ML20136G933
| ML20136G933 | |
| Person / Time | |
|---|---|
| Site: | Peach Bottom, Limerick  |
| Issue date: | 12/31/1996 |
| From: | Hunger G, Corbin McNeil, Paquette J PECO ENERGY CO., (FORMERLY PHILADELPHIA ELECTRIC |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| NUDOCS 9703180252 | |
| Download: ML20136G933 (49) | |
Text
{{#Wiki_filter:.. . -- , - .. .. .._ - . - . - . .- Ctition Eupport Depirtm:nt 10CFR 50.71 PECO NUCLEAR eeco see,2, comnee, A Unit of PECO Energy Ia'y[p7$.rY# l , March 11,1997 Docket Nos. 50-277 50-278 50-352 50-353 Ucense Nos. DPR 44 DPR-56 NPF-39 NPF-85 U. S. Nuclear Regulatory Commission ATTN: Document Control Desk l Washington, DC 20555
SUBJECT:
Peach Bottom Atomic Power Station, Units 2 & 3 Umerick Generating Station, Units 1 & 2 PECO Energy Company Annual Financial Statements
Dear Sirs:
Attached is the 1997 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 1996. Very truly yours,
- k. f 1.
G. A. Hunger, Jr.' Director-Ucensing r' Attachment pi OU' i cc: H. J. Miller, Administration, Region 1, USNRC N. S. Perry, USNRC Senior Resident inspector, LGS W. L Schmidt, USNRC Senior Resident inspector, PBAPS
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- 5 1996AnnualReport .
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[ f,PECO Energyf " (,g , f
-; Company Profile ; <> '
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f 2.;i.etter to 7 efh 4 e 1996 1995: Change -: ' (Shareholders ; ' . . .'.. .. y % . '
*#""d8 **')
f:.:Pf~ 4 . Operating Revenues / , ' 2
$4,283,650 : $4,186,156 ' 2.3%k is 15 ; Report of 1996 s , c ...,
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$ Operations 3 ,, . Operating Experisesa excluding Taxes / '
$2,735,603 $2A71.2891
- 10.7% 2
8'd I" operah ns V $642,651 $710,968 ' "* N3 ManaNement'sN P[**** '
qs.6%1 - ' 1 Disedssion and / 1 Operating income 1 '
$905,396 $1,003,899 . (9.8%) i
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- ' ' Analysis of f <
JEarnings Applicabdl' oCommon' Stock $499,169 $586,515 '
' l'(1$9%) l N' l! Financial l ? Earning's per' Average ' Common Share (Donars) $2.24
, ' $ 2.64 '(15.2%)I
- Condition and / [ Cash Dividends Phid per Common Share (Donars) $1.755 $1.65 - 6A%?
."_ Results .. <. .. of <
E Operations 4
-Av'ersed Shares of f ' .o
, [ Common Stock Outstanding (Thousirds) i 222.,490 221,859 : ? 0.3% /
< I2d Report of 1, '
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. ss -
a m < Construction Expenditures'?
$533,732 $480,182 1
11.2% . 4 ' Accodntants l . Common Shareholders',E,quity . $4,645,981 $4,531,347 ' .2.5%
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' 21 Consolidated -
< ', This AnnualReport contains forward-looking statements which should be readin conjunction with the cautionary '
g Statements;. ,. . . :..:. . u : -. = .-,m - W; vstatement on _tbrward-looking statements located on page 19. '
, (26 Notes to < < '
3 Consolidatodi , L Financialc. , IStatements, '
?.41 Financial $ '
, k. Statistics [
042 Operating ; PennsyLania
- Statistics ' <
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, - w j 44 Directors and .
.C Officers ?
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PEGO Energy Company Profile m+ - .. t f
' The Company ~
Incorporated in Pennsylvania in' 1929l PECO Ensgy any is an operating utility providing electric and natural gas service to the public in southeastem. ..
,e total retail area served by PECO Enirgy covers 2,107 square miles. Ele'ctric service is et area of 1,972 square miles with a population of about 3.6 million, includin' g '1.6 million in he City N .. ~ hia. Approximately 94% of the r tiil electric service area and 64% of retail kilowatthour sales'are in? . s surrounding the City of Philadelphia, and 6% of the retail service area and 36% of such sales ardI of Philadelphia.
N:tural gas service is supplied in a 1,475-square-mile area of southeastom Penna ' : , adjacent to the City of Philadelphia, with a population of 1.9 million. k Through Horizon Energy, a wholly owned subsidiary of the Company, PECO Energy is partnering with W1shington Gas Light Company in a pilot program to provide natural gas service to 4,000 residential cus-tomers in a 980-square-mile area in Maryland, near the District of Columbia. The map on the facing page indicates not only the Company's traditional service territory, but the far-rea'ch-ing bulk-power transactions completed by the Company's Bulk Power Enterprises Group (colored area). Bulk Power Enterprises Group has negotiated power transactions in 46 of the 48 contiguous states and the . $ province of Quebec, Canada and continues to look to further expand its market as new options open to the , Company. With the choice of generation supplier for all Pennsylvania retail electric customers set to begin in 1999, the n ture of the Company's traditional service territory will change dramatically. No longer will PECO Energy 3 or, for that matter, any Pennsylvania electricity generator have a franchised service territory. PECO Energy S Company envisions its new
- service territory" stretching from coast to coast.
+
Creating Our Future While the transition to retail competition will involve many challenges, PECO Energy is focused beyond the transition. The Company has begun to put into place strategies, new products and other means that will cnable it to be successful in the new competitive environment. The Company has expanded its field of vision to encompass not just short term utility ventures but longer-term ventures that build upon its core competencies. PECO Energy Company's vision is to become the energy supplier of choice. This vision has become the bisis for each initiative and venture that PECO Energy has recently undertaken. Not waiting for change to happen, the Company has become increasingly proactive in its business endeavors as evidenced by its suking out opportunities to grow the business. In addition, PECO Energy continues to assess its opera- J tions to better serve customers' current and future needs. i ys a
!2 2 PECO Energy Cornpany ! = 4 ) . ( l To Our Fellow Shar: holders: i i i s g 4 Q yg g" g - _ For PECO Energy, the year 1996 will be remem-l l
$ Nf g EijkC *w bered as one of mixed results. Although we were disappointed by the 16% decline in the 7 g+p : .2m.
- i. 4 4 -- market price of our common stock and the
{ f, inability to meet our financial goals, our basic l { , g utility operations recorded a solid year of good j , ( i. . performance. More significantly, this occurred l . against the backdrop of the passage of milestone retail electric competition legislation, which will fundamentally change the electric utility indus-try in Pennsylvania, l The market price of the Company's common ! stock was affected by the earnings decrease and Joseph F. Paquette, Jr., Chairman of the Board (left) "" # " " "E E#" E and Corbin A. McNeill, Jr., President and Chief retail electric competition. Common stock carn-ExecutWe OMicer. ngs in 1996 were $2.24 per share, a 15% reduc-tion from the previous year. The decline was primarily the result of the continued shutdown of the two Salem, NJ nuclear units which are operated by Public Service Electric and Gas Company (PSE&G), a much cooler summer in 1996 which reduced retail electric sales and the one-time gain in 1995 from the sale of l Conowingo Power Company. During 1996, we filed suit against PSE&G to seek recovery of the Company's costs of the extended Salem outages which are scheduled to end this year. On the positive side, total electric sales
- increased 12% due to higher sales in the whole-l sale market, establishing a new annual record.
j Thile total gas sold and transported decreased l 15% as a result oflower gas usage by our elec- I ! l tric operations, we achieved substantial gains in the residential and small commercial markets. ) i i The two nuclear plants we operate achieved out- l 1
- standing production, and both are now recog-nized as excellent performers. An increased
}; focus on safety throughout the Company a j produced the safest year in recent history. I 1 l
, PECO Energy Company 3 l
We were also pleased to increase the dividend in which is recovered through the sale of bonds. December by 3 A%, the sixth increase in as The revenue to retire the bonds would be col-many years. lected from all customers over a period of up to ten years. Retail Competition Approved Nevertheless, all of this was overshadowed by Pivotal Year I the rapid approval of retail electric competition The next few years will be extremely challenging in Pennsylvania, giving customers a choice of as we continue our efforts to prepare for the l electric generation suppliers. After several years introduction of retail competition in 1999 and of study and debate, the Pennsylvania Public the years beyond; however,1997 will be a piv-Utility Commission (PUC) on July 3 recom- otal year in determining the Company's future mended to the Governor and the Pennsylvania financial condition. In January, we filed with Legislature that retail electric competition be the PUC a request to recover and securitize $3.6 l phased in over a period of nine years. billion of our estimated $7.1 billion of stranded Subsequently, a large group of interested parties, costs on an accelerated basis. The PUC is led by PUC Chairman John M. Quain, reached I expected to act on our initial securitization consensus on phasing in retail competition request in the second quarter of this year and on a faster schedule, beginning January 1,1999, should reach a final decision of our total strand-with completion byJanuary 1,2001. The ed costs and total securitization requests by the Pennsylvania Legislature overwhelmingly first quarter of 1998. The Company believes ; approved the legislation incorporating the con- that there is substantial legal merit for full recov- ! sensus position, and Governor Tom Ridge signed cry of stranded costs. Any stranded costs not ; the bill into law on December 3,1996. recovered from customers may be charged against earnings. PECO Energy was an active participant in the discussions which led to the consensus position. Optimism Despite Uncertainty We supported passage of the legislation because As we approach this uncertain future, we are it is a fair compromise among competing inter- optimistic about the ability of PECO Energy to ests that will result in benefits for all succeed. While the introduction of electric Pennsylvanians. competition carries with it the risk of potential loss of customers to ahernative generation sup-Of particular importance to PECO Energy, the pliers,it also presents opportunities for sales new law provides the possibility for, but does not growth outside our service territory and for assure, full cost recovery of assets which could earnings growth from energy-related services. become uneconomic or " stranded" in a comperi- Overall, we believe the potential benefits out-tive market. It also provides for " asset securiti- weigh the risks. zation" through the sale of Tiansition Ikmd, through a special purpose entity as a mechanism In anticipation of the changing environment, we for recovering stranded costs. Securitization will have already started a number of promising new enable PECO Energy to provide rate reductions ventures such as becoming a major player in the l to customers while reducing the size of its bal- wholesale electric market, expanding our gas ance sheet in an amount essentially equal to that marketing and supply business, developing a
4 PECO Energy Company a t number of telecommunications joint ventures, was augmented by the addition of two seasoned providing management assistance to utilities corporate executives, G. Fred DiBona, President who need to improve the performance of their and CEO of Independence Blue Cross, head-nuclear units and, in 1996, establishing a sub. quartered in Philadelphia, and R. Keith Elliott, sidiary to assist large customers in improving Chairman, President and CEO ofIIercules their fossil fuel procurement and equipment Corporation, based in Wilmington, Delaware. performance. We also want to especially recognize the valu-able contributions of three Directors who have Additionally, in 1996 we began a comprehensive served the Company with distinction for many review of our strategic plans for the future direc. years-Edithe Levit, Nelson Harris and Joseph tion of the Company. This project, involving Ladd-and who will leave the Board at the end over 150 employees from throughout the arch, since they have reached the mandato-ry retirement age f r Directors. Company and scheduled to be completed in the second quarter of 1997, is expected to oudine additional major opportunities for growing our Diddend prospects Faced with the earnings pressures resulting business over the next five to ten years by utih.z- ..
. from moving to a competitive electricity market mg the Company,s core competencies.
and the start-up costs of new ventures, prospects for increasing the Company's dividend over the With the completion of this new strategic plan-h years are diminished. However, we do ning project, PECO Energy will be well posi-feel confident that we will be able to continue tioned to take advantage of opportunities in the the current annual dividend of $1.80 per share competitive energy markets and in related fields. during this transition period because we are We have a dedicated and skilled workforce at all optimistic that the PUC will reach a just and levels of the Company. We are fortunate to have reasonable decision on our stranded cost request an efficient asset base of both fossil and nuclear which will enable the Company to maintain its generation, as well as marketing, sales and cus- financial condition. tomer service organizations focused on antici-pating and satisfying our customers' needs. We The years ahead are certainly going to be inter-also have a management group with diverse esting and most likely will be somewhat chaotic experience which is dedicated and motivated to and unsettling. Nevertheless, we are prepared increase the value of your investment in PECO to take the steps necessary to succeed in this Energy. environment and we appreciate your continued The Company also benefits from the guid- support of the Company. ance and counsel of a qualified and involved Board of Directors. In January 1997, the Board J. E Paquette, Jr., Chairman C. A. McNeill,Jr., President and CEO l' rbruary 3,1997
Report of 1996 Operations s 1996 in Review I i Financial Highlights customers. Retail gas sales increased 10.1 percent; in 1996, earnings were $2.24 per share versus $2.64 however, gas transported for others decreased 42.5 per share in 1995, a decrease of 15.2 percent. The percent.
' decrease in earnings was attribut '. e to increased Common Stock DMdend increased maintenance and replacement power costs associated in October 1996, the Board of Directors of the with the shutdown of Salem Generating Station Company increased the common stock dividend for (Salem) Units No. I and No. 2, operated by Public .
the stxth consecutive year. The 3.4 percent increase Service Electric and Gas Company (PSE&G); lower raised the annual dividend from $1.74 to $1.80, effec-g electric revenues from retail sales resulting from less tive with the December 1996 dividend payment. favorable weather conditions; the gain on the 1995 sale of Conowingo Power Company to Delmarva Operations Power & Light Company which contributed to 1995 NCo hw earnings; higher customer expenses; and the acceler-PECO Nuclear experienced an outstanding year in l ated depreciation of assets associated with Limerick 1996 for safe, reliable and economic operation of the Generating Station (Limerick). These decreases were C mpany perated nuclear units at Peach Bottom partially offset by continuing cost control initiatives; At mic P wer Stati n (Peach Bottom) and Limerick. savings from the Company's ongoing debt and pre-PECO Nuclear achieved top regulatory and industry l ferred stock refunding and refinancing program; and rec gniti n in 1996, establishing a platform for future higher electric revenues from sales to other utilities. success and pp rtunities f r the Company. Both . For 1996, electric sales increased 11.5 percent plants are now recognized as excellent performers by versus 1995 primarily due to increased sales to other independent evaluations. l utilities. This increase was partially offset by lower retail sales to large commercial and industrial Eamings and Dividends Total Electnc Sales (Dolbre per Share) (Bdlions of Kdowatthours)
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e- PECO Energy Company 7 PECO Nuclear continues to be recognized as a Company, offers expertise in fuel management and Preferred Provider leader in outage management as evidenced in 1996 by plant operations and maintenance to industrial and [*], Peach Bottom Unit No. 2's world record for the utility customers nationally. Hese new businesses tecome the preferred shortest, most efficient refueling outage of a General help to create the competitive edge needed to prosper pr vider f electricity: however, low-cost Electric designed boiling-water reactor. The outage in the new energy marketplace. energy alone is not j was completed in 19.4 days. Limerick Unit No. I's enough for tomorrow's Basilt Power Enterprises consumers. By offering i 1996 refueling outage was completed in 24.6 days. i The Company's Bulk Power Enterprises C oup (Bulk to consumers value-l The average duration of PECO Nuclear's last four added products. Power) began its operations in 1994 and has become refueling outages is 22.8 days. enhanced service and one of the top wholesale energy marketers in the customized energy Success has afforded the Company opportunities solutions, we will trans-i Um.ted States, having completed transactions in 46 of l ro assist other nuclear industry companies by provid- form PECO Energy into , . the 48 contiguous states and the province of Quebec, the preeminent energy j ing high-quality, competitive products and services. . Canada. Bulk Power traders are arranging transac. supph.er with high PECO Nuclear has been working with Northeast customer loyalty. tions around the clock to send power across the coun-Utilities in the development of a program to return its try, for periods as short as one hour and as long as 25 Millstone nuclear units to successful operations. years. And, with its nationwide portfolio of power Setem suppliers and delivery routes, Bulk Power can The Salem nuclear plant, operated by PSE&G and respond to emergency needs 24 hours a day. Since its 42.59 percent owned by the Company, has been shut inception. Bulk Power has nearly doubled the amount down since mid-1995. Salem continued to adversely of power it markats to more than 29 million kilo-affect the Company's results of operations penalizing watthours in 1996, generating revenues, net of fuel 1996 earnings by about 50.40 per share. The labori- expense, of approximately $192 million. ous task of returning Salem to service continued dur-Gas Services ing 1996. The Company's Gas Services Group maintains its PSE&G continues to manage the tasks necessary aggressive, growth oriented strategy in the natural gas to restore the units to operating readiness while work- .. business as it continues to grow in tradiuonal gas ing to satisfy the requirements of the Nuclear Regula-markets through promotional acu. . .vmes and strong tory Commission. PSE&G expects Unit No. 2 to . . . relationships with area builders, architects, contrac-return to service in the second quarter of 1997 and Unit No. I to return to service in the summer of 1997. Power Generation
. . Bulk Power Enterpnses Geographic Reach Power Generation Group (PGG) is responsible for (Percent g. of swes t>y region) the operation of PECO Energy's fossil fuel and icos hydroelectric generating plants. Successful comple-tion of PGG's Vision Quest program, intnxluced in 4 ,
1994, has allowed the group to achieve significant 2 l reductions in operations and maintenance expenses, fuel costs, lost-work days and environmental incident l80 rates, increases in clean, coal-fired generation, fossil-
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steam unit availability, on-time delivery and better 4o management of the supply chain have brought about y higher levels of efficiency. xi () 2o l Successes in plant operations and maintenance [i are the foundation of two new ventures: PECO
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g Energy Partners (PEP) and EXELON Corporation. * [ 92 95 96 PEP, a division of the Company, is focused on helping existing customers to maximize the value and utiliza-93l 94l l tion of their energt; assets within the Company's ser. Mid-Atlantic Northeast vice territory. EXELON, a subsidiary of the %
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'e Partnerships Across tors and others to expand the use of natural gas. In The Company is also aggressively completing the ini-rs forming "part- 1996, the Gas Services Group accounted for $12 mil- tial build-out of a new digital wireless Personal n:rthips" across lion of increased revenue, net of fuel, and nearly Communications Senices (PCS) network in partner-Am:rics both inside 9,000 new customers. ship with AT&T Wireless Senices. Commercial tnd cutilde the utility bu ints3 Alliances The Company is also pursuing opportunities launch of PCS in the Philadelphia area is scheduled with ath r utilities, with unregulated energy-related products and senices for mid-1997. Due to the start-up nature of these r noh nd s- through llorizon Energy Company. 'Ihrough an joint ventures, investments in telecommunications will trbs tnd the high visi- aggressive marketing plan, llorizon Energy continues negatively affect earnings in the near future and are bility of our operations to attract transportation customers from both inside not expected to produce positive results for several hivs enhanced our nation l image. and outside of PECO Energy's traditional franchise years.
territory and is currently participating in a retail gas Customoe Service pilot program in Maryland. In its first competition PECO Energy continues to focus on all customers for residential customers, llorizon Energy attracted and their energy needs. The Customer Senices orga. 55% of the potential customers in a pilot program in . . . mzation is the Company,s front-line contact with Maryland, near the District of Columbia. The retail customers. A concerted effort has been made to Company continues to gam valuable market experi-improve performance in this area. In 1996, the speed ence and is well positioned for the transition to full with which field service technicians respond to cus-retail competition. tomer calls at the appointed times has seen dramatic Telecommunications improvement; an automated customer-assistance pilot The Telecommunications Group has begun several program for low-income residential customers was initiatives that will allow PECO Energy to make the implemented, greatly improving customer eligibility ver-most ofits extensive infrastructure. In a joint venture ification and processing time; and Customer Senices with Ilyperion, a subsidiary of Adelphia Cable call center support systems have also been improved. Company, the deployment of a large-scale fiber optic, resulting in improved customer response and cable-based telephone senice in the Philadelphia increased satisfaction. region is approximately 80% complete. PECO The Company is also working aggressively to Energy fiber optic cable extends over 400 miles retain its large commercial, industrial and government and is connected to major long-distance carriers. customer base through innovative,long-term con. tracts. The Company is also helping commercial and industrial customers to control costs through on. site Gas Sales and Transponed Gas system surveys, education and availability of pricing l (Billons of Cubic Feet) mechanisms designed to best serve their needs. 120 l Competition too Nationwide, the quest for retail customer choice of electricity provider reached an energetic level in 1996 80 with several states, including Pennsylvania, passing legislation to permit customer choice of electric gen-eo eration supplier, with a number of other states on the verge of passing similar legislation.
- In November, at the direction of Pennsylvania
, m Governor Tom Ridge and under the leaderst.ip of the 20 ]
g (l y Chairman of the PUC, a two month-long collabora- ' tive effort was successfulin reaching a consensus on 0 the bill to implement retail customer choice of elec-92 93 94 95 96 tric generation supplier. On December 3,1996, l Governor Ridge signed into law the Pennsylvania l
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f Electriciy Genaation Customer Choice and Competition also brings many opportunities. New and Innovative l Competition Act (Competition Act). PECO Energy PECO Energy will be able to use its extensive power. T oug strategic took a leadership role in the shaping of this legislation marketing experience, resources and geographic reach planning and asset by working with legislators, regulators, consumer to compete in other areas of the country. In addition, management, and by building upon our core 1 groups and others to create a law that is fair to all the inexpensive power generated by the Company's competencies, that is, l parties. well-run nuclear plants is expected to be quite com- the things PECO The Competition Act provides for the petitive from a price perspective. The combination of [l'd op d j unbundling of electric senices into separate genera- inexpensive power and marketing prowess will be a innovative products and ; tion, transmission and distribution senices with open formidable one. In addition, the Company is devej, senrices. Personal Commun.ications retail competition for generation. Fuu electric gener- oping programs and exploring possible alliances to systems, electric- and ation competition will be phased in over a two-year develop new energy-related products and services for natural gas-powered period beginning January 1,1999, and electric rates its customers. ;* , s sfems l Will be capped for up to nine years. Additionally, the and other electra-tech-Properation for C . c-- - -- - n I gies that we, e l PUC has the authority to order utilities to participate PECO Energy began years ago to prepare for the unheard of a generation in retad access pilot programs beginning on April 1, . . ago are all means by introduction of retail electric competition. With its 1997 for up to fivr percent of their peak load for all which PECO Energy is eye to the future, the Company formed strategic busi- creating a path to the customer classes. Universal senice and low-income ness units to more fuuy enable .it to meet the next future. programs will be funded at existing levels. Electric . generanon of challenges. distribution and transmission senices will remain reg- . . Beg.mnmg m 1990, the Company began to ulated. l streamline its operations. At year end 1990, there The Competition Act aUows fce. but does not were about 10,500 PECO employees. At December "uarantee, n the recovery of the costs of certain genera-31,1996, there were about 7,100 employees, a reduc. tion.related assets (stranded costs) through a . . . tion of approximately 32% This reduction in the l Competitive Transition Charge or by the issuance of 1 number of employees required the Company to < transition bonds, the proceeds of which will be used i become more efficient by reengineering numerous i principally to reduce stranded costs and related capi- l processes. ! talization. Impact on PECO Energy The introduction of competition creates both chal-lenges and opportunities. The foremost challenge beginning in 1999 will be competing with electricity Construction Expenditures and intemal Cash Flow suppliers for customers who will be able to choose **"" *"*) their generation supplier. In addition, rates will be , capped for up to nine years. As a result of the elimi-nation of the Energy Cost Adjustment - the mecha- ioco nism that in the past allowed changes in electric fuel costs to be passed through to customers - one of soo PECO Energy's maior chauenges will be to manage its fuel costs as effectively as possible. eco I 400 K 200 J [' Vp v , Q{ V w . n 94 95 96 , 92l 93l I Constructen internal Cash Flow Expenditwes
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i 12 1 PECO Energy Company 1
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j One such program, Vision Quest, effected new enhancing service reliability, customer satisfaction and ; workflow processes to achieve substantial annual growth. It also explored growth programs that will )' savings by reengineering the structure of PGG. be the key to ensuring the Company's success through With Vision Quest, PECO Energy expects to new marketing initiatives, strategic alliances and joint , achieve more than $100 million in accumulated ' ventures. j' i savings by year-end 1997 versus 1994 levels. In The Marketing and Sales organization continues ! addition to these savings, PGG has also targeted a to develop new customer focused products and ser. j growth strategy that is essential to maintaining and vices. Programs introduced during the past year, such expanding its competitive edge, as llome Surge Protection (external surge protectors . As part ofits ongoing preparation for comperi- for residential customers), Energy Information tion, PECO Energy continues to take steps to Systems (monitoring real-time energy usage for indus-improve its financial condition. For example, the trial and commercial customers) and Customized j Company is paying down debt to strengthen its bal. I Energy Solutions (performance contracting and end, f ance sheet and accelerating depreciation of assets use services for industrial and commercial customers) 4 associated with Limerick by approximately $100 offer customers value-added options which go beyond I million per year to limit the Company's exposure to traditional senices. 4 i potential stranded investment. Energy Performance Services Inc. (EPS), a 1 majority-owned subsidiary of the Company, marks ; The Future PECO Energy's first international endeavor. EPS
- . Looking funher into the future, PECO Energy is '
specializes in developing and implementing energy l- taking other steps to position itself at the forefront projects for facilities owners around the world, guar. of the new, competitive electric utility industry. anteeing that the total cost ofimplementing the pro-i During 1996, the Company focused its efforts on ject will be paid from the energy savings achieved. t Overall cost control will continue to be a point l
- of emphasis, as will employee training and supervisor
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Total Long-Tenn Debt Outstanding (Blieons of Dohara) Leaphog , j. i
$ 6.0 Introduced in 1996, Leapfrog is a revolutionary strat.
egy development process invohing employees from ! SO across the Company. Leapfrog's goal is to develop a l common view of our Company's future and to form a l 40 strategy for success. By challenging industry beliefs, 1 } discovering market trends and discontinuities, and 2 identifying PECO Energy's core competencies, we are g developing the architecture of the Company's growth h #
; into the 21st century 1
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.- . __ _ .- -_._m _ _ _ . ___ _ . _ . -- _ __ - _ _
PECO Energy Company and Subsidiary Companies 13 e' i M:nagement's Discussion and Analysis of Financial Condition and Results of Operations i G:neral in December 1996, Pennsylvania Governor Tom Ridge signed The Company intends to seek recovery of these stranded into law the Electricity Generation Customer Choice and costs and to secuntize that recovery in accordance with the provi-Competition Act (Competition Act) which provides for the sions of the Competition Act. The proceeds of the securitization restructuring of the electric utility industry in Pennsylvania, will be used to reduce stranded costs and related capitalization. l including retail competition for generation beginning in 1999. The Company believes that the Competition Act and other The Company estimates that its stranded costs resulting from regulatory initiatives that provide for competition for generation retail electric generation competition mandated by the services will significantly affect the Company's future financial Competition Act at December 31,1998 will be $7.1 billion, condition and results of operations. At this time the Company cannot predict whether those changes will materially affect the market prices of its publicly traded securities. See " Outlook-Competition Act' DI:cussion of Operating Results Er,rnings and Dividends Eamings per common share were $2.24 in 1996 as compared The $0.88 per share increase in 1995 earnings was pri-with $2.64 and $1.76 in 1995 and 1994, respectively. The $0.40 marily due to a one-time charge of $0.66 in 1994 associated per share decrease in 1996 earnings was primarily due to higher with the Company's voluntary retirement and separation incen-Salem Generating Station (Salem) outage-related replacement tive programs. Eamings also increased $0.22 per share in 1995 ; power and maintenance costs which reduced earnings by $0.27 due to increased electric sales, by $0.19 per share due to the per share. Eamings also decreased by $0.18 per share in 1996 Company's ongoing emphasis on cost control, by $0.12 per due to lower electric revenues resulting from less favorable weath- share due to the gain on the sale of COPCO, and by $0.04 per er conditions compared to last year, by $0.12 per share due to the share due to reduced financing costs. These increases were par- i gain reco0nized in 1995 on the sale of Conowingo Fbwer tialty offset by $0.14 per share due to additional costs incurred l Company (COPCO), by $0.11 per share due to higher customer as a result of the shutdown of Salem, by $0.14 per share due to expenses, and by $0.06 per share due to the accelerated depreci- increased taxes and by $0.07 per share due to revenues record-ation of assets associated with Limerick Generating Station ed in 1994 from the receipt of nuclear fuel from Shoreham (Limerick). These decreases were partially offset by $0.18 per Generating Station (Shoreham). share due to the Company's continuing cost control initiatives, by
$0.09 per share due to savings resulting from the Company's ongoing debt and preferred stock refunding and refinancing pro-gram, and by $0.08 per share due to higher revenues resulting from increased sales to other utilities.
14 PECO Energy Company and Subsidiary Companies
- 4 Significant Operating items
- Revenue and Expense items as a percentage of Total Operating Revenues Percentage Dollar Changes l
--.'"' 1ses toes 1999,1995. 1ess.1se( l 90% 90% 90% Electric 2% 4%
10% 10% 10% Gas 4% (1%) 100 % 100 % 100 % Total Operating Revenues 2% 4% 17 % 18% 23 % Fuel and Energy interchange 27 % 8% 38% 30% 30% Other Operation and Maintenance 2% (18%) 11 % 11 % 11 % Depreciation 7% 3% 6% 9% 8% income Taxes (14%) 70 % 7% 8% 7% Other Taxes (5%) 1% 79% 76 % 79 % Total Operating Expenses 6% (1%) 21 % 24 % 21 % Operating income (10%) 21 % Allowance for Other Funds Used During Construction (29%) 41 % 1% - Total Other Income and Deductions (70%) 111 % 11 % 11 % 10% Total Interest Charges (8%) 3% (1%) (1%) (1%) Allowance for Borrowed Funds Used During Construction (23%) 5% 10% 10% 9% Net interest Charges (8%) 3% 11 % 15% 12% Net income (15%) 43% Preferred Stock Dividends (22%) (38%) Earnings Applicable to Common Stock (15%) 51 % Earnings per Average Common Share (15%) 50%
+
Operating Revenues the Company's electric generating units because of reduced Total operating revenues increased in 1996 by $98 million to Spec market rates. This decrease was partially offset by higher
$4,284 milhon. This represented an $80 million increase in fuel-clause revenues and increased transportation revenues electric revenues and an $18 million increase in gas revenues related to higher levels of gas transported for customers pur-over 1995. The increase in electric revenues was primanly he chasing gas on the spot market.
to increased sales to other utilities and was partially offsey try increases /(decreases) in electric sales and operating rev-decreased retail sales due to less favorable weather conditions. enues by class of customer for 1996 compared to 1995 and The increase in gas revenues was primanly due to increased 1995 compared to 1994 are set forth below: sales to rett ustomers from more favorable weather condi-tions in the first half of 1996 and higher levels of firm sales ,,,g ,g g,, g - resulting from customers switching from transportation service o w, o m, ' ' -- o m. - onwr to firm service. These increases were partially offset by sain _ naam _ sain_ _ .nnum decreased sales and transportation revenues resulting from M""" -
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unusually mild weather in December 1996. p 3,dential (86) 18 5 20
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Total operating revenues increased in 1995 by $146 mil- House Heating 121 5 (24t) (12) lion to $4,186 million. This represented a $151 milhon increase sman commeraal in electric revenues and a $5 million decrease in gas revenues and Industrial 291 19 50 20 over 1994. The increase in electric revenues was pnmarily due 9*
,no d s (555) (37) (205) (13) to increased sales to other utihties and higher retail sales due to other 42 3 69 1 favorable weather conditions. The increase in electric revenues UntnHed (862) (69) 74 0 54 from residential sales was also attributable to higher fuel-clause service Territory (1,04s) (93) 431 70 ha e revenues resulting from yearly changes in the Company's , 6, he lities 16 4002 8 Energy Cost Adjustment (ECA). The decrease in gas revenues Total 5,592 5 eo 4,161 $ 151 was pnmanly due to lower interruptible sales and sales of gas to
. . _ _ . - . - .. . - - - . . _ . . . ~ . . _ - -- _- _- _,. ..
- Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) is
.. j l
Fuel cod Energy interchange Expense incorne Taxes Fuel and energy interchange expenses increased in 1996 by income taxes charged to operations decreased in 1996 by $54
$210 milhon to $973 million. The increase was primanly due to million to $343 million. The decrease was primanly due to Icwer interchange purchases needed for increased sales to other utik- operating income.
ties, increased replacement power costs resulting from the shut- Income taxes charged to operations increased in 1995 by down of Salem and a net credit to expense in 1995 from certain $163 milhon to $397 milhon. The increase was pomanly due to energy sales to other utilities. Fuel and energy interchange increases in operating income.
-expense as a percentage of operating revenues increased from 18% to 23% poncipally due to increased replacement power Allowance for Funds Used During Construction costs resulting from the shutdown of Salem. Allowance for funds used dunng construction (AFUDC)
Fuel and energy interchange expenses increased in 1995 decreased in 1996 by $7 milhon to $20 milhon. The decrease by $59 milhon to $763 million. The increase was primanly due was pomarily due to an adjustment in 1995. Also coninbut ng I to increased customer demand, higher levels of sales to other to the decrease was a decrease in the 1996 AFUDC rate. I utihties and replacement power costs resulting from the shut- AFUDC increased in 1995 by $5 niillion to $27 milhon, down of Salem.These increases were partially offset by net The increase was primarily due to an increase in the AFUDC credits to expense from the retention by the Company of a rate, and an adjustment in 1995. I share of the energy savings resulting from the operation of 1 Limerick and from certain energy sales to other utikties. The Other income and Deductions ! increases were further offset by lower purchased gas costs Other income and deductions decreased in 1996 by $23 milhon resulting from reduced output. Fuel and energy interchange to $1 milhon. The decrease was pnmanly due to the gain recog-expense as a percentage of operating revenues increased from nized in 1995 on the sale of COPCO. 17% to 18% poncipally due to increased interchange purchases. Other income and deductions increased in 1995 by $16 milhon to $24 million. The increase was primanly due to the gain Oth:r Operating and Maintenance Expenses on the sale of COPCO part ally offset by revenues recorded in Other operating and maintenance expenses increased in 1996 1994 from the receipt of nuclear fuel from Shoreham, by $23 milhon to $1,274 milhon due to higher customer expens-es, higher contractor costs and higher nuclear generating station Total Interest Charges charges resulting from the shutdown of Salem. These increases Total interest charges decreased in 1996 by $36 milhon to were partially offset by lower operating costs at the Company- $409 milhon. The decrease was pnmanly due to the Company's operated nuclear generating stations and lower administrative ongoing program to reduce and refinance higher-cost, long-term and general expenses resulting from the Company's ongoing debt. This decrease was partially offset by the replacement of cost-control efforts. preferred stock with Monthly Income Preferred Secunties l Other operating and maintenance expenses decreased in (recorded in the financial statements as Company Obligated l 1995 by $268 milhon to $1,251 milhon. The decrease was pn- Mandatonly Redeemable Preferred Secunties of a Partnership), manly due to the charge in 1994 associated with the early Senes B,in the fourth quarter of 1995. retirement and separation programs, lower customer expenses Totalinterest charges increased in 1995 by $12 milbon to and lower nuclear generating station charges resulting from $445 milhon. The increase was pnmanly due to the July 1994 shorter refuehng and maintenance outages at Comparj-owned issuance of Monthly income Preferred Secunties, Senes A.
. nuclear generating units. These decreases were partially offset by increased process reengineering costs and maintenance Preferred Stock Dividends expenses at Salem. Other operatmg and maintenance expenses Preferred stock dividends decreased in 1996 by $5 milhon to decreased as a percentage of operating resenues from 38% i
$18 million. The decrease was pnmanly due to the replacement 30% primanly due to the charge in 1994 associated with the i of referred stock with Monthly income Preferred Securities, t.arly retirement and separation programs.
Senes B in the fourth quarter of 1995. l Preferred stock dividends decreased in 1995 by $14 mil-Depreciation Expense lion to $23 milhon. The decrease was primanly due to the Effective October 1,1996, the Company increased depreciation replacement of preferred stock with Monthly Income Preterred l and amortization on assets associated w:th Limerick by $100 Securities, Series A in the third quarter of 1994. milhon per year and decreased depreciation and amortization on i other Company assets by $10 milhon per year. Depreciation expense increased in 1996 by $32 million to
$489 milhon. The increase was primanly due to the accelerated t depreciation of assets associated with Limenck which began in October 1996, and accounted for $23 milhon, or one quarter of the expected net annualincrease of $90 milhon. Cepreciation expense also increased due to add:tions to plant in service.
3 Depreciation expense increased in 1995 by $15 million to 1 $457 milkon. The increase was primanly due to additions to plant in service. l l l
l 16 PECO Energy Company and Subsidiary Companies
- l Discussion of Liquidity and Capital Resources decommissioning trust funds and $12 milhon for other deposits and ventures. In 1995 and 1994, funds used in similar activities The Company's capital resources are primarily provided by were $82 milhon and $18 milhon, respecbvely.1995 cash flows internally generated cash flows from utility operations and, to benefited from the sale of COPCO.
the extent necessary, external financing. Such capital resources Cash flows used in financing actmties were $501 million in are generally used to fund the Company's capital requirements, 1996 as compared to $802 million in 1995 and $706 million in to repay maturing debt and to make preferred and common 1994. The decrease in 1996 is primanly due to less available stock dividend payments, cash permitting fewer retirements of higher cost debt in 1995 In 1996 and each of the preceding five years, internally F dher available cash resulting from the sale of COPCO permit-generated cash exceeded the Company's capital requirements ted a higher level of debt retirement than in 1994. In 1996 the and dividend payments, thereby improving the Company's finan- debt retirement program has resulted in a reduction of $12 mil-cial condition. Contnbuting to the Company's improved financial lion in annualized interest cond: tion were a reduction in interest expense and dividend The Company meets its short-term hquidity requirements l requirements associated with the Company's ongoing program to pnmarily through the issuance of commercial paper, borrowings ) reduce debt and refinance higher-cost,long-term debt and pre - under a revolving credtt agreement and knes of credit The ferred stock and increased revenues from sales to other utihties, Company had $288 mdlion of short term debt including $200 The Company expects that its future liquidity and capital million of commercial paper outstanding at December 31,1996. l resources will be reduced as a resuit of the Competition Act At December 31,1996, the Company's embedded cost of ! The Company is pursuing a strategy to reduce its stranded costs debt was 6.9% with 12.8% of the Company's long-term debt
- and the associated capitahzation roughly in proportion to the having floating rates. The coverage ratios under the Company's j i current capitalization, which would reduce the Company's liquidi- mortgage indenture and Articles of incorporation as of l ty and capital resource requirements. The Company cannot pre. December 31,1996, were 4.39 and 2.50 times, respectively, i dict the level of stranded cost recovery which will be permitted compared with minimum issuance requirements of 2.00 and under the Compet. tion Act, the impact of any such recovery on 1.50 times, respectively. The Company believes that its internal the Company's capitalization or whether intemally generated sources of funds will be sufficient to cover its fixed charges for l cash will continue to meet or exceed the Company's capital 1997.
requirements and dividend payments. As of December 31,1996, the Company's capital structure consisted of 49.1% common equity; 6.3% preferred stock and Outlook Company obhgated mandatonly redeemable preferred securities 1 (which comprised 3.2% of the Company's total capitalization The Company's future financial cordition and its future operat-structure); and 44.6% long-term debt ing results are substantially dependent upon the effects of the The Company expects its level of capital investment in gen- Competttion Act and other competitive initiatives. Additional fac-eration utihty plant to decrease in future years to mitigate costs lors that affect the Company's financial condition and future j in anticipation of compettion. Total construction program expen- operating results include operation of nuclear generating facili-l ditures, primarily for utehty plant were $534 milhon in 1996 and ties, sales to other utihtees, accounting issues, inflation, weather , l are estimated to be $560 milhon in 1997 and $1,225 m.thon for and compliance with environmental regulations, i the penod 1998 to 2000. The Company's construction program is subject to periodic review and revision to reflect changes in Competition Act economic conditions and other appropnate factors. Certain The Competition Act was enacted in December 1996, providing j facihties under construction and to be constructed may require for the restructunng of the electric utihty industry in permits and hcenses which the Company has no assurance will Pennsylvania. The C* petition Act requires the unbundhng of ! be granted. electhe services into separate generation, transmission and dis-The Company's operations have in the past and may in the tnbution services with open retail competition for generation. future require substantial capital expenditures in order to comply Electric distnbution and transmission services will remain regu-l with environmental laws. lated by the Pennsylvania Pubhc Ut:hty Commission (PUC). The The Company has undertaken a number of new ventures, Competition Act requires utihties to submit to the PUC restruc-pnncipally through its Telecommunications Group, some of which turing plans, including their stranded costs which will result from require significant cash commitments. For the penod 1997 compet tion. Stranded costs include regulatory assets, nuclear through 2000, the Company plans to invest approximately decommissioning costs and long-term purchased power commit-
$200-$300 million in such ventures. ments, for which full recovery is allowed, and other costs, inciud-Cash flows from operations were $1,172 milhon in 1996, ing investment in generating plants, spent-fuel disposal, retire-substantially consistent with the 1995 and 1994 levels. Cash ment costs and reorganization costs, for which an opportun4y flows consisted of earnings, non-cash charges of depreciation for recovery is allowed in an amount determined by the PUC as and deferred income taxes. Just and reasonable. These costs, after mitigation by the utihty.
Cash flows used in investing actmties were $663 milhon as are to be recovered through the Competitive Transition Charge compared to $465 milkon in 1995 and $589 milhon in 1994. (CTC) approved by the PUC and collected from distnbution cus-While the Company's construction program has been relatively tomers for up to nine years (or for an a!ternative penod deter-stable, the Company has rnade significant investments in diversi- mined by the PUC for good cause shown). Dunng that period, fied activities and other obhgations. Net funds used in these the utihty is subject to a rate cap which provides that total activities were $114 milhon, consisting of $58 milhon for charges to customers cannot exceed the rates in place as of telecommunications ventures, $44 milhon for nuclear plant December 31,1996, subject to certain exceptions.
Management's Discussion and Analysis of Finanaal Cond; tion and Results of Operations (Cont:nued) 17 Full electrie generation competition will be phased in, in result in an estimated 2.9% reduction in the Company's retail three steps, beginning January 1,1999. Direct retail access is electric rates. The Company estimates that the consummation of to be phased in for one-third of each customer class by January the transaction as proposed in the Application would reduce the , 1,1999, for an additional one-third by January 1,2000 and for Company's annual revenues by approximately $650 million and l all remain:ng customers by January 1,2001. the Company's annual operating expenses by $501 million, j The Competition Act also authorizes the PUC to approve by resulting in an estimated reduction in annual net income of J adopting a Quahfied Rate Order (ORO) the issuance by a utility, $149 million. The reduction in revenue results from the elimina- ' a finance subsidiary of a utility or a third party assignee of a util- tien of the revenue requirements of stranded costs, and the ity of Transition Bonds as a mechanism to mitigate stranded reduction in operating expenses results from decreases in investment and reduce customer rates. Under the Competition depreciation, interest expense and associated income taxes. The Act, proceeds of Transition Bonds are required to be used prin- impact on the Company's eamings per share will depend on the cipally to reduce quahfied stranded costs and the related capital- price at which shares of the Company's Common Stock are pur-ization of the utility. The Transition Bonds are repayable from the chased. If Common Stock is purchased at a price above book value irrevocable intangible Transition Charges (lTC) which are collect- ($20.88 at December 31,1996), eamings per share will be ed in lieu of CTC. The maximum matunty of the Transition Bonds reduced. is ten years. Under the Competition Act, the Company expects that its On January 22,1997, the Company filed an Application rates for transmission and distnbution services will be capped at with the PUC for a ORO authonzing the issuance of $3.9 billion their current levels for 4.5 years and the generation portion of of Transition Bonds to fund $3.6 bilhon of stranded costs and rates for up to nme years. In recognition of the capping of rates
$277 million of transaction and use of proceeds costs.The at current levels, at December 31,1996, the PUC approved the Company has requested expedited review of its Application Company's request to roll-in and eliminate the ECA-under the Competition Act, which requires the PUC to complete The Company cannot predict whether the PUC will issue its review of the Application and issue a f'nal determination the requested ORO, the level of stranded cost recovery autho-within 120 days. rized by any ORO or the amount of Transition Bonds,if any, ulti-The Application, which has been filed in advance of the mately issued pursuant to any ORO. The Company bekeves that Company's required restructuring filing, seeks recovery of $3.6 once the issues surrounding the recovery of its stranded costs bilhon of the Company's estimated $7.1 bilhon (at December 31, are resolved, it will be able to compete effectively in the genera-1998) total stranded costs through the issuance of the tion market pnmanly because of its marketing efforts and its Transition Bonds covered by the Application. The Company's low generation costs.
estimate of total stranded costs includes $3.9 bilhon of genera-tion assets, $560 milhon of unfunded and as yet unrecorded other Competitive initiatives decommissioning expenses and $2.6 billion of regulatory assets. During 1996, the Federal Energy Regulatory Commission (FERC) Recovery of the portion of the Company's stranded costs not issued Order No. 888 which requires public utihties to file open-covered by the Application will be requested by the Company in access transmission tanffs for wholesale transmission services in its restructuring fihng, which is presently anticipated to be made accordance with non-discriminatory terms and condrtions estab-on Apn! 1,1997. To the extent the Company is not ultimately hshed by the FERC. The FERC's new rules provide for the recov-permitted by the PUC to recover its retail electric stranded ery of legitimate and venfiable wholesale stranded costs. The costs, this amount could result in a charge against earnings. Company does not have any stranded costs related to this por-The Application sets forth the Company's proposal for the tion of its business. issuance of Transition Bonds. The proposal provides for (i) the In response to Order No. 888, the Company and the other sale by the Company to an unrelated special purpose entity members of the Pennsylvania-New Jersey-Maryland (SPE) of the intangible transition property authorized under the Interconnection Association (PJM) submitted to the FERC sepa- J Competition Act, which represents the nght to recover through rate fikngs proposing to restructure PJM. The Company pro-the ITC the $3.9 bilhon of stranded costs and related transaction posed five major irntiatives to reduce the costs of electricity and use of proceeds costs, and (ii) the issuance by the SPE of while preserving the reliabihty and universal service that is the Transition Bonds. The Company beheves that such a trans- essential to Pennsylvania citizens. In November 1996, the FERC ; action would result in the exclusion of the ITC from the ssued an order rejecting both of the PJM restructuring fihngs. I Company's revenues and off-balance sheet treatment of the The FERC identified two issues that remain to be resolved: Transition Bonds; however, such accounting treatment will be independence of the independent system operator; and open subject to Secunties and Exchange Commission review. access transmission pricing tariffs that are nondiscriminatory. The Company proposes using the proceeds it receives from The FERC directed the parties to refile their proposals, prefer-the SPE, resulting from the issuance of the Transition Bonds, to ably as s,ie proposal, resolving these issues by December 31, pay estimated transaction and use of proceeds costs of $277 1996, with tanffs to be effective March 1,1997. On December , milhon, to settle deferred fuel balances of $240 million and to 31,1996, the PJM member companies, including the Company, { reduce capitalization by approximately $3.4 billion. The capital- filed a joint comphance filing with the FERC. The fihng was not i ization reduction is expected to be proportionate to the a complete consensus but included competing proposals in cer-Company's current capitalization. Specific secunties to be tain areas such as transmission rate structure and transmission I retired and the manner in which they are to be retired have not constraint / congestion control. The PJM member companies been determined and will depend on market conditions at the requested the FERC to choose between the options for imple-time of issuance of Transition Bonds. mentation dunng the interim period. The FERC is expected to Adoption by the PUC of the requested ORO and issuance rule on this fihng in the first quarter of 1997. of $3.9 bilhon of Transition Bonds at current interest rates would I
_ ___ _ ___ ._ _ ~ . _ _m - _ . _ . . _ _ _ - . _ _ _ _ _ _ ___ 18 PECO Energy Company and Subsidiary Companies # o The Company received approval for its transmission service weighted-average capacity factor. The Company-owned nuclear tariff covering network and point-to-point services and a market- plants produced 43% of the Company's output, including pur-based rate energy sales tariff that allows the Company to sell chased power, despite the shutdown of both Salem units during , wholesale energy at market-based rates outside the PJM control 1996. Nuclear generation is the most cost-effective way for the l area, During the latter part of 1996, the Company also request- Company to meet customer needs and commitments for sales ! ed approval from the FERC to remove the existing cost-based to other utilities. cap on prices charged for power purchased by the Company in anticipation of later resale in the wholesale market and certain Sales to Other Utilities changes regarding the terms of the buy-for-resale agreements- In the ordinary course of business, the Company enters into l The transactions covered under the onginal market-based rate tar- commitments to buy and sell power. As of December 31,1996, j iff were rolled into the more recent request Approval of the new the Company entered into long-term agreements to purchase l tariff provisions will allow the Company to purchase and re-sell from unaffiliated utilities, primanly in 1997, energy associated l energy at market-based rates both within PJM and outside PJM. with 2,200 megawatts (MW) of capacity. These purchases will l The gas industry is continuing to undergo structural be utilized through a combination of sales to jurisdictional cus- , ! changes in response to FERC policies designed to increase ' tomers,long-term sales to other utilities and open market sales. competition. This has included requirements that interstate gas The Company's future results of operations are dependent in pipelines unbundie their gas sales service from other regulated part on its ability to successfully market the rest of this genera-tariff services, such as transportation and storage. In anticipation tion. See note 4 of Notes to Consolidated Financial Statements. , of these changes, the Company has modified its gas purchas'ng in the wholesale market, the Company has increased its ! arrangements to enable the purchase of gas and transportation sales to other utilities, but increased competition has reduced I at lower cost During 1996 the Company, through a wholly the Company's margin on these sales. As of December 31, l owned subsidiary, successfu!!y participated in a pilot program 1996, the Company has entered into long-term agreements ' l outside the Company's gas service territory to market natural with unaffiliated utilities to sell energy associated with 1,460 gas and other services. MW of capacity, of which 725 MW of these agreements are for As a result of competitive pressures, the Company has con
- 1997 and the remainder run through 2022.
tinued to negotiate long-term contracts with many of its larger-volume industrial customers. Although these agreements have Accounting issues resulted in reduced margins, they have permitted the Company The Company accounts for all of its regulated operations in to retain these customers. During 1996, energy sales under accordance with Statement of Financial Accounting Standards long-term contracts were 8% of total electric sales. (SFAS) No. 71," Accounting for the Effect of Certain Types of l Regulation" which requires the Company to record the financial Regulation and Operation of Nuclear Generating statement effects of the rate regulation to which the Company Facilities is currently subject. Use of SFAS No. 71 is applicable to the util- ) The Company's financial condition and results of operations are ity operation of the Company which meet the following cnteria: in part dependent on the continued successful operation of its {
- 1) third-party regulation of rates; 2) cost-based rates; and 3) a nuclear generating facilities. The Company's nuclear generatin9 reasonable assumption that all costs will be recoverable from facihties represent apprommately 45% of its installed generatin9 customers through rates.
capacity. Because of the Company's substantial investment in, By January 1,1999, the date when market competition is and reliance on, its nuclear generating units, any changes in re9- introduced for retail generation under the Competition Act, the ulations by the Nuclear Regulatory Commission (NRC) requinn9 Company expects it will no longer meet the cnteria of SFAS No. additional investments or resulting in increased operating costs 71 for this separable portion of its operations. When the of nuclear generating units could adversely affect the Company- Company determines that the cnteria required by SFAS No. 71 Public Service Electric and Gas Company (PSE&G), the are no longer satisfied. the Company will adopt the provisions of operator of Salem Units No.1 and No. 2, which are 42.59% SFAS No.101," Regulated Enterprises Accounting for the owned by the Compaay, removed the units from service in the Discontinuance of Apphcation of FASB Statement No. 71." SFAS second quarter of 1995. PSE&G informed the NRC at that time l No.101 requires the elimination of all effects of any actions of I l that it had deterroned to keep the Salem units shut down pend- regulators that have been recognized as assets and liabihties j ing review and resoluten of certain equipment and management pursuant to SFAS No. 71 and a determination of impairment of issues and NRC agreement that each unit is sufficiently prepared plant assets under SFAS No.121," Accounting for the to restart. PSE&G oported that Unit No. 2 is expected to return to impairment of Long-Lived Assets and for Long-Lived Assets to service in the second quarter of 1997 and Unit No.1 is expected Be Disposed Of." j to return to service in the summer of 1997. It is the Company's in its January 22,1997 Application, the Company estimat-l behef that the earliest that Unit No. I will retum to service is late ed total stranded costs of $7.1 bilhon, including $2.6 billion of 4 in the third quarter of 1997. The Company expects to incur and regulatory assets, and $3.9 billion of plant assets. expense at least $95 milhon in 1997 for increased costs related Given the stranded cost recovery provisions of the to the shutdown. As of December 31,1996 and 1995, the Competition Act, the Company believes that it will be given the Company had incurred and expensed $149 milhon and $50 mil- opportunity for full recovery of its regulatory assets. In addition, lion, respectively, for replacement power and maintenance costs as of December 31,1996 there is no impairment of plant costs I related to the shutdown of Salem. See note 4 of Notes to under SFAS No.121. Consohdated Financial Statements. Dunng 1996. Company-oper- For 1996, the Company believes that its wholesale opera-ated nuclear plants operated at an 89% weighted-average capac- tions continue to meet the cntena for the continued apphcation ity factor and Company-owned nuclear plants operated at a 68%
Management's Discussion and Analysis of F nanaal Condition and Results of Operations (Contrnved) 19 of SFAS No. 71. Due to the market-based pncing of generation evaluation to determine the eostence and nature of the contam-provisions of the PJM restructuring proposal,it is anticipated inabon, detailed evaluation to determine the extent of the conta-that, upon acceptance of the proposal by the FERC, the mination and the necessity and possible methods of remedia-Company's wholesale energy sales operations would no longer tion, and implementation of remediation. Eight of the sites are be subject to the provisions of SFAS No. 71, The Company does currently under some degree of active study or remediation. not beheve that the discontinuance of SFAS No. 71 for its As of December 31,1996 and 1995, the Company had wholesale energy sales operations would result in a charge accrued $28 and $27 milhon, respectively, for environmental against income. Based on projections of the Company's retail investigation and remediation costs, including $16 and $13 mil-load growth, the Company beheves all of the owned generation hon, respectively, for MGP investigation and remediation that capacity will be necessary to meet its retail load. currently can be reasonably estimated. The Company expects to in 1996, the Financial Accounting Standards Board (FASB) expend $7 milkon for such activities in 1997. The Company can-issued SFAS No.125," Accounting for Transfers and Servicing of not currently predict whether it will incur other significant habih-Financial Assets and Extinguishments of Liabikties,* which is ties for any additional investigation and remediation costs at currently effective for transfers and servicing of financial assets these or additional sites identified by the Company, environmen-and extinguishment of habihties occurnng after December 31, tal agencies or others, or whether all such costs will be recover-1996. Adoption of SFAS No.125 is not expected to have a able from third parties. material effect on the Company's financial condition or results of operation. Forward-Looking Statements Dunng 1996, the FASB issued the Exposure Draft Except for the historical information contained herein, certain of
' Accounting for Certain Liabihties Related to Closure or Removal the matters discussed in this Report are forward-looking state-of Long-Lived Assets." The FASB has recently taken under con- ments which are subject to nsks and uncertainties. The factors sideration the expansion of the scope of the project to include that could cause actual results to differ materially include those closure or removal liabihties that are incurred at any time in the d,scussed herein as well as those hsted in notes 3 and 4 of operating hfe of the related long-hved asset. The Exposure Draft Notes to Consolidated Financial Statements and other factors onginally included only habikties incurred in the acquisition, con- discussed in the Company's fihngs with the Secunties and struction, development or early operation of a long-hved asset. Exchange Commission. Readers are cautioned not to place The FASB plans to issue either a fina! Statement or a revised undue rehance on these forward-looking statements, which Exposure Draft in the second quarter of 1997. Until such time speak only as of the date of this Report. The Company under-that the final Statement is issued or a revised Exposure Draft is takes no obligation to pubhcly release any revision to these for-issued, the Company is unable to determine what,if any, effect ward-looking statements to reflect events or circumstances the final Statement might have on its financial condition or a'ter the date of this Report.
results of operations. See note 4 of Notes to Consohdated For a discussion of other contingencies, see notes 3 and 4 Financial Statements. of Notes to Consolidated Financial Statements. Other Factors Annual and quarterly operating results can be significantly affected by weather. Since the Company's peak demand is in the summer months, temperature vanations in summer months are generally more significant than during winter months. Inflation affects the Company through increased operating costs and increased capital costs for utihty plant. As a result of the rate cap imposed by the Competition Act and the ehmination of the ECA, the Company may have hmited opportunity to pass the costs of inflation through to customers. The Company's operations have in the past and may in the future require substantial capital expenditures in order to comply with environmentallaws. Additionally, under federal and state environmental laws, the Company is generally hable for the costs of remediating environmental contamination of property now or formerly owned by the Company and of property contaminated by hazardous substances generated by the Company. The Company owns or leases a number of real estate parcels, including parcels on which its operations or the operations of others may have resulted in contamination by substances which are considered hazardous under environmental laws. The Company is currently involved in a number of proceedings relat-ing to sites where hazardous substances have been deposited and may be subject to additional proceedings in the future. The Company has identified 27 sites where former manu-factured gas plant (MGP) activities have or may have resulted in site contamination. The Compary is presently engaged in per-forming vanous levels of activities at these sites, including initial
20 Report of Independent Accountants - To the Shareholders and Board of Directors PECO Energy Company: We have audited the accompanying consolidated balance sheets of PECO Energy Company and Subsidiary Companies as of December 31,1996 and 1995, 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 31,1996. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted 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 supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overa!I financial statement 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 consolidated financial position of PECO Energy Company and Subsidiary Companies as of December 31,1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31,1996, in conformity with generally accepted accounting pnnciples. m+ L L/' 2400 Eleven Penn Center Philadelphia, Pennsylvania February 3.1997
o PECO Energy Company and Subsidiary Companies 21 o.
, Consolidated Statements of income For the Years Ended December St. 1996 1995 1994
~ _ . _ - housands,of Do,7ars Operating Revenues Electric $ 3,854,836 $ 3,775,326 $ 3,624,797 Gas 428,8_14_ 410,830 415,835_
Total Operating Revenues 4,283,650 4,186,156 4,040,632 operating Expenses Fuel and Energy interchange 972,380 762,762 703,590 Other Operating 949,495 943,476 937,849 Early Retirement and Separation Programs - - 254,106 Maintenance 324,727 307,797 327,714 Depreciation 489,001 457,254 442,101 Income Taxes 343,105 396,897 234,033 Other Taxes 299,546_ 314,071 311,689 Total Operating Expenses 3,378,254 3,182,257,_ 3,211,082_ , operating income 905,396 1,003,899 829,550 . ' other income and Deductions ' Allowance for Other Funds Used During Construction 10,222 14,371 10,180 Gain on Sale of Subsidiary - 58,745 - I Incomo Taxes 3,004 (34,820) (15,291) Other, net (1,976) (444) 23,121 Total Other income and Deductions 11,250, _ 37,852 18,010 Income Before Interest Charges 916,646 1,041,751 847,560 Interest Charges Long-Term Debt 328,557 386,205 387,279 Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership, which holds Solely Subordinated Debentures of the Company 26,723 20,987 8,570 Short-Term Debt 53,886_ 37,506 36,987 Totallnterest Charges 409,166 444,698 432,836 Allowance for Borrowed Funds Used During Construction (9,725) (12,679), (11,9_8_9). Net Interest Charges 399,441 432,019 420,847 Net income 517,205 609,732 426,713 Preferred Stock Dividends 18.,036 23,217 37,298_ Emmings Applicable to Common Stock $ 499,169 $ 586.515 $ 389,415 Average Shares of Common Stock l outstanding m mws i 222,490 221,859 221,554 Earnings per Average Common Share wo $ 2.24 $ 2.64 $ 1.76 Dividends per Common Share %s. $ 1.755 $ 1.65 $ 1.545 See Notes to Consohdated Finanaa! Statements. I
22 PECO Energy Company and Subsidiary Companies 4 i Consolidated Balance Sheets - i 1 J y At December 31, 1996 _ _ 1995 Thousands of Dal.ar: I ! Assets a l Utility Plant, at s3riginal Cost Electric $ 13,622,380 $ 13,441,880 Gas 1,005,507 954,180 Common _ 317,065_ ,_ 29%899, 14,944,952 14,695,959 Less Accumulated Provision for Depreciation .__5,0_46,950_ _4,623,707_ 9,898,002 10,072,252 Nuclear Fuel, net 199,579 191,084 Construction Work in Progress 661,871 494,194 Leased Property, net _ _ _ _.182,088_ __ _ _180,425_ Net Utility Plant 10,941,540 10,937,955 Current Assets Cash and Temporary Cash investments 29,235 20,602 Accounts Receivable, net
' Customers 19,159 75,220 Other 74,377 71,997 Inventories, at average cost Fossil Fuel 84,633 78,260 Materials and Supplies 119,743 123,387 Deferred Energy Costs-Gas 30,013 (3,722)
Other _ 63,234,_ . _ ___60,868 Total Current Assets 420,394 426,612_ Deferred Debits and Other Assets Recoverable Deferred Income Taxes 2,325,721 2,425,311 Deferred Limerick Costs 361,762 390,433 Deferred Non-Pension Postretirement Benefits Costs 233,492 248,085 Deferred Energy Costs-Electric 92,021 59,605 Investments 432,574 318,448 Loss on Reacquired Debt 283,853 308,577 i Other _ _ _ , . 169,262 . _ _ _ ,193,4 79. Total Deferred Debits and Other Assets 3,898,685 3,943,938 Total Assets $ 15,260,619 $ 15,308.505 See Notes to Consobdated Foaanaal Statements.
- PECO Energy Company and Subsidiary Companies 23
, Cony.>loated Batance Sheets (Continued)
Atjecempr 3h, _ - - , _ - M6 _ 1995 Thousands of Dottars Capitalization and Liabilities CapMalization Common Shareholders' Equity Common Stock $ 3,517,614 $ 3,506,313 Other Paid-in Capital 1,326 1,326 Retained Earnings 1,127,041 _ _ . 1,023,708 4,645,981 4,531,347 Preferred and Preference Stock Without Mandatory Redemption 199,367 199,367 With Mandatory Redemption 92,700 92,700 Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership, which holds Solely i Subordinated Debentures of the Company 302,182 302,282 I Long-Term Debt 3,935,514 4,198,283 l Total Capitalization _ . _ 9,175._,7__44_ . - _ 9_,323_,9 _79. i Current Liabilities Notes Payable, Bank 287,500 - Long Term Debt Due Within One Year 283,303 401,003 Capital Lease Obligations Due Within One Year 49,347 . 60,320 Accounts Payable 212,966 299,731 ) Taxes Accrued 71,482 107,621 Interest Accrued 82,006 88,047 Dividends Payable 22,407 20,722 Other 94,353 74,847 Total Current Liabilities _ _1,1_03@ 64. . ._
,1,,052,291._
Deferred Credits and Other Liabilities Capital Lease Obligations 132,741 120,105 Deferred Income Taxes 3,745,242 3,685,534 Unamortized Investment Tax Credits 336,132 351,569 Pension Obligation 224,454 216,283 Non-Pension Postretirement Benefits Obligation 315,058 326,251 Other _ _ _ _2_27,884_ _ _ ___232,493 Total Deferred Credits and Other Liabilities _ 4,981,511_ _ _ 4,932,235_ Commitments and Contingencies (Notes 3 and 4)
. Total Capitalization and Liabithles $ 15,260,619 $ 15.308,505 See Notes to Consolidated Financial Statements.
1 24 PECO Energy Company and Subsidiary Compwes 4 l Consolidated Statements of Cash Flows - For the Years Ended December 31, 1996 1995 _1994 Thousands of Dollars Cash Flows from Operating ActMties Net income $ 517,205 $ 609,732 $ 426,713 Adjustments to reconcile Net income to Net Cash provided by Operating Activities: Depreciation and Amortization 566,412 531,299 517,681 1 Deferred income Taxes 166,771 183,514 (23,306) I Gain on Sale of Subsidiary - (58,745) ~- Early Retirement and Separation Programs - - 254,106 Deferred Energy Costs (66,151) (71,104) (33,205) , Amortization of Leased Property 31,400 42,900 61,900 ' Changes in Working Capital: _
)
Accounts Receivable 53,681 (8,108) 23,508 Inventories (2,729) (10,872) 18,210 Accounts Payable (86,765) (4,686) 5,342 Other Curren: Assets and Liabilities (25,040) 9,641 52,940 Other items affecting Operations 17,461 16,855 (9,175) Net Cash Flows from Operating Activities 1,172,245 1,240,336 1,294,714 Cash Flows from inve sFng Activities investment in Plant (548,854) (532,614) (570,903) Proceeds from Sale of Subsidiary - 150,000 - Increase in Other Investments (114,126) (82,041)_ (17,951) Net Cash Flows frem investing Activities - (662,980) (464,655) (588,854) Cash Flors from Financing Activttles Change in Short Term Debt 287,500 (11,499) (107,851) Issuance of Common Stock 11,301 15,585 2,308 Retirement of Preferred Stock - (78,105) (238,800) Issuance of Company Obligated Mandatority Redeemable Preferred Securities of a Partnership - 81,032 221,250 issuance of Long-Term Debt 43,700 182,540 245,100 Retirement of Long-Term Debt (427,463) (575,713) (397,763) Loss on Reacquired Debt , 24,724 12,302 22,125 Dividends on Preferred and Common Stock (411,569) (390,340) (377,883) Change in Dividends Payable 1,685 5,626 (3,249) Expenses of issuing Long-Term Debt and Capital Stock 890 (577) (9,150) Capital Lease Payments _ _ 31,400) ( (_ _ _42,900) __61,9_00) ( Net Cash Flows from Financing Activities (500,632) (802,049) (705,813) Increase /(Decrease)in Cash and Cash Equivalents 8,633 (26,368) 47 Cash and Cash Eqt.ivalents at beginning of period _ 6 20,602_ _ 4_6J70_ _ 46,923_ Cash and Cash Equivalents at end of period $ 29,235 $ 20,602 $ 46,970 See Notes to Consohdated Financial Statemants.
{
- PECO Energy Company and Subsidiary Companies 25 e-
! Consolidated Statements of Changes in Common Shareholders' Equity and Preferred Stock Other Common Stock Paid-in Retained Preferred Stock Af Amounts m Thousands __ _ __ . _ . _ , _ Shares _ _ Amount _ _ Capital , Eamings , . Shares _ . Amount Balance at January 1,1994 221,517 $ 3,488,477 $ 1,214 $ 773,727 6,090 $ 608,972 Net income 426,713 Cash Dividends Declared Preferred Stock (at specified annual rates) (35,706) Common Stock ($1.545 per share) (342,177) l Expenses of Capital Stock Activity (11,662) Capital Stock Activity l Long-Term incentive Plan issuances 92 2,251 (308) Preferred Stock issuances 57 Preferred Stock Redemptions (21 388) (238,800) l Balance at December 31,1994 221,609 3,490,728 1,271 810,507 3,702 370,172 l Net income 609,732 Cash Dividends Declared I Preferred Stock (at specified annual rates) (24,253) Common Stock ($1.65 per share) (366,087) Expenses of Capital Stock Activity (4,035) i Capital Stock Activity Long-Term incentive Plan issuances 563 15,585 (2,156) f Preferred Stock issuances 55 Preferred Stock Redernptions (781) (78,105) Balance et December 31,1995 222.172 3,506,313 1,326 1,023,708 . 2,921 292,067 Net income 517,205 Cash Dividends Declared Preferred Stock (at specified annual rates) (21,042) Common Stock ($1.755 per share) (390,527) i Expenses of Capital Stock Activity (275) l CapitalStock Activity l 370 _ 11,301_ (2_,028), Long-Term et Decemberincentive Plan issuances _ 222,542 $ 3,517,614 1,326 $$ 1,127,041 Salance 31,1993 2,921 $ 292,067 f 7 See Notes to Consohdated Financial Statements. l
~. - .-- ~ _ . . - - -.- . ~ _ - - - - - - __ -
26 PECO Energy Company and Subsidiary Companies
- Notes to Consolidated Financial Statements -
- 1. 5!gnificant Accounting Policies tion of the Energy Cost Adjustment (ECA), the PUC approved the roIHn of energy costs into the base rates charged to the General Company's electric customers. Effective December 31,1996, The consolidated financial statements of PECO Energy the Company's classes of electric service are no longer subject Company (Company) include the accounts of its utihty subsidiary to the ECA companies, all of which are wholly owned. Accounting polic;es The Company's PUC-established Purchased Gas Cost are in accordance with those prescribed by the regulatory Adjustment (PGC) which allows for the recovery of the differ-authorities having jurisdiction, principally the Pennsylvania Public ence between actual purchased gas costs and the amounts of Utility Commission (PUC) and the Federal Energy Regulatory such costs included in the base rates charged to the Company's Commission (FERC). The Company has unconsolidated non-util. natural gas customers will continue to be in effect subsequent ity subsidiaries which are not material. The unconsolidated sub. to Jani.sary 1,1997.
sidiaries are accounted for under the equity method. Nuclear Fuel Use of Esumates The cost of nuclear fuelis capitalized and charged to fuel The preparation of financial statements in conformity with gen. expense on the unit of production method. Estmated costs of erally accepted accounting principles requires management to nuclear fuel disposal are charged to fuel expense as the related make estimates and assumptions that affect the reported fuel is consumed. The Company's share of nuclear fuel at Peach amounts of assets and liabilities and disclosure of contingent Bottom Atomic Power Station (Peach Bottom) and Salem assets and liabilities at the date of the financial statements and Generating Station (Salem) is accounted for as a capital lease. the reported amounts of revenues and expenses during the Nuclear fuel at Limerick Generating Station (Limerick) is owned. reporting period. Actual results could differ from those estimates. Estimates are used in the Company's accounting for Depreciation and Decommissioning unbilled revenue, the allowance for uncollectible accounts, fuel The annual provision for depreciation is provided over the esti-adjustment clauses, depreciation and amortization, taxes, mated service lives of plant on the straight-line method. Annual reserves for contingencies, employee benefits, certain fair value ' depreciation provisions for financial reporting purposes, and recoverability determinations, and nuclear outage costs, expressed as a percentage of average depreciable utility plant in among others. service, were approximately 2.90% in 1996,2.80% in 1995 and 2.77% in 1994 See note 3 for information concerning the Accounung for the Effects of Regulation change in 1996 to depreciation and amortization. The Company fallows the provisions of Statement of Financial The Company's share of the 1990 estimated costs for Accounting Standards (SFAS) No. 71," Accounting for the Effects decommissioning nuclear generating stations currently included of Certain Types of Regulation" requiring the Company to record in electric base rates is being charged to operations over the the financial statement effects of the rate regulation to which the expected service life of the related plant The amounts recov-Company is currently subject if a separable portion of the ered from customers are deposited in trust accounts and invest-Company's business no longer meets the provisions of SFAS No. ed for funding of future costs. These amounts, and realized 71, the Company would be required to eliminate the financial investment eamings thereon, are credited to accumulated , statement effects of regulation for that portion (see note 3). depreciation (see note 4). l Revenues income Taxes l Electric and gas revenues are recorded as service is rendered or The Company uses an asset and liability approach for financial energy is delivered to customers. At the end of each month, the accounting and reporting of income taxes. The effects of the Company accrues an estimate for the unbilled amount of energy Alternative Minimum Tax (AMT) are normalized. Investment tax delivered or services provided to customers (see note 7). credits are deferred and amortized to income over the estimated useful life of the related utility plant (see note 13). Fuel and Energy Cost Adjustment Clauses The Company's classes of service historically have been subject Allowance for Funds Used During Construction (AFUDC) to fuel adjustment clauses designed to recover or refund the dif. AFUDC is the cost, dunng the period of construction, of debt ferences between the actual cost of fuel, energy interchange, and equity funds used to finance construction projects. AFUDC i purchased power and gas, and the amounts of such costs is recorded as a charge to Construction Work in Progress, and included in base rates. Differences between the amounts billed the credits are to Interest Charges for the cost of borrowed to customers and the actual costs recoverable were deferred funds and to Other income and Deductions for the remainder as , and recovered or refunded in future periods by means of the allowance for other funds. The rates used for capitalizing prospective adjustments to rates. Generally, such rates were AFUDC, which averaged 9.38% in 1996,9.88% in 1995 and adjusted every twelve months. 7.74% in 1994, are computed under a method prescribed by in response to a Company proposal requesting the elimina- regulatory authorities. AFUDC is not included in regular taxable { i
.. ..- - . .. - - _ - . -- .. . -- -- ~ . - . - - . - . - - - - _
] + Notes to Consohdated Financ al Statements (Continued) 27 f income gnd the depreciation of capitalized AFUDC is not tax Gains and Losses on Reacquired Debt deductible. Gains and losses on reacquired debt are deferred and amortized j to interest expense over the period approved for rate-making Nuclear Outage Costs purposes, ) i incremental nuclear maintenance and refueling outage costs are i accrued over the unit operating cycle. For each unit, an accrual impairment of Long Lived Assets for incremental nuclear maintenance and refueling outage Effective January 1,1996, under SFAS No.121," Accounting for
- j expense is estimated based upon the latest planned outage the impairment of Long-Lived Assets and for Long-Lived Assets J. schedule and estimated costs for the outage. Differences to Be Disposed Of," long-lived assets are subject to periodic l l between the accrued and actual expense for the outage are analysis for impairment. No loss from impairment has been '
i recorded when such differences are known. recorded in 1996. i j Capitalized Software Costa Reclassifications ! Software projects which exceed $5 million are capitahzed. At Certain prior year amounts have been reclassified for compara- } December 31,1996 and 1995, capitalized software costs tive purposes. These reclassifications had no effect on net j totaled $78 million and $65 milhon (net of $29 million and $19 income or common shareholders' equity, j million accumulated amortization), respectively. Such capitalized amounts are amortized ratably over the expected lives of the , projects when they become operational, not to exceed ten years.
- 2. Nrture of Operations and Segment Information The Company is an operating utility which provides electric and and 64% of retail kilowatthour sales are in the suburbs around gas service to the pubhc in southeastern Pennsylvania. The total Philadelphia, and 6% of the retail service area and 36% of such area served by the Company covers 2,107 square miles. Electric sales are in the City of Philadelphia. Natural gas service is sup-service is supplied to an area of 1,972 square miles with a plied to a 1,475-square-mile area of southeastem Pennsylvania population of 3.6 million, including 1.6 million in the City of adjacent to Philadelphia with a population of 1.9 million.
Philadelphia. Approximately 94% of the retail electric service area For the Years Ended December 31, 1996 1995 1994 Thousands of Dollars Electric Operations - - Operating revenues: Residential $ 1,370,158 $ 1,379,046 $ 1,371,237 Small commercial and industrial 748,561 730,220 710,028 Large commercial and industrial 1,098,307 1,135,550 1,149,193 Other 140,133 136,988 136,002 (Decrease)/ increase in unbilled (25,950) 42,580 (11,130) Service territory 3,331,209 3,424,384 3,355,330 Interchange sales 25,991 17,488 23,017 Sales to other utilities 497,636 333,454 246,450 Total operating revenues 3,854,836 3,775,326 3,624,797 Operating expenses, excluding depreciation 2,560,669 2,405,876 2,429,452 Depreciation 462,315 430,993 415,854 Operating income $ 831,852 $ 938,457 $ 779,491 Utility plant additions $ 447,105 $ 435.400 $ 457,728
28 PECO Energy Company and Subsdary Companies e
*e For the Years Ended December 31, 1996 1995 . 1994 Thousands of Dollars Gas Operations -
Operating revenues: Residential $ 15,716 $ 15,48? $ 16,048 House heating 249,507 235,456 237,397 Commercial and industrial 132,822 125,631 128,077 Other 11,462 5,3S2 20,168 (Decrease)/ increase in unbilled (4,250) 6,640 (3,140) Subtotal 405,257 380,491 398,550 Other revenues (including transported for customers) 23,557 22,539 17,285 Total operating revenues 428,814 410,830 415,835 Operating expenses, excluding depreciation 328,585 319,127 339,529 Depreciation 26,686 26,261 26,247 Operating income $ 73,543 $ 65.442 $ 50,059 Utility plant additions $ 68,394 $ 63,192 $ 67,090 Identifiable Assets
- at December 31, Electric $ 10,287,444 $ 10,408,105 $ 10,410,461 Gas 858,471 785,881 768,279 Nonallocable assets 4,114,704 4,114,519 4,243,410 Total assets $ 15,260,619 $ 15.308.505 $ 15.422,150
- Includes uthty plant less accumulated depreciation, inventories and allocated common ublity property.
- 3. Rate Matters January 22,1997, the Company filed an Application with the PUC seeking to recover $3.6 bilhon of its stranded costs and to Competition Act securitize that recovery through the issuance by a third party The recently enacted Electricity Generation Customer Choice assignee of $3.9 billion of Transition Bonds. The Company and Competition Act (Competition Act) provides for the restruc. intends to seek recovery of the remaining $3.5 billion of its turing of the electric industry in Pennsylvania, including retail stranded costs in the Company's restructuring filing mandated competition for generation beginning in 1999. At that date, the by the Competibon Act. To the extent the Company is not ulti-Company expects it will no longer meet the criteria of SFAS No. mately permitted by the PUC to recever its retail electric strand-71 for the retail generation portion of its operations. The ed costs, this amount could result in a charge against earnings.
Competition Act requires the unbundling of electric services into However, as of December 31,1996, there is no impairment of separate generation, transmission and distribution services with its generation assets under SFAS No.121, and given the open retail competition for generation. Electric distribution and stranded cost recovery provisions of the Competition Act, the transmission services will remain regulated by the PUC. The Company believes that it will be given the opportunity for full Compebtion Act requires utilities to submit to the PUC restruc- recovery of its regulatory assets. turing plans, including their stranded costs which will result from Under the Compet: tion Act, the Company is required to use competition. Stranded costs include regulatory assets (see note the proceeds it receives from any securitization of the recovery 22), nuclear decommissioning costs and long-term purchased of stranded assets pnncipally to reduce quahfied stranded costs power commitments, for which full recovery is allowed, and other and related capitalization. In the Application, the Company pro-costs including investment in generating plants, spent fuel dis- poses using the proceeds it receives resulting from the issuance posal, retirement costs and reorganization costs, for which an of the Transition Bonds to pay estimated transaction and use of opportunity for recovery is allowed in an amount determined by Proceeds costs of $277 million, to settle deferred fuel balances the PUC as just and reasonable. These costs, after mitigation by of $240 million and to reduce capitalization by approximately the uthty, are to be recovered and collected from distribution $3.4 billion. The capitalizat on reduction is expected to be pro-customers for up to nine years (or for an alternative period Portionate to the Company's current capitalization. determined by the PUC for good cause shown). During that period, the utility is subject to a rate cap providing that total Umerick charges to customers cannot exceed rates in place as of Under its electric tariffs, the Company is recovenng $285 million December 31,1996, subject to certain exceptions. of deferred Limerick costs represent ng carrying charges and The Company estimates that its stranded costs resulting depreciation associated with 50% of Limerick common facilities. from retail generation competition at December 31,1998 will These costs are included in base rates and are being recovered be $7.1 bilhon. This estimate includes $3.9 billion of generating over a nine year period beginning October 1,1996. The assets, $560 milhon of unfunded and as yet unrecorded decom- Company is also recovering $137 million of Limenck Unit No.1
. missioning expenses and $2.6 bilhon of regulatory assets. On costs over a ten year period without a return on investment. At December 31,1996, the unrecovered portion of these balances
_. . _ -.m..___._ __--m __ . _ - . _ _ _ _ _ _ _ ~ _ - _ _ . _ _ _ . . . _ Notes to Consolidated Financial Statements (Contnued) 29 e-were $228 and $46 million, respectively. 4. Commitments and Contingencies Under its electric tanffs and ECA, the Company was allowed to retain for shareholders any proceeds above the aver- capital commitments age energy cost for sales of 399 megawatts (MW) of near-term Total construction program expenditures primarily for utility plant excess capacity and/or associated energy. In addition, beginning are est4 mated to be $560 million for 1997 and $1,225 million Apnl 1994, the Company became entitled to share in the bene- for the period 1998 to 2000. Construction expenditure esti-fits which result from the operation of both Limerick Units No.1 mates are reviewed and revised periodically to reflect changes and No. 2 through the retention of 16.5% of the energy savings, in economic conditions and other appropriate factors. Certain ; subject to certain hmits. During 1996,1995 and 1994, the facilities under construction and to be constructed may require l Company recorded as revenue net of fuel costs $82, $79 and permits and licenses which the Company has no assurance will
$68 milhon, respectively, as a result of the sale of the 399 MW be granted. Additionally, for the period 1997 through 2000, the of capacity and/or associated energy and the Company's snare Company plans to invest approximately $200-$300 million in of Limenck energy savings. other new ventures which includes telecommunications activities.
Pursuant to a PUC Declaratory Order issued in 1990, the The Company's operations have in the past and may in the Company deferred certain operabng and maintenance expenses, future require substantial capital expenditures in order to comply depreciation and accrued carrying charges on its capital invest- with environmental laws. ment in Limerick Unit No. 2 and 50% of Limerick common facili-ties. At December 31,1996 and 1995, such costs included in Nuclear insurance Deferred Limerick Costs totaled $88 and $91 milhon, respectively. The Price-Anderson Act currently limits the habikty of nuclear These costs are included in base rates and are being recovered reactor owners to $8.9 billion for claims that could arise from a over a nine year period beginning October 1,1996, single incident. The hmit is subject to change to account for the effects of inflation and changes in the number of licensed reac-Decsaretory Accounting order tors. The Company carries the maximum available commercial Pursuant to a PUC Declaratory Order, effective October 1,1996, insurance of $200 million and the remaining $8.7 billion is pro-the Company increased depreciation and amortization on assets vided through mandatory participation in a financial protection associated with Limenck by $100 million per year and pool. Under the Price-Anderson Act, all nuclear reactor decreased depreciation and amortization on other Company licensees can be assessed up to $79 milhon per reactor per assets by $10 million per year, for a net increase in depreciation incident, payable at no more than $10 million per reactor per and amortization of $90 million per year. incident per year. This assessment is subject to inflation and { i state premium taxes. In add: tion, Congress could impose rev- j Recovery of Non-Pension Postratirement Benefits Costs enue raising measures on the nuclear industry to pay claims. l Effective January 1995, in accordance with a PUC Joint The Company carries property damage, decontamination Pet tion, the Company increased electnc base rates by $25 mil- and premature decommissioning insurance in the amount of its lion per year to recover the increased costs, including the annual $2.75 billion proportionate share for each station loss resulting amortization of the transition obhgat on (over 18 years) deferred from damage to its nuclear plants. In the event of an accident, in 1994 and 1993, associated with the implementation of SFAS insurance proceeds must first be used for reactor stabilization No.106," Employers' Accounting for Postretirement Benefits and site decontamination. If the decision is made to decommis-Other Than Pensions,'(see note 6). Subsequent to January 1 sion the facihty, a portion of the insurance proceeds will be allo-1995, retail electric non-pension postrebrement benefits cated to a fund which the Company is required by the Nuclear expense in excess of the amount allowed to be recovered under Regulatory Commission (NRC) to maintain to provide for , the Joint Petition may not be deferred for future rate recovery. decommissioning the facility. The Company is unable to predict l During 1996 and 1995, the Company deposried $46.5 and the timing of the availability of insurance proceeds to the
$59.6 million, respecte,y, in trust accounts to fund its retail Company for the Company's bondholders, and the amount of l electric non pension postretirement benefits costs.These costs such proceeds which would be available. Under the terms of the
! include amounts charged to operat ng expense or capitahzed on various insurance agreements, the Company could be assessed I and after January 1,1995. up to $31 million for losses incurred at any plant insured by the lo s,curdance with a December 1994 PUC approved insurance companies. The Company is self-insured to the extent accountig order, the Company 'is recognizing $2.8 milhon in that any losses may exceed the amount of insurance main-(- non-pensic n postretirement benefits costs annually associated tained. Any such losses,if not recovered through the ratemaking ( with gas utility operabons. Dunng 1996 and 1995, the Company process, could have a material adverse effect on the Company's deposited $2.9 and $3.8 million, respectively, in trust accounts financial condition and results of operations. l to fund its gas non-pension postretirement benef;ts costs. The Company is a member of an industry mutual insurance company which provides replacement power cost insurance in Energy Cost Adjustment the event of a major accidental outage at a nuclear station. The Through December 31,1996, the Company was subject to a premium for this coverage is subject to assessment for adverse i PUC-estabbshed electric ECA which,in addibon to reconciling loss experience. The Company's maximum share of any assess-fuel costs and revenues, incorporated a nuclear performance ment is $13 million per year.
- standard which allowed for financial bonuses or penalties
( depending on whether the Company's system nuclear capacity Nuclear Decommissioning and Spent Fuel Storage factor exceeded or fell below a specified range. For the years The Company's 1990 estimate of its nuclear facihties' decom-ended December 31,1996,1995 and 1994, the Company missioning cost of $643 milhon is being collected through recorded bonuses of $22, $13 and $14 million, respe-tively. electric base rates over the life of each generating unit. Under
3o PECO Energy Company and Subsidiary Companies
- n i
current rates, the Company collects and expenses approximately temporary storage facihty which could accept spent nuclear fuel !
$20 million annually from customers. The expense is accounted from utilities soon after 1998. In addition, the DOEis exploring j for as a component of depreciation expense and accumulated other options to address delays in the waste acceptance schedule.
depreciation. At December 31,1996 and 1995, $256 and Peach Bottom and Limenck have on-site facilities with the
$216 million, respectively, was included in accumulated depreci- capacity to store spent nuclear fuel discharged from the units ation. In order to fund future decommissioning costs, at through the early 2000s. Life-of plant storage capacity could be l December 31,1996 and 1995, the Company held $266 and provided by the construction of on-site dry cask storage facili- l $223 million, respectively, in trust accounts which are included ties. Salem has on-site facilities with spent fuel storage capacity as an Investment in the Company's Consolidated Balance Sheet through 2008 for Unit No.1 and 2012 for Unit No. 2, Public and include both net unrealized and realized gains. Net unreal- Service Electric and Gas Company (PSEaG)is the operator of ized gains of $26 and $19 million were recognized as a Salem, which is 42.59% owned by the Company.
Deferred Credit in the Company's Consolidated Balance Sheet The Company is current!y recovering in rates costs for at December 31,1996 and 1995, respectively. The Company nuclear decommissioning and decontamination and spent fuel recognized net reahzed gains of $10, $9 and $7 milhon as Other storage. The Company believes that the ultimate costs of Income in the Company's Consolidated Statement of Income for decommissioning and decontamination and spent fuel disposal the years ended December 31,1996,1995 and 1994 respec- will continue to be recoverable, although such recovery is not tively. The most recent estimate of the Company's share of the assured. cost to decommission its nuclear units is $1.4 billion in 1995 dollars. The Corrpany has included the unfunded and as yet Energy Purchases unrecorded portion of the decommissioning trust fund estimate in the ordinary course of business, the Company enters into in its January 22,1997 application with the PUC. commitments to buy and sell power. As of December 31,1996, in an exposure diaft issued in 1996, the Financial the Company had long-term aggreements to purchase from l Accounting Standards Board (FASB) proposed changes in the unaffiliated utilities, pnmarily in 1997, energy associated with accounting for closure and removal costs of production facilities, 2,200 MW of capacity. During 1996, purchases under long-term including the recognition, measurement and classification of agreements resulted in expenditures of $44 million. At decommissioning costs for nuclear generating stations. The December 31,1996, these purchases result in commitments of FASB is currently co. sidenng expanding the scope of the approximately $259 million for 1997, $48 million for 1998,$51 l Exposure Draft to include closure or removal liabilities that are million for 1999, $52 million for 2000 and $50 million for 2001, incurred at any time in the operating life of the long-l:ved asset. These purchases will be utilized through a combination of sales ) The FASB plans to issue either a final Statement or a revised to jurisdictional customers pnmarily to compensate for the Salem j Egosure Draft in the second quarter of 1997. If current electric shutdown, long-term sales to other utihties and open market sales. utility industry accounting practices for decommissioning are changed, annual provisions for decommissioning could increase Environmental issues and the estimated cost for decommissioning could be recorded The Company's operations have in the past and may in the as a liability rather than as accumulated depreciation with recog- future require substantial capital expenditures in order to comply nition of an increase in the cost of the related asset. with environmental laws. Additionally, under federal and state Under the Nuclear Waste Policy Act of 1982 (NWPA), the environmental laws, the Company is generally liable for the costs U.S. Department of Energy (DOE) is required to begin taking of remediating environmental contamination of property now or possession of all spent nuclear fuel generated by the Company's formerly owned by the Company and of property contaminated nuclear units for long-term storage by no later than 1998, by hazardous substances generated by the Company. The Based on recent public pronouncements,it is not likely that a Company owns or leases a number of real estate parcels,includ-permanent disposal site will be available for the industry before ing parcels on which its operations or the operations of others 2015, at the earliest. In reaction to statements from the DOE may have resulted in contamination by substances which are that it was not legally obligated to begin to accept spent fuel in considered hazardous under environmental laws. The Company 1998, a group of utilities and state government agencies filed a is currently involved in a number of proceedings relating to sites lawsuit against the DOE which resulted in a decision by the where hazardous substances have been deposited and may be United States Court of Appeals for the District of Columbia (D.C. subject to additional proceedings in the future. Court of Appeals)in July 1996 that the DOE had an unequivocal The Company has identified 27 s:tes where former manu-obligation to begin to accept spent fuelin 1998. In accordance factured gas plant (MGP) actmties have or may have resulted in with the NWPA, the Company pays the DOE one mill ($.001) per actual site contamination. The Company is presently engaged in kilowatthour of net nuclear generation for the cost of nuclear performing vanous levels of actmties at these sites, including ini-fuel disposal This fee may be adjusted prospectively in order to tial evaluation to determine the existence and nature of the con-ensure full cost recovery. Because of inaction by the DOE in tamination, detailed evaluation to determine the extent of the response to the D.C. Court of Appeals finding of the DOE's contamination and the necessity and possible methods of reme-obligation to begin receiving spent fuel in 1998, a group of thir- d,ation, and implementation of remediation. Eight of the sites are ty-six utility companies, including the Company, and forty-six under some degree of active study or remediation. state agencies, fded suit against the DOE on January 31,1997 As of December 31,1996 and 1995, the Company had seeking authorization to suspend further payments to the U.S. accrued $28 and $27 milhon, respective!y, for environmental govemment under the NWPA and to deposit such payments into investigation and remediation costs, including $16 and $13 mil-an escrow account untd such time as the DOEtakes effectrve lion, respectively, for MGP investigation and remediation, that action to meet its 1998 obhgations. Legislation introduced in currently can be reasonably estimated. The Company cannot Congress in January 1997 would authorize construction of a predict whether it will incur other significant liabihties for addi-
Notes to Consolidated Financial Statements (Continued) 31 e-tional investigatibn and remediation costs at then or additional to occur in the summer of 1997. It is the Company's belief that sites identified by the Company, environmental agencies or others, the earliest that Unit No. I will return to service is late in the or whether all such costs will be recoverable from third parties. third quarter of 1997. For the years ended December 31,1996 and 1995, the Company had incurred and expensed approxi-thutdown of Salem Generating Station mately $149 million and $50 million of replacement power and PSE&G removed Salem Units No.1 and No. 2 from service in maintenance costs, respectively, the second quarter of 1995 and informed the NRC at that time that it had determined to keep the Salem units shut down pend- uttgation ing review and resolution of certain equipment and management The Company is involved in vanous litigation matters, the ulti-issues and NRC agreement that each unit is sufficiently pre- mate outcome of such matters, while uncertain,is not expected pared to restart. PSE&G estimates the projected restart of Unit to have a matenal adverse effect on the Company's financial No. 2 to occur in the second quarter of 1997 and of Unit No.1 condition or results of operations.
- 5. RItirement Benefits The Company and its subsidiaries have a non-contributory meet the Employee Retirement income Secunty Act require-trusteed retirement plan applicable to all regular employees. The ments. Approximately 80%,74% and 85% of pension costs benefits are based primarily upon employees' years of service were charged to operations in 1996,1995 and 1994, respec-and average earnings prior to retirement. The Company's fund- tively, and the remainder, associated with construction labor, to ing policy is to contnbute, at a minimum, amounts sufficient to the cost of new utility plant.
Pension costs for 1996,1995 and 1994 included the following components: 1996 1995 1994 Thousands of Dollars Service cost benefits eamed during the period $ 27,627 $ 19,710 $ 33,403 Interest cost on projected benefit obligation 145,570 147,261 136,690 Actual retum on plan assets (320,247) (456,057) 12,946 Amortization of transition asset (4,538) (4,538) (4,538) Amortization and deferral _ 154,402 300,214 (161,955) Net pension cost $ 2,814 $ 6,590 $ 16.546 l The changes in net periodic pension costs in 1996,1995 and 1994 were as follows: 1996 1995 1994 Thousands of Dollars Change in number, characteristics and salary levels of participants and net actuarial gain $ (12,893) $ 1,486 $ (6,004) Change in plan provisions - (8,305) (1,777) Change in actuarial assumptions 9,117 (3,136) (959) Net change $ (3,776) $ (9,955) $ (8.740) P!an assets consist principally of common stock, U.S. govern- 1995 and 8.25% at December 31,1994. The average rate of ment obligations and other fixed income instruments. In deter- increase in future compensation levels ranged from 4% to 6% mining pension costs, the assumed long-term rate of return on at December 31,1996 and 1995, and from 4.25% to 6.25% at assets was 9.5% for 1996,1995 and 1994. December 31,1994. The weighted-average discount rate used in determining Pnor service cost is amortized on a straight-line basis over the actuarial present value of the projected benefit obligation the average remaining service period of employees expected to was 7.75% at December 31,1996,7.25% at December 31, receive benefits under the plan.
32 PECO Energy Company and Subsidiary Companies
- y i The funded status of the plan at December 31,1996 and 1995 is summarized as follows:
- 1996 1995 Thousands of Dollars Actuarial present value of accumulated plan benefit obligations:
Vested benefit obligation $ (1,857,098) $ (1,746,685) i Accumulated benefit obligation (1,742,118) (1,838,661) . l Projected benefit obligation for services rendered to date $ ' (1,982,915) $ (2,097,300) {' Plan assets at fair value 2,302,935 2,088,950 Funded status . 320,020 (8,350) Unrecognized transition asset (40,251) (44,789) { Unrecognized prior service costs 92,882 68,223 Unrecognized net gain (588,013) (265,472) Pension liability recognized on the balance sheet $ (215,582) $ (250,388) I C. Non Pension Postretirement Benefits recognition of $177 million of its non pension postretirement benefits obligation (see note 21). , The Company provides certain health care and life insurance The transition obligation was determined by application of ! benefits for retired employees. Company employees become eli- the terms of medical, dental and life insurance plans, including , gible for these benefits if they retire from the Company with ten the effects of established maximums on covered costs, together . years of service. These benefits and similar banefits for active with relevant actuarial assumptions and health care cost trend ; employees are provided by an insurance company whose premi- rates, which are projected to range from 8% in 1997 to 5% in ' ums are based upon the benefits paid during the year. 2002. The effect of a 1% annual increase in these assumed ; The transition obligation, which represents the previously cost trend rates would increase the accumulated postretirement . ; unrecognized accumulated non-pension postretirement benefit beneht obligat.on by $68 million and the annual service and i obligation,is being amortized on a straight-line basis over an interest costs by $8 million. allowed 20 year period. As a result of voluntary retirement Total costs for all plans amounted to $71 million in 1996 and separation programs in 1994, the Company accelerated - and 1995 and $81 million in 1994. The net periodic benefits costs for 1996 and 1995 included the following components: 1996 1995 1994 Thousands of Dollars Service cost benefits eamed during the period $ 11,855 $ 8,681 $ 17,056 Interest cost on projected benefit obligation 48,524 48,641 41,196 Amortization of transition asset 14,882 14,882 22,659 Actual retum on plan assets (13,257) (2,075) - Deferred asset gain 9,320 1,359 - Net postretirement benefits costs $ 71,324 $ 71,488 $ 80,911 Plan assets consist principally of common stock, U.Ss govemment and 7.25% at January 1,1994. The average rate of increase in obligations and other fixed income instruments. In determining future compensation levels ranged from 4% to 6% at December non pension postretirement benefits costs. the assumed long- 31,1996 and 1995, and from 4.25% to 6.25% at December term rate of return on assets was 8% for 1996,1995 and 1994. 31,1994. The weighted-average discount rate used in determining Prior service cost is amortized on a straight-line basis over the actuarial present value of the projected benefit obligation the average remaining service period of employees expected to was 7.50% as of January 1,1996,8.50% as of January 1,1995 receive benefits unuer the plan.
. .. -_ _ _ _ _ . _ ._ _.._.___._ _ _ m - _._ __._ _-
Notes to Consohdated Financial Statements (Continued) 33 e-The funded status of the plan at December 31,1996 and 1995 is summarized as follows: I 1995 itse Thousands of Dollars Accumulated postre:irement benefit obligation: R:tirees $ 609,206 $ 628,804 Fully eligible active plan participants 4,509 4,199 Other active plan participants 48,986 41,863 Total 662,701 674,866 i Plan assets at fair value (128,661) (66,735) Accumulated postretirement benefit obligation in excess of plan assets 536,040 608,131 Unrecognized transition obligation - (238,108) (252,990) l' Unr: cognized net gain (17,126) (28,890) Accrued postretirement benefits cost recognized on the balance sheet $ 315,058 $ -326,251 Measurement of the accumulated postretirement benefits oblig- For the regulatory treatment of non pension postretirement ben-ation was based on a 7.75% and 7.5% assumed discount rate as efits costs, see note 3. ! of December 31,1996 and 1995, respectively. 7, Accounts Receivable Accounts receivable at December 31,1996 and 1995 included accounts receivable until November 14,2000. At December 31, unbilled operating revenues of $117 and $148 million, respec- 1996 and 1995, the Company had sold a $425 millibn interest , l tively. Accounts receivable at December 31,1996 and 1995 in accounts receivable. The Company retains the servicing
. were net of an allowance for uncollectible accounts of $24 and responsibility for these receivables.
[ $21 million, respectively. By terms of this agreement, under certain circumstances, a The Company is party to an agreement with a f:nancial portion of deferred Limerick costs may be included in the pool of institution under which it told with limited recourse an undivided eligible receivables. At December 31,1996, $23 million of , interest, adjusted daily,in up to $425 million of designated deferred Limerick costs were included in the p,ool of eligible receivables.
- 8. Common Stock awards which may be granted under the LTIP are non-qualified i options to purchase shares of the Company's common stock, At December 31,1996 and 1995, common stock without par dividend equivalents and shares of restricted common stock. I value consisted of 500,000,000 shares authorized and The Company has adopted the disclosure-only provisions of 222,542,087 and 222,172,216 shares outstanding, respectively. SFAS No.123,' Accounting for Stock-Based Compensation" but At December 31,1996, there were 5,800,841 shares reserved applies Accounting Principles Board (APB) Opinion No. 25, for issuance under the dividend re'nvestment and stock pur- ' Accounting for Stock issued to Employees' and related interpre-chase plan. tations in accounting for the LTIP,if the Company had elected to account for the LTIP based on SFAS No.123, earnings applica-Long-Term incentive Plan (LTIP) ble to common stock and earnings per average Common share The Company maintains an LTIP for certain full-time salaried would have been changed to the pro forma amounts as indicat-employees of the Company. The types of long-term incentive ed below:
i 199s 1995 Thousands of Dollars ? Eamings applicable to common stock As reported $ 499,169 $ 586,515 Pro forma $ 497,887 $ 585,063 l l l Eamings per average common share (Dottars) As reported $ 2.24 $ 2.64 l Pro forma $ 2.24 $ 2.64
-34 PECO Energy Company and Subsidiary Companies
- a e
Options granted under the LTIP become exercisable on the anniversary of the date of grant and all options expire 10 years frem the date of the grant. Information with respect to the LTIP at December 31,1996 and changes for the thiee years then ended, is as follows: Weighted Wei9hted Weighted Average Average Average Exercise Exercise Exercise Price Pnce Pnce Shares (per share) Shares (per she) Shares (per t, hare) 1996 1996 1995 1995 1994 1994 Balance at January 1 2,591,765 $ 26.16 2,651,397 $ 26.73 1,961,882 $ 25.12 Options granted 786,500 28.12 850,700 26.46 909,000 30.13 Options exercised (369,871) 25.07 (561,232) 23.91 (90,885) 22.91 Options cancelled (47,200) 29.36 (349,100) 35.57 (128.600) 28.87 Balance at December 31 2,961,194 26.68 2.591,765 26.16 2.651,397 26.73 Exercisable at December 31 2,192,694 26.17 1,813,565 25.91 1,865,397 25.21 Weighted average fair value of options granted during year $ 2.78 $ 2.91 $ - The fair value of each option is estimated on the date of the used for grants in 1995: dividend y eld of 6.2% expected grant using the Black-Scholes option pricing model. volatility of 15.3% risk-free interest rate of 6.9% and an expect-The following weighted average assumptions were used for ed life of five years. grants in 1996: dividend yield of 6.2% expected volatility of At December 31,1996, the option groups outstanding 16.6% risk-free interest rate of 5.5% and an expected life of based on ranges of exercise prices is as follows: five years. The following weighted average assumptions were _ _ ___ Options Out nding _ _ _ _ __ Options Exercisable _ _. " Average Weighted- Weghted-Remairung Average Average Number Contractual life Exercise Number Exercise Range {Exercpe Pnces Quts,tanding_ _Je_ars) Pme ] _ , _ ,_ _Eiercysable Pnc t
$15.75 - $20.00 117,594 3.86 $ 18.43 117,594 $ 18.43
$20.01 - $25.00 155,500 4.75 22.70 125,500 22.37
! $25.01 J $30.00 2,675,900 7.63 27.23 1,941,400 26.86 , $30.01 $50.00 12.200 7.55 37.18 8,200 30.93 Total 2,961,194 2,192,694 ]
- 9. Preferred and Preference Stock i
r At December 31,1996 and 1995, Series Preference Stock consisted of 100,000.000 shares authorized, of which no shares were outstanding. At December 31,1996 and 1995, cumulative Preferred Stock, no par value, consisted of 15,000,000 shares authorized. Current Shares Amount Redemption Outstanding Thousands of Dollars Pnce(a) 1996 1995 1996 1995 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) 618,954 618,954 61,895 61,895
$7.48 (d) 500,000 500,000 50,000_ 50,000 1,993,674 1,993,674 199,367 199,367 Series (with mandatory redemption)
$6.12 (e) 927,000 927,000 92,700 92,700 Total preferred stock 2,920,674 2.920.674 $ 292,067 8 292.067 (a) Redeemable, at the option of the Company, at the indicated (d) None of the shares of this series are subject to redemption ,
dollar amounts per share, plus accrued dividends. prior to April 1,2003. 1 (b) Ownership of this series of preferred stock is evidenced by (e) There are no annual sinking fund requirements in the period depositary receipts, each representing one-fourth of a share 1997-1998. Annual sinking furid requirements in 1999 are e' preferred stock. $18,540,000. None of the shares of this series are subject
.(c) None of the shares of this series are subject to redemption to redemption prior to August 1,1999.
prior to October 1,1997.
- Notes to Consol, dated Financial Statements (Continued) 35 e-
- 10. Cctnpany Obligated Mandatority Redeemable Preferred Securttles of a Partnership (COMRPS)
At December 31,1996 and 1995, PECO Energy Capital, LP. by the Partnership, which bear interest at rates equal to the dis-(Partnership), a Delaware limited partnership of which a wholly tribution rates on the secunties.The interest paid by the owned subsidiary of the Company is the soie general partner, Company on the debentures is included in interest Charges in had outstanding two series of cumulative COMRPS, each with a the Consolidated Statements of Income and is deductible for hquidation value of $25 per secunty. Each series is supported by income tax purposes. the Company's deferrable interest subordinated debentures, held Amount Shares Outstanding Thousands of Dollars At December 31, Due Distnbution Rate 1996 1995 1994 1995 Series A 2043 9.00% 8,850,000 8,850,000 $ 221,250 $ 221,250 B(a) 2025 8.72% 3,124,183_ 3,124,183 80,932 81,032 Total 11,974,183 11,974.183 $ 302,182 $ 302,282 (a) Ownership of this series is evidenced by Trust Receipts, which are 8.72% COMRPS, Series B. Each holder of Trust each representing a 8.72% COMRPS, Series B, represent- Receipts is entitled to withdraw the corresponding number ing limited partnership interests. The Trust Receipts were of 8.72% COMRPS, Series B from the Trust in exchange issued by PECO Energy Capital Trust I, the sole assets of for the Trust Receipts so held.
- 11. Long-Term Debt
. _.DecemW 3,1,,,, , , _ _ , _ . __ _ S,ene_a_ _ _ ,,_,_, M _ ,, W 1995 Thousands of Dollars First and refunding mortgage bonds (a) 6%% 1997 $ 75,000 $ 75,000 5%% 1998 225,000 225,000 7 %%-9% % 1999 325,000 325,000 555%-7 %% 2001 330,000 330,000 6%% 8 % 2002 2006 1,025,000 1,025,000 10%% 2007-2011 44,688 48,750 (b) 2012-2016 154,200 188,200 6%%-7%% 2017 2021 277,590 277,590 65e%-8%% 2022-2024 1,329,540 1,329,540 Total first and .efunding mortgage bonds 3,786,018 3,824,080 Notes payable - banks - 167,000 Term loan agreements (c) 1997 175,000 350,000 Pollution control notes (d) 1997 2034 212,705 169,005 ; Medium-term notes (e) 1997-2005 74,400 121,800 ; Unamortized debt discount and premium, net (29,306) _ .32,599) ( ) Total long-term debt 4,218,817 4,599,286 j Due within one year (f) 283,303 401,003 ] Long-term debt included in capitalization (g) $ 3,935,514 $ 4,198.283 (a) Utikty plant is subject to the lien of the Company's mort- (e) Medium-term notes collateralized by mortgage bonds. The gage. average annual interest rate was 8.465% at December 31, (b) Floating rates, which were an average annualinterest rate 1996. of 3.532% at December 31,1996. (f) Long-term debt maturities, including mandatory sinking fund (c) The average annual rate in 1996 was 5.94%. The Company requirements,in the period 1997-2001 are as follows: ! also has a $400 million revolving credit and term loan 1997 - $283,303,000; 1998 - $241,463,000; 1999 - l agreement with a group of banks which terminates in 200' $359,063,000; 2000 - $4,063,000; 2001 - $334,063,000. j There is an annual commitment fee of 0.125% on the (g) The annualized interest on long-term debt at December 31, -) unused amount. There was no debt outstanding under this 1996, was $292 milhon, of which $274 million was associ-agreement at December 31,1996. ated with mortgage bonds and $18 million was associated (d) Floating rates, which were an average annualinterest rate with other long-term debt. of 3.620% at December 31,1996.
36 PECO Energy Company and Subsidiary Companies - '* e
- 12. Short Term Debt i
+
1996 1995 1994 Thousands of Dollars Average borrowings $ 198,090 $ 17,560 $ 130,539 Average interest rates, computed on daily basis 5.64 % 6.25 % 4.03 % Maximum borrowings outstanding $ 369,500 $ 182,000 $ 418,600 Average interest rates, at December 31 6.90% - 6.73 % The Company has a $300 million commercial paper program short-term debt under a 364-day term loan facility; at December which is supported by the $400 million revolving credit agree- 31,1996, $87.5 million was outstanding. At December 31, ment (see note 11); at December 31,1996, $200 million was 1996, the Company had formal and informal lines of credit with outstanding. In 1996, $87.5 million of a term loan agreement banks aggregating $275 million. No short-term debt was out-with a group of banks was refinanced with a single bank as standing against these lines at that date,
- 13. Income Tames Income tax expense is comprised of the following components:
For the Years Ended December 31, 1996 1995 1994 Thousands of Dollars Included in operating income: Federal Current
$ 126,702 $ 170,042 $ 164,472 Deferred 156,129 159,970 (2,691)
Investment tax credit, net (15,979) (21,679) 28,006 State Current 63,447 72.177 77,754 Deferred 12,806 16,387 (33,508) 343,105 396,897 234,033 included in other income and deductions: Federal Current (231) 20,754 1,989 Deferred (1,565) 7,556 9,722 State Current (608) 6,909 409 Deferred (600) (399) 3,171 (3,004) 34,820 15.291 Total
$ 340,101 $ 431,717 $ 249,324 The total income tax provisions differed from amounts computed by applying the federal statutory tax rate to income as shown below . . _ _ _ _ _ . . _ _ _ _ _ _ _ . . . 1996 1995 1994 Thousands of Dollars Net income $ 517,[05 $ 609,732 $ 426,713 Totalincome tax provisions 340,101 431,717 249,324 locome before income taxes $ 857,306 $ 1,041,449 $ 676,037 income taxes on above at federal statutory rate at 35% $ 300,057 $ 364,507 $ 236,613 increase (decrease) due to:
Depreciation timing differences not normalized 7,924 14,127 12,767 Limerick plant disallowances and phase-in plan (651) AFUDC (736) (530) (6,981) (9,467) (7,759) State income taxes, net of federal income tax benefit 48,779 61,799 31,086 Amortization of investment tax credit (15,979) (13,604) (14,570) Prior period income taxes (1,707) 1,79 (14,524) Other, net 8,659 13,300 6,241 Totalincome tax provisions $ 340,101 $ 431,717 $ 249,324 Effective income Tax rate 39.7% 41.5 % 36.9%
.. _ . . - - _. .m 4 _ . . . . . . _ _ -. ~ . . . . . _ _ . . _ -
e Notes to Consolidated Financial Statements (Continued) 37 e-Provisio.ns for deferred income taxes consist of the tax effects of the following temporary differences: 1996 1995 1994 Thousands of Dottars Depreciation and amortization $ 42,385 $ 32,287 $ 85,772 Deferred energy costs 27,374 30,073 13,777 Retirement and separation programs 19,746 15,733 -(82,008) Incremental nuclear maintenance and refueling outage costs 2,440 8,079 (2,751) . Uncollectible accounts (2,805) (1,991) (23,096) Reacquired debt (9,578) (3,266) (12,954) Unrecovered revenue 3,910 (5) (2,239) Environmental clean-up costs (714) 2,433 (3,949) Obsolete inventory 5,829 6,362 (6,192) Limerick plant disallowances and phase-in plan (747) 2,507 12,894 AMT credits 83,010 91,399 - Other (4,080) (97) (2,560) Total $ 166,770 $ 183.514 $ (23,306) f The tax effect of temporary differences which gives rise to the Company's net deferred tax liabihty as of December 31,1996 and 1995 are as follows: Liabihty or (Ast,et) 1996 1995 > Millions of Dollara Nature of temporary difference Plant basis difference $ 3,796 $ 3,797
! Deferred investment tax credit 336 351 Deferred debt refinancing costs 120 130 Other, net (168) (249)
Deferred income taxes (net) on the balance sheet $ 4,084 $ 4,029 ; The net deferred tax liabihty shown above as of December 31, re. turns through 1986. The 1987 through 1990 federalincome 1 tax returns have been examined and the IRS subsequently I 1996 and 1995 is comprised of $4,347 and $4,401 million of deferred tax liabilities, and $263 and $372 million of deferred issued an assessment that the Company has appealed. The l tax assets, respectively. Company does not expect the ultimate resolution of the assess-In accordance with SFAS No. 71, the Company has record- ment and its appeal to have a material effect upon the ed a recoverable deferred income tax asset of $2,322 million Company's financial condition or results of operat ons. The years and $2,420 million at December 31,1996 and 1995, respec- 1991 through 1993 are currently being examined by the IRS. tively (see note 22). These recoverable deferred income taxes Investment tax credits and other general business credits include the deferred tax effects associated principally with liber- were fully utilized for tax purposes at December 31,1994 and ahzed depreciation accounted for in accordance with the reduced federal income taxes currently payable by $43 million in ratemaking policies of the PUC, as well as the revenue impacts 1994. The AMT credit was fully utilized for tax purposes at l thereon, and assume recovery of these costs in future rates. December 31,1996, and reduced federal income taxes current-l The Interna! Revenue Service (IRS) has completed and set- ly payable by $71 milhon in 1996, tied its examinations of the Company's federal income tax 14.T:xes, Other Than Incorne Operating i For the Years Ended December 31, 1996 1995 1994 Thousands of Dollars Gross receipts $ 160,246 $ 165,172 $ 160,704 4- Capital stock 41,972 42.444 39,957 Real estate 69,185 71,600 77,571 Payroll 27,585 30,109 31,556 Other 558 4,74 6 1,901 Total 5 299,546 $ 314.071 $ 311,689 l i
38 PECO Energy Cornpany and Subsidiary Companies o e
- 15. Leases ,
Leased property included in utihty plant at December 31, was as follows: 1996 1995 Thousands of Dollars Nuclear fuel $ 527.116 $ 494,051 Electric plant 2,069 2,076 Gross leased property 529,185 496,127 Accumulated amortization (347,097) (315,702) , Net leased property $ 182,088 $ 180,425 The nuclear fuel obligation is amortized as the fuel is consumed, respectively. Other operating expenses included interest on capi-Amortization of leased property totaled $31, $43 and $62 mil- tal lease obhgations of $9, $10 and $7 milhon in 1996,1995 hon for the years ended December 31,1996,1995 and 1994, and 1994, respectively. Minimum future lease payments as of December 31,1996 were: F_or the Year Ending Decernber_31, _ _ _ _ _ _ _ Capialt Leases _ _ Operating Leases __ _ _ Total 1%usands of Dollars 1997 $ 49,804 $ 47,919 $ 97,723 1998 54,595 44,541 99,136 1999 45,751 42,339 88,000 2000 22,267 41,534 63,801 2001 20,305 40,632 60,937 Remaining years 18.598 554,412 573,010 Total minimum future lease payments $ 211,320 $ 771,377 $ 982.697 Imputed interest (rates ranging from 6.5% to 17.0%) (29,232) Present value of net minimum future lease payments $ 182,088 Rental expense under operating leases totaled $74, $115 and $101 million in 1996,1995 and 1994, respectively.
- 16. Jointly Owned Electric Utility Plant The Company's ownership interests in jointly owned electric utihty plant at December 31,1996 were as follows:
Transmission
. _ . . - . - - . _ -. _ ._ _ _ _ _ _Qod_ugt i on Rants ___ __ _ and Other Plant j
Peach Bottom Salem Keystone Conemaugh Public Service GPU GPU PECO Energy Electnc and Generating Generating Vanous Operator Company Gas Company . Corp. Corp. _ Companies Participating interest 42.49% 42.59% 20.99 % 20.72 % 21% to 43% Company's share (Thousands of Dottais) Utihty plant $ 754,271 $ 1,234,771 $ 108,144 $ 165,713 $ 87,623 Accumulated depreciation 326,778 432,959 59,231 67,216 30,475 Construction work in progress 49,441 164,122 8,956 22,529 1,164 The Company's participating interests are 'inanced with Company funds and, when placed in se vice, all operations are accounted for as if such participating interests were wholly owned facihties.
e Notes to Consohdated Finanaal Statements (Conbnued) 39 n
- 17. Cesh and Cash Equivalents For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The following disclosures supplement the accompanying Statements of Cash Flows:
1996 1995 1994 Thousands of Dottars Cash paid during the year: Interest (net of amount capitalized) $ 415,063 $ 449,664 $ 437,096
. Income taxes (net of refunds) 251,554 257,677 205,316 Noncash investing and financing:
Capitallease obligations incurred 33,063 48,760 41,763
- 13. Investruents dt December 31, 1996 1995 Thousands of Dottars Trust accounts for decommissioning nuclear plants $ 266,270 $ 222,655 ;
Telecommunications ventures 79,833 21,500 Ensrgy services and other ventures 44,023 40,779 I Nonutility property 26,349 26,816 Other deposits 11,255 132 1 Emission allowances 2,480 6,347 Gas exploration and development joint ventures 2,364 219 Total $ 432,574 $ 318,448
- 19. Financial Instruments Fair values of financial instruments, including liabilities, are estimated based on quoted market prices for the same or similar issues. ,
The carrying amounts and fair values of the Company's financial instruments as of December 31,1996 and 1995 were as follows: l Thousands of Dollars 1996 1995 Carrying Amount Fair Value Carrying Amount Fair Value ! Cash and temporary cash investments $ 29,235 $ 29,235 $ 20,602 $ 20,602 Long term debt (including amounts due within one year) 4,218,817 4,239,357 4,599,286 4,773,700 Trust accounts for decommissioning nuclear plants 266,270 266,270 222,655 222,655 Financial instruments which potentially subject the Company to excess of the Federal Deposit Insurance Corporation hmit. concentrations of credit risk consist principally of temporary cash Concentrations of credit risk with respect to customer accounts investments and customer accounts receivable. The Company receivable are limited due to the Company's large number of places its temporary cash investments with high-credit, quakty customers and their dispersion across many industries. financial institutions. At times, such investments may be in
- 20. Other incorne Nuclear Fuel Agreement with Long Island Power Authortty Sale of Subsidiary (LIPA) On June 19,1995, the Company completed the sale of in 1994, the Company recognized $26 million as Other income Conowingo Power Company (COPCO) to Delmarva Power &
in accordance wrth a 1993 agreement with LIPA and other par- Light Company (Delmarva) for $150 million. The transaction also ties to accept slightly irradiated nuclear fuel from Shoreham included a ten year contract for the Company to sell power to Nuclear Power Station. Delmarva. The Company's gain of $59 mdlion ($27 million net of taxes) on the sale was recorded in the second quarter of 1995.
4o PECO Energy Company and Subsidiary Companies e l >> s l 21. Voluntary Retirement and Separation Programs . , The Company incurred a one-time, pre-tax charge of $254 mil- Company accelerated recognition of $177 million of its non-tion ($145 million net of taxes)in the third quarter of 1994 as a - pension postretirement benefits obligation. The Company record-result of voluntary retirement and separation programs approved ed a corresponding regulatory asset and is recovering this by the Company's Board of Directors in Apnl 1994. Pursuant to amount in rates as a component of non pension postretirement these programs 1,474 employees elected to retire and 1,008 benefits expense.The recognition of the $177 million of non-employees elected to voluntarily separate from the Company. pension postretirement benefits obligation and corresponding ; The retirements and separations took place in stages through regulatory asset did not impact earnings. December 31,1995. As a result of the programs,in 1994 the
- 22. Regulatory Assets and Liabilities At December 31,1996 and 1995, the Company had deferred the following regulatory assets on the Consolidated Balance Sheet:
1996 1995 MJlions of Dollars Recoverable deferred income taxes (see note 13) . $ 2,322 $ 2,420 Deferred Limerick costs (see note 3) 362 390 Loss on reacquired debt 284 309 Compensated absences 38 33 Deferred energy costs (see note 3) 122 56 Non-pension postretirement benefits (see note 3) 233 248 Total $ 3,361 $ 3.456
- 23. Quarterly Data (Unaudited)
The data shown below include all adjustments which the Company considers necessary for a fair presentation of such amounts: Operating Revenues Operatog ln_come Net _ income Millions of Dollars 1994 1995 1996 1995 1994 1995 Quarter ended March 31 $ 1,171 $ 1,059 $ 253 $ 257 $ 150 $ 152 June 30 989 959 196 233 99 154 September 30 1,110 1,125 249 292 150 184 December 31 1,014 1,044 208 222 118 120 l Eamings Apphcable Average Shares Eammgs I to Common Stock Outstanding Per Avwage Share _ l Mi&ons of Dollars 1996 1995 1996 1995 1996 1995 Quarter ended March 31 $ 146 $ 146 222.4 221.7 $ 0.65 $ 0.66 June 30 94 148 222.5 221.8 0.43 0.67 September 30 145 178 222.5 221.9 0.65 0.80 December 31 114 115 222.5 221.9 0.51 0.52 The decrease in 1996 third quarter results was primarily due to the lower electric revenues from less favorable weather conditions, higher customer expenses and higher costs related to the Salem outage. 1995 second quarter results include a pre-tax gain of $59 million ($27 million net of taxes), or $0.12 per share, as a result of the sale of COPCO (see note 20). l 1 I
~~
e-Financial Statistics Summary of Earnings and Financial Condition For the Years Ended December 31, 1996 1995 1994 1993 1992 1991 Mdlons of Dollars income Data Operating Revenues $ 4,284 $ 4,186 $ 4,041 $ 3,988 $ 3,963 $ 4,019 Operating L :ome 905 1,004 830 1,035 1,033 1,081 Nst income 517 610 427 591 479 535 Eamings Applicable to Common Stock 499 587 389 542 418 469 Ezrnings per Average Common Share (Donars) 2.24 2.64 1.76 2.45 1.90 2.15 Dividznds per Common Share (Donars) 1.755 1.65 1.545 1.43 1.325 1.225 Common Stock Equity (Per Share) 20.88 20.40 19.41 19.25 18.24 17.69 Anrage Shares of Common Stock Outstanding (Means) 222.5 221.9 221.6 221.1 220.2 218.2 At December 31 Betance Sheet Data Net Utility Plant, at Original Cost $ 10,780 $ 10,758 $ 10,829 $ 10,763 $ 10,691 $ 10,599 Leased Property, net 182 181 174 194 210 224 TotalCurrent Assets 420 426 427 515 550 783 Total Deferred Debits and Other Assets 3,899 3,944 3,992 3,905 1,127 918 Total Assets $ 15,261 $ 15.309 $ 15,422 $ 15.377 $ 12.578 $ 12,524 Common Shareholders' Equity $ 4,646 $ 4,531 $ 4,303 $ 4,263 $ 4,022 $ 3,892 Preferred and Preference Stock Without Mandatory Redemption 199 199 277 423 423 423 With Mandatory Redemption 93 93 93 187 231 ~315 Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership 302 302 221 - - - Long-term Debt 3,938 4,199 4,786 4,884_ 5,204 5,416 Total Capitalization 9,176 9,324 9,680 9,757 0,880 10,046 Totil Current Liabilities 1,103 1,052 850 954 830 824 Total Deferred Credits and Other Liabilities 4,982 4,933 4,892 4,666 1,868 1,654 Total Capitalization and Liabilities $ 15,261 $ 15,309 $ 15,422 $ 15,377 $ 12,578 $ 12,524 __l
42 Opercting Ctati:tica '
~s For the Years Ended December 31, 1996 1995 1994 1993 1992 p91 Electric Operations Output (Mdlions of Kilowa:thours)
Fossil 10,856 10,792 11,239 10,352 8,082 7,376 Nuclear 24,373 25,499 28,195 27,026 24,428 25,735 Hydro 2,404 1,425 1,970 1,699 1,803 1,388 Pumped storage output 1,540 1,741 1,596 1,478 1,597 1,653 Pumped storage input (2,230) (2,507) (2,256) (2,192) (2,217) (2,355) Purchase and interchange 19,539 13,945 6,164 6,447 8,675 8,603 Intemal combustion 179 175 106 56 29 ' 79 Total electric output 56,661 51,070 47,014 44,866 42,397 42,479 Sales (MJIions of Kiowatthours) Residential 10,671 10,636 10,859 10,609 9,965 10,273 Small commercial and industrial 6,491 6,200 6,150 5,769 5,396 5,272 - Large commercial and industrial 15,208 15,763 15,968 15,956 15,829 16,156 Other 902 860 791 771 962 1,028 (Decrease)/ increase in unbilled (327) 535 - (205), 31 (159) 72 Service territory 32,945 33,994 33,563 33,136 31,993 32,801 Interchange sales 935 496 768 457 1,231 1,612 Sales to other utilities 20,243 14,041 10,039__ 8,670 6,699 5,445 Total electric sales 54,123 48,531 44,370 42,263 39,923 39,858 Number of Customers, December 3 f, Residential 1,324,448 1,321,379 1,350,210 1,341,873 1,333,926 1,324,795 Small commercial and industrial 142,431 141,653 143,605 142,363 141,253 140,901 Large commercial and industrial 3,299 3,394 3,603 3,742 3,972 4,162 Other 1,051 959 944 888 857 840 Total electric customers 1,471,229 1,467,385 1,498,362 1,488,866 1,480.008 1,470,698 Operating Revenues (Mdhons of Dottars). 1 Residential $ 1,370 $ 1,379 $ 1,371 $ 1,351 $ 1,308 $ 1,339 Small commercial and industrial 749 730 710 679 672 640 Large commercial and industrial 1,098 1,135 1,149 1,168 1,225 1,278 Other 140 137 136 161 168 171 (Decrease)/ increase in unbilled (26) 43 (11) (1) (7) 5 Service territory 3,331 3,424 3,355 3,358 3,366 - -3,433 Interchange sales 26 17 23 14 32 43 Sales to other utilities 498 334 247 233 199 187 Total electric revenues 3,855 3,775 3,625 3,605 3,597 3,663 Operating Expenses Operating expenses, excluding depreciation 2,561 2,406 2,430 2,228 2,237 2,253 Depreciation 462 431 416 401 391 380 Total operating expenses 3,023 2,837 2,846 2,629 2,628 2,633 Electric Operating income $ 832 $ 938 $ 779 $ 976 $ 969 $ 1,030 Average Use per Residential Customer (Kilowarthours) Without electric heating 6,771 6,908 6,736 6,727 6,259 6,707 With electric heating 17,946 17,189 17,527 17,096 16,298 16,201 Total 8,074 8,130 8,041 7,970 7,443 7,801 Electric Deak Load, Demand Ohousands of M!awatts) 6,509 7,244 7,227 7,100 6,617 7,096 Net Electric Generating Capacity. , Year-end Semmer Rating (Thousands of Kilowatts) 9,201 9,078 8,956 8,877 B,836 8,766
- Cost of Fuel per Million BTU $ 0.93 $ 0.87 $ 0.89 $ 0.90 $ 0.82 $ 0.92 BTU per Net Knowatthour Generated 10,682 10,705 11,617 10,675 10,657 10,849
- 43 dpercting Ctatiztics (continued)
For the Years Ended December 31, 1996 1995 1994 1993 1992 1991 G;s Operations ' Sales (Mdirons of Cubic Feet) Residential 1,681 1,516 1,636 1,637 1,819 1,74 6 House heating 35,471 30,698 32,246 30,242 30,218 25,775 Commercial and industrial 20,999 18,464 19,762 18,635 19,026 17,846 Othx 2,571 1,582 7,039 9,733 4,885 2,74 9 (Decrease)/ increase in unbilled (1,306) 1,710 (474) 676 (73 6) 1,079 _ Total gas sales 59,416 53,970 60,209 60,923 55,212 49,195 Gas transported for customers 27,891 48,531 29,801 22,946 22,060 21,414 Total gas sales and gas transported 87,307 102,501 90,010 83,869 77,272 70,609 Number of Customers Residential 56,003 56,533 57,122 59,573 59,859 62,444 House heating 303,996 295,481 287,481 277,500 269,577 260,473 Commercial and industrial 34,182 33,308 32,292 31,573 30,956 30,204 Total gas customers 394.181 385,322 376,895 368,646 360,392 353,121 Oper: tang Revenues (Mdirons of Dollars) R:sidential $ 16 $ 15 $ 16 $ 15 $ 16 $ 17 House heating 249 236 238 202 203 190 Commercial and industrial 133 126 128 110 113 115 Other 11 5 20 28 12 9 (Dacrease)/ increase in unbilled (4) 6 (3) 4 (2) 4 Subtotal 405 388 399 359 342 335 Other revenues (including transported for customers) 24 22 17 _ 23 23 21 Total gas revenues 429 410 416 382 365 356 Opercting Expenses Operating expenses, excluding depreciation 328 319 340 299 278 284 Depreciation 27 26 26 24 23 21 Total operating expenses 355 345 366 323 301 305 cas Operating Income $ 74 $ 65 $ 50 $ 59 $ 64 $ 51 Securities Statistics Ratings on PECO Energy Company's securities Mortgage _8onds Preferred Stock Date Date Agency _ Rating Established Rating Established Duff and Phelps,Inc. BBB+ 4/92 BB B- 8/91 Fitch investors Service, Inc. A- 9/92 BBB+ 9/92 Moody's investors Service Baal 4/92 baa2 4/92 Standard & Poor's Corporation BBB+ 4/92 BBB 4/92 NYCE-Composite Common Stock Prices, Eamings and Dividends by Quarter (Per Shere) 1994 1995 Fourth Th,rd Second Frat Fourth Third Second Frst Q _ uarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter High price $ 27 3/8 $ 261/4 $ 26-7/8 $ 321/2 $ 30-1/4 $ 29 $ 29 3/4 $ 27-3/8 Low price $ 23 7/8 $ 23 $ 22-1/2 $ 261/4 $ 28-1/8 $ 25-5/8 $ 25-1/8 $ 241/4 Close $ 251/4 $ 23-3/4 $ 26 $ 26-5/8 $ 30-1/8 $ 28-5/8 $ 27-5/8 $ 25-1/8 Eamings 514 654 43t 65< 52$ 80$ 67e 66e Dividends 454 43.54 43.54 43.5< 43.5c 40.5$ 40.5$ 40.5c _J
44 PECO Energy Company and Subsidiary Companies , t*
- 1 Board of Directors Susan W. Catherwood (53) Richard G. Gilmore (69)'" Edithe J. Levit, M.D. (70) Joseph F. Paquette, Jr. (62y" Chairman, Trustee Board, Former Senior Vee President, President Ernentus and Life Member Chairman of the Board of The University of Pennsylvania Finance and Chief Financial of the Board, Directors Medical Center and Health Officer of the Company National Board of Me@SI Fxaminers ystm . Ronald Rubin (65)'"
Richard H. Gianton, Admiral Kinnaird R.McMae (67) Chief Executive Officer, M. Walter D'Alessio (63) Esquire (507" Director Emeritus, The Rubin Organeation, Inc. (Real President and Chief Executve Partner of the law firm Reed U.S. Navy Nuclear Propelsion estate development and manage-Offter. Smtth Shaw and McClay '"" Legg Mason Real Estate Services Joseph J. McLaughlin (687" James A. Hagen (64) Former President and Chief Robert Subin (58) (Commercial mortgage banking and pension fund advisors) Fm Nm hi k MM 0% % Vu N M Benef cial Mutual Savings Bank Campbell Soup Company elson anis ( 07" G. Fred DiBona Jr. (45)'" Chairman of the Executive Corbin A. McNeill, Jr. (577" President and Ch ef Executive i Committee, President and Chief Executive Tasty Baking Company Offcer of the Company ndence Blue Cross R. Keith Elliott (54y" * " *"*' Chairman, President and Chief * * "' " *" i Executwe Officer, The Fidekly Mutual Life insurance University of South Carohna Hercules, Inc. Company i. l Officers Joseph F. Pequette, Jr. (62) Kenneth G. Lawrence (49) John Doering, Jr. (53y" William H. Smith,111 (48) Chairman of the Board of Senior Mce President, Mce President, Mce President and Directors Finance and Chief Financial Pbwer Generaton Group Group Executive, Corbin A. McNeill, Jr. (57) Tel c mmunicatons Group Drew B. Fetters (45) President ar,d Chief Executive John M. Madara, Jr. (53) Mce President, Damian A. Thomas (51) Ofhcer Senior Mce President and Group Station Support Vce President, Dickinson M. Smith (63y"
" * "9 * *
- P wer e eration Group Thomas P. Hill, Jr. (48)
. President, PECO Vce President and Control.or Nancy J. Zausner (43)
Nuclear and Robert J. Patrylo (50) ' Vce President, Chief Nuclear Offecer Senior Mce President and Group Katherine C. Holland (44) Pbwer Transact ons Executive, Mce President, William L. Bardeen (58) Gas Services Group Inf rmation Systems and Katherine K. Combs (46) - Senior Vce President and Group Chief Information Off cer Corporate Secretary Executwe, Alvin L Weigand (58) , Consumer Energy Services Group Senior Mce President and Group Walter G. Madartand,lV (47) Edward J. Cullen, Jr. (49) i Executive, Vice President, Assistant Corporate Secretary , James W. Durham (59) Bulk Power Enterprises Umerick Generating Station l Senior Vce President and General Counsel - Gerald R. Rainey (47)" J. Barry Mitchell (49) Assistant Corporate Secretary Senior Vce President, Vce President, Diana Moy Kelly (42) j William J. Kaschub (54) PECO Nuclear Finance and Treasurer , Senior Mce President, Assistant Treasurer JoAn Bauer (50) mas e Human Resources George R. Shicora (50) tt Gwendolyn S. King (58) Atomic Pbwer Station Assistant Treasurer Customer Services Senior Vce President, Gregory A.Cucchi(47) William E. Powell, Jr. (60) Corporate and Pubhc Affairs Mce President, Mce President, ni Member of the Executive Corporate Planning and Support Services Qtee of the B ard of Development m Elected January 27,1997
- Effective February 1,1996
- Effective February 26,1996
- Effective Apnl 1,1996
- Effective October 28,1996
4-W Shareholder information stock Exchange IJetings Annual Meeting j Mc:t Company securities are listed on the New York The Annusi Mee ing of the Shareholders of the Stock Exchange and the Philadelphia Stock Compa sy wil' be held at the Pennsylvania Convention Exchange. Center la Plitidelphia, Pennsylvania on April 9,1997 et 9:30 AM. The record date for voting at the share-N . holders' meeting is February 20,1997. Prompt return The Company has paid dividends on its common of proxies will be appreciated. stock continually since 1902. 'Ihe Board of Directors normally considers common stock dividends for pay- Form 10-K ment in March, June, September and December. The Form 10-K, the annual report filed with the Securities Comp:ny expects that the $1.755 per share dividend and Exchange Commission,is available without prid to common shareholders in 1996 is fully taxable charge to shareholders upon written request to PECO as dividend income for federal income tax purposes. Energy Company,2301 Market Street, P.O. Box 8699, Philadelphia, PA 191018699, Attention: Investor and i Sh:reholders may use their dividends to purchase Shareholder Relations Division, S21-1 sdditional shares of common stock through the
' Company's Dividend Reinvestment and Stock sharehoWors Purchase Plan (Plan). The Company pays all broker. The Company had 176,590 shareholders of record of age and service fees for Plan purchases. All sharehold. common stock as of December 31,1996.
ers have the opportunity to invest additional funds in common stock of the Company, whether or not they Preferred and Common Stock Registrar and Transfer have their dividends reinvested, with all purchasmg fees paid by the Company. i hicago Trust Company of New York, P.O. Box In 19%, over 54 percent of the Company's common
'I'"*Y Y' shtreholders were participants in the Plan.
F f M Bod Tm Information concerning the Plan may be obtained First Union National Bank, Corporate Trust from: First Chicago Trust Company of New York, Operations, PMBOB1,123 South Broad Street, l PECO Energy Company Plan, P.O. Box 2598, Jersey Philadelphia, PA 19109. City, NJ 07303 2598. wm m New York Agent for bonds: First Trust of New York, National Association The Company is always pleased to answer questions and provide information. Pierse address your com. Corporate Trust Department,100 Wall Street, Suite ments to Katherine K. Combs, Corporate Secretary, 1600 New York, NY 10005.
' PECO Energy Company,2301 Market Street, P.O.
Box 8699, Philadelphia, PA 19101-8699. Visit our internet site at http//www.pec& energy.com
' Inquiries relating to shareholder accounting records, stock transfer and change of address should be direct-2301 Market Street
'ed to: First Chicago Trust Company of New York, Philadelphia, Pennsylvania 19103 P.O. Box 2500, Jersey City, NJ 07303-2500.
(215) 841-4000 Te85ff** Telephone Toll-free telephone lines are available to the Company's shareholders for inquiries concerning their stock' ownership. Calls should be made to 1-800-626-8729. Printedon recycledpaper. L
*A PECO Energy Company 2301 Market Street P.O. Box 8699 Philadelphia, PA 191018699}}