ML20101E999

1995 Annual Rept PECO Energy

ML20101E999
Person / Time
Site:	Peach Bottom, Limerick
Issue date:	12/31/1995
From:	Hunger G, Mcneil C, Paquette J PECO ENERGY CO., (FORMERLY PHILADELPHIA ELECTRIC
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
NUDOCS 9603250300
Download: ML20101E999 (49)

Text

{{#Wiki_filter:.- St:tionSupportDep rtment A'. ( 10CFR 50.71 PECO NUCLEAR n m % ev Nuclear Group Headquarters A UNif or /YCO fMRGy 965 Chesterbrook Boulevard Wayne, PA 19087-5691 March 18,1996 Docket Nos. 50-277 50-278 i 50-352 50-353 Ucense Nos. DPR-44 DPR-56 NPF-39 NPF-85 U. S. Nuclear Regulatory Commission ATTN: Document Control Desk 4 Washington, DC 20555 3

SUBJECT:

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

Dear Sirs:

Attached is the 1996 Annual Report of PECO Energy Company, operator of Peach Bottom Atomic Power Station and Umerick Generating Station. This Annual Report contains the annual financial statements for 1995. Very truly yours, e A. G. A. Hunger, i Director-Ucensing Attachment cc: T. T. Martin, Administration, Region 1, USNRC N. S. Perry, USNRC Senior Resident inspector, LGS W. L Schmidt, USNRC Senior Resident inspector, PBAPS .. u n.....-i. 96o325o300 951231 h PDR ADOCK 0500o277 'i 0v I PDR \\ \\\\

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s-a' COMPANY Paoritt PECO ENERGY COMPANY, INCORPOR ATED IN PENNSYLANIA IN 1929, iS AN OPERATING UTluTY WHICH PROVfDES ELECWC AND GAS SERVICE TO THE PUBUC IN SOUTHEASTERN PENNSYLVANIA. TWO SUBSOARIES OWN, AND A THIRD OPERATES, THE CONOWINGO HYDROELECTRIC PROJECT. THE TOTAL AREA SERVED BY PECO ENERGY COVERS 2,107 SOUARE MtES. ELECTRIC SERVICE IS SUPPtlED TO AN AREA OF 1,972 SOUARE fMLES WITH A POPULATION Or 3.7 twuGN, INCLUDING l.6 M!t00N IN THE OTY OF PHILADE!PHIA. APPROXMATELY 94 PERCENT OF THE RETAll ELECTRIC SERVICE ARE A AND 64 PERCENT Of RETAll KilOWATTHOUR SALES ARE IN THE SUBURBS AROUND PHILADELPH:A, AND 6 PERCENT OF THE RETAR SERVICE AREA AND 36 PERCENT OF SUCH SALES ARE IN THE OTY OF PHILADELPHIA. NATURAt GAS SERvfCE IS SUPPL'ED TO A 1,475-SOUARE-TALE AREA OF SOUTHEASTERN PENNSYLVAN!A, ADJACENT TO PH1ADELPH;A, WITH A POPULATION Of l.9 MILUON. THE MAP TO THE iEFT INDICATES NOT ONLY THE COMPANV'S TR ADWONAL SERVICE TERRITORY, BUT TH[ FAR4E ACHING BUlr POWER TRANSACTIONS COMPLETED BY THE COMPANY'S ButK POWER ENTERFRISES (GR AY SHADE D ARE A ON THE N ATIONAL MAP). ButK POWER ENTERPRISES H AS NEGO-TI ATE D AND COMPLETED DOWER TR ANS ACTIONS fROM MAINE TO f tORID A, AS FAR WEST AS lL!iNOIS AND EVE N INIQ THE PROVINCE OF QUEBEC, C ANADA. PECO ENERGY CONTINUES TO lOOK IO EiFAND ITS M ARKET AS NEW OPPORlUN. TIES EMERGE. g FECO Ern:. C erm

~ To Oun FELLOW SH AREHOLDERS: The year 1995 was one of solid, overall progress for PECO Energy, despite some notable disappointments. On the positive side, there were many highlights: + Our financial condition continued to improve os earnings increased, the balance sheet was strengthened and the divi-dend was raised for the fifth consecutive year, this year by 7.4 percent. The market price of the Company's stock rebounded to $30-1/8 per share at year-end, on increase of 23 percent from the beginning of the year. + Sales of electricity reached another record, os we took advantage of our strong position in the evolving wholesale mor-ket through marketing efforts by our Bulk Power Enterprises. Sales of gas also reached a record due to increased deliv-eries of transported gas.

• Limerick and Peach Bottom, the two nuclear plants operated by the Company, performed safely and efficiently, achieved above-overage performance once again and rxeived outstanding rotings from the Nuclear Regulatory Commission.

+ The arduous task of reengineering our customer contact and response activities was completed. This new system is expected to significantly improve our ability to hondle customer calls expeditiously and efficiently. + Our cost-control program continued successfully as we completed the final steps of the voluntary retirement and separa-tion programs announced in 1994. As a result, the number of employees at yearend 1995 was about 7,000, o reduc-tion of 40 percent in five years.

• We also instituted a number of structural changes in 1995: completion of the sale of Conowingo Power Company to Delmarva Power & Light Company; establishment of the new Telecommunications Group to take advantage of opportu-nities in that rapidly changing industry; creation of a gas supply subsidiary to enhance our abilities to purchase and market natural gas to customers inside and outside of our service territory; and a filing with the Federal Energy Regulatory Commission for permission to sell wholesale energy at market based rates, outside of the Pennsylvanio-New JerseyMaryland Interconnection Association area.

The major disappointment of the year was the inability to complete the Company's proposed merger with PP&l Resources, headquartered in Allentown, Pennsylvania. The potential benefits of a combination of the two companies were compelling. It would have produced savings of $2 billion over 10 years, permitting lower rates for customers of both utilities, as well as increased shareholder value. However, PP&L Resources rejected our final proposal on November 1, and we decided it was in the best interests of PECO Energy not to pursue the proposal further. Nevertheless, we remain committed to exploring strategic opportunities that will increase shareholder value. Alti.ough we will always be open minded and continually evoluote all of our alternatives, we have a strong standclone position and do not feel compelied to pursue a merger at any cost. The continued poor performance of the Salem Nuclear Generating Station, operated by Public Service Electric and Gas Company (PSE&G), was another disappointment. The two units at Salem, which are 42.59-percent owned by PECO Energy, g PECO ENFNGY COtNY

.m. [% e pussy M 4 v '. I l 4 1 l 1 4 8 g JosaPH F. PAourm, Ja., CHARMAN oF TH: BOARD (LIFT) AND l ConssN A. McNint, Ja., Pass 4 DENT AND CHIEF Exscunvs Omcan. i i i have been idle since mid-1995 and will remain shut down until at least mid.1996 while PSE&G's new Nuclear Department senior management continues its program to restore the plant and retrain its personnel to achieve a level of performance which will satisfy or exceed regulatory standards We are providing assistance to PSE&G during the shutdown and will continue to evaluate all alternatives to protect our investment in these facilities. Another major challenge which crose in 1995 was the filing of four separate petitions by two unions to organize some of our workforce. After lengthy hearings before the National Labor Relations Board (NLRB), it is very difficult to predict whether the NLRB will order on election in 1996. We are committed to maintaining a union-free status and will continue our efforts to convince employees that it is in their best interests to reject unionization. STRATEGIES FOR A COMPETITIVE ENVIRONMENT Nationally, the prospects for replacing regulated franchises for electric utilities with competition heightened as many state regu-lators looked more closely at the structure of the industry. In Pennsylvania, the Public Utility Commission (PUC) continued its study of this issue and expects to make a recommendation to the Governor and the state legislature in the spring of 1996. Our position focuses on the central issue of how best to improve the efficiency of electric service, while continuing to ensure the availability of reliable service for all customers at reasonable prices. We must not lose sight of the most critical objective, which is that any change must create additional net benefits that all can share, while avoiding change that may harm some customers or our shareholders. To be competitive in the future, we must continue to focus on prices and customer satisfaction. The ability to ottract new customers and to retain our existing customers is a challenge we face every day. Our Competitive Breakthrough Strategy was introduced to regulators and industry analysts in 1995. It is an integrated strategy to improve the efficiency, financici condition and rate stability of the Company through a broad array of initiatives. ] These initiatives include, but are not limited to, reengineering of processes, reduction and containment of costs, development of 1 new revenue opportunities, reduction of exposure to osset write-downs, and reduction of outstanding debt. The succeuful com-i pletion of these initiatives will enhance profitability and will permit us to pursue key strategic objectives. f in October, we petitioned the PUC for permission to accelerate depreciation of assets ossociated with the Limerick j Generating Station by approximately $100 million per year and to decrease depreciation of other Company assets by about i g P[CO Fwp Cuw

$10 million per year, effective October 1,1996. By accelerating the depreciation of Lirnerick, the plant will be in a better posi-tion to succeed in a competitive marketplace. In lieu of an increase in customer rates, we proposed to offset the increased depreciation through income generated as part of the Competitive Breakthrough Strategy. In another 1995 initiative, we introduced to our employees the PECO Energy Advantage, a set of core values and guiding behaviors that are the basis of the day-to<foy operations of the Company. The PECO Energy Advantage incorporates these concepts that shape our high-performance work culture: Teamwork Openness, Trust and Respect Integrity Customer Focus Accountability Continuous Learning Embracing Change Safety The PECO Energy Advantage is the defining framework by which we will work together to succeed in the new utility mar-ketplace and achieve our vision of becoming a competitive energy supplier with high customer loyalty. During 1995, we also strengthened the Company's senior management team. Damion A. Thomas joined the Company as Vice President of Marketing and Sales offer a successful career at General Electric, where he was responsible for all parts and services business in North and Latin America. William E. Powell, Jr. was elected Vice President of Support Services offer hav-ing served as Vice President of Logistics at DuPont and 31 years in the United States Navy, retiring with the rank of Rear Admirol. Most importantly, in April, os another step in our plan for on orderly transition of senior management duties, Corbin A. McNeill, Jr. assumed the position of Chief Executive Officer in addition to his responsibilities os President of the Company. Mr. Poquette will continue as Chairman until his retirement next year. There is no doubt that we are in the midst of a period of dramatic change in the history of America's utilities. There is no turning back and we are preporing ourselves to meet the challenges of a new competitive marketplace. We are confident that PECO Energy will be prepared for whatever the future brings. We have in place a capable management team, with diverse experiences in non-regulated industries as well as valuable knowledge and achievements in all aspects of the utility industry. Our employee workforce is skilled and dedicated to fulfilling the Company's objectives. Together, we are committed to making your investment in PECO Energy on investment in excellence. We oppreciate your continued support of our efforts. J. F. PAoueTTs, Ja., CHANtMAN C. A. McNent, Ja., PassmeNT AND CEO FemauAav 2,1996 g PECO nom Cowen

1995 REYlEW due to increased transportation sales related to sanoine vus FounsAview higher levels of gas transported for customers pur' PECO ENEROY StutvEs A HIGH-FINANCIAL AND OPERATING HIGHUGHTs chasing on the spot market. PERFoltMANc3 work CuL7uRE is CRffiCAL To fuCCEss. WE REFust in 1995, earnings were $2.64 per share versus in August, our customers' single-hour peak to ACCint rHe RArioNAtt rxAr $1.76 per share in 1994, primarily due to the electric demand reached 7,244 megawatts (MW), oONE.y How IT's ALWAYs SIIN 'S To THis ENo, WE HAvt one-time, after-tax charge of $0.66 per shore in surpassing the previous record peak of 7,227 MW Ass MetEo AN ExpiRi NCio ANo 1994 for the voluntary retirement and separation set in July 1994. 'ALINTIo CORPORATE MANAGE. MENT TEAM WILLING To TAKI rHE programs. The increase was also due to lower As a result of the Company'stontinuing finon-CAtCutArno Risks rHar HAvE operating and maintenance expenses attributable ciel improvement, in October 1995 the Board of [,Q,*',C "",'"',' y, to the Company's ongoing emphasis on cost con-Directors increased the common stock dividend for HioHty ouAurito ANo MotivAr-trol and savings from the voluntary separation and the fifth consecutive year. The 7.4-percent increase U,",*c',",'j,'",7,["',*,' retirement programs; the gain on the sole of raised the annual dividend from $1.62 to $1.74, ACCoMPusHING OoALs WILL CONTINUE To Movt rHE Conowingo Power Company (COPCO); sales of effective with the December dividend payment. company,o wAno, power to other utilities; and the Company's ongo. REGULATORY ENVIRONMENT l ing debt and preferred stock refinancing program. l During 1995, the Federal Energy Regulatory Those savings were partially offset by the costs of Commission (FERC) issued proposed rules for open the shutdown of Salem Generating Station (Salem) transmission occess to third parties for wholesale Units No.1 and No. 2, operated by Public power transactions. The Company filed comments Serv. ice Electn.c and Gas Company (PSE&G). in response and, while generally supportive of the For 1995, electn.c soles increased 9.4 percent FERC's initiative, sugyted several modifications 6 over 1994 primarily due to increased sales to other ensure full recovery of potentially stranded invest-utilities and higher retail sales from warmer summer ment. The FERC anticipates issuing a ruling in the weather and colder December weather. Total gas first ha!' of 1996. sales increased 13.9 percent over 1994 primarily l g PECO Erao Cwm \\

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i i i The staff of the Pennsylvania Public Utility RATE MATTERS Commission (PUC), in 1995, issued a report rec-As part of PECO Energy's continuing effort to ommending against retail electric power competi-become more cost competitive, the Company tion at this time. PECO Energy responded to the requested permission from the PUC to increase i PUC's request for comments by proposing five depreciation of assets associated with the Limerick major initiatives to reduce the cost of electricity Generating Station (Limerick) by approximately E.,ning..na o;y;asna.

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$100 million per year and decrease depreciation l vice essential to Pennsylvanio citizens. of other Company assets by $10 million per year, 5 3 oo - - -- - - - - l For a more completa discussion of these and beginning October 1,1996, with no correspond-2 50 - --- l other related matters, please refer to the ing increase in customers' rates. If granted, this " Competition" section in Management's Discussion proposal will allow the Company to accelerate 2 oo and Analysis of Financial Condition and Results of recovery of its investment in Limerick, enhancing I'So Operations beginning on page 13 of this report. its ability to become o competitive source of gen-erotion in the future. 1.00 - lNITIATIVES TO INCREASE SHAREHOLDER VALUE SALE OF CONOWINoo PowEn COMPANY 0 50 In June, the Company completed the sale of its The Company.is o oo subsidiary COPCO to Delmorvo Power & Light 's '2 's 94 's using both trods.- Company (Delmorva) for $150 million. The sole of , Eo,nings tional and inno. a Dmdends COPCO benefitted shareholders by increasing votive means 1995 earnings by $0.12 per share and permitting to. improve the Company to reduce debt. The transaction g included a 10 year contract for PECO Energy to sell wholesale power to Delmarva beginning in 1996. The COPCO sale did not involve the '"',*M"gM o Conowingo Hydroelectric Station. $333 igg ,g Decernber 31,1990, in CONSUMEa ENERGY SERVICES GeoUP CO ne C PECO Energy recognizes that its customer base is Duonn uumn indo (Assurnes all dividends ore a very important asset. With more alternatives reinoniedi avoilable, many customers are asking for more $250 - - - - - ~ - - - - information about energy options, services and 200 -- -- prices. As a result, PECO Energy has completely Company's reengineered its marketing and sales operations 150 - financial perfor-and launched a broad base of initiatives to mance and improve the overall quality of service. A new focus 3gg increase shareholder was given to key accounts and customers were value-segmented to provide more detailed administro- =O PECO Ene<gy tion of their accounts. The Company is also help- [ [,uumn ing its commercial and industrial customers to be The Company's piogram to reduce long-term debt more competitive by providing new services and and interest expense through the refinancing and i options. The Company continues to work with all redemption of higher-cost debt and preferred stock customers to meet their energy needs. resulted in annuolized savings of approximately The Company's goal is to provide all cus-t $10 million or $0.03 per shore. j tomers with superior service while maintaining sto-i in addition, the Company used internally l ble rctes. Last year,1.4 million residential cus-generated funds to repay $125 million of debt tomers were placed in a new, more streamlined and $175 million of term loans, resulting :n annu-customer service program. New PC-based ol.ized sovings of approximately $23 million or technology allows customer consultants to complete $0.06 per shore. i g PfCO E m C m

Sain to ohr utilitin most routine transactions in a single contact. Mobile PowfR GENERATION GROUP cnd Retail Sales manon, s xiio-onsoorg computer terminals allow energy technicians to The Power Generation Group operates the 50 - - receive and complete work orders without returning Company's fossiLfueled and hydroelectric generat-to the office. Additionally, office hours have been ing stations. Power Generation has been a main- ,o _ expanded to occommodate customers' needs. stay of PECO Energy since the Company's incep-The Company's aggressive business marketing tion well over a century ogo. It continues today to 30 - plan continues to attract new customers to the help meet the power requirements of all customers. Company's service territory. In 1995, this plan cre-The Power Generation Group's Vision Quest 20 - ated or retained more than 2,200 jobs in the program fundamentally recreated all workflow region while generating more than $11 million in processes to achieve substantial annual savings. '0~ ~ ~ Employee teams, empowered to make critical new revenues. An entirely new Power Delivery organization changes, reengineered the structure of the Power was established to support the operation of the Generation Group and its core work processes. 51 n M " n o sol io chr uia,e, Company's electrical distribution system. Through these employee-supported actions, the 8 " d 5d** Maintenance programs have been restructured to Power Generation Group dramatically improved enhance system reliability while innovative, cost-critical performance indicators such as costs, quali-effective techniques are being eraployed to ty, service and productivity. Vision Quest is improve PECO Energy's distribution system and to designed to achieve opproximately $100 million in Gas Sain and streamline business processes. savings by 199?. These dramatic cost reductions, Transported Goa sanon.scob.a i including a 30-percent decrease in the number of GAS SERVICES GROUP employees, and on increased dn,ve toward organi- ) 120 - - The Company continues its aggressive, growth-zational excellence are only part of Vision Quest's oriented strategy in the natural gas business. The j ico _ _ _ _ _ _ Company has increased promotional activities and 80 --- - encourages strong relationships with area builders, NUCLEAR GENERATION GROUP g. orchitects, contractors and others in order to expand The Nuclear Generation Group continues to strive j the use of natural gas in traditional gas markets and for superior performance from all of its units. The 40 - non-traditional areas such as natural gas vehicles Company's nuclear units have become recognized ond gas cooling. In 1995, the Gas Services Group in the industry as leaders in providing sofe, reliable accounted for $3 million of increased revenue, net and efficient generation. For 1995, the combined O'g g ny g of fuel, and 8,500 new customers. capacity factor for Companyoperated nuclear units In the unregulated gas areno, PECO Energy was 88 percent as compared to the national over-created a gas supply subsidiary to porticipate in age of 80 percent for all boiling water reactors, efforts designed to lower gas costs and increase in May, the Nuclear Regulatory Commission reliability, as well as to arrange gas supplies for (NRC) issued its periodic Systematic Assessment of Company use in its fossil fueled electric generating Licensee Performance (SALP) Report for Limerick. stations. This subsidiary will also remarket pur. The SALP process rates nuclear power plant chased gas directly to current transportation cus-licensees in four functional areas: plant operations, tomers and will continue to pursue soles with inter-maintenance, engineering and plant support, ested part:es, limerick achieved superior rotings, the highest of the three rating categories, in all four areas. The NRC stated that, overall, it observed on excellent level of performance at Limerick. The NRC r.ated continued strong performance in the operations g PKo Da s o e

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1 Usenseesuwse AtreessAveves PECO ENSROY EMPl.OYtEs ARE cHAtos0 wm4 McREAsWO vatus to Tus COMPANY. THROuGH RofH TRADmONAL AND INNovATfvt MEANs, WI LOOK FOR WAYS TO SulLD uPON and engineering areas and improved performance be out of service until the second and third quar. OuR cots cOMPereNews so THAT WE MAY, W TURN, PROVIDE in the maintenance and plant support areas. ters of 1996, respectively. sxesttsNr vAtus to Out SHARE

• PartiCularly, the NRC noted the Company's excel-HOLDets.

Buix PowEn ENTERPRISES lent planning and execution of the two refueling Bulk Power Enterprises sells and markets bulk-outages during the SALP period and the aggressive Power products and services to,nvestor-owned util-i use of probabilistic safety assessment in scheduling ities and other customers throughout the United maintenance activities. States. Bulk Power Enterprises is responsible for the For the second consecutive evaluat. ion penod, f stesty wing segment f the Company's business Limerick was recognized by the Institute of Nuclear ~ ~ * * * ' ' ' ' ' ' ' Power Operations for excellence in all aspects of Its market extends beyond the Compeny's tradi-plant performance. ti n I ge 9r P c boundaries, bringing power to a hi In December, the Company's Peach Bottom wealth of new customers. Through innovative market. Atomic Power Stat.;on received its highest SALP rat-ing techniques, the Company has gained entrance ing. Peach Bottom was rated superior in plant into new wholesale markets. In 1995, revenues, net operations, maintenance and housekeep.mg con-of fuel, generated for the Company by Bulk Power trols. It received a roting of good, the second-high-Enterprises was $170 million versus $115 million in est rating, for engineering with many strong points 1994' noted. This is a significant achievement, reflecting the improved training, procedures and teamwork TELECOMUNICADONs Group implemented at Peach Bottom since the 1987 shut-As part of the Company's efforts to build upon its down by the NRC. The Peach Bottom SALP report existing core competencies and infrastructure, a lends further support to PECO Energy's leadership new business unit, the Telecommunications Group, in the nuclear power industry. was created in mid-1995. In February, the Company completed a refuel-The Telecommunications Group has already ing of Limerick Unit No. 2 in 23 days. In October initiated several joint ventures. The first venture is the Company completed a refueling of Peach with AT&T Wireless PCS, Inc. The venture will con-Bottom Unit No. 3 in 24 days. These are the two struct and operate a wireless personal communica-shortest refueling outages for boiling water reac-tions network in the greater Philadelphia region. tors in the United States. For 1995, the average This network, building upon the Company's exist-industry refueling outage lasted opproximately 48 ing extensive infrastructure, will be used to pro-days. Each day saved in a refueling outage results vide on enhanced form of voice and data trans-in opproximately $500,000 in replacement power mission service. cost savings. With a relatively small additional investment, The Company is a 42.59-percent owner of the anticipated benefits to the Company are great: Salem, operated by PSE&G. In the spring of 1995, a superior wireless communications infrastcucture PSE&G voluntarily removed both units from service will be deployed quickly and efficiently; revenues pending review of certain equipment and manage-will be generated from tower leases and partner-ment issues and NRC ogreement that the units are ships; and the services con be used to support the sufficiently prepared for restart. As a result of the Company's own developing communications needs. shutdown, as of December 31,1995, the A second undertaking, with a local cable com-Company had incurred approximately $50 million pony, will involve linking major business locations of replacement power costs and additional operat-directly to long. distance corriers to eliminate the ing and maintenance expenses. PSE&G estimates expense of using local telephone networks for long-that Solem Units No. I and No. 2 ore expected to distance contacts. g PEcot w c m

Con.erucei n Exp.ndieur.. We believe that these and other potential ven-excellence and a competitive edge. The PECO ond Ine.rnal Cash Flow kn.oni s oaiorg tures will provide opportunities to better serve cus-Energy Advantage has become the defining tomers, expand business beyond its traditional framework supporting the common goals of high scope, generate additional revenues and provide performance, customer satisfaction and increased 1000 - -- greater shareholder value. shareholder value. For the second consecutive year, the Company 800 - CORPORATE CENTER AND CENTRAL SERVICES set new sofety records. In 1995, PECO Energy's 600 - PECO Energy's continuous focus on cost-cutting safety record improved by more than 25 overa ond streamlining is evident in the Company's ercent over 1904. Recordable accidents which doo Corporate Center and Central Services groups. result in disabling injuries were down from last To assure that each segment of the Company year by more than 44 percent and recordable first-is equipped to meet its responsibilities, Information aid cases declined by more than 40 percent. g, y y,, Systems has developed on intricate and responsive o Contributing to this success is a demonstrated com-information infrastructure enabling employees to a conoruct.on twendaum mitment by both management and employees to o io,,,nd coin Perform their work at the highest of levels while integrate a focus on safety into the everyday oper-creating new solutions for a changing environment. ations of the Company. The Company has undertaken a series of sup-The Company has redesigned its long-estab-ply management initiatives that focus on inventory lished Performance Planning and Appraisal System m n gement, supplier relations and Company-sup-to support strategies to increase customer satisfac-T. tot o.be ove ding Mll.ms d Ddimi plier business process integration. These initiatives tion and move to higher levels of performance. A will create on integrated sepply process to support new system-wide process has been established for gggo _ ___ _ the core business activities in each strategic busi. hourly paid employees. It will measure accomplish-N- ~ ness unit. The flow of materials, services and infor. ments against pre-established goals and evaluate motion will be managed in a way that maximizes key behaviors used in achieving results. The new value. The supplier management initiative will guiding behaviors have been incorporated in the N-establish vendor relationships that optimize wore. PProisol system for all employees and are N- ~ ~ ~' housing, transportation, delivery and other sourc-designed t ensure success in the marketplace. In addition, a greater portion of total compensation is ing activities. being tied to performance. Longer range plans call le The Corporate Center's financial group has for these programs to be expanded to cover more o--- m n ged the Company's program to refinance groups of employees. These enhancements directly and reduce higher-cost debt and preferred stock, link individual performance to Company success. which has generated millions of dollars in annual PECO Energy is preporing to meet the chal-savings. lenges of the changing utility industry. A capable management team with diverse experience, togeth-PECO ENERGY PEOPLE In 1995, the Company introduced to its employees committed to providing safe, reliable service to cus-the PECO Energy Advantage, o set of core values tomers, and enhancing value to shareholders. and guiding behaviors that is the basis of the day-today operations of the Company. The Company has been moving to a high-performance work culture with core values and guiding behaviors thot..ll drive it to achieve j g PECO M a c: 4

F MANASEMENT's Discussion AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EARNINGS AND DIVIDENDS FUEL AND ENERGY INTERCHANGE ExPfNSE Fuel and energy interchange expense increased $59 million i in 1995 compared to 1994 primarily due to increased output 1995 COMPARED TO 1994 needed to meet service-territory customer demand, higher lev-els of sales to other utilities and replacement power costs Earnings per common shore in 1995 were $2.64 compared required by the shutdown of Salem. These increases were to $1.76 in 1994. The increase in earnings was primarily partially offset by net credits to expense from the retention by ) due to a one-time charge of $0.66 per shore in the third the Company of a shore of the energy savings resulting from quarter of 1994 associated with the Company's Voluntary the operation of Limerick Generating Station (Limerick) and Retirement incentive Program (VRIP) and Voluntary Separation from certain energy sales to other utilities. The increases were l incentive Program (VSIP). Earnings also increased by $0.22 further offset by lower purchased gas costs resulting from per shore due to increased electric sales, by $0.19 per skre reduced output. due to the Company's ongoing emphasis on cost control, by $0.12 per share due to the gain on the sole of Conowingo OTHaR OPsRATING AND MAINTENANCE EXPENSE $ Power Company (COPCO), and by $0.04 per share due to Othcr operating and maintenance expenses decreased by reduced financing costs. These increases were partially offset $268 million in 1995 compared to 1994 primarily due to by $0.14 per shore due to odditional costs incurred as a the one-time charge in 1994 associated with VRIP and VSIP. result of the shutdown of Salem Generating Station (Salem),- The decrease was also due to other continuing cost <ontrol by $0.14 per shore due to increased taxes and by $0.07 efforts, including the savings associated with VRIP and VSIP, per shore due to revenues recorded in 1994 from the receipt lower customer expenses os a result of improved collection of nuclear fuel from Shoreham Generating Station processes and lower nuclear generating station charges (Shoreham). resultirig from shorter refueling and maintenance outages at The Company increased its annual common stock divi-Company. owned nuclear generating units. These decreases dand by 7.4% to $1.74 per shore, effective with the dividend were partially offset by increased process reengineering costs paid in December 1995. and maintenance expenses of Solom. OPERATING REVENUE 5 DEPRECIADON EXPENSE increases /(decreases) in electric sales and operating revenues Depreciation expense increased in 1995 compared to 1994 by class of customer for 1995 compared to 1994 ore set primorily due to additions to plant in service. forth below: INCOME taxes Electric Sales Electric Revenues _M. 4. on.s_of AWh _ _ _.M.Jhons. of $ _ _ Income taxes charged to operat. ions increased $163 milh.on Residential 43 31 oPeroting income. Small Commercial and Industrial 191 32 ALLOWANCE FOR FUNDS UsED DURING CONsTRUCDON Large Commercial and Allowance for Funds Used During Construction (AFUDC) Industrial 129 4 increased in 1995 compared to 1994 primarily due to on Other 69 1~ increase in the 1995 AFUDC rate. Service Territory 43f - 6'8 Interchange Sales (272) (5) OTHER INCOME AND DEDUCTIONS Sales to Other Utilities _ 4,002 88 Other income and deductions increased $16 million in 1995 Total 4.162 151 compared to 1994 primarily due to the gain recognized on the sole of COPCO, partially offset by revenues recorded in Electric revenues increased $151 million in 1995 compared 1994 from the receipt of nuclear fuel from Shorehom. to 1994 primarily due to increased soles to other utilities and higher retail sales due to favorable weather in the third and TOTAL INTEREST CHARGES fourth quarters of 1995. The increase in electric revenues Total interest charges increased primarily due to the July from residential sales was also attributable to higher fuel. 1994 issuance of Monthly Income Preferred Securities, Series clause revenues resulting from yearly changes in the A (recorded in the financial statements as Company Company's Energy Cost Adjustment (ECA). Obligated Mondatorily Redeemoble Preferred Securities of a Gas revenues decreased $5 million in 1995 compared Partnership, which holds Solely Subordinated Debentures of to 1994 primarily due to lower interruptible sales and sales the Company). of gas to the Company's electric generating units because of reduced spot market rates. This decrease was portially offset PREFERRED STOCK Div1DENDS by higher fuel-clause revenues and increased ironsportation Preferred stock dividends decreased primarily due to redemp-revenues related to higher levels of gas transported for cus-tions of preferred stock in the third quarter of 1994 with the tomers purchasing their own gas on the spot market proceeds from the issuance of Monthly income Preferred Securities, Series A. g PECO Evo Cwm em Lew Ccwwn

_m_ _._ _ _m MANAo(MfNT's l}SCUS5CN AND ANAL $s oF hNANCAL CCNDmON AND RE5uGs or OntArious (Conwuro) 1994 COMPARED TO 1993 INCOME TAXIS income taxes charged to operations decreased in 1994 com-Earnings per common shore in 1994 were $1.76 compared pared to 1993 primarily due to the charge for VRIP and VSIP to $2 A5 in 1993. The decrease in earnings was primarily and lower operating income. These decreases were partially due to o one-time charge of $0.66 per share associated with offset by lower interest expense allocated to operations. VRIP and VSIP. Also contributing to the decrease in earnings were other strategic and non-recurring operating and mainte-OTHE:t TAXES nonce charges which decreased 1994 earnings by $0.13 Other taxes increased in 1994 compared to 1993 primarily per shore. These decreases were partially offset by savings due to an increase in the real estate tax base and increased from the Company's ongoing debt and preferred stock refi-Pennsylvania gross receipts tax resulting from higher operot-noncing and redemption program, which increased earnings ing revenues, by $0.14 per share. AuOWANCE FOR FUNDS UsED DURING CONsTRUCDON OmAnNG REWNWs AFUDC decreased in 1994 compared to 1993 primarily due Increases /(decreases) in electric sales and operating revenues to o decrease in the 1994 AFUDC rate, partially offset by an by class of customer for 1994 compared to 1993 are set increase in Construction Work in Progress. forth below: Electric Sales Electnc Revenues Mdl,ons of kWh Mdinons o/ $ Total interest charges decreased in 1994 compared to 1993 primarily due to the Company's ongoing program to refi-Residential 160 15 nonce and redeem higher <ost, long-term debt. Small Commercial and Industrial 335 28 PREFERRED $TOcK DivlDENDs large Commercial and Preferred stock dividends decreased in 1994 compared to industrial (88) (21) 1993 primarily due to the reduced number of preferred 1 20 (2 51 shores outstanding and the refinancing of highercost pre-Other 427 (3) ferred stock. Service Territory Interchange Sales 311 9 Sales to Other Utilities 1,369_ 19 LlOUlDITY AND CAPITAL RESOURCES 13_ Total 2,107 d Electric revenues increased $19 million in 1994 compared to The Company's capital resources are primarily provided by 1993 primarily due to increased sales to other utilities and internally generated cash flows from utility operations and, to increased interchange sales. These increases were partially the extent necessary, external financing. Such capital offset by lower revenue margins obtained on these sales. resources are generally used to fund the Company's construc-Gas revenues increased $33 million in 1994 compared tion program, to repay outstanding debt and to make pre-to 1993 primarily due to higher fueLclause revenues. ferred and common stock dividend payments. In 1995 and each of the preceding five years, internally FUEL AND ENERGY INTERCHANGE EXPENSE generated Cosh exceeded the Company's Capital require-Fuel and energy interchange expense increased $44 million ments and dividend payments, thereby improving the in 1994 compared to 1993 primarily due to increased elec-Company's financial condition. Contributing to the tric output associated with interchange sales and increased Company's improved cash position were a reduction in inter-soles to other utilities. A portion of this increase was deferred est expense and dividend requirements associated with the pending regulatory action. The increase was otso attributable Company's ongoing program to reduce debt and refinance to on increase in gas fuel costs. higher-cost, long-term debt and preferred stock, and increased revenues from the sole of capacity and energy to OTHER OPERATING AND MAINTENANCs EXPENSES other utilities. Net cash provided by operating activities for Other operating and maintenance expenses increased $304 1995 was $1.3 biHion. For the period 1996 through 1999, million in 1994 compared to 1993 primarily due to o one. the Company expects that internally generated cash will exceed if5 COP tof and dividend requirements. i time, pre-tax charge of $254 million in the third quarter of 1994 for VRIP and VSIP. In addition, other operating and The Company expects its level of capital investment in maintenance expenses increased due to higher environmen. utility plant to remain relatively stable since it has sufficient tal, customer and employee-related charges, and other electric generating capacity to meet the anticipated needs of strategic and non-recurring operating and maintenance its service territory well into the next decade. The Company charges. These increases were portially offset by lower gener-OISO expects to fund oil new business initiatives through inter-oting station charges resulting from fewer and shorter refuel nolly generated funds. Construction program expenditures for ing and maintenance outages. 1995 were $480 million and are estimated to be $538 mil J lion in 1996 and $1.2 billion for the period 1997 to 1999. DEPRfCIATION EXPENst As o result of its prior investments in scrubbers for Eddystone nd Cromby Generating Stations and its investment in Depreciation expense increased in 1994 compared to 1993 due to additions to plant in service. nudear gensating capacity, the Company believes that com-1 Q nco Em cons no sasm ccans

} MAteMs D&uwon uo ANursis c4 f%Ancu CONDmou MC RM OF OM@QN5 [CoNDWD) pliance with the Clean Air Act will have significantly less COMPETITION impact on the Company's capital requirements than on other Over the last few years, legislative and regulatory initiatives Pennsylvania utilities which are more dependent on coal-fired and market forces have laid the foundation for the continued generation. Certain facilities under construction and to be development of competitio7 in the electric utility industry. As a constructed may require permits and licenses which the result, the electric utility industry is reviewing the potential Company has no assurance will be granted. impacts of a major transition from a traditional rate regulated During 1995, the Company utilized cash from opero-environment based on cost recovery to some combination of tions, proceeds from the sole of COPCO and $100 million a competitive marketplace and modified regulation of certain from the sale of an undivided interest in trade receivables to market segments. Although a competitive environment may reduce the Company's debt by $401 million. Also during create new opportunities for revenue growth, it may also 1995,$349 million of long term debt and Company obligat-reduce the margin on certain classes of energy sales and ed mandatorily redeemable preferred securities of a partner-may result in customer and revenue losses. Increased competi-ship were sold or exchanged to refund debt and preferred tion may limit high-cost utilities' ability to recover capital stock carrying less-favorable ofter-tax rates of interest and div-investment through rates, resulting in stranded investment and idends. These transactions resulted in a reduction of approxi-the potential write-down of assets. Potential competition has motely $33 million in annvolized interest and preferred stock resulted in increased focus on cost-cutting and consideration dividends-of strategic alternatives, including mergers and restructuring The Company meets its shorFterm liquidity requirements of operations. primarily through the issuance of commercial paper, borrow-The Energy Policy Act of 1992 (Energy Act) was enocted ings under a revolving credit agreement and bank lines of to promote competition among utility and nonutility geneo-credit. The Company did not have any commercial paper or tors in the wholesale electric generation market. The Energy short-term debt outstanding at December 31,1995. Act allows the Federal Energy Regulatory Commission (FERC) At December 31,1995, the Company's embedded cost to order owners of electric transmission systems to provide of debt was 7.1% with 14.5% of the Company's long term third porties with transmission access for wholesole power debt having floating rates. The coverage ratios under the transactions. During 1995, the FERC issued proposed rules Company's mortgage indenture and Amended and Restated which, if adopted, would require that all public utilities have Articles of incorporation as of December 31,1995, were on file with the FERC nondiscriminatory open-access transmis-4.94 and 2.74 times, respectively, compared with minimum sion tonffs for network and point-to-point services, %cluding issuance requirements of 2.00 and 1.50 times, respectively. separate rates for ancillary services. The FERC's proposed The Company believes that its internal sources of funds will rules would also provide for recovery of legitimate and verifi-be sufficient to cover its fixed charges for 1996. able wholesale stranded investment. These proposals further As of December 31,1995, the Company's capital struc-expressed the FERC's strong expectation that state regulatory ture consisted of 46.6% common equity; 6.1% preferred commissions provide for similar full recovery of legitimate and stock and Company obligated mandatorily redeemable pre-verifiable stranded investment that could result if state regula-ferred securities of a partnership (which comprised 3.1% of tory commissions ordered retail competition and direct the Company's total capitalization structure); and 47.3% access. The Company filed comments in response to the long-term debt. The Company's capitol structure as of FERC's proposal. The comments, while generally supportive. December 31,1994, consisted of 43.5% common equity; suggested several adjustments to ensure full stranded invest-6.0% preferred stock and Company obligated mondatorily ment recovery. An order from the FERC is expected in the first redeemable preferred securities of a partnership (which com-half of 1996. prised 2.2% o' the Company's total capitalization structure); The Company also filed a tariff for network and point-to. and 50.5% long-term debt. point services and a market-based rate tariff that would allow the Company to sell wholesale energy at market-based rates outside the Pennsylvania-New Jersey-Moryland Interconnection OUTLOOK Association (PJM) control area. These tariffs would be avail-able to wholesale buyers and sellers of electricity, although the The Company's financial condition and its future operating Company would continue to make sales within the PJM control results are dependent on a number of factors affecting the area under its existing FERC-approved costbased tariffs. The { Company and the utility industry in general. Among these market-based rate tariff is not expected to affect the applicabil-factors are increased competition in electric and gas markets, ity of Statement of Financial Accounting Standards (SFAS) No. regulation and operation of nuclear generating facilities, 71, " Accounting for the Effects of Certain Types of sales to other utilities, accounting issues and other factors Regulation," to the Company's operations. including weather and compliance with environmental regulo-During 1995, the Company proposed other initiatives to tions. the FERC, including a plan to increase wholesale electric Due to the Company's substantial investment in Limerick, competition in the Mid-Atlantic region served by the PJM. The which represents 54% of the Company's investment in electric objectives of the Company's plan ore to enable the PJM com-plant, any regulatory changes which do not provide for the ponies to offer comparable open access to their transmission recovery of the Company's investment in Limerick could result facilities, to adapt the existing PJM regional wholesale energy in subs'antial write-downs of assets. This may adversely affect market to increased competition, and to preserve those ele-the Company's financial condition and future results of opero-ments of power pooling which are still beneficial. fions. YECO [w, Cu m m 5. c w Cww >

] mat 4AGEMENT's D":,CuSSION AND ANALYSIS OF hNANCIAL CON > TION AND RESULTs OF OmADONS [CONrWUfD) While the Energy Act encourages competition on a The gas industry is also undergoing structural changes in wholesale level, the Energy Act prohibits the FERC from order-response to FERC policies designed to increase competition in ing wheeling for sales to retail customers. Currently, a number this market. This has included requirements that interstate gas of states, including Pennsylvania, are assessing the issue of pipelines unbundle their gas soles service from other regulot-retail competition with varying outcomes. For instance, ed toriff services, such as transportation and storage. In antic-California has aggressively promoted the concept of retail ipotion of these policies, the Company has modified its gas I competition while Maryland has stated that it is strongly purchasing arrangements to enable the purchase of gas and opposed to such measures. While assessing their position, transportation at lower cost, and has become more active in many issues must be considered which will require significant the area of gas transportation. deliberation and may result in legal challenges. These issues in 1995, the Company introduced to regulators and include the recovery of any resulting stranded investment, the industry analysts its Competitive Breakthrough Strategy, which impact of interjurisdictional sales and whether such change is is an integrated strategy designed to improve the efficiency, enacted by regulatory or legislative action. financial condition and rate stability of the Company through in August 1995, offer seeking input from Pennsylvania a biood array of initiatives, including but not limited to, utilities and interest gmups, the Pennsylvania Public Utility reengineering of processes, expense reduction and contain-Commission (PUC) stoff issued a report recommending ment, development of new revenue opportunities, reduction of against retail electric power competition at this time. The PUC exposure to asset write-downs and reduction of existing debt. o!so issued an order inviting further comments and establish-As part of its Competitive Breakthrough Strategy, in ing hearings on competition issues with the expectotion of October 1995, the Company filed a petition for o declarato-submitting a report to the Pennsylvanio legislature and the ry accounting order with the PUC requesting opproval to Governor in the second quarter of 1996. In November increase timerick related depreciation and amortization by 1995, the Company submitted testimony which proposes five $100 million per year and decrease depreciation and amorti-major initiotives to reduce the costs of electricity while pre-zotion of other Company assets by approximately $10 mil-serving the reliability and universal service that is essential to lion per year, effective October 1,1996. The requested order Pennsylvanio citizens. These initiatives are: 1) improvements would not offect rates charged to customers. The Company in the PJM interconnection to incorporate on independent sys-expects, but cannot be assured, that the net increased depre-tem operator, provide for wholesale energy exchange based ciation and amortization would be offset by the reduced costs on a market bidding mechanism, provide o regional transmis-and increased revenues generated by the Company's sion tariff, and expand porticipation in the wholesale energy Competitive Breakthrough Strategy. For further details see market to others, including firms that are not traditional utili-note 3 of Notes to Consolidated Financial Statements. ties; 2) performance-based regulation to increase utility The Company has realized wage and benefit savings of accountability by linking utility earnings to performance approximately $60 million in 1995 as a result of the rather than historic costs; 3) flexible pricing to ollow utilities Company's VRIP and VSIP. The Company expects VRiP and to offer customers a variety of service options tailored to indi-VSIP to provide savings in wages and benefits to the vidual requests, and to bring certain rates closer to market Company of approximately $100 million annually beginning levels; 4) occelerated depreciation and other cost mitigation in 1996. rneosures that challenge the utilities to reduce possible strand-To take advantage of emerging opportunities in the ed investment associated with existing generation ossets; and telecommunications field, in 1995, the Company's Board of

5) competitive bidding of new generation to ensure that Directors created a new strategic business unit, the needs are met as efficiently as possible. The Company Telecommunications Group. The business unit has initiated believes that these proposed initiatives will allow the PUC to several joint ventures in newly emerging wireless personal improve the efficiency of the electric industry, while continu-communications services businesses and other competitive ing to assure the availability of reliable service for all cus-telecommunications opportunities. The teecommunications tomers at reasonoble rotes, without significant adverse conse-field presents the Company with many opportunities to quences on the financial condition of electric utilities.

expand its business, generate additional revenue and provide The Company believes that retail competition should not greater shareholder value. The Company possesses a highly be adopted if it represents a mere shifting of costs from one skilled technical staff and a substantial infrastructure which class of customers to another or to shareholders, and that will enable it to successfully porticipate in the ever< hanging retail competition doas not currently provide a net benefit. telecommunications industry. Regulatory changes permitting retail competition may also cre-As a result of competitive pressures, the Company has ate stranded investment if the FERC's position of allowing full negotiated long-term contracts with many of its larger-volume recovery of stranded investment as described in its proposal is industrial customers. Although these agreements have resulted not adopted. Investments by the Company in assets which in lower revenues from this class of customers, they have per-would not be recoverable from customers, including its invest-mitted the Company to maintain this segment of its customer ment in nuclear facilities, may have to be written down, which base. would have a material adverse effect on the Company's finan-During 1995, there were on unprecedented number of ciel condition and results of operations. The Company is not mergers in the utility industry and this trend is expected to oble to predict whether retail competition will be implemented continue. In August 1995, the Company proposed a merger and, if implemented, what impact it would have on the with PP&L Resources, Inc., on electric utility with operations in Company's financial condition or results of operations. northeast Pennsylvania. In November, PP&L Resources declined the Company's final offer and the Company with-drew its proposal. The Company will continually evaluate all g ncos,,_ -tu

l WNAGEMENfs DISCusslON AND ANALY5is OF FINANGAL CONDmON AND Resutis of OmMloNS (CON 7NUED) opportunities to improve its strategic and competitive position SAtas To OTHen UTit:Tiss but, because of its strong stand-alone position, is not com-At December 31,1995, the Company had 1,199 megawatts - palled to pursue such opportunities at any cost. (MW) of installed generating capacity available for sales to. other utilities. In the ordinary course of business, the REOULATION ANo OpsaATION OF NuctsAn GeNEaATING FACluTIES Company enters into Commitments to buy and sell power. The Company's financial condition and results of operations During 1995, the Company entered into on agreement to are in part dependent on the continued successful operation purchase energy associated with 300 MW from 1996 of its nuclear generating facilities. The Company's nuclear through 2000 from on unoffiliated utilitiy. The Company's 1 generating facilities represent approximately 45% of its future results of operations are dependent in part on its ability installed generating capacity. Because of the Company's sub-to successfully market this generation. See note 4 of Notes to l stantial investment in and reliance on its nuclear generating Consolidated Financial Statements. i units, any changes in regulations by the Nuclear Regulawy in the wholesale market, the Company has increased its j Comrnission (NRC) requiring additional investments or resun sales to other utilities, but increased competition has reduced l 6 ing in increased operating costs of nuclear generating units the Company's margin on these sales. The Company has i could adversely offect the Company. agreements with other utilities to sell energy and/or capacity. ? During 1995, Companyoperated nuclear plants operat-The Company has longerm agreements over the next five ed at an 88% weightedoverage capacity factor and years with unoffiliated utilit n to WI energy associated with { Companyowned nuclear plants, including Salem, operated at 1,185 MW of capacity. These power soles agreements i o 72% weighted-average capacity factor and produced 50% extend from 1996 to 2023. The Company expects these j of the Company's' output including purchased power. Nuclear wholesale sales to generate approximately $300 million of generation is the most cost 4ffective way for the Company to revenue in 1996. i meet customer needs and commitments for soles to other utili-l ties. Continued operation of the nuclear plants above 60% of ACCOUNTING l$$UES capacity is necessary to avoid penalties under the ECA. In The Company continues to occount for its operations in accor-addition, the terms of the 1991 settlement of the Limerick Unit dance with SFAS No. 71 which is appropriate for companies i No. 2 rate cose afford the Company the opportunity, through that meet three criteria in order to account for the economic )f sales to other utilities and the efficient operation of Limerick, impacts of rate regulation: 1) third-party regulation of rates; to increase earnings. See note 3 of Notes to Consolidated

2) cost-based rates; and 3) a reasonoble assumption that Financial Statements for a description of the ECA and the costs will be recoverable from customers through rates.

L j terms of the Limerick Unit No. 2 rate cose settlement. Discontinuance of SFAS No. 71 would result in a charge i Public Service Electric and Gas Company (PSE&G), the against income from the elimination of regulatory assets creat. operator of Salem Units No.1 and No. 2, which are ed by the regulatory process as well as certain plant costs l 42.59% owned by the Company, removed the units from ser-that may no longer be recoverable. The impact of such events F vice on May 16,1995 and June 7,1995, respectively. could have a material adverse effect on the Company's finon-i PSE&G informed the NRC of that time that it had determined cial condition and results of operations. Continued opplico-i i to keep the Salem units shut down pending review and reso-tion of SFAS No. 71 is periodically assessed by the j l lution of certain equipment and management issues, and Company. j NRC ogreement that each unit is sufficiently prepared to At December 31,1995, the Company had deferred on g restert. Solem Units No.1 and No. 2 are expected to be out its balance sheet certain regulatory assets for which recovery i of service until the second and third quarters of 1996, has been opproved by the PUC. These regulatory assets i respectively. The Company expects to incur and expense at include $300 million associated with Limerick Units No.1 j least $85 million in 1996 for increased costs related to the and No. 2, $248 million associated with the Company's non-shutdown. Under Pennsylvania law, the PUC may investigate pension postretirement benefits and $2.0 billion associated i outages of electric generating units which exceed 120 days with recoverable deferred income taxes. For more details on or if the annual capacity factor is less than 50% to determine these regulatory assets see notes 3,7 and 14 of Notes to i whether to deny the recovery of replacement power costs. Consolidated Financial Statements. / See note 24 of Notes to Consolidated Financial Statements. At December 31,1995, the Company had deferred on The Financial Accounting Standards Board is currently its bolonce sheet certain regulatory assets for which current reviewing the accounting for closure and removal costs of recovery has not yet been opproved. Any deferred costs that i production facilities including the recognition, measurement are not ultimately recovered through base rates would be and classification of decommissioning costs for nuclear gener-charged against income. These regulatory assets include ating stations, and will issue on Exposure Draft in 1996. The $107 million for the effect on deferred income taxes of the Company will review the Exposure Draft to determine the change in the statutory federal income tax rate from 34% to effect on its financio; condition and results ' operations. See 35% in 1993, and $91 million of operating and mainte-note 4 of Notes to Consolidated Financial Statements. nonce expenses, depreciation and occrued carrying charges The Company may seek to recover through rotes copi-on its investment in Limerick Unit No. 2 and 50% of Limerick ) tal costs and any increased operating costs, including common facilities, deferred pursuant to o Declaratory Order those associated with NRC regulation of the Company's of the PUC. See notes 3 and 14 of Notes to Consolidated nuclear generating stations and environmental compliance Financial Statements. These and other regulatory assets are and remediction, although such recovery is not ossured. To deferred pursuant to PUC oction. In October 1995, the the extent that such amounts are not recovered, they would Company filed a petition for o declaratory accounting order be charged against income. g PECO ENro Conw< mo Saom Co,msu

MANAGEMEm's D SCus5n N AN3 ANAnsis c+ FINANC Ai CoNDWON AND REsuas os OmAnoNs (CONDNUfc) with the PUC requesting opproval to, among other things, The Company's operations have in the past and may in l amortize $91 million of operating and maintenance expens-the future require substantial capital expenditures in order to es, depreciation and occrued carrying charges on its invest-comply with environmental laws. Additionally, under federal l ment in limerick Unit No. 2 and 50% of Limerick common and state environmental laws, the Company is generally facilities. The petition requests that these deferred costs be liable for the costs of remedicting environmental contamino-amortized over o nine-year period beginning October 1996. tion of property now or formerly owned by the Company and The requested order would not affect customer rates. of property contaminated by hozordous substances generated The Company will adopt SFAS No.121, " Accounting for by the Company. The Company owns or leases a number of the Impairment of Long-lived Assets and for long-Lived Assets real estate parcels, including parcels on which its operations to be Disposed Of," in the first quarter of 1996. Upon adep-or the operations of others may have resulted in contamino-tion, the Company does not expect SFAS No.121 to have on tion by substances which are considered hazardous under effect upon the Company's financial condition or results of evironmental laws. The Company is currently involved in a operations. Significant changes in the regulatory environment, nuraber of proceedings relating to sites where hozordous sub-obandonment of cost-based rates, or losses of major cus-stances have been deposited and may be subject to addition-tomers that result in stranded investment are events that may al proceedings in the future. necessitate a review of the Company's ossets for impairment. The Company hos identified 23 sites where former manu-The Company will odopt SFAS No.123, " Accounting for factured gas plant activities may have resulted in site contami-Stock-Based Compensation," in the first quarter of 1996, but nation. Post activities at several sites have resulted in actual will continue to use the intrinsic volve based method of site contamination. The Company is presently engcged in per-accounting prescribed by Accounting Principles Board forming various levels of activities at these sites, including ini-Opinion No. 25, " Accounting for Stock issued to tial evaluation to determine the existence and nature of the Employees," supplemented by SFAS No.123's required foot-contamination, detailed evaluation to determine the extent of note disclosures. Adoption of SFAS No.123 will not have on the contamination and the necessity and possible methods of effect upon the Company's financial condition or results of remediation, and implementation of remediation. Seven of the operations. sites are currently in the detailed evaluotion or remediation stage. OTHER FACTOR 5 As of December 31,1995 and 1994, the Company had Annual and quarterly operating results can be significantly accrued $27 and $24 million, respectively, for environmental offected by weather. investigation and remediation costs that currently con be rea-Inflation offects the Company through increased operat_ sonably estimated. The Company expects to expend $8 mil-ing costs and increased capital costs for utility plant. During lion for such activities in 1996. The Company cannot current-periods of high inflation, the Company could be adversely ly Predict whether it will incur other significant liabilities for offected if it is unable to offset increasing costs with any additional investigation and remediation costs at these or improved productivity or rate increases. In addition, the additional sites identified by the Company, environmental replacement costs of the Company's utility plant are signifi. agencies or others, or whether all such costs will be recover-contly higher than the historical costs reflected in the finan. able through rates or from third parties. cial statements. The Company has agreed not to seek o For a discussion of other contingencies, see notes 3 and retail electric base rate increase before April 1,1999, 4 of Notes to Consolidated Financial Statements. except under specified circumstances. Therefore, the effects of future inflotion and other potential cost increases may not be subject to rate recovery. See note 3 of Notes to Consolidctad Financial Statements. 1 g nco s. Om ,m w . cmm

REPORT OF INDEPENDENT ACCOUNTANTS To the Sharehoiders and Board of Directors PECO Energy Company: We have audited the accompanying consolidated balance sheets of PECO Energy Company and Subsic'iary Companies os of December 31,1995 and 1994, and the related consolidated statements of income, cash flows, and changes in common shareholders' equity and preferred stock for each of the three years in the period ended December 31,1995. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on eur audits. We corsducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence sup-porting the amounts and disclosures in the finoncial datements. An audit also includes assessing the accounting principles used and significant estimates made by management, os well as evoluoting the overoll financial s'atement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consglidat.ed fr)ango,I pgsitiorgf PECO Eneroy. Company ond Subsidiary Componies os cf December 31,1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31,1995, in conformity with generally accepted accounting prir oples. 'u< ksJ LLP 2400 ELEVEN PENN CEN4R l PHILADELPHIA, PENNSYLVAU FEsauARY 2,1996 l o _ co-~,_c-

CONSOLIDATED STATEMENTS OF lNCOME I_Y_*_ Y? g n(p Deg g 31, M5 N 1993 _ Thousands of Dollars _ OPERATINo RIVENuts Electric $ 3,775,326 $ 3,624.797 $ 3,605,425 Gas 41_0,830_ 415,835 382,7U( Toto! Operating Revenues 4,186,1_56 _ 4,040,632 _ 3,988,12_9_ OpsaATINo ExPENsts Fuel and Energy interchange 762,762 703,590 659,580 Other Operating 943,476 937,849 851,254 Early Retirement and Separation Programs 254,106 Maintenance 307,797 327,714 364,409 Depreciation 457,254 442,101 424,952 income T< xes 396,897 234,033 354,391 OtheT i, $s _ 314,071 311,689_ 29_8,13_2_ Tc,. : Jperating Expenses 3,182,257 3,211,082 2,952,718 OPiaATiNo INcoMr _1,003,8_99_ _ 829,550 1,035d 11_ OTHan INCoMI AND DEDUCTIONS Allowance for Other Funds Used During Construction. 14,371 10,180 11,885 Goin on Sole of Subsidiary 58,745 income Taxes . -(34,820). -{15,291) -(10,808) Other, net _.444) 23,1_2_1_ 11,980_ ( Total Other Income and Deductions. 37,852 18_,0_10 _12,057 income Before Interest Charges 1,041,751 847,560 1,047,468 lNTEREsf CHARGES Long-Term Debt 386,205 387,279 432,707 Company Obligated Mondatorily Redeemable Preferred Securities of a Partnership, which holds Solely Subordinated Debentures of the Company 20,987 8,570 Short-Term Debt . _ 37,506 __ 36,987.. ___.36,002 Total Interest Charges 444,698 432,836 468,709 Allowance for Borrowed Funds Used During Construction _ (12,679) __(11,989)- _ _(11,889) Net Interest Charges _ 432_,0_19 Nrf INcoMs 609,732 _ 42_0,847_ . _456J20 426,713 590,648 Preferred Stock Dividends _._ _ 23,21_7_ _ _ _ _37,298 _ _ _ _ _ 4 9,05 8 EARNINos APPUCABLE To COMMON STOCK 586,515 $ 389,415 $ 541,590 AvsaAos SHARES Of COMMON stock OuTsTANDiNo trhovionds) 221,859 221,554 221,072 EARNIMos PER AvsnAos COMMON SHAna (Dollars) 2.64 $ 1.76 2.45 DdYlDENDs PER CoMMoM $ HARE (Dollars) 1.65 $ 1.545 $ 1.43 SEE NOTES To ConsoUDArED hNANCW $TArEMENTS. g PECO Er*ov CawAN< ANo Suaswr Coens

CONSOUDATED STATEMENTS OF CASH FLOWS For the Yiors Ended December 31, 1995 1994 1993 _ Thousands of Dollars CASH FLowl FROM OpsRATINo Actwmas Net income $ 609,732 $ 426,713 ' $ 590,648 Adjustments 'o reconcile Net income to Net Cash provided by Operating Activities: Depreciation and Amortization 531,299 517,681 507,069 Deferred income Taxes 183,514 (23,306) 139,846 Goin on Sole of Subsidiary (58,745) Early Retirement and Separation Programs 254,106 Deferred Energy Costs (71,104) (33,205) (24,308) Amortization o leased Property 42,900 61,900 58,400 f Changes in Wocking Capital: Accounts Receivable (8,198) 23,508 31,102 inventories (10,872) 18,210 11,222 Accounts Paycble (4,686) 5,342 777 Other Current Assets and liabilities 9,641 52,940 (34,694) Other items offecting Operations 40,649 (9,175) _ _ (18,28_7)_ Net Cosh Flows from Opecating Activities _1,264,130_ _1,294,714 1,261,775 CASH FtoWs FRoM lNVEsTING ACTlvmEs investment in Plant ,(577,9981.,(570303L..('i68.074.. ~.. Proceeds from Sole of Subsidicry 150,000 Increase in Other Investments _ 60,541) _(17,951J. _(16,214) ( Net Cash Flows from investing A:tivities _(488,449) _{5,88,854) _{5_84,290) CASH ftOWS FROM FMN.1NG Activims Chon-in Short-Term Debt (11,499) (107,851) 8,850 issuo,ce of Common Stock 15,585 2,308 29,346 issuance of Preferred Stock 142,700 Retirement of Preferred Stock (78,105) (238,800) (187,330) Issuance of Company Obligoted Monda+orily Redeemable Preferred Securities of a Partnership 81,032 221,250 Issuance of Long-Term Debt 182,540 245,100 1,994,765 i Retirement of Long-Term Debt (575,713) (397,763) (2,148,963) Loss on Reacquired Debt 12,302 22,125 (69,884) Dividends on Preferred and Common Stock (390,340) (377,883) (366,081) Change in Dividends Payable 5,626 (3,249) (1,114) Expenses of Issuing Long-Term Debt and Preferred Stock (577) (9,150) (24,820) Capital Lease Payments _ 42,900) _ (6_1,900) _J58,400). ( Net Cash Flows from Financing Activities _(802,049) .(705,813) .(680,931) (DscR:Ast)/ INCREASE IN CASH AND CASH EoulvALsNis (26,368) 47 (3,446) Cash and Cash Equivalents at beginning of period 46,970 46,923 50,369 Cash and Cash Equivalents at end of period $ 20,602 $ 46,970 $ 46,923 SEE NOTES To CONSOUDATED hNANCW STATEMENTS, Q PLCO Enrw Cornen we Sana Ccamn

e .u. -,s x.a- .s--- .a a-.a. n a m e.--,.a-.u....w. a.- a .-.u. a n+ a l \\ CCNSOLIDATED BALANCE SHEETS \\ l N*b UL-. M5 W -. -. -Thousands of Dollars Ass Ts Utilmr PLANT, AT OntGINAL COsf Electric $ 13,441,880 $ 13,283,888 Gas 954,180 895,946 Common _14,695,959. _ _ _14,414,603 _._299,899 234,7_69_ Less Accumulated Provision for Depieciation _ 4,623,70_7 _, 10,172,027 4,'242_,5'o_ 10,072,252 Nuclear Fuel, net 191,084 184,161 Construction Work in Progress 494,194 472,f12 Leased Property, net _180_,425 174,5j5 Net Utility Plant 10,937,955 11,003,265 i CuanENT Assets Cash and Temporary Cash investments 20,602 46,970 Accounts Receivable, net ) Customers 75,220 96,987 i Other 71,997 49,8' * ** * ~ ~ Invehtones; at ' overage %Y - ~ > - - Fossil Fuel 78,260 72,732 Materials and Supplies 123,387 118,230 Deferred Energy Costs 55,883 (15,486) Other 60,868 58,069 Total Current Assets 486,217 427,356 DgFranto DE&lfs AND OTHam Asssis Recoverable Deferred income Taxes 2,077,426 2,138,079 Deferred Limerick Costs 390,433 413,885 Deferred Non Pension Postretirement Benefits Costs 249,083 261,912 Investments 296,948 236,587 Loss on Reacquired Debt 308,577 320,879 - Other 214,979 ~~333'4350~ 263,308 Total Deferred Debits and Other Assets 3',536,448 TOTAL Assris $ 14,960,620 $ 15,065,271 l SEE NorES To CONSOUDArED fMAMw STArEMENTs. g PECO ENfev Covemy ANc Suesce COMPANti$

CONSOUDATED 84ANCE SHEETS [ CONTINUED) Al December 31,_ 1995 1994 Thousands of Dollars CAPITAUZATioN AND DASIUTIEs CAPNAU2ATioN Common Shareholders' Equity Common Stock 3,506,313 $ 3,490,728 Other Paid-in Capital 1,326 1,271 Retained Earnings 1,023,708 810,507 4,531,347 4,302,506 Preferred and Preference Stock Without Mandatory Redemption 199,367 277,472 With Mondatory Redemption 92,700 92,700 g Company Obligated Mandatorily Redeemable Preferred Securities of a Portnership, which holds Solely Subordinated Debentures of the Company 302,282 221,250 Long-Term Debt ___ 4,198,283 __ 4,785,631_ Total Capitalization _ 9,323,979 9,6_79,559_ CunaENT DABlWTits Notes Payable, Bank 11,499 Long-Term Debt Due Within One Year 401,003 201,213 Capital lease Obligations.Due Within One Year 60,320.. 60,474..,. Accounts Payable 299,731 308,832 Taxes Accrued 107,621 67,185 Deferred Income Taxes 17,072 (12,002). Interest Accrued 88,047 93,159 Dividends Poyable 20,722 15,096 Other 82,77_5 85,649_ Total Current Liabilities _ _ 1,077,291 _ 851,107_ Dartaa D CaEDlis AND OTHla UABlWTits Capital Lease Obligations 120,105 114,089 Deferred Income Taxes 3,312,649 3,225,915 Unamortized Investment Tax Credits 351,569 374,100 ) Pension Obligation for Early Retirement Plans 216,283 238,250 Non-Pension Postretirement Benefits Obligation 326,251 354,458 Other 232,493 227,793 Total Deferred Credits and Other liabilities 4,559,350 4,534,605 COMMITMENTS AND CoNTINGENCiss (NoTis 3 AND 4) ToTAt CAPRAUZATioN AND UAtluTils $ 14,960,620 $ 15.065,271 SEE NOTES to CONSoUDATED hNANCIAL $TArtMENTS. l @ PECO Estec< Ccwe ANo 52 sour CoWAN1s I

CoNSOUDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY AN) PREFERRED STOCK OTwsn COMMON 5toCK PAID-lN RETAINED PairsansD STocx d!A'"ou'Ma??vsonds _ _ _ _ _ _ 5NAars AMOUNT __ _CAPfTAL _ EAkNINGS__, SHAaE___ AMOUNT BALANCE AT JANUAaY 1,1993 220,534 $ 3,459,131 $ 1,214 $ 561,824 6,536 $ 653,602 Net income 590,648 Cash Dividends Declared Preferred Stock (at specified annual rates) (49,919) Common Snck ($1.43 per share) (316,162) Expenses of Capcol Stock Activity (5,625) Capitol Stock Activh Long-Term incent ve Plan issuonces 983 29,346 (7,039) Preferred Stock issuances 1,427 142,700 Preferred Stock Redemptions _._ _(1,873) _jl_87,330) BALANcs AT DactMasa 31,1993 221,517 3,488,477 1,214._ _ 773,727 6,090 608,972 Net income 426,713 Cash Dividends Declared Preferred Stock (at specified annvol rates) (35,706) Common Stock ($1.545 per share), (342,177) Expenses of Capital Stock Activify - + -(11,662) - v. Copital Stock Activity Long-Term Incentive Plan issuances 92 2,251 (388) Preferred Stock Issuonces 57 Preferred Stock Redemptions _ ___ __ _ _ _ _ _ _ _ _ _ __ _ _ (L3 8 8) _(2 3 8J00) BALANCI AT DECIMsEn 31,1994 221,609 3,490,728 ?,271 810,507 3,702 370,172 Net income 609,732 Cash Dividends Declared Preferred Stock (at specified annual rates) (24,253) Common Stock ($1.65 per share) (366,087) Expenses of Capital Stock Activity (4,035) Capital Stock Activity Long-Term incentive Plan issuances 563 15,585 (2,156) Preferred Stock issuances 55 Preferred Stock Redemptions (781) _ (78,105) BALANCE AT DECIMasa 31,1995 222,172 $3,506,313 $ 1,326 $1,023,708 2,921 $ 292,067 Set NOTES To ConsoUDATED flNANCw Stanuturs. l l I e ncouva,c - - sasw. c - as

NsTEs TgCoNSOLIDATED FINANCIAL STATEMENTS L StoNmCANT ACCOUNTINo Pouots accounting order to change the estimated deprecio a s ms of certain of the Company's electric plant. Gewenat The Company's shore of the 1990 estimated osts for The consolidated financial statements of PECO Energy decommissioning nuclear generating station,, untly includ. Company (Company) include the accounts of its utility sub. ed in electric base Totes is being charged w votions over sidiary componies, all of which are wholly owned, the expected service life of the related plant. Tru amounts Accounting policies are in accordance with those prescribed recovered from customers are deposited in trust accounts and by the regulatory authorities having jurisdiction, principolly invested for funding of future costs. These amounts, and the Pennsylvania Pubhc Utility Commission (PUC) and the investment earnings thereon, are credited to occumulated Federal Energy Regulatory Commission (FERC). The Company depreciation (see note 4). hos unconsolidated subsidiories which are not materiol. The preparation of financial statements in conformity with INcoms Taxis generally accepted accounting principles requires manage. The Company uses on osset and liability approach for finon. ment to make estimates and assumptions that offect the report. ciol accounting and reporting of income taxes. The effects of ed amounts of ossets and liabilities and disclosure of contin. the Alternative Mininium Tax (AMT) are normalized. gent assets and liabilities at the date of the financial state. Investment Tax Credit (iTC) is deferred and amortized to ments and the reported amounts of revenues and expenses income over the estimated useful life of the related utility lP ant. ITC related to plant in. service, not included in rote during the reporting period. Actual results could differ from those estimates, base, is accounted for on the flow-through method (see note 14). Rivewuss Customers' meters are read and bills are prepared on a cycli. AnowAwa con Fuwos useo Dunmo ConsTauctioN (AFUDC) col basis. At the end of each month, the Company accrues AFUDC is the cost, during the period of construction, of debt on estimate for the unbilled amount of energy delivered or and equity funds used to finance construction projects. services provided to customers. AFUDC is recorded as a charge to Construction Work in Progress, and the credits are to Interest Charges for the cost FusL ANO leW( Cost AoJusTusNT CtAuses of borrowed funds and to Other income and Deductions for The Company's classes of service are subject to fuel adjust. the remainder os the allowance for other funds. The rates ment clauses designed to recover or refund the differences used for capitalizing AFUDC, which ovuags d 9.88% in between actual costs of fuel, energy interchange, and pur-1995,7.74% in 1994 and 9.39% in 1993, are computed chased power and gas, and the amounts of such costs includ. under o method prescribed by regulatory outhorities. AFUDC ed in base rates. Differences between the amounts billed to is not included in regular toxoble income and the deprecia. . + customers and the octual costs recoverable are deferred and tion of capitalized AFUDC is not tax deductible. recovered or refunded in future periods by means of prospec. tive adjustments to rates. Generally, such rates are adjusted Nuctsan OUTAGE Costs every twelve months. In addition to reconciling fuel costs and incremental nuclear maintenance and refueling outage costs revenues, the Company's Energy Cor,t Adjustment (ECA), are occrued over the unit operating cycle. For each unit, on established by the PUC, incorporates a nuclear performance occrual for incremental nuclear maintenance and refueling standard which allows for financial bonuses or penalties outage expense is estimated based upon the latest planned depending upon whether the Company's system nuclear outoge schedule and estimated costs for the outoge. capacity factor exceeds or falls below a specified range (see Differences between the accrued and actual expense for the note 3). outage are recorded when such differences are known. NuCLIAn Futt CAPHAUZED SoFTWAnt Costs Nuclear fuel is capitalized and charged to fuel expense on Software projects which exceed $5 million are capitalized. the unit of production method. Estimated costs of nuclear fuel At December 31,1995 and 1994, capitalized software costs disposal are charged to fuel expense os the related fuel is totaled $50 million and $51 million (net of $19 million and ) consumed. The Company's shore of nuclear fuel at Peach $10 million occumulated amortization), respectively. Such Bottom Atomic Power Station (Peach Bottom) and Salem capitalized amounts are amortized rotably over the expected Generating Station (Salem) is accounted for os a capital lives of the projects when they become operational, not to lease. Nuclear fuel at timerick Generating Station (Limerick) exceed ten years. is owned. GAINS AND Losses oN REACQuinED DIST DennecianoN AND Decommssiowmo Goins and losses on reacquired debt are deferred and amor-The annual provision for depreciation is provided over the tized to interest expense over the stated life of the reacquired estimated service lives of plant on the straight-line method, debt. Annual depreciation provisions for financial reporting purpos. es, expressed as a percent of overage deprecioble utility RectAssirecAfioNs plant in service, were opproximately 2.80% in 1995, 2.77% Certain prior-year amounts havo been reclassified for compor-I in 1994 and 2.75% in 1993. See note 3 for information con. otive purposes. These reclassifications had no effect on net cerning the Company's petition to the PUC for a declaratory income. g PECO Ewm Cowe e Saewn Cow 4wFs

Notts To CON 5ouDATED flNANCiAL STATEMENTS [CONDNUED) j

2. NATues or OpsaATIONs AND SEGMENT INFORMATION The Company is on operating utility which provides electric electric service area and 64% of retail kilowatthour sales are and gas service to the public in southeastern Pennsylvanio.

in the suburbs around Philadelphia, and 6% of the retail ser. The total area served by the Company cov'ers 2,107 square vice area and 36% of such sales are in the City of miles. Electric service is supplied to on area of 1,972 square Philadelphia. Natural gas service is supplied to a 1,475-miles with a population of 3.7 million, including 1.6 million . square-mile area of southeastern Pennsylvania odjacent to in the City of Philadelphia. Approximately 94% of the retail Philadelphia with a population of 1.9 million. Fr,r the Years Ended December 31, 1995 1994 1993 - ?' !"'H*!D*" '*- EucTaic OPERATIONS Operating revenues: Residential $ 1,401,296 $ 1,369,617 $ 1,354,061 Small commercial and industrial 738,910 706,808 678,896 Lorge commercial and industrial 1,147,190 1,142,903 1,163,997 Other 136,988 136,002 161,290 Service territory 3,424,384 3,355,330 3,358,244 Interchange sales 17,488 23,017 14,269 Sales to other utilities 333,454 246,450 232,912 Total operating revenues [3,77_5,326[ ]3,68797l ]3J605,325 Operating expenses, excluding depreciation 2,405,876 2,429,452 2,228,507 Depreciation 430,993 415,854 400,851 I Operating income 938,457 $ 779,491 976,067 Utility plant additions 435,400 $ 457,728 $ 458,125 gas OPERAfsoNs Operating revenues: I ,,, Residential 15,482 $ 16,048 $ 15,032 Hesse heating 240,147 235,407 205,483 Commercial and industrial 129,223 133,124 124,224 Other 3,639 13,971 15,172 Subtotal 388,491 398,550 359,911 Other revenues (including transported for customers) 22,339 17,285 22,793 Total operating revenues 41_0,830_ 415,835_ 382,704 Operating expenses, excluding depreciation 319,127 339,529 299,259 2_6,261_ 26,247 24,1_01_ Depreciation 65,442 50,059 59,344 Operating income Utility plant additions 63,192 $ 67,090 $ 72,481 lDENTIFIAsu Assets' of December 31, Electric $ 10,408,105 $ 10,410.461 $ 10,395,488 Gas 785,881 768,279 727,690 Nonollocable assets 3,766,634 3,886,531 3,909,149 ~ T4 960 20~ f15 065.37f ~$'lf032 327 $ ~ Total assets

• lncludes utility plant less accumulated depreciation, inventories and allocated common utility property.

$ FECO EN99 Cown.v N Law Ccvnne

} Nous To CoNsouomo FNOAt STEWCS [CONnNuGJ

3. RATI MATTER $

implementation of Statement of financial Accounting Standards (SFAS) No.106, " Employers' Accounting for LIMiRICK Postretirement Benefits Other Than Pensions," (see note 7). Under its electric tariffs, the Company is recovering $285 mil-The Joint Petition provides that the Company will not file for lion of deferred Limerick costs representing carrying charges on increase in retail electric service rates before April 1, and depreciation associated with 50% of Limerick common 1999, except under specified circu nstances for items such as facilities. These costs are included in base rates and are energy cost cdjustments, changes in state taxes, changes in being recovered over the life of Limerick. The Company is federal taxes, demand side management surcharges, and also recovering $137 million of Limerick Unit No. I costs increases in nuclear plant decommissioning expense or fund-over a ten-year period without a return on investment. At ing requirements and spent nuclear fuel disposal expenses. December 31,1995, the unrecovered portion of these bal-Subsequent to January 1,1995, retail electric non-pension onces were $240 million and $59 million, respectively. Postretirement benefits expense in excess of the amount Under its electric tariffs, the Company is allowed to allowed to be recovered under the Joint Petition may not' be retain for shareholders any proceeds above the overage ener-deferred for future rate recovery. During 1995, the Company gy cost for sales of 399 megawatts (MW) of near. term excess deposited $59.6 million in trust accounts to fund its retail capacity and/or associated energy. In addition, beginning electric non-pension postret;rement benefits costs. These costs April 1994, the Company become entitled to share in the. include amounts charged to operating expense or capitalized benefits which result from the operation of both Limerick Units on and after January 1,1995. No. I and No. 2 through the retention of 16.5% of the ener. In accordance with the Joint Petition, any of the porties gy savings, subject to certain limits. During 1995,1994 and to the Joint Petition may elect to void the settlement in the 1993, the Company recorded as revenue net of fuel costs event current rate recovery of non-pension postretirement ben- $79, $68 and $38 million, respectively, as a result of the efits expense is ultimately disallowed as a result of the Office sale of the 399 MW of capacity and/or associated energy of Consumer Advocate's appeal to the Supreme Court of and the Company's shore of Limerick energy savings. Pennsylvania of cases involving other itennsylvania utilities. In Pursuant to o PUC Declaratory Order, the Company such event, the Company would refund to customers, with deferred certain operating and maintenance expenses, depre-interest, any increased base rate amounts collected. ciation and accrued carrying charges on its capital invest-In December 1994, the PUC approved the Company's ment in Limerick Unit No. 2 and 50% of Limerick common Petition for on accounting order associated with gas utility facilities. At December 31,1995 and 1994, such costs operations permitting recognition of $2.8 million of non-p-n-included in Deferred Limerick Costs totaled $91 million. sion postretirement benefits costs annually and recognition of $1.5 million of environmental costs annually for the remedia-tion of sites of former manufactured gas plant facihties using PrimoN FoA Dt%Wic.D Ahhthh Ondik *

• +

in October 1995, the Company filed a petition for a declara-a cost of removal methodology, in exchange for a reduction fory accounting order with the PUC requesting approval to in depreciation rates to reflect the results of a current life change the estimated depreciable lives of certain of the study. During 1995, the Company deposited $3.8 million in Company's electric pl ant. The petition requests the opproval trust accounts to fund its gas non-pension postretirement bene-to reduce the terminal dates by ten years, for depreciation fits costs. The accounting order did not result in any increase occrual purposes only, of Limerick Units No. I and No. 2 in rates to customers (see note 7). and associated common facilities, to utilize new life spans for various colegories of electric production plant, and to change ENERGY Cost Ao>usTMENT remaining life estimates for transmission, distribution, general The Company is subject to a PUC-established electric ECA and common plant. The petition also requests opproval to which, in addition to reconciling fuel costs and revenues, amortize over a nineyear period $331 million of deferred incorporates a nuclear performance standard which allows Limerick costs representing $240 million of carrying charges for financial bonuses or penalties depending on whe:her the and depreciation associated with 50% of Limerick common Company's system nuclear capacity factor exceeds or falls facilities and $91 million of unrecovered Limerick Unit No. 2 below a specified range. The bonuses or penalties are based Declarotory Order costs. If approved, the proposed changes upon overage system replacement energy costs. If the capaci-will increase depreciation and amortization on assets associ. ty factor is within the range of 60-70%, there is no bonus or ated with limerick by opproximately $100 million per year penalty. If the copocity factor exceeds the specified range, and decrease depreciation and amortization on other progressive incremental bonuses are earned and, if the Company assets by opproximately $10 million per year, for capacity factor falls below the specified rcnge, progressive o net increase in depreciation and omortization of opproxi. incremental penalties are incurred. motely $90 million per year. The requested order will not For the year ended December 31,1995, the Company's offect rates charged to customers. The changes would be system nuclear capacity factor was 72%, for which the effective October 1,1996. Company recorded an immaterial bonus in 1995 income. The Compeny-operated units performed at a capacity factor i Recovery of NoN-PEN 5 ton PosfamaIMENT BENmTs costs of 80%, but the overoll faCior was odversely offected by the Effective January 1995, in accordance with a PUC Joint Sc!em shutdown (see note 24). For the years ended Petition, the Company increased electric base rates by $25 December 31,1994 and 1993, the Company's system million per year to recover the increased costs, including the nuclear capacity factors were 82% and 78%, respectively, l annual amortization of the transition obligation (over 18 which entitled the Company to bonuses reflected in 1994 years) deferred in 1994 and 1993, associated with the and 1993 income of $14 and $10 million, respectively. g scoE m caw,m:sa w c m.n

i { Nous To CONsotomD hNANOAL $WMYS [CoWUK)

4. COMMrTMENTS AND CONTINGENCIES NuCLEAa DacommsstoNING AND $ PENT fuel $ToRAGE As o component of the PUC's April 19,1990 electric base rate order, the PUC recognized a revised decommissioning CONSTRUCT?ON ExPENDfTuREs Construction expenditures are estimated to be $538 million cost estimate based upon total cost. The Company's share of for 1996 and $1.2 billion for the period 1997 to 1999. For this revised cost is $643 million expressed in 1990 dollars to the period 1996 to 1999, the Company expects that all of its be collected over the life of each generating unit. Under cur-capital needs will be provided through internally generated rent rates, the Company collects and expenses approximately funds. Construction expenditure estimates are reviewed and

$20 million annually from customers for decommissioning the revised periodically to reflect changes in economic condi. Company's nuclear units. The expense is accounted for as a tions, revised load forecasts and other appropriate factors. component of depreciation expense and accumulated depreci-Certain facilities under construction and to be constructed ation. At December 31,1995, $216 million was included in may require permits and licenses which the Company has no accumulated depreciation. In order to fund future decommis-assurance will be granted. sioning costs, the Company has recorded $223 million in trust accounts which are included as an investment in the The Company's operations have in the past and may in the future require substantial capital expenditures in order to Company's Consolidated Balonce Sheet and include both net comply with environmentallaws. realized and unrealized gains. At December 31,1995, net realized gains of $9 million were recognized as Other Income in the Company's Consolidated Statement of Income and net NuctEAn INSURANCE The Price Anderson Act sets the limit of liability of approximately unreolized gains of $19 million were recognized as o $8.9 billion for claims that could arise from on incident involv. Deferred Credit in the Company's Consolidated Balance Sheet. ing any licensed nuclear facility in the nation. The limit is subject The most recent estimate of the Company's share of the cost to to change to reflect the effects of inflation and changes in the decommission its nuclear units is approximately $1.2 billion in number of licensed reactors. All utilities with nuclear generating 1995 dollars. Any increase in the 1990 decommissioning cost units, including the Company, have obtained coverage for these estimate being recovered in base rates is to be recoverable in potential claims through a combination of private insurances of the Company's next base rate case. As a result, the Company $200 million and mandatory participation in a financial protec-expects to receive recovery of a higher level of decommission-i tion pool. Under the Price-Anderson Act, all nuclear reactor ing expense in its next base rate proceeding. licensees con be ossessed up to $79 million per reactor per inci. The Financial Accounting Standords Board (FASB) is cur-dent, payable at no more than $10 million per reactor per inci. rently reviewing the accounting for closure and removal costs Cf roduction facilities including the recognition, measurement P dent per year. This assessment is subject to inflation and state premium taxes. In oddition, Congress could impose revenue and classification of decommissioning costs for nuclear gener. Toism'g Eneosures'on~the 'nucVar irioustfy'to pa claims ating stations, and will issue on Exposure Draft in 1996. The Although the Nuclear Regulatory Commission (NRC) Company will review the Exposure Draft to determine the effect l requires the maintenance of property insurance on nuclear on its financial condition and results of operations. If current power plants in the amount of $1.06 billion or the amount avail. electric utility industry accounting practices for decommission-able from private sources, whichever is less, the Company main. ing are changed, annual provisions for decommissioning could toins coverage in the amount of its $2.75 billion proportionate increase c nd the estimated cost for decommissioning could be share for each station. The Company's insurance policies pro. recorded as a liability rather than as accumulated depreciation vide coverage for decontamination liability expense, premature with recognition of on increase in the cost of the related asset. decommissioning and loss or damage to its nuclear facilities. In Under the Nuclear Waste Policy Act of 1982 (NWPA), the event of an occident, insurance proceeds must first be used the U.S. Department of Energy (DOE) is required to begin tak-for reactor stabilization and site decontamination. If the decision ing possession of all spent nuclear fuel generated by the is made to decommission the facility, a portion of the insurance Company's nuclear units for long. term storage by no later than 1998. Under the NWPA, the DOE is authorized to proceeds will be allocated to a fund which the Company is required by the NRC to maintain to provide for decommission. assess utilities for the cost of nuclear fuel disposal. The current ing the facility. The Company is unable to predict the timing of cost of such disposal is one mill ($.001) per kilowatthour of the availability of insurance proceeds to the Company for the net nuclear generation. The fee may be adjusted prospective-Company's bondholders, and the amount of such proceeds ly in order to ensure full cost recovery. which would be available. Under the terms of the ve rious insur. The DOE has stated that it is under no legal obligation to once ogreements, the Company could be assessed up to $46 begin accepting spent fuel absent an operational repository million for losses incurred at any plant insured by tie insurance or other facility constructed under the NWPA. The DOE companies. The Company is selfinsured to the exnnt that any acknowledges, however, that it may have created the expec- ) losses may exceed the amount of insurance maintcined. Any tation of such a commitment on the part of utilities by issuing such losses, if not recovered through the ratemaking process, certain regulations and projected waste acceptance sched-could have a material adverse effect on the Compaoy's financial ules. In June 1994, a number of utilities and state ogencies, condition and results of operations. including the PUC, filed a lowsuit against the DOE seeking a The Company is a member of on industry mutual insurance determination of the DOE's legal obligation to accept fuel by 1998. The DOE has stated that it will not be able to open a company which provides replacement power cost insurance in the event of a major accidental outage at a nuclear station. The permanent, highlevel nuclear waste storage facility until j premium for this coverage is subject to assessment for adverse 2015, at the earliest. The DOE stated that the delay was o l loss experience. The Company's maximum share of any assess. result of federal budget cuts, the DOE seeking new dato ) ment is $14 million per year. obout the suitability of the proposed repository site at Yucco l 1 g PECO Ew w Cwm,W Sn e Cuem o f 1

Nns To CONsouDmo Famcm SwmNrs (CoNWUD) 8 4

4. COMMITMENTS AND CONTINGENClf 5 (CoNDNUfD) contamination. The Company is presently engaged in perform-ing various levels of activities at these sites, including initial Mountain, Nevada, opposition to this location for the reposito.

evaluation to determine the existence and nature of the conto-ry and the DOE's revision of its civilian nuclear waste pro-mination, detailed evaluation to determine the extent of the 9 rom. The DOE stated that it would seek legislation from contamination and the necessity and possible methods of reme. Congress for the construction of a temporary storage facility diction, and implementation of remediction. Seven of the sites which would accept spent nuclear fuel from uhlities in 1998 or are currently in the detailed evaluation or remediction stage. soon thereafter. Although progress is being made at Yucca As of December 31,1995 ond 1994, the Company had Mountain and several communities have expressed interest in accrued $27 and $24 million, respectively, for environmental providing a temporary storage site, the Company connot pre-investigation and remediation costs that currently can be rea-dict when the temporary storage facilities or permanent reposi-sonably estimated. The PUC opproved the recognition of $1.5 tory will become available. The DOE is exploring options to million of environmental costs annually for the remediction of address delays in the currently projected waste acceptance sites of former manufactured gas plant facilities effective schedules which include offsetting a portion of the financial January 1,1995 (see note 3). The Company cannot currently burden associated with the costs of continued on-site storage of predict whether it will incur other significant liabilities for addi-spent fuel offer 1998 and the issuance by the DOE to utilities tional investigation and remediation costs at these or oddition-of multi-purpose canisters for on-site storage. al sites identified by the Company, environmental agencies or Peach Bottom and limerick have on-site facilities with the others, or whether all such costs will be recoverable through capacity to store spent nuclear fuel discharged from the units rates or from third parties. through the early 2000s. Lifeof-plant storage capacity could be provided by the construction of on site dry cask storage imoArioN facilities. Salem has recently expanded spent fuel storage The Company is involved in litigation, the ultimate outcome of capacity through 2008 for Unit No. I and 2012 for Unit No. which, while uncertain, is not expected to have a material

2. Public Service Electric and Gas (PSE&G) is the operator of adverse effect on the Company's financial condition or results Salem, which is 42.59% owned by the Company.

of operations. The Company is currently recovering in rates costs for nuclear decommissioning and decontamination and spent fuel storage. The Company believes that the ultimate costs of

5. CHANGES IN ACCOUNTING decommissioning and decontamination and spent fuel disposal will continue to be recoverable through rates, although such In March 1995, the FASB issued SFAS No.121, " Accounting recovery is not assured.

for the Impairment of long-lived Assets and for Long-lived

• *
• 7ssets'to' be Disposed Of," which recivires that long-lived ENERoY PURCHASES assets and Certain identifiab!e intangibles be!d and used by an in the ordinary course of business, the Company enters into entity be reviewed for impairment whenever events or changes commitments to buy and sell energy. During 1995, the in circumstc.nces indicate that the carrying amount of an asset Company entered into a long-term agreement to purchase 300 may not be recoverable. The new standard is effective for fis-MW in 1996 through 2000. At December 31,1995, these col years beginning after December 15,1995. The Company purchases result in commitments of approximately $44 million will adopt SFAS No.121 in the first quarter of 1996. Upon for 1996, $45 million for 1997,$48 million for 1998,$51 adoption, the Company does not expect SFAS No.121 to million for 1999 and $52 million for 2000. These purchases have an ef'ect upon the Company's financial condition or will be utilized through a combination of sales to jurisdictional results of operations.

customers, long-term sales to other utilities and spot sales. In October 1995, the FASB issued SFAS No.123, " Accounting for Stock Based Compensation," which encour-ENviaONMIMAL lssuEs ages entities to recognize Compensation Costs for stock-based The Company's operations have in the post and may in the employee compensation plans using the fair value based future require substantial capital expenditures in order to com-method of accounting defined in SFAS No.123, but allows for ply with environry ental laws. Additionally, under federal and the continued use of the intrinsic value based method of state environmental laws, the Company is generally liable for accounting prescribed by Accounting Principles Board (APB) the costs of remediating environmental contamination of prop-Opinion No. 25, " Accounting for Stock issued to Employees." erty now or formerly owned by the Company and of property Entities electing to continue with the accounting prescribed by contaminated by hazardous substances generated by the APB Opinion No. 25 are required to disclose pro forma net Company. The Company owns or leases a number of real income and earnings per share as if the fair volve based estate parcels, including parcels on which its operations or the method of accounting had been applied. The new standard is j operations of others may have rewited in contamination by effective for fiscal years beginning after December 15,1995. I substances which are considered hazardous under environ-The Company will adopt SFAS No.123 in the first quarter of I mental laws. The Ce npany is currently involved in ' ,ber of 1996, but will continue to use the intrinsic value based method proceedings relating to sites where hazardous sub. s have of accounting prescribed by APB Opinion No. 25 supplement-been deposited and may be subject to additional p edings ed by SFAS No.123's required footnote disclosures. Adoption in the future. of SFAS No.123 will not have on effect upon the Company's The Company has identified 23 sites where former monu-financial condition or results of operations. factured gas plant activities may have resulted in site contami-nation. Pad activities at several sites have resulted in octual site Q nco w w ~ s w cc w l

NOTES TO CoNSOUDATED FINANCAL STATEWNTS [CONUNUEC)

6. RETIREMENT BENEFITS The Company and its subsidiaries have a non<ontributory amounts sufficient to meet the Employee Retirement income trusteed retirement plon applicable to all regular employees.

Security Act requirements. Approximately 74%,85% and The benefits are based primarily upon employees' years of 71% of pension costs were charged to operations in 1995, service and overage earnings prior to retirement. The 1994 and 1993, respectively, and the remainder, ossociated Company's funding policy is to contribute, of a minimum, with construction labor, to the cost of new utility plant. Pension costs for 1995,1994 and 1993 included the following components: 1995 1994 1993 Thousands of Dollars Service cost - benefits earned during the period 19,710 $ 33,403 $ 33,673 Interest cost on proiected benefit obligation 147,261 136,690 134,658 Actual return on plan assets (456,057) 12,946 (226,240) Amortization of transition asset (4,538) (4,538) (4,538) Amortization and deferrol 300,214 (161,955) 87,733 ~ ~ 5,526~ $~~~25!286 Net pension cost 6;590~ $ 1 The changes in net periodic pension costs in 1995,1994 and 1993 were os follows: 1995 1994 1993 Thousands of Dollars Change in number, characteristics and solary levels of porticipants and net actuarial gain 1,486 $ [6,004) $ (756) Change in plan provisions (8,305) (1,777) Change in actuorial ossumptions (3,136) (959) Net change

• " C"(9,955) '

I8!7AO)' ~$~~ (755) Plan assets consist principolly of common stock, U.S. gov. 1994, and 7% of December 31,1993. The overage rate of ernment obligations and other fixed income instruments. In increase in future compensation levels ranged from 4% to 6% determining pension costs, the assumed long-term rote of at December 31,1995, from 4.25% to 6.25% at December return on ossets was 9.5% for 1995,1994 and 1993. 31,1994, and from 4% to 6% of December 31,1993. The weighted <2verage discount rate used in determining Prior service cost is amortized on a straight-line basis the octuarial present value of the projected benefit obligation over the overage remaining service period of employees was 7.25% of December 31,1995,8.25% or December 31, expected to receive benefits under the plan. The funded status of the plan at December 31,1995 and 1994 is summarized as follows: 1995 1994 Thovsonds of Dollars Actuorial present value of occumulated plan benefit obligations: Vested benef.t obligation $ (1,746,685) $ (1,505,552) Accumulated benefit obligation (1,838,661) (1,632,666) Projected benefit obligation for services rendered to date $ (2,097,300) $ (1,814,209) Plan assets at fair value 2,088,950 1,741,271 Funded status (8,350) (72,938) Unrecognized transition asset (44,789) (49,327) Unrecognized prior service costs 68,223 73,338 _ 265,472) (230,105) ( Unrecognized net gain Pension liability $ (250,388) (279.032) g PECO ENEOY (CWW WO huBSDAff (OM(5

Notts to CONSOLCAID fMNCtA! $TATEMtNTS (CmDNum) 4

7. NoN PENslON Posta Tints NT BENEFITS The Company provides certain health care and life insurance ment benefits obligation (see note 22). Effective January 1, benefits for retired employees. Company employees become 1995, the Company was permitted by the PUC to recover eligible for these benefits if they retire from the Company with non-pension postretirement benefits costs ossociated with the ten years of service. These benefits and similar benefits for Company's retail electric and gas operations, including the active employees are provided by on insurance company annual amortization of the transition obligation (over 18 whose premiums are based upon the benefits paid during the years) deferred in 1994 and 1993 (see note 3).

year. The transition obligation was determined by application The transition obligation resulting from the adoption of of the terms of medical, dental and life insurance plans, SFAS No.106 was $505 million at Jonvary 1,1993, which including the effects of established maximums on covered represented the previously unrecognized occumulated non-costs, together with relevant actuarial assumptions and health pension postretirement benefit obligation. The transition oblig-core cost trend rates, which are projected to range from 9% otion is being amortized on a straight-line basis over on in 1996 to 5% in 2002. The effect of a 1% onnual increase allowed 20-year period. As a result of the Voluntary in these assumed cost trend rates would increase the occumu-Retirement incentive Program (VRIP) and the Voluntary lated postretirement benefit obligation by $63 million and the Separation Incentive Program (VSIPj, the Company accelerot-annual service and interest costs by $7 million. ed recognition of $177 millien of its non-pension postretire-Total costs for all plans amounted to $71, $81 and $83 million in 1995,1994 and 1993, respectively. The net periodic benefits costs for 1995 and 1994 included the following components: 1995 1994 Thousands of Dollars Service cost - benefits earned during the period 8,681 17,056 Interest cost on piojected benefit obligation 48,641 41,196 Amortization of the transition obligation 14,881 22,659 Actual return on plan assets (2,075) Deferred asset gain ,1,359 _. 80,911 Net periodic postretirement benefits' costs 71,488 $ The funded status of the plan at December 31,1995 and 1994 is summarized as follows: 1995 1994 Thousands of Dailors Accumulated postretirement benefit obligotion: Retirees 628,804 $ 566,128 Fully eligible active plan participants 4,199 7,895 Other active plan participants 41,863 16,006 Total 674,866 590,d29 l Plan assets at fair value Accumulated postretirement benefit obligation in excess of plan ossets .__ (66,73_5) _ _ 1,200) ( 608,131 588,829 Unrecognized transition obligation (252,990) (267,871) Unrecognized net gain (28,890) 33,500 Accrued postretirement benef;ts cost recognized on the balance sheet $~ 326,251~ $ ~354 758 ~ Measurement of the occumulated postretirement benefits obligation was based on a 7.5% and 8.5% essumed discount rate os of December 31,1995 and 1994, respectively. I g nco so c-c sm c-s

Notts to con 50uDATED fiNANC AL SWEMENTS (CONDNUEC)

8. ACCOUNTS RECErVAett Accounts receivable at December 31,1995 and 1994 December 31,1995 and 1994, the Company had sold o included unbilled operating revenues of $148 and $100 mil-

$425 million and $325 million interest in accounts receiv-lion, respectively. Accounts receivable at December 31,1995 able, respectively. The Company retains the servicing respon-and 1994 were net of on allowance for uncollectible sibility for these receivables. accounts of $21 and $17 million, respectively. By terms of this agreement, under certain circumstances, The Company is party to on agreement with a financial a portion of deferred Limerick costs may be included in the institution whereby it con sell on a daily basis and with limit-pool of eligible receivables. At December 31,1995, $30 ed recourse on undivided interest in up to $425 million of million of deferred Limerick costs were included in the pool of designated accounts receivable until November 14,2000. At eligible receivables.

9. COMMON STOCK At December 31,1995 and 1994, common stock without The Company maintains a long Term Incentive Plan (LTIP) por value consisted of 500,000,000 shores authorized and for certain full-time saioried employees of the Company. The 222,172,216 and 221,608,984 shares outstanding, respec-types of long4erm incentivt awards which may be granted lively. At December 31,1995, there were 5,800,841 shares under the LTIP are non<guolified options to purchase shares of reserved for issuance under the dividend reinvestment and the Company's common stoc., dividend equivalents and stock purchase plan, shares of restricted common stock. Pursuont to the LTIP, 2,591,765 shares of stock were authorized for issuonce upon exercise of options at December 31,1995.

The following table summarizes option activity during 1995,1994 and 1993: . _ _ - - - _ _ _ M _ PM._ _-_. !N3 Balonce at January 1 2,651,397 1,961,882 2,445,833 Options granted 850,700 909,000 533,800 Options exercised (561,232)., ,,lPO,8?N....(981,551) Options cancelled (349,100) (128,600) (36,200) Balonce at December 31 2,591,765 2,651,397 1,961,882 Exercisobte of December 31 1,813,565 1,865,397 1,447,282 Options were exercised at overage option prices of $23.91 per share, $22.91 per shore and $22.66 per shore in 1995, 1994 and 1993, respectively. The average exercise prices of shares under option were $26.16 per share, $26.73 per share and $25.12 per share at December 31,1995,1994 and 1993, respectively. k { g PECO ENt9GY CC#PANY AND SuesoArv Cor.wns

NOTES To con 50uccED ONANCW SWEWNT5 [CONUNUG)

10. PREFERRED AND PaEFERENCE STOCK At December 31,1995 and 1994, Series Preference Stock consisted of 100,000,000 shores authorized, of which no shores were outstanding. At December 31,1995 and 1994, cumulative Preferred Stock, no por value, consisted of 15,000,000 shores authorized.

Current Shares Amount Redemption Outstanding Thousands of Dollars Price la[ _ 1995 1994 1995_ 1994 Series (without mandatory redemption) $4.68 104.00 150,000 150,000 $ 15,000 $ 15,000 $4.40 112.50 274,720 274,720 27,472 27,472 $4.30 102.00 150,000 150,000 15,000 15,000 $3.80 106.00 300,000 300,000 30,000 30,000 $7.96(b) (c) 618,954 1,400,000 61,895 140,000 $7.48 (d) 500,000 500,000 50,000. 50,000 1,993,674 2,774,720 199,367 277,472 Series (with mandatory redemption){e) $6.12 (f) 927,000 927,000 92,700 92,700 Total preferred stock ~ ',920474~ ~5,701I726 $ 292,067 $ 376,~172 2 ~ ~ ~ (o) Redeemoble, at the option of the Company, at the indi-(c) None of the shores of this series are subject to redemp-cated dollar amounts per shore, plus accrued dividends. tion prior to October 1,1997. (b) Ownership of this series of preferred stock is evidenced (d) None of the shares of this series are subject to redemp- ?. by depository receipts, each representing one-fourth of a tion prior to April 1,2003. j share of preferred stock. On December 19,1995, the (e) There are no annual sinking fund requirements in the @f Company issued Series B Company Obligated period 1996-1998. Annual sinking fund requirements in Mondatorily Redeemoble Preferred Securities of a 1999 are $18,540,000. Partnership in exchange for 3,124,183 depository (f) None of the shores of this series are subject to redemp. ( receipts, which together with the underlying 7.96% cumu-tion prior to August 1,1999. I lative preferred stock, were concelled (see note 11).

11. COMPANY OsuGATED MANDATORnv REDEEMA5LE PREFERRED SEcuRmEs OF A PARTNERSHIP (COMRPS)

.?.. k i At December 31,1995 and 1994, PECO Energy Capitol, ed debentures, held by the Partnership, which bear interest at { LP (Portnership), o Delowore limited partnership of which a rates equal to the distribution rates on the securities. The inter. wholly owned subsidiary of the Company is the sole general est paid by the Company or, the debentures is included in partner, had outstanding two series of cumulative COMRPS, Interest Charges in the Consolidated Statements of Income f each with a liquidotion value of $25 per security. Each series and is deductible for income tax purposes. p is supported by the Company's deferroble interest subordinot-Shares Amount f Distribution Outstanding Thousands of Dollars z Al December 31, Rate 1995 1994 1995 1994 J Series ( A 9.00% 8,850,000 8,850,000 $ 221,250 $ 221,250 B(a) 8.72 % 3,124,183 81,032 _221,250 Total-I; 11,974,183 8,850,000 $_302,282 $ 1 i l. .'(a) On December 19,1995, the Company exchanged Trust over the contractual life of the COMRPS. The Trust ] Receipts, each representing a 8.72% COMRPS, Series B, Receipts were issued by PECO Energy Capital Trust I, the representing limited partnership interests, for depository sole assets of which are 8.72% COMRPS, Series B. Each shores each representing a one-fourth interest in a shore holder of Trust Receipts is entitled to withdraw the corre-of $7.96 Cumulative Preferred Stock of the Company. spending number of 8.72% COMRPS, Series B from the The premium paid on the exchange is being occreted Trust in exchange for the Trust Receipts so held. I h gpcmoc_-5_c_

NoTts To CONsouDATED flNANOAL STATEMENTS (CONDNUED)

12. LONo-Tsam Dsu At December 31, Series Due 1995 1994

%vsands of Dollars First and refunding mortgage bonds (a) 64 % 1997 $ 75,000 75,000 5%% 1998 225,000 225,000 7M % - 9% % 1999 325,000 325,000 10 % 2000 30,069 5%% 8 % 2001 2005. 1,355,000 1,355,000 10 %% 2006-2010 48,750 52,813 (b) 2011 2015 154,200 154,200 8% % 104 % 2016-2020 34,000 203,431 6%% - 8% % 2021 2024 1,607,130_ _ 1,607,130 Total first and refunding mortgage bonds 3,824,080 4,027,643 Notes payable - banks (c) 1996-1998 167,000 167,000 Revolving credit and term loon ogmements (d) 1996-1997 350,000 525,000 Pollution control notes (e) 1996-2029 169,005 161,465 Medium-ter.n notes-(f) 1996-2005 121,800 134,200 Sinking fund debentures - PECO Energy Power Company, a subsidiary 4M% 1995 9,750 Unamortized debt discount and premium, net ' (32,59_9). _ {38,214) Total long-term debt 4,599,286 4,986,844 Due within one year (g) 401,003 201,213 4 Long term debt included in capitalizatien (h) $ 4,198,283 ~$ 4,785,631 (a) Utility plant is subject to the lien of the Company's mort-The overage annual rate for the $175 million outstanding gage. under the original revolving credit and term loan agree-(b) Floating rates, which were on overage annual interest ment was 6.416% and the average rote for the $175 rate of 3.295% of December 31,1995. million outstanding under the new term loan was 6.081% (c) The Company has entered into interest rate swap agree-at December 31,1995. The Company also has a $400 ments to fix the effective interest rates on these notes. At million revolving creclit and term loan agreement with a December 31,1995 and 1994, the Company had two group of banks which terminates in 2000. There is on interest rate swap ogreements outstanding with commer-annual commitment fee of 0.125% on the unused cio! banks, for o total notional principal amount of $167 omount. At December 31,1995, no omount was out-million, respectively. These agreements are subject to per-standing under this agreement. formance by the commercial banks, which are counter-(e) Floating rates, which were on overage annual interest parties to the interest rate swaps. The Company does not rate of 3.728% of December 31,1995, anticipate nonperformance by the counterporties. The (f) Medium-term notes collateralized by mortgage bonds. overage annual interest rate for these notes, giving effect The overage annual interest rate was 8.413% of to the interest rate swaps, was 10.51% of December December 31,1995. 31,1995. (g) long-term debt maturities, including mandatory sinking (d) On October 3,1994, borrowings by the Company fund requirements, in the period 1997 2000 ore as fol-under its $525 million revolving credit and term loan lows: 1997 - $266,063,000; 1998 - $241,463,000; agreement with a group of banks converted to a term 1999 - $359,063,000; 2000 - $22,603,000. loan. The loan was due in six semi annual installments (h) The annualized interest on long-term debt at December commencing April 3,1995. During 1995, $175 million 31,1995, was $327 million, of which $281 million was was retired; $175 million was refinanced with another associated with mortgage bonds and $46 million was group of banks under a new term loan agreement and associated with other long-term debt. $175 million was outstanding at December 31,1995.

NorES To CoNSouDATED flNANOAL STATEMENTS (CoNUNUQ)

13. Shoat-Team Dist jm jm ms

?"* "d* *LDonars Ih Average borrowings 17,560 $ 130,539 $ 113,193 Average interest rates, computed on daily basis 6.25% 4.03% 3.35% Maximum borrowings outstanding 182,000 $ 418,600 $ 368,400 Average interest rates, at December 31 6.73% 3.45% The Company has o $300 million commercial paper program oggregating $221 million. No short-term debt was outstand-l which is supported by the $400 million revolving credit ing against these lines at that date. During 1995, the ogreement discussed in note 12; of December 31,1995, no Company discontinued its compensating balance arrange-amounts were outstanding. At December 31,1995, the ments for these credit lines. Company had formal and informal lines of credit with banks

14. INCOME TAxts

.2' ?. Ended December 31, 199 { __ _ 1993 1995 Thousands of Dollars included in operating income. 4 1 Federal Current 170,042 $ 164,472 $ 117,535 Deferred 159,970 (2,691) 113,054 Investment tax credit, net (21,679) 28,006 43,344-State Current 72,177 77,754 70,740 v.:.. o. Deferred 16,387 (33,508) 9,718 Included in other income and deductions: - ~~ 234,033 -- 396,897 ~ 354,391 Federal Curront 20,754 1,989 (3,650) Deferred 7,556 9,722 15,926 State Current 6,909 409 (1,615) Deferred _(399).___ 3,171 __ _ _1,14_7 _ _3_4,8_20_ _ _ _ 15,291_ _ _ 11,808_ Total 431,717 $ 249,324 $ 366,199 in accordance with SFAS No.109, " Accounting for income tied its examinations of the Company's federal income tax Taxes," the Company has recorded on occumulated net deferred returns through 1986. The 1987 through 1990 federal income income tax liability and pursuant to SFAS No. 71, " Accounting tax returns have been examined and the IRS subsequently issued for the Effects of Certain Types of Regulation," a corresponding on assessment that the Company has appealed. The Company recoverable deferred income tax asset of $2.1 billion at does not expect the ultimate resolution of the ossessment and its December 31,'1995 and 1994. oppeal to have a material effect upon the Company's financial The occumulated net deferred income tax liability reflects condition or results of operations. the tax effect of anticipated revenues and reverses as the related ITC ond other general business credits were fully utilized for temporary differences reverse over the life of the related depre-tax purposes at December 31,1994 and reduced federal ciable assets concurrent with the recovery of their cost in rates. income taxes currently payable by $43 and $60 million in Also included in the occumulated deferred income tax liability 1994 and 1993, respectively. are other occumulated deferred income taxes, principally associ-At December 31,1995, the Company had on AMT credit oted with liberalized tax depreciation, established in occor-of $76 million available for on indefinite carryforwaro period dance with the ratemaking policies of the PUC based on flow-against future federal income taxes payable to the extent that through accounting. regular federal income taxes payable exceeds the AMT l The Internal Revenue Service (IRS) has completed and set-payable. Q FECO Emwa Cowmv nc Saswo Comm

[ l No:Es to CONsouOATED FINANCAL $iATEMENis [CCWDNUED) l l

14. INCOMs TAXES [CONDNUED) l The tax effect of temporary differences which gives rise to the Company's net deferred tax liability as of December 31,1995 and 1994 are as follows:

Uobility or (Asset) q 1995 1994 Millions of Dollars i Nature of temporary difference ~~~ ~ Utility plant Accelerated depreciation 1,387 $ 1,377 Deferred ITC 351 374 AMT credits (84) (176) Other plant related temporary differences 1,283 1,305 Taxes recoverable through future rates, net 857 882 Deferred debt refinancing costs 130 132 Other, net (243) (306) i Deferred income taxes per the balance sheet $' ~3,681~ $ 3'585 ~ The net deferred tax liability shown above es of December The decrease in the Deferred income Taxes liability is returned 31,1995 and 1994 is comprised of $4.052 and $4.127 to customers through the State Tax Adjustment Clause in the billion of deferred tax liabilities, partly offset by $372 and year realized. $539 million of deferred tax assets, respectively. The Omnibus Budget Reconciliation Act of 1993 Amendments to Pennsylvania tax law changed the corpo. changed the federal income tax rate for corporations to 35% rate income tax rate from 12.25% to 11.99% for 1994 and from 34%, effective January 1,1993. This change resulted in 9.99% for 1995 and thereafter. This change resulted in a $6 a $107 million increase in the Deferred Income Tc 3s liability and $2 million decrease in income Taxes in the Consolidated and regulatory asset in 1993, and is included ir, the Statements of Income for the years ended December 31, December 31,1995 and 1994 Consolidated Balance Sheets. 1995 and 1994, respectively. These changes also resulted in The Company expects to receive recovery of all taxes when a $174 million decrease in the Deferred Income Taxes liabili-paid. ty on the December 31,1994 Consolidated Balance Sheet. t Provisions for deferred income taxes consist of the tax effects of the following timing differences: .__ 1995 _1994 '1993 !h"9"h ? Dollars ? Depreciation and amortization 32,287 $ 85,772 $ 78,324 Deferred energy costs 30,073 13,777 19,013 Retirement and separation programs 15,733 (82,008) Incremental nuclear maintenance and refueling outage costs 8,079 (2,751) (827) Uncollectible accounts (1,991) (23,096) 625 Reacquired debt (3,266) (12,954) 28,959 Unrecovered revenue (5) (2,239) (806) Environmental clean +p costs 2,433 (3,949) (2,479) Obsolete inventory 6,362 (6,192) (6,887) . Limerick plant disallowances and phase-in plan 2,507 12,894 17,073 AMT credits 91,399 Other _ _ 97) (2,560]_ 6,850 ( Total 183,514 $ (23,306) $ 139,845 g PECO ENERGY CoMMNY Po SueSWY COMMNfs

Notts to CONSOt!DAIED f!NANGAL bfATEMENTs [CoNUNUfD)

14. INCOME TAXE5 (CONhNUED/

The total income tax provisions differed from amounts computed by applying the federal statutory tax rate to income and adjust-ed income before income taxes as shown below: 1995 1994 1993 Thovsonds of Dollars Nst income 609,732 $ 426,713 $ 590,648 Total income tax provisions 431,717 249,324 366,199 income before income taxes 1,041,449 676,037 956,847 Dsduct: allowance for funds used during construction 27,050 22,169 23,774 ~ ~ Adjusted income before income taxes $ 1,0f4,399' f~~655,85F $~935,073 income texes on above at federal statutory rate of 35% 355,040 $ 228 854 $ 326,576 Increase (decrease) due to: Depreciation timing differences not normalized 14,127 12,767 9,721 Limerick plant disallowances and phase-in plan (736) (530) 5,094 { State income taxes, net of federal income tax benefits 61,799 31,086 51,994 l Amortization of ITC (13,604) (14,570) (13,470) Prior period income taxes 1,791 (14,524) (3,942) Other, not 13,300 6,241 (9,774) Total income tax provisions 431,717 $ 249,324 $ 366,199 Provisions for income taxes as a percent of: Income before income taxes 41.5% 36.9% 38.3% Adjusted income before income taxes 42.6% 38.1% 39.2%

15. Taxis, OTHER THAN INCOMs - OPERATING For the Years Ended December 31, 1995 1994 1993 Thousands of Dollars Gross receipts 165,172 $

160,704 $ 155,407 Capital stock 42,444 39,957 38,990 Real estate 71,600 77,571 71,445 Payroll 30,109 31,556 31,490 Other 4,746 1,901 800 Total $ ~~31 { 071 T ~ ~ 3iT389 ~ ~ ~298,i31 ~

16. Leases Leased property included in Utility Plant at Dec, nber 31, was as follows:

__1995_ 1994 Thovsonds of Dollars Nuclear fuel 494,051 445,338 Electric plant 2,076 _ _ _ _2,1 10 Gross leased property 496,127 447,448 Accumulated amortization (315,702) (272,883) Net leased property 180,425 $ 174,565 The nuclear fuel ebligation is amortized as the fuel i's consumed. Amortization of leased property totaled $43, $62 and $58 mil-lion for the years ended December 31,1995,1994 and 1993, respectively. Other operating expenses included interest on cap-itallease obligations of $10, $7 and $8 million in 1995,1994 and 1993, respectively. g PECO Ewa Cowm mo Sunce Cwemas

Notts To CcNsouoArto FINANCIAL $TATEMENTS [CONDNUED)

16. LsAsss (CoNnNuto)

Minimum future lease payments as of December 31,1995 were: For the Year Endmg December 31, Capital looses Operating leases Total Thousands of Dollars 1996 56,403 $ 51,226 $ 107,629 1997 58,234 50,503 108,737 1998 52,094 46,821 98,915 1999 23,906 44,549 68,455 2000 10,839 43,688 54,527 Remaining years _ _ _ _ _. 777_ _ _557,441_ _ 558,218_ Total minimum future lease payments 202,253_ $ 794,228 $ 996,481 Imputed interest (rotes ranging from 6.0% to 17.0%) (21,828) Present value of net minimum future lease payments 180,425 Rental expense under operating leases totaled $115, $101 and $90 million in 1995,1994 and 1993, respectively.

17. JolNity OwNsD EtscTitic UTiuTV PtANT The Company's ownership interests in jointly owned electric utility plant at December 31,1995 were os follows:

Transmission and _ Production Plants ___ __ _ .Other _ Plant . Solem_. K.eysso.ne Conemough Peach Bottom PECO Energy Electric and Gas Pennsylvania Pennsylvanio Various Operator , _ Company. ,_ Company _, Electric Company __ Elstric Compony Componies Participating interest 42.49% 42.59% 20.99% 20.72% 21% to 43% Company's shore (Thousands of Dollars) Utility plant $ 748,790 $ 1,214,381 $ 109,363 $ 164,239 $ 88,272 Accumulated depreciation 299,822 403,384 53,223 57,472 29,602 Construction work in progress 35,218 72,744 5,363 19,388 1,900 The Company's participating interests are financed with Company funds ond, when placed in service, all operations are accounted for os if such porticipating interests were wholly owned Iocilities,

18. CASH AND CASH EQUIVAlsNTs For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The following disclosures supplement the accompanying Statements of Cash Flows:

_ ~ _ _ _ l"8 I'9d _1993 Thovsonds of Dollars Cash paid during the year: Interest (net of amount capitalized) $ 449,664 $ 437,096 $ 474,735 income taxes (net of refunds) 257,677 205,316 182,751 Noncash investing and financing: Capital lease obligations incurred 112,917 41,710 42,484 g PECO ENFROY Cu*ANY AND $UBSOARY COWANf 5 L__ _ -_ _-

Norts to CONSOUDATED hNANCW $IAT(MENTs [CONDNUED)

19. INVESTMENTS Al December 31, 1995 1994

- }housands of Dollars Trust accounts for decommissioning nuclear plants 222,67,5 $ 175,326 Energy services and other ventures 40,779 42,298 Nonutility property 26,816 19,609 Emission allowances 6,347 Gas exploration and development joint ventures 219 (722) Other deposits 132 76 _, _ _296,948 236,587 Total

20. FlhANCIAL INsTRVMENTs Fair values of financial instruments, including liabilities, are estimated based on qucJed market prices for the some or similar issues. The carrying amounts and fair values of the Company's financial instruments as of December 31,1995 and 1994 were as foNoWs:

Thousands of Dollars 1995 t994 Carrying Fair Corrying Fair Cash and temporary cash investments 20,602 $ Value __ . Amount Value _ Amount 20,602 $ 46,970 5 46,970 Long-Term debt (including amounts due within one year) 4,599,286 4,773,700 4,986,844 4,730,005 Trust accounts for decommissioning nuclear plants 222,655 222,655 175,326 175,326 Financial instruments which potentially subject the investments mgv be in excess of the Federal Deposit Insurance Company to con.entrations of credit risk consist principally ot* Co*rpo' ration limiti Cohcentrations of credit risk with respect to temporary cash investments and customer accounts receiv-customer accounts receivable are limited due to the able. The Company places its temporary cash investments Company's large number of customers and their dispersion with high<redit, quality financini institutions. At times, such across many industries.

21. NucttAR Fust AGREEMENT WITH LONO lsLAND Powsp AUTHORITY (LIPA)

In 1993, the Company entered into an agreement with LIPA The payments from LIPA, net of related costs of $4 mil-and other parties to receive $46 million as compensation lion, were recognized in income. The Company recognized for accepting slightly irradiated nuclear fuel from Shoreham $26 and $20 million as Other Income in the Consolidated Nuclear Power Station. The Company received the pay-Statements of Income for the years ended December 31, ments in installments as the shipments of nuclear fuel were 1994 and 1993, respectively. occepted. The Company also earned a $4 million bonus as a result of receiving all shipments prior to the September 5, 1994 target date.

22. VOLUNTARY RfilRfMENT AND SEPARATION INCENTIVE PROGRAMS

' The Company incurred a one-time, pre-tax charge of $254 of the programs, in 1994 the Company accelerated recog ii-million ($145 million net of taxes) in the third quarter of tion of $177 million of its non-pension postretirement be% fits 1994 as a result of voluntary retirement and separation pro-obligation. The Company recorded a corresponding iegulato-grams approved by the Company's Board of Directors in ry asset and is recovering this amount in rates as a compo. April 1994. Pursuant to these programs 1,474 employees nent of non-pension postretirement benefits expense. The elected to retire and 1,008 employees elected to voluntarily recognition of the $177 million of non-pension postretirement separate from the Company. The retirements and separations benefits obligation and corresponding regulatory asset did took place in stages through December 31,1995. As a result not impact earnings. Q nco um can um sum cames

_ _ _ _ ~. _ _ -. - NOTES TO CONSouDATED flNANCIAL STArEWNTS [CoNDNUD)

23. SAts or SuasD Any On June 19,1995, the Company completed the sole of power to Delmorvo.

Conowingo Power Company (COPCO) to Delmorvo Power & The Company's gain on the sole of $59 million ($27 mil-Light Company (Delmorvo) for $150 million. The transaction lion net of taxes) was recorded in the second quarter of also included a ten-year contract for the Company to sell 1995.

24. SHUTDOWN 07 sat:M GENERATING STATION PSE&G removed Salem Units No 1 and No. 2 from service has informed the Company that Salem Units No.1 and No.

on May 16,1995 and June 7,1995, respectively. PSE&G 2 are expected to be out of service until the second and third informed the NRC of that time that it had determined to keep quarters of 1996, respectively. As of December 31,1995, the Salem units shut down pending review and resolution of the Company had incurred and expensed opproximately $50 certain equipment and management issues, and NRC ogree-million of replacement power and operating and mainte-ment that each unit is sufficiently prepared to restart. PSE&G nonce costs.

25. QuAnitaty 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 M,lleons of Dollars 1995 1994 1995 1994 1995 1994 Quarter ended March 31 $ 1,059 $1,128 $ 257 $ 260 $ 152 $ 159 June 30 959 952 233 203 154 116 September 30 1,125 1,041 292 128 184 22 December 31 1,044 920 222 238 120 129 ...e... Earnings Applicable Averoge Shores Earnings to Common Stock Outstanding Per Average Shore MJIions o/ Dollars 1995 1994 1995 1994 1995 1994 Quarter ended March 31 146 $ 149 221.7 221.5 $0.66 $0.67 June 30 148 105 221.8 221.5 0.67 0.48 September 30 178 13 221.9 221.6 0.80 0.06 December 31 115 123 221.9 221.6 0.52 0.55 1994 third quarter results include a pre-tox charge of $254 million ($145 million net of taxes), or $0.66 per shore, as a result of VRIP and VSIP (see note 22). 1995 second quarter results include o pre-tax gain of $59 million ($27 million net of taxes), or $0.12 per shore, as a result of the sole of COPCO (see note 23). Q FEc0 Emor cca ~ n sun ccww

FRANCIAL STAUSUCS SUMMAar or EARNINGS AND FINANCIAL CONDITION For the Years Ended December 31, 1995 1994 1993 1992 1991 1990 Millions of collars INCOME DATA Operating Revenues $ 4,186 $ 4,041 $ 3,988 $ 3,963 $ 4,019 $ 3,787 Operating income 1,004 830 1,035 1,033 1,081 768 Income from Continuing Operations 610 427 591 479 535 106 Net income 610 427 591 479 535 214 Earnings Applicable to Common Stock 587 389 542 418 469 124 Earnings per Average Common Shore from Continuing Operations toollars) 2.64 1.76 2.45 1.90 2.15 0.07 Earnings per Average Common Shore toollars) 2.64 1.76 2.45 1.90 2.15 0.58 Dividends per Common Shore toollars) 1.65 1.545 1.43 1.325 1.225 1.45 Common Stock Equity (per mee) 20.40 19.41 19.25 18.24 17.69 16.71 Average Shares of Common Stock Outstanding (u,lI,ons) 221.9 221.6 221.1 220.2 218.2 214.4 At December 31, BALANCE $HIET DATA Net Utility Plant, at Original Cost $ 10,758 $ 10,829 $ 10,763 $ 10,691 $ 10,599 $ 10,591 Leased Property, net 181 174 194 210 224 24) Total Current Assets 486 427 515 550 783 745 Total Deferred Debits and Other Assets 3,536 3,635 3,560 1,127 918 939 ~ ~ Total Assets 6 14,961 $ '15,065~ ~$ ~15,032 $ 12,578 '$ ~12,524 ~~ 12,'516 Common Shareholders' Equity $ 4,531 4,303 4,263 4,022 3,892 3,624 Preferred and Preference Stock Without Mandatory Redemption 199 277 423 423 423 423 With Mandatory Redemption 93 93 187 231 315 331 Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership 302 221 Long. Term Debt _4,199 4,786 4,884 5,204 5,416 5,831 Total Capitalization 9,324 9,680 9,757 9,880 10,046 10,209 Total Current Liabilities 1,077 850 954 830 824 784 Total Deferred Credits and Other liabilities 4,560 4,535 4,321 1,868 1,654 1,523 Total Capitalization and liabilities $ 14,961 $ 15,065 $ 15,032 $' '12,578~ $ ~ 12,524 ~$ ~12,516 g FEco Enam coma ano sG850ARY (O W NQS

OPERATING STAT 15DCS For the Years Ended December 31, 1995 1994 1993 1992 1991 1990 Etscinic OpsaAnoNs OUTPUT (Molloons of Kilowanhours) Fossil 10,792 11,239 10,352 8,082 7,376 7,913 Nuclear 25,499 28,195 27,026 24,428 25,735 23,715 Hydro 1,425 1,970 1,699 1,803 1,388 2,266 Pumped storage output 1,741 1,596 1,478 1,597 1,653 1,437 Pumped storage input (2,507) (2,256) (2,192) (2,217) (2,355) (2,059) Purchase and interchange 13,945 6,164 6,447 8,675 8,603 5,787 Internal combustion 175 106 56 29 79 152 Total electric output 5 507 I7,'Oi4 A4,8'66 ~3dE7 ~ ~ l2,27 35, ~~ p 5ALss (Millions of Kilowanhours) Residential 10,859 10,817 10,657 9,894 10,311 9,815 Smoil commercial and industrial 6,299 6,108 5,773 5,367 5,284 5,066 Large commercial and industrial 15,976 15,847 15,935 15,770 16,177 16,554 Other 860_ 791 771 962 1,02_9 1,010 Service territory 33,994 33,563 33,136 31,993 32,801 .32,445 Interchange sales 496 768 457 1,231 1,612 2,751 Sales to other utihties 14,041 10,039 8,670 6,699 5,445 1,865 Total electric sales 48,531 44,370 42,263 39,923 39,858 37,061 NuMasa or CustoMans, December 31, j Residential 1,321,379 1,350,210 1,341,873 1,333,926 1,324,795 1,320,126 Small commercial and industrial 141,653 143,605 142,363 141,253 140,901 140,305 Large commercial and industrial 3,394 3,603 3,742 3,972 4,162 4,344 (>her 959 944 888 857 840 .817 Total electric customers 1,467,385 1,498,362 1,488,866 1,480,008 1,470,698 1,465,592 OptaAnno Revnwuss (M,Ilions of Dollars) Residential 1,401 1,369 $ 1,354 $ 1,305 $ 1,342 1,230 Small cominercial and industrial 739 707 679 670 641 595 Large commercial and industrial 1,147 1,143 1,164 1,223 1,279 1,247 Other 137 136 161 168 171 167 Service territory. 3,424 3,355 3,358 3,366 3,433 3,239 Interchange sales 17 23 14 32 43 82 Sales to other utilities 334 247 233 199 187 81 Total electric revenues 3,775, OpsaAnwo EXPENSES 3,625 3,605 3,597 3,663_ 3,402_ ) l Operating expenses, excluding depreciation 2,406 2,430 2,228 2,237 2,253 2,325 Depreciation 431 416 401 391 - 17633 -~ i663~ 380 338 ~,837 -~ ~ ~~2,M6~ 2,629 ]' ~27628 2 Totol operating expenses 2 EtteTate OPEnADNo INCOME 938 $ 779 $ 976 $ 969 $ 1,030 $ 739 AVsaAos US: Pee RI51DENEAL CUSTOMER (Kilowo# hours) Without electric heating 6,908 6,736 6,727 ~6,259 6,707 6,376 With electric heating 17,189 17,527 17,096 16,298 16,201 16,038 Total 8,130 8,041 7,970 7,443 7,801 7,464 EtscTaicAL PEAx LOAD, DsMAND (Thousands of Kilowans] 7,244 7,227 7,100 6,617 7,096 6,755 Net Etsciasc GENinAnNo CAPACITY - YEAn END SuMMEa RAnNo (Thousands of Kilowans) 9,078 8,956 8,877 8,836 8,766 8,766 Cost or Fust Pra MLuoN BiJ 0,87 $ 0.89 0.90 0.82 0.92 1,13 btu Pan wai KitowATTHoua GENEnATED 10,705 11,617 10,675 10,657 10,849 10,844 g PECO ENtear CcuPANs AND Sueo^a< Cowmn

OPERAtWG STAUShCS (CONUNUED) 8 For the Years Ended December 31, 1995 1994 1993 1992 1991 1990 GAS OPERATIONJ 5ALis (Mdhons of Cubic feet) Residential 1,516 1,636 1,637 1,819 1,746 1,778 House heating 31,848 31,974 30,687 29,750 26,423 25,303 Commercial and industrial 19,422 21,520 22,943 21,497 20,492 23,228 Other 1,184 5,079 5,656 2,146 534 1,567 Total gas sales 53,970 60,209 60,923 55,212 49,195 51,876 Gas transported for customers 48,531 _29.801. .22.946 22.060 21A14 _24A 13 Total gas sales and gas trnnsported 102,501 90,010 83,869 77,272 70,609 76,289 Numasa or CusioMeas, December 31 Residential 56,533 57,122 59,573 59,859 62,444 63,267 House heating 295,481 287,481 277,500 269,577 260A73 254,564 Commercial and industrial . 33,308 _ 32,292 _ _31.5.73 . 30,956 . 30,204 . _ 29A56 Total gas customers 385,322 376,895 368,646 360,392 353,121 347,287 OPsnATINo RivsNUES fWilions of fbilors/ Residential 15 $ 16 $ 15 $ 16 $ 17 $ 18 House heating 240 236 205 202 192 201 Commerciol and industrial 129 133 124 121 124 145 Subtotal 35 3 3 54 ~ 53 59 Other revenues (including transported for customers) __.2 2 ___._1E _ ___2 3 __ _2 3 _ _ _ 21 _ _ _ _16 Total gas revenues 410 416 382 OPERATING ExPEN$$$ 365 356_ 385 Operating expenses, excluding depreciation 319 340 299 278 284 336 DeprecicNon - ~ 345 ^^366~ ~ 323 ~ ~301 305~ ~ ~356 26 26 24 23 21 20 Total operatirig expenses gas OPERAftNG lNCOME 65 5 50 $ 59 T 34 U~ 51~ U 2U ~ ~ Secuames STAftSTK5 Ratings on PECO Energy Company's securities Mortgage Bonds Debentures Preferred Stock Date Date Date Agency. Rating Established Rating Established Rating . Established Duff and Phelps, Inc. BBB+ 4/92 BBB 4/92 BBB-8/91 Fitch Investors Service, Inc. A-9/92 BBB+ 9/92 BBB+ 9/92 Moody's investors Service Baal 4/92 Boo 2 4/92 boa 2 4/92 Standard & Poor's Corporation BBB+ 4/92 SBB 4/92 BBB 4/92 NYSE-CoMPO5fff COMMON STOCK PaKas, EARNINGS AND DfVICENDS BY OUARTER (Per Share) 1995 1994 Fourth ~ ~ Third Second First Fourth Third ' Second^^~~ ~ First Ovarter Quarter Quar ter Quarter Quarter Quarter Quarter Quarter High price $ 30-1/4 $ 29 $ 29-3/4 $ 27 3/8 $ 25 7/8 $ 28-1/4 $ 29 3/8 30 tow price $ 281/8 $ 25 5/8 $ 251/8 $ 241/4 $ 23-5/8 $ 23-5/8 $ 25-3/8 $ 25-3/8 Close $ 301/8 $ 28 5/8 $ 27-5/8 $ 25-1/8 $ 24-l/2 $ 25 3/8 $ 261/4 $ 27 3/4 Earnings 52C 80C 67C 66C 554 64 484 674 Dividends 43.5 C 40.54 40.5 C 40.5 C 40.54 ,384 384 384 Q FECO Emm1 Carmm et %emn Cow m

J BOARD CF Dinacions SUSAN W. CAMERWOOD (52) RICHARD H. GLANTON, EDrrHE J. lEVIT, M.D. (69) JOHN M. PALMS, PHD. (60) CHA$f.%N, IEUSTEE BOMD, ESOUiRE (49) PRE 50FNT EMERITUS AND lfE PFE50ENT, UNNER5JY OF SOUTH THE UNNER9TY OF PENNSYLMlA PARTNER OF THE LAW FEM REED ME.MeEP OF THE BOuD. NADCNAL CMOUNA HEALTH SYSTEM SMUH SHAW AND MCCtAY BOARD OF MDCAL ExAMrs5 JOSEm F. PAQUETTE, JR.* (61) M. WALTER D'ALEssO (62) JAMES A. HACEN* (63) ADMRAL KINNAIRD R. MCKEE (66) CHAIRMAN OF THE BORD OF PRESOENT AND CHU EXECUiNE CHA;R.YAN. CONRAlt, INC. DTECTOR EMERITUS, U S. Navy DmECTORS OFFCER, LEGG MASON REAL NUCLEAR PROeut90N ESTATE SERVICES lCOMMERCAt NELSON G. HARRIS *(69) RONAto RUBN* (64) [ v0RTGAGE BANKING AND PEN-CHAlRMAN OF THE EXECUTNE JOSEm J. MCLAUGHUN* (67) CHU EXECUINE OFFCER, THE SON FUND ADVISORS} COMMTTEE, IASTY BAKNG FORMER PRE 50ENT AND CHIEF PUBN ORGANCATON, INC. COMPANY ExECUTNE OFFCER, BENEFCAL (REAL ESTATE DEVE!OPMENT AND RCHARD G. Gl!MORE*(68) MUTUAL SAVNGS BANK MANAGEMENT) FOPuER SENIOR VCE PRESIDENT, JOSEN C, LADD (69) f1 NANCE AND CHIEF flNANCIAL FORMER CHAIRMAN, IHE f 0ElffY CORBN A. MCNEILL, JR.* (56) ROBERT SUBN (57) OrflCER OF THE COMPANY MUTUAL ljfE INSURANCE PRESOENT AND CHIEF ExECUTNE SENIOR VCE PRESCENT-flNANCE COMPANY OFFICER OF THE COMPANY CAMPBEtt SOUP COMPANY m m nt w on.m Omctas JosEm F. PAQUETTE, JR. (61) JOHN M. MADARA, JR. (52) DAVID R. HELWIG (44) DAMAN A. THOMAS (50) SSM@CE PPEsw mD VCE PDE50ENT, POWER DEUVEW m VCE PRESENT, MARKEnNG AND CHA*RA%N Of THE BOARD OF. 4 DmECTOe5 GROue EXECUTNE, POWER THOMAS P. Hu, JR. (47) NE CORBN A. McNEu, JR. (56) VCE PRESIDENT AND CONTROuER NANCY J. ZAUSNER (42) PRE 50ENT AND CH!EF EXECUTIVE ROBERT J. PAFRYLO (49) VCE PRESIDENT, OFFCER $ENOR VCE PRESIDENT AND POWER TRANSACTONS VCE PRE 50ENT. INFORMATON GROUP EXECUTNE' GAS WituAM L BARDEEN (57) SYsTEvs AND CHIEF KATHERNE K. comas (45) SERvCES GeOuP SENIOR VCE PRE 5 DENT AND INFOh% ION OFFCER CORPORATE SECFETARY GROur EXECUTNE, CoraNER DOONSON M. SMTH (62) WALTER G. MACFARLAND, IV (46) EDWARD J. CULLEN, JR. (48) ENERGY SERVCEs GROUP PRESOENT. PECO yCg PRES; DENT, LuERCK A55tSine COpORKE SECREIMY ! JAMES W. DURKAM (58) GENEWNG STAT @

• En OmCER n TODD D. CURTER (35)

SENOR VCE PRESOENT AND J. BARRY MITCHEtt (48) A55:5Tus CORPOWE SECRETARY GENERAL COUNSEL ALvN J. WEGAND (57) ycgppgsggy7, pig,ncEAyD SENIOR VCE PRE 50ENT AND (q WuiAM J. KASCHUB (53) T GeOUP EXECUTNE, BULK A5 e E A5URER

• SENOR VCE PRESCENT, POWER Et TErTSES WutAM E. PowEtt, JR. (59)

HUMAN RESOURCES GEORGE R. SHCORA (49) VCE PRE 9DEtF, $UrK*T SEhCES Ut JOANN M. BAUER (49) AS5i'STANT IREASURER 6 GWENDOLYN S. Kro (55) yCE PRE 9Deta, GERALD R. RANEY (46) SENOR VCE PRE 90ENT' CUSTOMER $ENCES VCE PRESOENT, PEACH BOTTOM CORPOWE AND PuetC AFFA.R5 ATCuC POWER STATON GREGORY A. CuCCH (46) ' Enm pa< 3D. M KEtNEm G. LAWRENCE (48) VCE PkESOENT, PimNING WILUAM H. SMITH, lll (47) 5 SENOR VCE PRE 50ENT 5 inDpCRFowAnCE VCE PFE9 DENT AND GROUP Enmyu M 1995 .a FNANCE AND CHIEF fNANOAt Ex.ECUTNE, IEtECOYMUNCATONS E" 5 OFFCER DREW B. FETTERS (44) 25 19 5 GROUP o P Enm FM L M VCE PRE 90ENT, STATN SUPPORT

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