion Micmpmcessor to suspend constr uction of l's No 2 kilowatthours Electric residential sales 7b, ( wpm % Npri until l' nit No 1 is in commercial opera-rose 8% and electric house heating sales tion t'ndcr the Company's schedule for increased 6% increased business ac-pn a. enor% p or data t n.llct tron t' nit No 1. this will delay completion of tivity helped both small and large com. "" "" T"" L' nit No 2 from late 1988 to April. mercial and industrial sales w hich """ ' #' "" """" R #^" ""d M 1990. which will increase the protect's increased by 5% and 2% respectively cost by about $650 million Neserthe-During 1983.8.500 lieu units " " " ""hl' PdP" d"* " "'C"'S 7 hC " ' "' " de' 'm t alled less, completion of the umt is necessary were built in the Company's senice ter-to supply future energy needs and is the ritory an mcrease of 3'% over 1982. Portable /Jata R, t ordet most economical means of doing so As Company services were used for space a ere delv en d and tested in of December 31.1983. the Company's heating in 84% of these units - 64% thefourth qua,ter of pm mvestment in t' nit No 2 amounted to electric heat. of which one-half were andfullimplementation n $66' million equipped with hev pumps and 20% g,.puted during vm gas hi the commercial market 63% of Point Pleasant Construction the floor space added was heated elec-Construcuon began in January.1983 on trically.15% by gas. 7. g. mm . J.g ;. the Point Pleasant Water Supply System In an effort to encourage firms N& W # { which has been planned to be con-and btrinesses to locate and remain in ~ structed and operated by Bucks County our service area, Company representa-and by the Neshaminy Water Resources tives maintain close contact with com-Authority (NTRA), a municipal au-mercial and industrial customers In thority created by Bucks County. under 1983, the Area Development Depart-a contract among the Company. NTRA ment helped 90 industrial and commer-and Bucks County. The Point Pleasant fa-cial firms to locate or expand in the cilities are designed to supply water Company's territory. These firms oc-from the Delaware River for public use cupied 1.3 million square feet of new and also for supplementary cooling space and 3 9 million square feet of ex-water for Limerick during periods of isting, unoccupied buildings and low river How on the Schuylkill River. provided 9,700 jobs. Excavation for the pumphouse The Employment and Economic was completed and the initial pour of Recovery Rider was established on July I concrete began in October. At year-end, to stimulate economic gromh. This coastruction of the pumphouse was rate allows new large industrial custom-20% complete. ers, as well as existing ones who add I 1 11

employees or make an investment in was opened during 1983 and, along plant facilities, to receive up to a one with its forerunner Gallery 1, comprise cent per kilowatthour rate reduction on a 1.7 million square foot,230-store their increased kilowatthour usage. The complex. It is the largest urban shop-maximum reduction will apply through ping center in the nation. Lore than 1987 and gradually will phase out by $750 million has been spent in trans-1991. At year-end,36 participating in-forming this area, known as Alarket dustrial customers have employed an ad-Street East, into a lively retail center. ditional 3,000 people and made an 'I\\venty four minority entrepre-additional investment in plant facilities neurs have set up shop in the newly of more than $2 million. opened Gallery 11. It is one of the high-A "high-tech" corridor is de-est percentages of minority participation veloping along Route 202 and the of any major retail development in Pennsylvania Turnpike in Chester and the country. Alontgomery Counties which promises The economy within our service to enhance the gromh potential of the area is beginning an upturn at.J the Media campaign Company's service territory. The nu-Company is working with all customers cleus f this corridor consists of re-to insure its growth and development. A new series ofcorporate ra-scarch and development, medical, The Company is also committed dio and television menages electronic, and other high technology to provioing its customers with both the began in late October Tlw firms. Some of these prestigious com-highest quality of service and complete campaign addresses the top-panies include Burroughs Corporation, and reliable information on energy con-ics ofenergy conserr ation. Commodore Business Stachine, General servation. In addition to providing a re- /ome energr audits, c/cctri-Electric, and Shared Sledical Systems liable product at the lowe3t possible cat safety and u hat custom-Corporation. cost, the Company provides information ers should do in ibe crent of Philadelphia also is experiencing on how to best use energy to meet cus-a pou cr outage. a revitalization within its center city tomer needs. area. In addition to extensive restoration Each customer is treated as an im-and modernization of existing build-portant individual. For example, Phila-3 ings, a great deal of new construction delphia Electric Company initiated the y is underway in the city. Several major "PE CARES" program to help senior cit- .f/.j sites providing additional office space izens and persons receiving disability or i il include the first portion of twin, all-survivor benefits. Employees were spe-

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customers have enrolled in this 219,000 customers during the summer. program. Aggravating these extreme The Company conducted 3,300 weather situations were the longer than-home energy conservation audits for anticipated outages of our nuclear units. customers during 1983, bringing the When Peach Bottom Unit No. 3 was shut cumulative total to 12,000 since the down for scheduled refueling in Febru-program was started in 1981. The audits ary,1983, weld cracks caused by stress consist of a complete survey of the corrosion were found in the stainless home and an analysis of the energy steel piping connected to the reactor usage savings from recommended con-vessel. Unit No. 2 was voluntarily taken servation measures. In addition, more out of service in July to inspect its than 1,200 inquiries have been received welds, and similar cracks were found. from residential customers for informa-A total of 35 weld cracks were tem-tion concerning appliances, for space - porarily repaired over a 39 week period heating and air conditioning informa-using a weld overlay technique. Unit tion and operating costs, and for energy No. 3 was returned to service on Octo-conservation assistance. Energy con-ber 15 and Unit No. 2 on December 3 servation training programs are con-The permanent repair of the piping will ducted for residential, commercial and be undertaken during the next sched-industrial customers, including special uled refueling outages for the units community-based programs for low in-which are set for early 1984 (Unit No. come customers.

2) and for 1985 (Unit No. 3).

Despite these major difficulties Electric Operations facing the Company during 1983, the 1983 was a year of many challenges for Companyi customers experienced no electric operations. The summer of major disruptions to their service. There 1983 produced record-breaking tem-were no " brownouts" or voltage reduc-peratures evidenced by 41 days of above tions and the Company maintained its 90 degree temperatures. As a result, near perfect record of reliable service total electric kilowatthour usage ex-with a service availability of 99.988%. cceded 1982 levels by 11% during the This index is the ratio of tl'c number of three month period ofJuly through Sep-customer hours that service is available tember. A new one hour electric peak compared to the total customer-hours in demand (on a weather adjusted basis) a year and is used by PE and the electric was established on September 6th. In utility industry as a measure of service addition to experiencing one of the hot-reliability. test summers on record, three major This high level of performance storms interrupted electric service to can be traced to two basic factors. First, ~ { ii......, -14

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y, outage of a significa.it portion of its removed from the Duc gas by a ( hemi- . ' lc-Lc 4/ y1 g; dh[$'%, y e.. fl*] g(A generatmg capauty wnhout adversely cal reaction w uh magnesium oxide The af fectmg the supply of energy to us (us-resultant magnesium sulfite is shipped r 54 '=

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~ tomers.Fo augment this reserve capac to one of the Company 's two magnesium itv. the ( ompany has oser the years oxide regeneration fauhtics w here it is entered mio agreements for the pur-regenerated to pr alut e sulfur dioxide (hase of power trom other sptems and. for sale for the manufactere of sulf uric durmg 198 4, PE cxpanded these ar-acid and magnesium oxide for reuse m rangements Oscr 12 billion kilo-the scrubber process The capital wst watthours of economical power was for the scrubber. regeneration f acihties purchased by the Company m 198 4 rep-and waste water irratment facihnes to resentmg all of total output and the taled almost $ 400 nulhon savmgs to PE customers amounted to ap-proximately $2.46 million Gas Operations ~ ' secondly the Companis high The ( ompan) added more 'han 4 800 a level of performance is mamtamed by new gas customers during 198.4. brmg-an able and flexible body of transnu3 mg the total to user 400.000 customers sion and distribution employces w ho ( herall gas sales were dow n 6 L to 65 6as krrke are called mto action durmg maior bilhon t uNc tect due to nulder w meer tuu. < <,a s u o n. ns storms Three hundred linemen. plus weather conservation. and lower com- ,in/,d f.a in u, wa,,a,a/ the necessary support personnei, wcre mercial and industnal sales ,,,,g,n gu n,n a,- k n t~n n moved mio the affected areas to restore in 198 L the Company mstituted g m n g,, 3g,,, gg g jap scrm e promptly durmg the summer a new gas rate called Temperature Con ,g y,, g g_,,, storms of 198 4 As a part of maintaining trolled sen a c (T(3) that provides for a u n (,alla ch r a nd I a rl % a r thn employee body. 2 4 candidates were dncount from the general scruce rate to r ~ngh n <,L, n a 2 on h graduated from an intensne seven-week large commercial and mdustrial custom-ma:n in stallato,n t Heb,n ) crs.to be sen ed under the rate. new trammg school as apprentice hncmen and eight from a wmprehensive nmc. commercial and industnal customers I"/"'"'" '"'ll"dd"' week cabic sphemg school m 198.4 are required to install large dual fuel " " " ' " " ' '""" A'" ' a ic d i n L /* 4 """/"N"" Despur rli the Company's ciforts N >ile rs Exisung customers with dual-the unusual circumstantes of 198 4 did fuel boilers are also encouraged to re-wra rd / N ': o an ho as base their n(gatne impact Due to the vise their scrsice contract to mclude the / /un.o sh.. mu w, a s. nior unasailabiht) of some of its lower cost ICS nder The pnmary purpose of the / nh :afn,n ti,, hann,, o,a nuclear generation. the Company A clec-new rate n to sw tch (ustomers from gas f,.,sfg,o,yp,ar,<o,a, a s tric fuct and interchange costs increased to alternate fuels during extremely cold ,,,,,,, y y y an% j,gy r, y f 3y 16% in 1984 Nearly $220 million of weather to reduce the peak gas sendout ,,, g,3 y these costs wcre deferred to coincide and ( ompany costs The TC5 customer < ~n trol t v,ner with their recovery m rates can expect to burn alternate fuel for ten Ihe Company has a long4tandmg to fif teen days a > car. A unit installed at commitment to provide service to its the customer % property notifies the cus-W.. E' customers m a manner which is en-tomer w hen an alterner fuel must brused i . w: x vironmentally safe and acceptable in and a centralcomputer continually mons- , ;dED 198 4 the Company completed its initial tors the gas consumed by thecustomer 3 3 car of (ommercial operation of the flue f gas scrubbers at its Eddystone and Other Developments ( Cromb) Stations The pn> cess for remov-The Company executed an innovative ing the sulfur dioxide from the flue gas mterim sales contract with the Depart-has performed as designed and has al-ment of Energy m July,1984 for the lowed Eddystone and Cromby to meet delivery of enriched uranium for the the stringent emission hm ts of ths Peach Hottom and I.imenck reactors Pennsylvania Department of Environ-Under this agreement, the Compan) was F

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.x.., tm,. m D .z a:.v, "%a e limerkh Tkrbine Wbrk neon tvmpletion on I s merick I 'n ti No I hhoft supertntendent c:harles Grilespre, Auxthar_1 Operator Cynthia Naughton and Assts-tant Loritrol Operator stanic \\ Gamblefrom Electrat Productton look on as u ork-men finish applytng thermal tr:sulation to the highpres-sure turhune IH

.-Q.L ? .s -R C. Q N .N u . s.4 .,x ? 3+ 9,,, able to partially termmate its enrich-being teste In 198 t 1.000 one-w ar ment services under two existing con-and two-way communications umts will - q}.. ; } tracts and recene uramum enrichment l'e mstalled throughout our scruce terri services at a discount The Department tory The test will continue for one year f' of Energy. m turn was assured that the On May 2.19M 4 after 18 months y "> ,4.. Company would not enter the second-of negotiations by the Company's Real g;..,. s ary market for foreign enrichment serv-Estate Department an agreement was [".~j ices for the years 198.4 through 1985 As completed between Consolidated Rail a result of this agreement, the Company Corporanon and PE for the conversion ' $.3....,J ..y; t r - saved about $ 4 milhon during 198.4 on of 562 existing license agreements to @j. ;;. j enriched uranium that was receised permanent casements. under w hich -l-7 ; from the Department of Energy for the Company facilities occupy railroad U N.* I initial core of Limerick Unit No I Addi-rights-of way. and for the acquisition of W+: ' ' tional savmgs are anticipated over the approximately.400 railroad structures h.-{', ' next two years presently supportmg PE tacilitics at a -.x &m,.- n m PE has been selected by the Elec-cost of approximately $5 million pay-W4 8., e,. tric Power Research Institute to be the able over a four-year period f:: v;- host utihty for a large-scale test of a The conversion agreement will Y 'e unique two-way radio control system benefit the Company since it not oniv center citv IIousing The system is designed to be used for obtams permanent rights for transmis-remote load management, automatic sion and distribution facihties. but.ilso

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{4 Outbound signals from a central compu-lective of good corporate citizenship. PE 'I"'ed d"d rr"m du d ron (! 6 ter in our headquarters building are sent is committed to the development and Amm as a eli a3 modern g ,7 3,9 to a local commercial radio station use of minority vendors The Company ton n homes .j transmitter by telephone and broadcast actively seeks out and encourages n.i-itM by AM radio to points on our distribu. nority vendors and contractors who may k. tion system and our customers' meter-he interested in doing business with it. (I }K _ l Meter readings and operating data art PE has expanded its Minority Vendor .' l {' y returned to the Company by VM radio Development Program by initiating 1 . m. M ~M - equipment. The radio station utility comprehensive insolvement with the .Y.,. 6 [* signals are not discernible to the sta. minority business community. resulting tion's listeners in an increase of more than 100% in the . Ild : i . 1 1 Central computer and AM broad. contract dollars awarded to minority [4 7 {.g[ l l jg cast equipment were installed in 1983 vendors. ~l I m and a small number of recener units are ~ - y .....y 7 ;- a .,~ 9.. fh I 7n-J ey. _ .,Wh..J hl. f ,'; e.g;. :.,I..;- maa s... k,.. q w. ,.p ? i L :..t)* % -.q..... g,..:g... - J% ,4y _=. % , L ;- -QQW y - %UV. N." 9;,,

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~ .c 39 l Managententh Disclassiort and Analysis ofFinancial Condition and Resnits of Operations General Fuel and Emergy Interchange Expense in recent years, the Company has experitnced For accounting purposes, fuel ar.J energy in-substantial increases in operating costs and carrying charges terchange costs are deferred until billed as fuel adjustment on increased investment in plant and equipment. Any future revenue. During 1983, gross fuel and energy interchange increases in such costs and charges may be expected to affect costs increased substantially because of extended outages of future net income and earnings per average common share nuclear units and increased output. Ilowever, $219.2 million adversely unless periodic rate relief is obtained to offset of electric fuel costs were deferred resulting in a net de-them. In addition, the capital carrying charges associated crease in fuel and energy interchange expense compared E with the construction of Limerick, which are capitalized by with 1982. 1 = crediting income with an allowance for funds used during Fuel and energy interchange expense also de-f g construction (AFUDC) and recovered through future de-creased in 1982 from 1981 as a result of higher nuclear out-preciation, now represent a major portion of net income and put and economic purchases of power from other utilities. g will continue to increase at least until 1.imerick Unit No.1 goes into service, which is expected to be in 1985. Other Operating and Maintenance Until recently, the sluggish economic condi-Expenses l tions in the Company's service territory also had an adverse Other operating and maintenance expenses effect on operating results. Although the return on average have increased in the last two years due to inflation and to k common equity has increased during the past three years, the gromh in utility plant. j return on investment is still below that allowed by the Penn-sylvania Public Utility Commission (PUC) as a fair return in Depreciation the Company's last rate order. Increases in depreciation in the last two years During 1983, the Company put into effect in-reflect additions to plant in service. creased rates for electric and steam service totaling approx-inutely $151 million per ) car. On July 29, the Company filed Income Taxes with the PCC for an additional $40.7 million in gas revenues Income taxes charged to operations decrtased and $5.5 million in steam revenues. The gas rate increase in 1983 from 1982 as a result of lower taxable income request has been suspended until April 27,1984. On Decem-caused primarily by significantly lower revenue from Salem her 16,1983, the PUC approved a steam rate increase settle-Unit No. 2 sales. ment of $2.6 million, effectiveJanuary 1,1984. Income tax credits, net, included in other in-come, have increased in the last two years as a result of the Electric Operating Revenue higher allowance for borrowed funds used during The decrease in electric revenue for 1983 construction. g compared with 1982 is primarily attributable to the signifi-For 1983, the Companyk consolidated taxable cant reduction in the sale of output from Salem Unit No. 2 to income for federal income tax purposes is estimated to be a Jersey Central Power & Light Company as a result of the ex-net loss of approximately $115 million versus taxable income tended outage of the unit and to lower fuel-related revenue. of $261 million in 1982. The decrease was primarily at-Increases in 1982 over 1981 reflect higher base rates and the tributable to a $272 million increase in fuel expense not re-sale of output and capacity from Salem Unit No. 2 toJersey covered currently from customers, a $105 million decrease Central Power & Light Company. Kilowatthour sales of elec-in revenue from the sale of Salem No. 2 output and a $62 tricity to retail customers increased 3.9 percent in 1983, million charge for future disposal of spent nuclear lael. after a decline in 1982. Other Taxes Other taxes have increased due to higher Electric Revenue Millions of Dollars realty, gross receipts, and social security taxes. _ Increase /(Decrease) '83 vs '82 '82 vs. '81 Rate Increases $ I18.6 $198 2 Allowance for Funds Used During Fuel Related Revenue (188.7) (83.0) Construction Salem l' nit No. 2 (104.9) 8A6 other 104.9 (25.9) The increases in AFUDC for the last two years Toial $( 73.1) 51'8 9 resulted from a higher cost of capital for construction and increases in construction work in progress. Gas Operating Revenue Interest Charges Increases m 1983 over 1982 pnmarily reflect Interest charges on debt increased in the last the recovery of higher fuel costs and higher rates. Mcf sales two years because of additional debt outstanding. The ratio of gas declined 5.7 percent. of earnings to mortgage interest, which is a measure of the Company's ability to issue additional long-term debt, was 2.25 times in 1983, above the minimum of 2.0 times re. quired for the issuance of new mortgage debt. 21

Capital Expenditures and Changes licensing requirements of the NRC, to financing approvals by in Financial Position the Pl?C, and to change due to litigation. The Company can-The Company is carrying on a construction not predict the outcome of such regulatory reviews, but be-program which is estimated to require expenditures of $857 lieves the safety requirements have been or will be met, the million in 1984 and $2.3 billion from 1985 to 1987. A ma-economic desirability of the program has been demonstrated, jority of these expenditures relates to the construction of the and that the program will be successfully completed and Company s two 1055 mW nuclear generating units at timer-approved. ick. Successful completion of this program is dependent on Interim financing of the construction program the Company's ability to obtain external financing, primarily is provided by commercial paper borrowings and short and through debt arrangements and sales of equity securities intermediate term bank loans, which also are dependent on which are subject to market conditions and to meeting cer-the Company's financial position. tain earnings tests. The program also is subje.t to the Return on Average Common Stock Equity Ratio of Earnings to Mortgage Interest renem he, comed a 25 K A \\ k\\ O 5 D d;\\ A ]j-- a u 'f '4 g e w a x g; a- ~ y _q y j,. ~ g --,d m.,__. _l. i J a 79 No At a2 83 ?9 80 81 82 83 Accountants' Report To the Shareholders and Board of Directors Philadelphia Electric Company We have examined the consolidated balance sheets of Philadelphia Electric Company and Subsidiary Companies as of De-cember 31,1983 and 1982, and the related consolidated statements of income, retained earnings, and changes in financial position for each of the three years in the period ended December 31,1983. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the consolidated financial position of Philadelphia Electric Company and Subsidiary Companies as of December 31,1983 and 1982, and the consolidated results of their operations and changes in their financial position for each of the three years in the period ended December 31, 1983, in conformity with generally accepted accounting principles applied on a consistent basis. 1900 Three Girard Plaza Philadelphia, Pennsylvania February 2,1984 22

.1 Philadelphia Electric Company and Sutwidiary Companies Consolidated Statentents ofInconte For the Year Ended December 31 1983 1982 1981 (Thousands of Dollars) Operating Revenues Electric $ 2,107,897 $2,180,960 $ 2,002,063 ,j g' Gas 417,042 390,427 356,431 .,, b,,,., p . ' 'c h.; Steam 71,111 '3,366 74,931 Total Operating Revenues 2,596,050 2,644,753 2,433,425 Operating Expenses

r * 'i Fuel and Energy Interchange 986,634 1,128,498 1,187,635

%Q4c Other Operating Expenses 449,101 411,753 360,840 , ~ ?!f - Maintenance 222,640 199,747 156,878 'kv;d ; Depreciation 165,327 143,848 130,283 en.p$ Income Taxes 200,026 207,669 129,484 Other Taxes 178,615 164.511 145,312 Total Operating Expenses 2,202,343 2,256,026 2,110,432 7,y =.. Operating income 393,707 388,727 322,993 . 's- $- -Y s,, ]N -..' Other income Allowance for Other Funds Used During Construction 108,126 65,699 65,013 income Tax Credits, net 87,912 75,845 63,164 .{ !.. ' s Other, net (3,125) (717) 2,457 AO Total Other income 192,913 140,827 130,634 ..i income Before Interest Charges 586,620 529,554 453,627 1 #$. Interest Charo,es

%j y; 7;..

long-Term Debt 330,200 308,862 266,691 Short Term Debt 35,199 32,030 33,155 1.- -. v. Allowance for Borrowed Funds Used During Construction (167,868) (147,561) (123,784) ' 74 i i k,',.k Net laterest Charges 197,531 193,331 176,062 .... v c Net income 389,089 336,223 277,565 %j o. Preferred Stock Dividends 67,384 57,600 53,804 _t

• O

~ Earnings Applicable to Common Stock $ 321,705 $ 278.623 $ 223,761 K-M.,f 4-n Average Shares of Common Stock Outstanding (Thousands) 133,852 116,480 99,55

f*?. i 4

Earnings Per Average Common Share (Dollars) $2.40 $2.39 $2.25 Dividends Per Common Share (Dollars) $ 2.12 $2.06 $ 1.90 f'if_*.,g. : h.v.y. b 'g. -:- i see notes tofinancial statements. yW aw' ?;;.. +.n.f y.;. - p.l% - ,j ..;,j,. ;& 3 f.[g[ y. {. f;. (:; a ,$.,$ b ' l ..A Ms.h'.

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e Philadelphia Electric Company and Sulmidiary Companics Consolidated Balance Sheets n 1 December 31 1983 1982 (Thousands of Dollars) ASSETS Utility Plant, at original cost Electric $4,683,726 $4,519,544 Gas 416,170 394,876 7 ? :"" Steam 53,845 53,998 . j g'hl Common, used in all services 128,379 127,304 -,-lg,./ less: Accumulated Depreciation 1,092,009 1,450,149 )[ 5,282,120 5,095,722 ') Net Utility Plant in Service 3,690,111 3,645,573 " g v:i .M y Construction Work in Progress 3,582,133 2,810,014 Net Utility Plant 7,272,244 6,455,587 . - ['/ - i ?.$ g

hy-[;

investruents 99,445 91,42 R..., ) .',.,6 E.% f.,; Current Assets , g.,4 ; Cash and Temporary Cash Investments 65,221 50,025 1.ig' 4 y Accounts Receivable .*g ;~;L Customers 302,254 284,151 Other 36,354 58,012 - - :.4,g[.4 3, kh inventories, at average cost Fossil Fuel 75,681 97,478 Y" g.[5.) ) Materials and Supplies 55,403 45,552 Deferred Energy Costs 149,246 (85,379) gQ Other 7,572 7,721 4$g. TotalCurrent Assets 691,731 457,560 k. A..

l,.

I' x,. ::.. Deferred Debits 80,375 24,695 4 / Total $8,143,795 $7,029,269 15 % i .;y f'.?, <f,. c See notes tofinancial statements. Qypj. f.,:;.fG ,, A l; .K p. hh.K ! tD!!l en: e l .g.,A

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i December 31 1983 1982 (' thousands of Dollars) CAPITALIZATION AND LIABIUTIES Capitalization Common Shareholders' Equity i Common Stock $2,110,503 $ 1,826,198 Other Paid-In Capital 5,856 4,641 Retained Earnings 452_,964 423,596 2,569,323 2,254,435 Preferred Stock -m Without Mandatory Redemption 522,472 372,472 With Mandatory Redemption 284,863 292,290 f ang-Term Debt 3,381,805 3,028,525 Total Capitalization 6,758,463 5,947,722 Current Liabilities Short-Term Debt Bank Loans 218,000 32,200 Commercial Paper 49,500 32,500 tong-Term Debt due within one year 21,280 Accounts Payable 152,687 164,419 Taxes Accrued 25,841 65,954 Deferred Income Taxes-Energy 76,517 (43,350) Interest Accrued 91,787 99,764 Dividends Declared 27,211 24,167 Other 17,337 24,734 Total Current Liabilities 658,880 421,668 Deferred Credits and Other Liabilities Deferred Income Taxes 346,531 290,538 Unamortized Investment Tax Credits 249,658 296,068 Nuc! car Fuel Disposal 61,843 '4,707 z Other 68,420 48,566 = Total Deferred Credits and Other Liabilities 726,452 659,879 Total $8,143,795 $7,029,269 See notes tofinancial statements. E I u I 25

Philadelphia Electric Company and subsidiary Companies Consolidated Statements ofRetained Earnings . _. _ _ _ h ! 'dCIC.agnfcg Dn eniber 31 _,, _ _ 1983 1982 19MI (Thouunth of Dollars) Balance, January 1 $ 423,596 $ 387,251 $ 353,570 Net Income 389,089 336,223 277,565 812,685 723,474 631,135 Cash Dividends Declared Preferred Stock (at specified annual rates) 68,970 57,982 53,762 Common Stock (per share, $2.12 in 1983, ^ $2.06 in 1982, and $ 1,90 in 1981) 283,583 240,486 189,476 Expenses of Capital Stock Issues 7,168 1,4 t o 646 359,721 299,878 243.884 Halance, December 31 $ 452,964 $ 423,596 $ 387,251 Consolidated Statements of Changes in FinancialP6sition Sources of Funds Funds from Operations Net Income $ 389,089 $ 336,223 $ 277,565 Charges (Credits) Net Affecting Funds Depreciation and Amortization 165,427 143.848 135,393 Nuclear Fuel Disposal Costs 12,166 15,820 8,638 Deferred income Taxes, net 175,307 (l0,215) 2.011 investment Tax Credits, net of Amortization (46,064) 101,646 25,049 Allowance for Other Funds Uv i During Construction (108,126) (65,699) (65,013) Total from Operations 587,699 521,623 383,643 Funds from Financings Sales of Securities Common Stock 284,30$ 253,810 194,925 Preferred Stock 150,000 30,000 Inng-Term Debt 175,000 300,000 423,500 Issuance of Other Inng-Term Debt 200,000 20,000 Change in Short Term Debt 202,800 10.475 1,635 Sale of Magnesium Oxide Regeneration facilities 37,679 100,166 Sale of Salem Generating Station Nuclear Fuel 53,743 Sale of Tax Benefits Total from Financings 1,049,784 614.285 773,969 Total Sources $ 1,637,483 $ 1,135,908 $ 1,157,612 Uses of Funds Additions to Utility Plant 1,030,321 870,715 787,075 Allowance for Other Funds Used During Construction (108,126) (65,699) (65,013) Dividends on Preferred and Common Stock 352,553 298,468 243,238 Retirement oflong-Term Debt 41,573 50 183 137,470 Change in Deferred Energy Costs 234,625 (*,080) (42,347) Increase in Nuclear Fuel Escrow Account 7,113 8,204 4,339 Change in Other items of Working Capital 63,721 9,498 62,144 + Other, net 15,703 18,619 30,706 Total Uses $ 1,637,483 $ 1,135,908 $ 1,157,612 See notes tofinancial statements. 26

P!uladelphia Elcoric Gmpany and Sutwidiary Companics Notes to FinanchblStatements 1.Significant Accounting Policies adjustments of rates charged to its customert Annual de-preciation provisiom, exprewed as a percent of aserage de-General preciable utihty plant in service, were approximately 3 20% All utility subsidiary compames of Phila. for 1983,3 00% for 1982 and 3 01% for 19Hl. delphia Electric Company are w holly owned and are in-cluded in the comolidated financial statements. Non-utdity Income Taxes subsidiaries are included in investments and accounted for Deferred income taxes are prmided for by the equity method. Accounting policies are in accordance differences between book and taxable income to the extent r with ihme prescribed by the regul. tory authoritics haing permitted for rate-making purpmes. Investment tax credits, jurisdiction, principally the Federal Energy Regulatory Com-other than credits resulting from contributions to an em-miwlon (FERC) and the Pennsylvania Public l'tility Commis-plo)ce stock ow nership plan (ESOPb w hkh do not affect in. 1 sion (PUC). come, are deferred and amortised to income over the estimated meful life of the related utility plant. Revenues Revenues are recorded in the accounts upon Allowance for l'unds hilling to the cmtomer. Rate increa. es are billed from dates Used During Construction ( Al UDC) authoti7ed or permitted to become effectise by the regula-AFUDC is a non-cash item w hich is defined in tory authorities. the uniform sptem of accounts prewribed by I LRC as "the net cost for the period of comtruction of horrowed funds Fuel Expenses used for comtruction purpmes and a reasonable rate on Fuel expemes, w hich are recoverable under other funds w hen so uwd" Al't'DC is recorded as a charge to energy adjustment clauses, are recognized when the related Gmstruction Work in Progrew, and the equivalent credits are revenue is billed to customers. to " Interest Charges" for the pre tax cost of borrowed funds Nuclear fuel used in the Peach pottom and and to "Other income" for the remainder as the allowance Salem Generating 5tations is leased. The cmts of such Icased for equity funds. The rate u ed for capitalizing AFUDC, fuel are charged to fuel expeme on the unit of production w hich averaged 9.30% in 1983,9.20% in 1982, and H 65% -4 method. The estimated cmts of nuclear fuel dnposal are in 19Hl. is computed under a method prescribed by the reg-charged to fuel expense as permitted for rate making ulatory authorities. The rate is a " net after. tax rate" and the purpmes. current income tax re luctions applicable to the interest in its November 22,1983 rate order, the PCC charges capitalized are recorded in "Other income" AlUDC approved the Company % request for full recovery of assess-is not included in taxable income and the depreciation of ments impmed by the Nuclear Waste Policy Act of 1982 (the capitallied AFUDC is not a tax deductible expeme. Act). Iteginning April 7,1983 such nuclear fuel disposal costs are being charged to fuel expeme as the related fuel is Retirement Plans burned. Unrecmcred awcwments impowd by the Act for fuel The Company has non-contributory trmtred burned prior to April 7,1983 are being amortized to fuel retirement plans applicable to all regular employees. Pemion expemes over the period endingJune 40,19HL cmts include normal cme for the year and amot tization of unfunded prior service cmts over ten to twenty year periods. Depreciation Approximately HI% of such costs were charged to operating For financial reporting purposes, depreciation expense and the remainder, awociated with comtruction 14-is provided over the estimated service lises of the plant on bor, to the cost of new utility plant. the straight line method and, for tax purpmes, generally, over shorter lives on accelerated methods. The estimated do Gas Exploration commissioning costs of portions of the nuclear plants are and Development Costs being charged to operations as permitted for rate making pur-The Company has invested in severd joint poses. Such amounts, net of deferred income taxes, are de-ventures for exploring and drilling for gas. These cmts are posited in an escrow account and invested for funding of capitalized under the full cmt method and charged to opera-p future cm s. The Company believes that any additional costs, tions commemurate with the production of gas by thesc which may be significant, would be recoverable through s entures.

2. Investments At December 31 1983 19M2 (Thou ands of Ibtlars)

Gas Exploration and Development $47,736 $ 4 H,099 Nonutility Property 14,668 I 5,9 I I Escrowed Funds for Nuclear Fuct Disposal 19,656 12.543 Escrowed Funds for Decommtwloning Nu(lear Plants 4,927 3,05 H Other 12.458 11,816 Total $99,44$ $91,4 27 27

PhdadWhu Ilain( 6mpany and %dmdury Conyanics Notes to Financial Staternents - Continued 2 a - - -,. --e-- - ~. .w, s n 3, Connmon Stock At Decemtwr 31,1983 and 19H2, Common St<xk, without shares, respectis ely, outstandmg At Dm mtwr 31,1983, par value, consisted of 2 40,000,000 and 160.000,000 shares, there wcre H,463,65 3 shares reser ed for iwuante under respettncly, authorised and I 62,Hil,4 3 4 and 129,706.89H stin k purchase plant . p housands of sharts) ('lhuuends or Dollars) twurd and ouhunding 19Ni 19H2 19He 19N.4 19M2 19MI ~ 125,767 10H,507 92,634 $ 1,826,198 $ 1,9* 2,3H8 $ I,37*,463 lutam r, January l Puhhc Sales 11,000 12,000 12,H00 186,055 175,620 154,7H6 Dnidend Reinscstment and %xk Purttuw Plan 4,788 1,020 2,667 77,196 60,399 3 6,H09 1:mplo)ct Stta L Purthas Plan 641 19.4 40' 10,527 6,6 *

• 9,330 Tn Reduction Att Sunk bli
• H?

10,527 11,i14 Ow norship Plan (I SOP). Totaltwurd 17,044 1*,260 t i H7 6 2H 4,305 25 3,t410 196.92% lblance, December il I 42,H11 125,76? 10H,907 $ 2,110,503 $1,H26,198 $ 1,$h2,3HH ~ 4, Prrferred Stock and Other Paid in Capital AtDstemtwr 31,1983 and 1982, Prt ferred Stin k $100 par, cumulatnr sharts Amount Current its fluki'P g RcA mpuim Itnant. gt Huisiandmg Pnt e (a), Poortoth), %uthoruad 19N.I 19H2 19til _ _, _19M2 (Thouunds s't Dollari) %rrers (wnhout enanda;ory redemption) 13 3h(c) $I13 35 2 1.H9 790.000 750,000 $ 75,000 12 H't (c) 182 80 Ol HH '50 000 750,000 75,000 i ' 930L I0630-

• in,000
• io,000 7 90.tHm 75,060
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• io.000 750,000
• 40,000 75,000 75,000 7.* h 103 00 200,000 200,000 200.000 20,000 20,000 1 6H't 106 00 140,000 150,000 190,000 IS/no l i,fMO Ln Il230 274,*20 274,720 274*20 h,02 27,47Z t3't 402(n 150 000 150,000 190,000 15,000 15,000 3 N't 106 00 300,000 900,000 300,000 90,000 30 000 i.

/ i,J J a,7 24 5,224,720 3,724.720 122d72 4*2,472 Scriri (w eth mandatory redempuun) (d) 17.125 L (Sold 19H2) $ l 17 121 ' 4 I a47 300,000 300,000 300,000 30,000 40,000 ti Jh 414 2%' 4l 90 400,0,10 100,000 400,000 90,000 , $0,000 10't 104 64. 9'l 90 J10 000 J JO,000 220,000 22,000 ,22,000 912't 106 29 0186 400,000 419,66ts 416 H to 41,966 41,6H 4 H7h I 06. I H & 1 tot 100,000 100,000 500,000 90,000 90,000 7,32 % to4 39 MO000 600,000 630,000 60,000 63,000 't 40600 400 000 30H,970 426,070 30,H97 32,607 3,1?O.000 2,H 60,430 2,922,900 2H 4,H63 292,290 l'nt laetfled 1,60%,260 Total Preferrel % o(k 10,000 oiHi H,071540 6,667,620 $807,335 $66 i,*62 1 (a) Redremahic, at the opdon of the Company, H thf india etident ed lty Ikytnitary IIMfipts, f at h rft fipt rf prCDCnt* cated dollar amounts pc t shase, phts at trued devidends eng 1/10 of a sharc of Prefrrred Sun k. (h) Prior to the date spot afled, none of the nharrt of rat h (d) Redempth>n trquire,ornis (par value) in the period artice ind'cated may tw rrA e med through refunthng us ari 19H 41988 are as follow = l'JH 4 '6,3,40,000; 1980 interest tost or dnederid raer a hlth se ten than the dhkts nd $H,296,000 IvH6 $19,727,000; 1987.$ 16,030,000, rate of HM h Series. 19HM $17,130,000. (c) Ownership of the l'e 3 % an i IJ M't Parferrett %u ks le 2M

\\ .2 m, w '_-m,. T + g Below is a summary of changes in Preferred Stock and Other Paid in Capita. (Akl amounts in thousands.) Shares Prefe: Tid Sytk (Par) Other Paid in Carital - Issued and outstanding 1983 1982 1981 1?83 9982 1981 1983 .982 1981 Balance, January I 6,648 6,394 6,468 $664,%1, dd39,401 $646,802 $4,641 $3.888 $2q81 Public Sales 1,500 300 150,000 30,000 g Redemptions (75) (46) (74) (7,427) [4,639) (7,401) 1,215 753 1,307 Balance, December 31 8,073 6,648 6,394 $807;335 $664.762 $639,401 $5,856 $4,641 $3,888 s ?r T

5. Long-Term Debt d w

- At December 31,1983 and 1982 s Series I (Due 1983 1982 4 +e (Thousands of Dollars) First and Refunding Mortgage Bonds (a) 3 \\..1983 - $ *20,000 3%% .k 3h% t 4 1985 50,000, 50,000 4%%g - 1986 50,000 ,50,cv0 40,000 40,000 4% < 1987 s 3M% 1988 40,000 40,000 Si-13y%. 1989-1993 '235,000 235,000 4b%15h% ( 19941998 440,864 443,4)$ ~ 7%%I1%% 1999 2003 \\ V' 544,930 549,600 a 6% I 2H% - 2004 2008 523,500 523,500 134% IGM % 2009 2013 575,000 450,000'- 2,499,29'4 2,401,529 Total First and Refunding Mortgage Bonds Notes Payable - Banks (b) 1985 1989 225,000 ' 225,000 4 Notes Payable - Other 17% 4 986 1987 20,0C4 20,000

Revolving Credit Notes

-(c).' 1985-1987 200,f50 Pollution Control Notes 5%'D13%

• 1997 2013 266,830 Debentures 4.85% s t 1986-

.21,207 1. 229,780 i 21,330 t; }100,000. f Debentures - 14% * ' ! 1990 50 Mo 50,000 Debentures 14h% 2fJa5 100,000. 1 Sinking Fund Debentures - Philadelph;a rketric ,? g' 16,928 18,193 Power Company, a Subsidiary 40% , t "1995 5 Unamortized Debt Discount and Premium, Net ,Mn ' (17,453) - (16,027) Total long-Term Debt h 3,381,405 3,049,805 Due U?ithin One Year (d) ,,(21,230) Long-Term Debt included in Capitalization } $3,381,805 $3,028,525 (!) Utility plant is subject to the lien of the Company's Ti cre is an arpual commitment fee of %% gryh'e'unuseq [ mortgage. an'ount % a result of the limerick investigpbn, the ' (b) At interest rates ranging from prime rate to 107% of Company does not meet a condition for botiowing. The prime ratei lunks havewiived such condition with respect to the $2'*0 * -_ (c) The Company has a $400 million revolving credit and million outstanding at December 31(196% i tirm loan agreement with a group of banks which expires in (d) long-t'erc} debt maturities in thept'sid of 19851988 1987. Interest on outstanding borrowings is at prime rate. are as iollowd 1985 -$ 204,267,000Mp s-$ 190,192,000; through May 1985 and at 105% of prime rate thereafter. 1987-$166,850,000; and 1988 $106 J $6',000, '6.Shoct-Term Debt ,4 )' 1983 1982' i l981 J .y w- -_ . (nousands of Dofps) L w $ 90,;#1_*,$146,27[$ =Y, (164,429 ~ Aretage Short-Term Borrowings. Average Interest Rates, Computed on T ily Basis 9.06% ' 13.13% g',,$266,5) 2 9 17.80 Maximum Short-Term Borrowings Outstanding $340,000 = $168,725 t ,m+ \\ t4 3- - Average Interest Rates on Short Term Borrowings at December 31: i

• q
• 10.53%

10.37% A 4

'm37% i. '1

Bank loans

' ),(4.92N M Commercial Paper - Tax Exempt 5.61% ' 9.62%\\ .)J-My q

Commercial Paper - Taxable

( 10.64% 1 As of December 31,1983 the Company had borrowed $218 generally d es not have formal compensring b t.k. - *'O3 J million under informal lines of credit with banks - _ arranger'semh with these banks. \\ i aggregating approximately $412 million. The Company - 'O y (N *. q D'[ 5 l ]{ Q 29h ~ a a

( ,m 3 Philadetphia Electric CompGy and Sulwidiary Cngnpanics Notes to FinancialStatements - Continued x m. g -w.. c 4 \\ -\\ - _7.Joindy-Owned Micceric Utility Plant . j The Company's ownership interests in jointly. owned utility plant at December 31,1983 were as follows: [ ( Production Plants Transmission Plant Peach Bottom Salem Keystone Conemaugh \\ Operator e iN Philadelphia Public Service Penns)hania Penmylvania Various Electric Electric and Electric Electric Companies , * ^ Company Gas Company Company Company Partkipating Intercs: 42.49% 42.59% 20.99% 20.72% 21% to 43% 4 Company's share of.~ (nousands of Dollars) Utility Plant. $414,429 $863,167 $50,927 $59,103 $68.865 \\, Accumulated oepreciation 94,371 103,398 21,474 22,217 10,724 32,619 12,480 5,514 761 ,Constructgn Work in Progress LYA i "Ihe Company's participating interests are financed with are accounted for as if such participating interests were +4 - Company funds and, when placed in service, all operations wholly. owned facilities.

8. Income Taxes i

1983 1982 1981 + i (Thousands of Dollars) Included in r peesting expen #c$ ~ ^ $ 54,495 $ 71,987 $ 75,558 Current feder.d ' s 16,288 44,251 26,866 Current state ~ 70,783 116,238 102,424 w a Total l . Deferred federal 6 u 151,259 (8,390) 6,007 Deferred state 24,048 (1,825) (3,996) Total 175,307 (l0,215) 2,011 Invenment tax <redits, net of amortizati 9 federal (46,064) 101,646 25,049 9 Total federal I 159,690 165,243 106,614 Total state ' 40,336 42,426-22,870 'D ' otal $200,026 $207,669 $129,484 T fr.cluded th othee incosuco e (70,902) (60,506) (50,299) ~ Current fedttal (17,010) (15,339) (12,865) l~ Current state - 's a Total T ,s $(87,912) $ (75,845) $ (63,164). 3 p Total income tax provisions: s ,i w tj Federal ~ . 104,737 56,315 88,788 23,326 27,087 10,005 State yi Total 5 $112,114 $ 131,824 $ 66,320 PO /? g @[ Y As a result of the teco'gnition of certain' expenses for federal and 1981. Contributions to the plan are in the farm of Philal 's income tax purposes in 1983, principal @ deferred energy delphia Electric Company Common Stock and have no effect j conts and nuclear fuel disposal c% tbc Company incurred . on net income. a loas Mpc feder:F4icome tax purposes of etaut $115 million. ' Applicable state income tax laws do not per. , f "W =. This loas will. carried back to, offset taxes paid in prior mit the carryback of tax losses to prior years. At December years and wiil IJalt in a refund of about $15 million of 31,1983, the Company h.td a tax loss carryforward of ap ' yT federal 6come(pr.& paid in 1980 and 1981. Inveument tax proximately $118 million which may be used to reduce its (Q/y - creddof $ 17 de n have been reversed to the extent they - Pennsylvania income tax liabilities through 1986; are no logr. tuff 4 dred is a result of the loss carryback. On In December 1981, the Company sold the tax Q1g4 thhp ( r,a4,wp*Indsment tax credits which have not benefits attributable to its ownership interest in the Salem ~. ? . 6hged tiredsepeq approximatelg$140 million at Decem- . Generating Station Unit No. 2. This transaction was struc-if,: W[ tg31 198A sal may be carried forward to reduce federal ' tured under the safe harbor lease provisions of the Economic / . Recovery Tax Act of 1981. The proceeds from the sale, " f hy '9 ipr +ere tax liabilities in future years through 1997 and 1998. d*71' investment tax credits consist of the basic $53,743,000, were credited to Deferred income Taxes b}<.- ddits allowable of 10% plus an additional credit resulting ($24,759,000), Deferred Investment Tax Credits j 2/' from contrihinions to the ESOP plan for employees. The ad-($21,863,000) and Other Deferred Credits ($7,121,000) 4 ' ddlonel.hrt [@nre equal to 0.5% of ems foyee compensation - and are being amortized to income over the estimated useful. ~' ' in 1983 hs%% of the @ vestment tax ctand lose in 1982 - life of the plant. E l

f _

%l [g 3. L / o s .n m $8 md ( d e y y. o - A-

Provisions for deferred income taxes consist of the tax effects of the following timing differences between tax and beak income: 1983 1982 1981 (Thousands of Dollars) Depreciation and amortization $ 38,792 $ 30,042 $ 25,452 NucIcar fuel disposal costs 24,281 (1,865) (4,299) Deferred energy costs 119,867 (27,264) (21,804) Other (7,633) (5,128) 2,662 Total $175,307 $ (10,215) $ 2,011 - the total income tax provisions differ from amounts computed by applying the federal statutory tax rate to income and adjusted income before income taxes for the following reasons: Net income $389,669 $336,223 $277,565 Total income tax provisions 112,114 131,824 66,320 Income before income taxes 501,203 468,047 343,885 - Deduct - allowance for funds used during construction (non-taxable) 275,994 213,260 188,797 Adjusted income before income taxes $225,209 $254,787 $155,088 Income taxes on above at federal statutory rate of 46% 103,596 117,202 71,340 Increase (decrease) due to: l Depreciation timing differences not normalized 7,941 10,672 (551) State income taxes, net of federal income tax benefits 12,597 14,627 5,436 Taxes and pension costs capitalized but expensed for tax purposes (673) (396) (3,226) , Amortization ofinvestment tax credits previously deferred (6,210) (7,214) (4,769) Other, net (5,137) (3,067) (1,910) Total income tax provisions $112,114 $ 131,824 $ 66.320 Provision for income taxes as a percent of: Income before income taxes ' 22.4% 28.2% 19.3% Adjusted income before income taxes 49.8% 51.7% 42.8%

9. Othee Taxes 1983 1982 198I (Thouunds of Dollars)

Gross receipts $108,211 $106,090 $100,912 Capital stock 19,198 .I8,928 19,600 ' Realty 30,975 22,505 9,555 Other 20,231 16,988- .15,245 Total $178,615 $ i64,511 $ 145,312. I I 13 Cetirennent Plans Retirement plan costs, which are funded a accrued, aggregated $41,000,000 in 1983, $37,800,000 in 1982, and $31,700,000 - in 1981. Plan data as of the dates of the most recent actuarial reports is as follows: t t j January 1 - 1983 1982- . (Thousands of Dollars) ' Actuarici present value of accumulated plan benefits - (7.0% asaumed rate of return) Vested ' . $404,673 $360,835 - Q Nonvested - 48,545 ' 45,080 $453,218 -$405,915. Net assets available for benefits - 1 $477,748 $359,406 p 31

Philadciphia Electric Company and Sutwidiary Companics Notes to FinancialStatements - Continued

11. Segment Information Electric Gas steam Total (Thousands of Dollars) 1983 Operating revenues

$2.107,897 $417,042 $71,111 $2,596,050 Operating expenses, excluding depreciation 1,592,027 377,624 67,365 2,037,016 Depreciation 150,898 12,694 1,735 165,327 Total operating expenses 1,742,925 390,318 69,100 2,202,343 Operating income $ 364,972 $ 26,724 $ 2,011 $ 393,707 Utility plant additions $ 1,004,219 $ 26,020 82 $ 1,030,321 December 31: Allocable assets Net utility plant (*) 6,898,758 349,326 24,160 7,272,244 inventories 98,391 32,350 343 131,084 Deferred Energy Costs 116,661 29,359 3,226 149,246 $7,113,810 $411,035 $27,729 7,552,574 Nonallocable assets 591,221 Total assets $8,143,795 1982 Operating revenues $2,180,960 $390,427 $73,366 $2,644,753 Operating expenses, excluding depreciation 1,688,365 354,093 69,720 2,112,178 Depreciation 130,225 11,916-1,707 143,848 Total operating expenses 1,818,590 366,009 71,427 2,256,026 Operating income $ 362,370 $ 24,418 $ 1,939 '$ 388,727 Utility plant additions $ ' 843,37I $ 27,125 219 $ 870,715 December 31: Allocable assets Net utility plant (*) 6,097,411 332,437 25,739 6,455,587 Inventories 105,035 37,645 350- -143,030 - $6,202,446 $370,082 $26,089 . 6,598,617 Nonallocable assets 430,652 Total assets $7,029,269 1981 Operating revenues $2,002,063 $356,431 $74,931 $2,433,425 Operating expenses, excluding depreciation. 1,586,506 322,008-71,635 1,980,149 Depreciation 117,270 11,294 1,719 130,283 Total operating expenses. 1,703,776 333,302 73,354 ' 2,110,432 Operating income $ 298.287 $ 23,129 - $ 1,577 - $ 322,993 - Utility plant additions $ 746,535 $ 40,432 ~108 $ 787,075 . December 31: Allocable assets .27,194. 5,714,086 Net utility plant (*) '5,372,2401 -314,652 -Inventories _' '101,956-29,986 251 132,193- $5,474,196 $344,638 $27,445 - 5,846,279 Nonallocable assets - 457,916- . Total assets ' $6,304,195 - ~ ~(*)lncludes construstion unrk in progress and allocated common ultittyproperty.. [32 -

12.Lecses Rental payments charged to operating ex-penses were as follows: Certain leases, including the nuclear fuca contracts for the Peach Ik)tiom and Salem Generating Stations, meet the crite-I* ria of a capital lease as defined by financial accounting stand-ards, but are accounted for as operating leases in accordance meands of Douare with the rate-making process. If these leases were capitalized Nuclear fuel $38,268 $61,538 $26,709 they would not have a material effect on assets, liabilities, or Other 28,849 24,356 24,782 On ikcember 30,1983 the Company sold magnesium oxide regeneration facilities for approximately . al.eir net book value of $37.7 million. These facilities have The Company's proportionate share of the been leased back to the Company. contractual obligations to purchase nuclear fuel under lease The minimum rental commitments under all agreements for the Peach Ik>ttom and Salem Generating Sta-noncancelable agreements ap,g;cgated $565 million at De-tions as of December 31,1983 was $288 million. Indepen-cember 31,1983. The annual rental commitments are esti-dent fuel companies have been authorized to acquire and - mated to be $105 million for 1984 $112 million for 1985; own up to a maximum of $550 million of nuclear fuel at any $121 million for 1986; $70 million for 1987; and $51 mil-one time and have contracted to sell the energy therefrom to lion for 1988. the Company.

13. Nuclear Fuel Disposal mitted for rate-making purposes and such amounts, net of estimated unrealized income tax benefits, have been deposi-The Nuclear Waste Policy Act of 1982 requires the United ted in an escrow account and are invested for the funding of

-- States Department of Energy (DOE) to assess utilities one the pre April 7,1983 liability. The Company's pre-April 7 mill for each Lilowatthour of electricity generated by a nu-1983 liability for its share of generation by the Peach Ik>ttom clear generating station after April 6,1983 and to make an and Salem Generating Stations is approximately $62 million, equivalent assessment for such generation prior to April 7, of which approximately $37 million has been recovered 1983. These assessments will provide for the shipment and through rates charged to customers. This liability is expected permanent disposal of fuel discharged. Since May,1981 the to be paid to DOE in 1985. The liability for current genera-Company has been charging operations for such costs as per-- tion is paid to DOE quarterly. 14, Limerick Generating Station On January 24,1984 the Company responded to the PUC order, electing to suspend construction of Unit The Company has under construction two nuclear units at No. 2 until Unit No. I is in commercial operation. The PUC . Umcrick, Pennsylvania. In the latter part of 1980, the PUC has not yet issued an order accepting or rejecting this re-began an investigation into various matters concerning the sponse. Unit No. I is schtduled for commercial operation in Limerick Generating Station (Umerick). On August 27, 1985 and Unit No. 2 in 1990. 1982, the PUC issued an order stating that continued con-Operation of Umcrick will require an ade-struction of Unit No. 2 simultaneously with Unit No.1 is not quate supply of cooling water. To assure an adequate supply, in the public interest and directing the Company to cancel or - the Company has contracted to obtain supplementary cool-

suspend construction of Unit No. 2. The Company appealed -

ing water from the Delaware River. Several parties are at-the order to the Commonwealth Court and on December 15, tempting to delay or terminate construction of pumping 1982, the Commonwealth Court reversed the PUC order. On stations, reservoirs and related facilities to transport the . january 14,1983, the PUC petitioned the Pennsylvania Su-water. The Company expects to protect its interests in the preme Court to allow an appeal of the Commonwealth . facilities, but any delays in obtaining an adequate supply of Court's decision. supplementary cooling water could delay the scheduled On May 27,1983, the Pennsylvania Supreme dates of commercial operation, restrict the operating capac-Court upheld the authority of the PCC to deny the registra-ity and increase the cost of Umerick. tion, pending completion of Unit No.1, of any new securities At December 31,1983, engineering studies issuances, the proceeds of which would be used, in whole or indicated Unit No. I and common plant were approximately in part, for construction of Unit No. 2. OnJune 10,1983, the 91% comp!cte and Unit No. 2 approximately 31% complete. - PUC issued another order, which was clarified on December The Company's investment in Limerick was $3.25 billion at 111983, directing the Company to suspend construction of December 31,1983 of which $1.76 billion was allocated to Unit No. 2 pending commercial operation of Unit No. I, to . Unit No.1, $667 million to Unit No. 2 and $827 million to cancel construction of Unit No. 2, or to continue con. common facilitbs. The Company is accruing AFUDC on its - struction of Unit No. 2 with internally generated funds. entire investment in Umerick.

15. Commitments and Contingencies Plant facilities under construction, particularly the Limerick Generating Station, require numerous permits and licenes, The Company has incurred substantial commitments in con-which the Company cannot be assured will be issued at com-nection with its construction program. Construction.

pletion of the facilities. expenditures are estimated to be $857 million for 1984 and The Price-Anderson Act places a " Limit of Lla- $2.3 billion for 19851987. These estimates are reviewed . bility" of $580 million on each licensed nuclear facility for and revised periodically to reflect changes in economic con-claims that could arise from an incident involving any li- ' disions, revised load forecasts and other appropriate factors. censed nuclear facility in the nation. The Company has -33

Philadelphia Electric Company and Sutnidiary Companies Noers so FinancialStatements - Continued insured for this exposure through a combination of private tual insurance company to provide replacement power cost insurance and indemnity agreements with the Nuclear Reg-insurance coverage in the event of a major outage at a nu-ulatory Commission. In the event of such a nuclear incident clear station. The premium for this coverage is subject to an the Company could be assessed up to $8.5 million per inci-assessment for adverse loss experience. The Company's max-dent with a maximum amount of $17 million in any one year. imum share of any assessment is $13 million. 'Ihe Company maintains insurance coverage The PUC is conducting an investigation into against loss or damage to its nuclear facilities by fire or the outages that started in February 1983 at Salem Generat. Other casualty. Although it is impossible to determine the ing Station Unit No.1, operated by Public Service Electric total amount of the loss that may result from an occurrence and Gas Company. The PUC has ordered the Company to at these facilities, the Company maintains the maximum show cause why it should be permitted to recover the incre-amount of nuc! car insurance presently anilable, being $1 mental costs, if any, of replacing Unit No. I generation billion for each station. Under the terms of the various insur-during the outages. The Company believes that it cSuldi.ot ance agreements, the Company could be assessed up to $33 be precluded from recovering such incremental ct,sts and million for losses incurred at plants insured by the insurance that the ultimate resolution of this matter will not have a . companics. material adverse affect on the financial position or results of The Company is a member of an industry mu-operations of the Company.

16. Quarterly Data (Unaudited)

The data shown below include all adjustments which the Company considers necessary for a fair presentation of such amounts. Operating Revenues Operating income Net Income 1983 1982 1983 1982 1983 1982 Quarter Ended (husands of Dollars) March 31 $723,216 $747,077 $105,871 $ 102,480 $103,975 $ 90,951 June 30 572,153 592,573 79,374 78,253 76,071 63,240 September 30 668,259 661,594 121,703 115,633 122,003 100,402 December 31 632,422 633,509 86,759 92,361 87,040 81,630 Earnings Apphcable Average Shares to Common Stock Outstand.ng Earnings Per Average Share I983-1982 1983 1982 1983 1982 Quarter .(husands of Dollars) (Thousands) (Dollars) Ended March 31 $88,248 $77,138 - 126,064 108,593 $.70 . $.71 June 30 59,186 48,622 133,021 115,289 .44 .42 ~ September 30 105,146 85.816 134,909 117,478 .78 .73 December 31 69,125 = 67,047 141,235 124,378 - .48 .54 ' 1983 fourth quarter rest.lts, mclude the write.off of ap-deferred during the first ihree quarters of 1933 pending a proximately $9.5 million (net of $10.1 million of related in-final determination by the PUC as to their recovery. Recovery comes taxes) of operating, maintenance, and depreciation was denied on November 22,1983 at the conclusion of the costs of certain pollution control facilities which had been Company's retail electric rate case.

17. Suh --..tacy Infoemation to Disclose the

. If the Company had to replace its entire util. Estimated Effects of Inflation for the Yeae ity plant at this time, the costs to do so would greatly exceed - Ended Decembee 31,1983 (Unaudited) . the original costs incurred when the facilities were built be- - cause of the cumulative effect of inflation. These plant re-placement costs, net of accumulated depreciation, are The following supplementary information is supplied to. estimated at $12.1 billion as restated for " constant dollars *' show the estimated effects of inflation because the Company is required to do so, according to the Statement of Financial and $12.7 billion as restated for " current costs". Under the L Accounting Standards No. 33. The methods required to de- " constant dollar" method, the Company is required to restate velop this information are approximate and complex, and the original costs in terms of dollars of equal purchasing l may not necessarily reflect the true effects of inflation on the -power, as measured by the Consumer Price Index for all Ur- < Company. Under existing regulatory law, the Company is per-ban Consumers. The " current costs" method uses Handy-

mitted to recover actual operating and capital costs incurred Whitman Indices of Public Utility Construction Costs. Re-to serve customers and a reasonable return on investment.

- suits from the two methods differ because construction and the Company believes it will be allowed to recover cost ' costs have increased more rapidly than consumer prices in " ncreases caused by inflation as such increases are actually - general. Under the " current cost" method, the effect i ($441 million) of general inflation in 1983 on net utility. . incurred. plant was greater than the increase ($294 million) in spe. ' Effect of Inflation on Elepoeted Income. In. adjusting the Consolidated Statements of Income, as shown~ , cific prices by $117 million while the effect of general infla-below, only depreciation expense was adjusted for the effect ' tion was less than specific prices by $9 million in 1982 and ' of inflation. "Ihe " constant dollar" and " current cost" de. . greater than specific prices by $205 million, $225 millioni preciation expenses were determined by applying the Com-L and $93 million in 1981,1980, and 1979, respectively, ex-

pany) depreciation rates to restated 1983 average

' pressed in average 1983 dollars. In the Company's opinion,'

depreciable plant in service. Other Operating Expenses were the " current costs" method is more appropriate for estima-not required to be adjusted..

ting the effect of inflation on utility plant.

34

Consolidated Statements of income Adjusted for Inflation for the Year Ended December 31,1983 (~Ihousands of Dollars, except per share amounts) As Adjusted For Constant Dollars Current Cost As Reported (Average 1983 Dollars) (Average 1983 Dollars) Operating Revenues $2,596.050 $2,596,050 $2,596,050 Depreciation 165,327 384,817 435,983 Other Operating Expenses 2,037,016 2,037,016 2,037,016 Operating Income 393,707 174,217 123,051 Other income 192,913 192,913 192,913 Income Before Interest Charges & Preferred Stock Dividends 586,620 367,130 315,964 Interest Charges and Preferred Stock Dividends 264,915 264,915 264,915 Earnings Applicable to Common Stock * $ 321,705 $ 102,215 51,049 Earnings Per Average Share" 2.40 0.76 0.38

• Earnings applicabic to Common Stock for 1982,1981,1980, and

" Earnings per average share for 1982,198I,1980, and 1979, based 1979, restated in average 1983 dollars, amounted to $91 million. on the restated earnings, were $0.78. $0.67, $0.69 and $0,63, re- $67 million, $60 million, and $51 million, respectively. for Constant spectively, for Constant Dollars, and $0.43 and $0.25 for 1982 and Dollars, and $50 million and $25 million for 1982 and 1981 and losses 1981 and kmses of $0.03 and $0.11 for 1980 and 1979 for Current of $3 million, and $9 million for 1980 and 1979 for Current Costs. Costs. Effects of Inflation on Shareholders' Equity. $526 million for 1979 (1982,1981,1980 and 1979 ex- " The effect of inflation on the Companys actual original pressed in average 1983 dollars) and would totally or par-cost of net utility plant amounted to $250 million for 1983, tially offset the effect of inflation on utility plant. ($230 million for 1982, $502 million for 1981, $688 mil-If the Company had earned at the rate ofinfla-tion for 1980 and $766 million for 1979 expressed in aver-tion (3.8%) on its common shareholders' equity in 1983, carn-age 1983 dollars). These inflationary effects were not ings would have been approximately $92 million compared recovered because rates are based on depreciation of original with reported earnings of $322 million. Thus, reported earn-cost plant. If the Company were required to charge these ings applicable to common stock in 1983 were about $230 emounts against income in 1983 and 1982, carnings applica-million above the level necessary to offset the impact of in-ble to common stock would have been reduced to $72 mil. . flation on shareholders' equity. lion and $57 million, respectively, while in 1981,1980 and - 1979, earnings applicable to common stock would have be-AJiustment of Selected Hve Year Hnancial come losses of $255 million, $477 million, and $561 mil-Information. lion, respectively. The effect of inflation (3.8% for 1983, in order to reflect the impact of general inflation on selected 3.9% for 1982,8.9% for 1981,12.4% for 1980 and 13.3% for financial information for each of the years 1979 through 1979) on the value of the Companyt debt and preferred 1983, the following table shows actual data compared with stock approximated $165 million for 1983, $153 million for data adjusted to 1983 dollars. 1982, $339 million for 1981, $468 million for 1980 and Hve Yeae Summary of Selected HnancialInformation Showing Adjustments to Reflect Inflation 1983 1982 1981 1980 1979 Development of Adjustment Factors Consumer Price index Average During Year 298.4 289.1 272.4 246.8 217.4 Year End 303.5 292.4 281.5 258.4 229.9 Consumer Price Index Multiplier A = Average (298.4 + Index) 1.00 1.03 1.10 1,21 .l.37 B = Year End (303.5 + Index) 1.00 1.04 1.08 1.17 1.32 Actual and Adjusted HaancialInformation Dividends Per Common Share Actual Paid $2.12 $ 2.1, $ 1.90 $ 1.80 - $ 1.80 Adjusted (Actual x A) $2.12 $ 2.12 $2.09 $ 2.18 $2.47 Market Price Per Common Share Actual Year Fnd $14.38 . $ 17.00 $ I 3.63 $12.50 $ 13.75 Adjusted (Actual x B) $14.38 $17.68 $ 14.72 $ 14.63 $18.15 Operating Revenues (thousands of dollars) . Actual $2,5%,050 $2,644,753 $2,433,425 - $2,123,394 $1,578,505 ' Adjusted (Actual x A)~ $2,5%,050 $ 2.724,096 $ 2,676,768 $2,569,307 $2,162,552 Common Shareholders' Equity (thousands of dollars) Actual Year End $2,569,323 $2,254,435 $1,963,527 $ 1,733,614 $ 1,580,004 . Adjusted (Actual x B) $2,569,323 $2,344,612 $ 2,120,609 $2,028,328 $2,085,605. 35

I financialStatistics Summary of Earnings (Millions of Dollars) For the Year Ended t983 1982 1981 1980 1979 I978 1973 Operating Revenues (for details sce pages 38 and 39) $2,596.0 $ 2.64 4.8 $ 2,433.4 $2,123.4 $ 1.578.5 $ 1,4 56.8 $766.6 Operating Expenses Fuel and Energy Interchange 986.6 1,128.5 1,187.6 1,090.5 661.7 573.9 260.3 labor 317.2 291.1 256.8 232.1 209.3 195.0 125.6 Other Materials, Supplies and Services 354.6 320.5 260.9 184.5 155.4 135.0 65.5 Total Operation and Maintenance 1658.4 1,740.1 1,705.3 1,507.1 1,026.4 903.9 451.4 Depreciation 165.3 143.8 130.3 122.9 120.6 116.5 64.3 Taxes 378.6 372.2 274.8 227.4 185.7 194.7 102.5 Total Operating Expenses 2,202.3 2,256.1 2,110.1 1,857.4 1,332.7 1,215.1 618.2 Operating income 393.7 388.7 323.0 266.0 245.8 241.7 148.4 Other income Allowance for Other Funds Used During Construction 108.1 65.7 65.0 50.5 46.0 37.6 58.7 income Tax Credits, net 87.9 75.8 63.2 49.0 33.9 26.3 3.4 Other, net (3.1) (0.7) 2.5 3.4 1.7 46 2] Total Other income 192.9 140.8 130.7 102.9 81.6 68.5 64.8 Income Before Interest Charges 586.6 529.5 453.7 368.9 327.4 310.2 213.2 Interest Charges long-Term Debt - 330.2 308.9 266.7 225.0 193.0 176.3 84.8 Short. Term Debt 35.2 32.0 33.2 13.9 7.3 2.5 5.5 Allowance for Borrowed Funds Used During Construction (167.9) (147.6) (123.8) (97.1) (67.4) ($3.4) Net Interest Charges 197.5 193.3 176.1 141.8 132.9 125.4 90.3 Net Income 389.1 336.2 277.6 227.1 194.5 184.8 122.9 Preferred $tock Dividends 67.4 57.6 53.8 52.2 44.8 43.5 27.6 Earnings Applicable to Common Stock 321.7 278.6 223.8 174.9 149.7 141.3 95.3 Dividends on Common Stock 283.6 240.5 189.5 157.4 145.0 135.7 78.4 Earnings Retained $ 38.1 38.1 $ 34.3 $ 17.5 $ 4.7 3 5.6 $ 16.9 Earnings Per Average Common Share (Dollars) $ 2.40 $ 2.39 $ 2.25 $ 2.00 $ 1.86 $ 1.87 $ 1.99 Dividends per Common Share (Dollars) $ 2.12 2.06 $ 1.90 $ 1.80 $ 1.80 $ 1.80 $ 1.64 Common 5tock Equity (Per Share) $ 17,99 $ 17.93 $ 18.10 $ 18.72 $ 19.06 $ 19.28 $20.22 - Average Shares of Common Stock - ~ Outstanding (Millions) 133.9 116.5 99.6 87.3 80.5 75.4 47.8 ~ See Puge 21for Management > Discussion and Analysis ofFinancial Condition and Results of Operations. Ratings on Philadelphia Electric Company k Securities Mortjtage Ikmds Debentures Preferred Stock 'Agtency Rating Date Established ' Rating Date Established Rating Date Established Duff and Phelps,Inc. 9 3/80 to 3/80 11 -2/83 Fitch Investors Service BBB _9/82 BBB- '9/82 BB + 9/82 Moodyh Investors Service - Baa3-1/83 Bal 1/83 bal I/83 Standard and Poorb Corporation - BBB-9/82 BB + 9/82 BB 9/82

Summary of Financial Condition . December 31 (Millions of Dollars) 1983 1982 1981 1980 1979 197M 1973 Asset 3 Utility Plant, at original cost $8,864.2 $7,905.7 $7,044.7 $6,415.7 $ 5,885.5 $ 5,502.5 $3 672.1 Irss: Accumulated Depreciation 1,592.0 1,450.1 1,330.6 1,235.7 1,144.1 1,053.3 665.4 Net Utility Plant 7,272.2 6,455.6 5,714.1 5,180.0 4,741.4 4,449.2 3,006.7 Investments 99.4 91.4 77.8 58.7 47.4 30.0 11.5 Current Assets Cash and Temporary Cash investments 65.2 50.0 30.7 6.7 10.6 38.6 26.1 Accounts Receivable 338.6 342.2 342.4 300.3 230.9 223.5 75.6 Inventories 131.1 143.0 132.2 121.1 110.0 93.3 40.2 Deferred Energy Costs 149.3 (85.4) (31.3) I 1.0 83.5 4.2 Other 7.6 7.7 6.8 6.2 4.6 4.3 6.1 Deferred Debits 80.4 24.7 31.5 18.5 12.9 7.5 9.9 Total $8,143.8 $7.029.2 $6.304.2 $5.702.5 $5.241.3 $4.850.6 $3.176.1 CCpitalization and Liabilitics Common Stock $ 2,110.5 $ 1,826.2 $ 1,572.4 $ 1,377.4 $ 1,239.6 $ 1,139.7 $ 771.8 Other Paid-In Capital 5.9 4.6 3.9 2.6 2.2 2.0 1.3 Retained Earnings 452.9 423.6 387.2 353.6 338.2 _ 333.6 286.2 Common Shareholders' Equity 2,569.3 2,254.4 1,963.5 1,733.6 1,580.0 1,475.3 1,059.3 Preferred Stoch: Without Mandatory Redemption 522.5. 372.5 372.5 372.5 372.5 372.5 297.5 With Mandatory Redemption 284.9 292.3 266.9 274.3 206.8 210.9 114.5 Inng. Term Debt 3,381.8 3,028.5 2,745.7 2,371.9 2,241.9 2.173.2 1,319.1 Total Capitalization 6,758.5 5,947.7 5,348.6 4,752.3 4,401.2 4,231.9 2,790.4 Current Llabilities Short-Term Debt 267.5 64.7 54.2 52.6 85.2 16.2 147.7 f ong-Term Debt due within one year 21.3 36.1 130.8 127.8 52.9 67.4 Accounts Payable and Dividends Declared 179.9 188.5 188.9 187.6 133.5 120.3 67.4 Taxes Accrued and Deferred 102.3 22.6 51.4 77.8 65.1 44.5 18.1 Interest Accrued 91.8 99.8 82.3 64.9 58.1 51.0 21.9 Other 17.3 24.7 18.1 17.4 13.9 7.9 5.4 Deferred Credits and Other Liabilities 726.5 659.9 524.6 419.1 356.5 325.9 57.8 Total $8,143.8 $7,029.2 $6.304.2 $ 5.702.5 $ 5,241.3 $4.850.6 $3.176.1 37 b_

ONW38 SWN ELECTRIC OPERATIONS 1983 1982 1981 1980 1979 1978 1973 Output (millions of kilowatthours) Steam 10,457 8,598 9,931 11,234 11,279 13,160 18,536 Nuclear 5,520 10,743 7,464 7,333 7,104 7,769 176 flydraulic 1.739 1,581 1,397 1,240 2,155 1,700 2,132 Pumped Storage Output 979 1,126 1,101 1,050 1,270 1,109 1.318 Pumped Storage lnput (1,427) (1,665) (1,624) (1,526) (1,847) (1,606) (1,876) Purchase and Net Interchange 12,181 11,120 11,173 9,973 9,180 6,651 7,094 Internal Combustion 491 178 283 442 454 704 688 27 Other 528 Total Electric Output 29,940 31,681 30,253 29,746 29,595 29,487 28,095 Sales (millions of kilowatthours) Residential 8,467 7,877 8,014 8,341 7,9 M 7,875 7,493 Small Commercial and Industrial 3,284 3,142 3,115 3,065 2,928 2,888 2,663 Large Commercial and Industrial 14,478 14,178 14,916 15,056 15,428 15,302 14,953 All Other 1,003 1,012 1,005 1,159 1,277 1,329 1,192 SerCee Territory 27,232 26,209 27,050 27,621 27,601 27,394 26,301 Jersey Contral Power and Light (Salem *2) 346 3,352 1.218 Total Electric Sales 27,578 29,561 28,268 27,621 27,601 27,394 26,301 Number of Customers, December 31 Residential - ~ 1,217,635 1,206,944 I,200,238 1,190,312 1,173,514 1.158,853 1,103,163 Small Commercial and Industrial 119,292 118,407 117,016 116,808 115,724 115,945 118,009 Iarge Commercial and Industrial 5,437 5,616 5,790 5,820 5,798 5,780 5,663 All Other 751 762 746 736 1,919 2,413 2,207 Total Electric Customers 1,343,115 1,331,729 1,323,790 1,313,676 1.296,955 1,282,991 1,229,042 Operating Revenues (millions of dollars) Residential $ 744.0 - $ 694.4 $ 643.7 $ 607.8 $ 461.0 $ 430.8 $254.4 Small Commercial and Industrial 316.6 310.6 285.9 249.8 I89.0 176.5 97.5 large Commercial and Industrial 877.4 922.3 917.1 813.9 587.4 544.0 25,7.5 All Other 139.4 118.3 109.5 95.4 74.5 73.1 37.4 Service Territory 2,077.4 2,045.6 1,956.2 1,766.9' 1,311.9 1,224,4 646.8 Jersey Central Power & l.ight (Salem *2) 30.5 135.4 45.9 Total Electric Revenues $2,107.9 $2,181.0 $2,002.1 $ 1,766.9 $ 1,311.9 $ 1,224.4 $646.8 Operating Expenses (millions of dollars) Operating expenses excluding . depreciation $1,592.0 $ 1,688.4 $ 1,586.5 $ 1,414.0 $ 975.4 $ 896.3 $458.9 Depreciation 150.9 130.2 117.3 111.1 110.0 106.3 57.5 Total Operating Expenses $1,742.9 $ 1.818.6 $ 1,703.8 $ 1,525.1 $ 1,085.4 $ 1,002.6 $516.4 Electric Operating income (millions of dollars) $ 365.0 $ 362.4 ' $ 298.3 $ 241.8 $ 226.5 $ 221.8 $130.4 Average Use per Residential Customer (kilowatthours) 1 Without Electric Ileating 6,319 .5,875 - 6,022 6,411 ~ 6,227 6,290 6,581 . With Electric licating 16,523 . 16,813 18,054 19,482 20,760 21,884 24,097 Total 6,990 6.544 6,699 7,058 6,829 6,833-6,829 Electric Peak load, Demand (thous kw). 5,879 5,691 5,731 6,095 5.641 5,667 5,760 Net Electric Generating Capacity - Year End 2 Summer rating (thous kw) 7,974 8,006 8,006 7,698 7,727 . 7,727 ' 6,650 Cost of Fuel per Million Btu $ ' 2.25 1.57 2.10 1,90 1.55 I.29 ,71 Baufer Net Kilowarthour Generated 10,906 '10,918 10,930 10,787 10,810 10,773 10,523 ~ 38 -

l t G AS OPERATIONS 1983 1982 1981 1980 1979 1978 1973 Sales (millions of cubic feet) Residential 2,168 2,442 2,446 L461 2,327 2,316 2,317 Ilouse IIcating 22,981 24,237 24,675 23.671 23,593 24,974 24,125 Commercial and Industrial 39,043 41,660 45,670 42,890 37,452 32,784 37,868 All Other 672 422 127 92 93 94 90 Total Gas Sales 64,864 68,761 72,918 69,114 6',,465 60,168 64,400 Number of Customers, December 31 Residential 72,501 76,638 78,426 81,346 85,315 87,715 91,682 Ilouse IIcating 206,443 198,910 193,038 182,216 168,905 163,469 163,096 Commercial and Industrial 22,810 22.324 21,578 20,197 19,065 19,207 20,518 Total Gas Customers 301.754 297,872 293,042 283,789 273,285 270,391 275,296 OperCtIng Revenues (millions of dollars) Residential $ 19.1 $ 18.1 $ 15.4 $ 14.0 $ 10.7 9.9 6.7 Ilouse IIcating 165.8 147.1 128.5 108.5 91.2 86.6 51.3 Commercial and industrial 227.3 221.1 209.7 166.7 118.4 92.2 39.8 0.2 0.2 2.3 All Other 3.0 1.8 0.5 0.3 _ Other Revenues 415.2 $388.1 $354.1 $289.5 $220.5 $ 188.9 $ 100.1 Subtotal 1.8 2.3 2.3 1.2 0.6 0.6 .4 Total Gas Revenues $417.0 $390.4 $356.4 $290.7 $221.1 $ 189.5 $ 100.5 OperCtIng Expenses (millions of dollars) Operating expenses excluding depreciation $377.6 $354.1 $322.0 $258.0 $ 194.4 $ 163.0 $ 77.9 Depreciation 12.7 11.9 11.3 10.2 8.9 8.6 5.7 Total Operating Expenses $390.3 $366.0 $333.3 $268.2 $203.3 $171.6 $ 83.6 Gas Operating income (millions of dollars) $ 26.7 $ 24.4 $ 23.1 $ 22.5 $ 17.8 $ 17.9 $ 16.9 STEAM OPERATIONS Sales (millions of pounds) 4,552 5,086 5,484 6,044 6,581 7,336 7,762 Number of Customers. December 31 545 571 593 618 638 660 723 OperCtIng Revenues (millions of dollars) $ 71.1 $ 73.4 $ 74.9 $ 65.8 $ 45.5 $ 42.9 $ 19.4 OperOting Expenses (millions of dollars) Operating expenses excluding depreciation $ 67.4 $ 69.8 $ 71.6 $ 62.4 $ 42.3 $ 39.3 $ 17.2 Depreciation 1.7 1.7 1.7 1.7 1.7 1.6 1.1 Total operating Expenses $ 69.1 $ 71.5 $ 73.3 $ 64.1 $ 44.0 $ 40.9 $ 18.3 Steam Operating Income l (millions of dollars) 2.0 1.9 1.6 1.7 1.5 5 2.0 1.1 Electric Sales (including Salem I! alt No. 2) Gas Sales I 86Hioneof Kik. BiHenne of cuhoc feet I so 71 I 1: l 45 N ] 60 y_ H 4 l Wj 3 30 to 19 0 n so si sa as s so si s2 as M hire Una No. 2 39

ShareholderInf:rmation Stock Exchange Listings 1 800-223-7326. From within Pennsylvania, dial Most PE Securities are listed on the New York 1-800-242-7326. Incal Philadelphia calls should be made to Stock Exchange and the Philadelphia Stock Exchange. Phila-841-5795. delphia Electric Power Company Debentures are listed on the Philadelphia Stock Exchange. Annual Meeting The Annual Meeting of the Shareholders of the Dividends Company will be held on April 11,1984, at 10:30 A.M. at the The Company has paid dividends on its com-Franklin Plaza flotel,17th & Race Streets, Philadelphia, PA. mon stock continually since 1902. The Board of Directors Common stock shareholders of record at the normally considers common stock dividends for payment in close of business on March 2,1984 are entitled to vote at this March, June, September and December. meeting. The Company estima:es that 100% of the Notice of the meeting, proxy statement, and $2.12 per share dividend [' aid to common sh.rcholders in proxy will be mailed under separate cover. Prompt return of 1983 represents a return of capital which is not taxable as the proxies will be appreciated. dividend income for federal income tax purposes. In addi-tion, for 1983,93% of preferred dividends are not taxable. Form 10-K Form 10-K, the annual report filed with the Dividend Reinvestment and Securities and Exchange Commission, is available, without Stock Purchase Plan charge, to shareholders upon written request to Philadelphia Shareholders may use their dividends to pur-Electric Company, 2301 Market Street, PO. Box 8699, Phila-chase additforal shares of common stock through the Com-delphia, PA 19101, Attn: Financial Division, pany's Dividend Reinvestment and Stock Purchase Plan. The Company pays all brokerage and service fees. Shareholders All common and preferred shareholders have The Company has 300,257 shareholders of the opportunity to invest additional funds in common stock record of common stock, a 24% increase in 5 years. of the Company, whether or not they have their dividends reinvested - also with all fees borne by the Company. Transfer Agents and Registrars The Plan has been amended to enable eligible PillLADELPillA ELECTRIC COMPANY - Preferred and Com-individual participants in the Plan to elect to defer federal mon Stocks income tax on up to $1,500 of reinvested dividends per year Registrars: Girard Bank, One Girard Plaza, Phila., as provided by the Economic Recovery Tax Act of 1981. PA 19101 Over 30% of the common shareholders are Morgan Guaranty Trust Co. of NY,30 W. participants. In 1983, they invested more than $77 million Broadway, NT, NY 10015 through the Plan, including cash payments. Information con-Transfer Philadelphia Electric Company, 2301 cerning this Plan may be obtained from M. W. Rimerman, Agents: Market St., Phila., PA 19101 Treasurer, Philadelphia Electric Company,2301 Market Morgan Guaranty Trust Co. of NT,30 W. Street, PO. Ikix 8699, Philadelphia, PA 19101. Broadway, NT. NY 10015 PillLADELPillA ELECTRIC COMPANT - First and Refunding Comments Welcomed Mortgage Bonds The Company always is pleased to answer Trustee: The Fidelity Bank, Broad & Walnut Sts., Phila., questions and provide information. Please address your com-PA 19109 ments to Mrs. L. S. Binder, Secretary, Philadelphia Electric New Wrk Morgan Guaranty Trust Co. of NY, Company,2301 Market Street, PO. Box 8699, Philadelphia, Agent: 30 W. Broadway, NY, NT 10015 PA 19101. PillLADELPillA ELECTRIC COMPANT - Debentures Inquiries relating to shareholder accounting PillLADELPillt ELECTRIC POWER COMPANY (A Subsidiary) records, stock transfer and change of address should be di- - Debentures rected to Philadelphia Electric Company,2301 Market Street, Trustee: The Philadelphia National Bank, Broad & PO. Box 8699, Philadelphia, PA 19101, Attn: Stock Transfer Chestnut Sts., Phila., PA 19101 Section. New York Irving Trust Co., One Wall Street, Agent: NY, NY 10015 Toll-Free Telephone Line Toll free telephone lines are available to the General Office - Companyh shareholders for inquiries concerning their stock 2301 Market Street, PO. Box 8699 Phila., PA ownership. When calling from outside of Pennsyhania, dial. 19101.(215) 841 4000. NYSE - Composite Common Stock Prices, Earnings and Dividends by Quarters (Per Share) 1983 1982 Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter liigh Price . $18 % $17% $18% $18 $17% $16% $15% $14% low Price $13% $15% $16% $16% $154 $13% .$13 $13% Earnings 484-789 44f - 70* 54e 73e 42< 71e Dividends 539-53* 53* 53* 53e' 53e' 50< Soc 40 m

f $ Directors Offic;rs .eJohn H. Austin,Jrf., James L. Everett Philip G r Mulhgan Prvsident and Chief Operating Officer Chairman of the Board Vice President of the Company } ' ~ and Cb!efExecutit e Officer Gas Operations William T. Coleman,Jr., Esq.-. Jo'in 11. Austin,Jr. Clair V Myers Seniornortnerofthelawfirm : ~ f O'Meltwny & Myers ~ ~ President and Chief Operating Oficer Vice President Vincent S. Boyer Purchasing and General Sert' ices o M. Walter D'Alessio 1 Senior Vice President Joseph E Paquette,Jr. President and CblefExecutitt Oficer Nuclear Power Vice President Latimer & Buck, Inc. ' Edward G. Bauer,Jr. Finance and Accounting (Mortgage Banking and Real F. state Vice President and Lucy S. Binder Detelopment);, General Counsel Secretary - eJames L Everett __., Clifford Brenner Morton W. Rimerman Chairman of the Board Vice President Treasurer and ChiefExecurite Oficer Corporate Communications a~ ofthe Company <. James D. Lynch Thomas W. Coppock Assistant Secretary William S. Fishman,_ y/ce President J. Robert Causton - Chairman and CblefExecutite Oficer Electric Transmission Assistant heasurer ARA Sert' ices, Inc. (Service Management) and Distribution K Jon A. Katherine ' e Robert E Gilkeson i s Shields L. Daltroff As;istant Reasurer Chairman of the Executite Committee Vice President II"*" ' " " " 'b'* e William W. HaYrty: Electric Production -issistant Treasurer President, Drexel ynitersity.. Charles L Yritz - s Robert D. IIarrisoni Vice President

Vice Chairman L. _...,.

Personneland industrial Reintions John _ Wanamaker, Philadelpbla ' i ^ ?(Merchandising). Raymond E Iloiman Vice President _ Paul R; Kaiscr.: GeneralAdministration

. Chairman Emeritus

:

John S. Kemper (l8 TastyBaking Company n __, L, Vice President (DitwrsifidManufacturing)J

Engineering and Research 6 ' Joseph C.Ladd 2 M t. _....

William B. Martok L President and ChiefExecutits Ofpcer. Vice President iFidelityMutualLifeinsurwnce Company ~ - Commercial Operations i Edithei Init, M.D.'. ' ; - h ' L President andDirector . National Board ofMedkal Examiners, dJoseph1Mc!SughlitF [ _. _ [

President and ChiefExecutine Oficer

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