ML20155A296

Forwards Philadelphia Electric Co Annual Rept 1985, Per 10CFR50.71(b)

ML20155A296
Person / Time
Site:	Limerick
Issue date:	04/04/1986
From:	Bradley E PECO ENERGY CO., (FORMERLY PHILADELPHIA ELECTRIC
To:	Harold Denton Office of Nuclear Reactor Regulation
References
NUDOCS 8604080359
Download: ML20155A296 (1)

Text

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

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CUG ENE J. DR ADLEY assocsava sensaat co.mssk DON ALD RLANNEN CUDOLPH A. CHILLEMI h

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E. C. MI R M H ALL

- T. H. M AMER CO RNELL PAUL AUERSACH Assistant aseena6 cois su6

[ DW AND J. CULLEN. J R.

THOM AS H. MILLER. J R.

IRENE A. McM ENM A aestsvant couwssh Mr. Harold R. Denton Director Office of Nuclear Reactor Regulation U.

S. Nuclear Regulatory Commission Washington, D.

C.

20555 Re:

Philadelphia Electric Company Limerick Generating Station, Units 1 and 2 Docket Nos. 50-352 and 50-353 (Construction Permit Nos. CPPR-106 and CPPR-107)

Dear Mr. Denton:

Pursuant to Section 50.71(b) of the Commission's Regu-lations, I enclose herewith for filing with the Commission a copy of the 1985 Annual Report of Philadelphia Electric Company.

Very truly yours, l

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c GEN J.

PADLEY EJB/as l

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. boutsheCover-Theculturalgoeewaytocentercityalongth II

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olongsde the Formount Woeorworks (ceww) wie ee Company's h=a4y =rters buiteng in the estance (righep j

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"hilodelphia Electric Company is on operosing unlity which provides elecenc. 0as and sloom sorwce to the j

A'cout the Co..gc, p

' public in southeastern Pennsylvania and to certain portions of norehoosiern Maryland through a==4= A,=y.The sesoi oreo served j

. by the Company and sulmdiories covers 2,475 square miles. Elm.tric serwce is supphed in on oreo of 2,340 square miles'wi

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Masion d about 3,700,000, including 1,700,000 in the City of Philodelphio. Apprommosely 95 percose of the ele :sne serwce

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area and 63 percent of recoil kilowanhour sales are in she Philadelphia suburbs and in northeossern Maryland, and 5 percent of ?

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.s the service o.co and 37 per ent of such sales are in the City of Philodelphio Natural gas service is supplied in o 1,475-square mile' t.

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. area of soushooseern Pennsylvania adiacent to Philadenphia with a populasson of 1,900,000. Sesom service is supphed in the 4

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. centrol and west Philadelphia orvos.

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. Reportof 1985 Operotions 21 Monogemcir's Discussion ond Anoiysis of Finandal Condition and Results of Operations A

i Accouniones' Report

' 22 i

Consolidovegl Financlot Statements 23-f

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V 28 Notes to Financiot Statements 40 Financialand Operating Scotistics

. ShoreholderInformation

- 44 45 Officersand Directors t'

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O Philadelph;a Electric Company Annual Report 1985 I

FinancialH;ghlights 1985 1984

• Chenge Opercting Revenue

$3,013,704,000

$2,981,017.000 I ?.

Operating Expenses

$2.593,751,000

$2,526.758.000 3*.

Tores Charged to Operations

$443,247,000

$453.612,000 (2*.)

Operot.ng income

$414,953,000

$454,259,000 9 K,)

Earnings Applicable to Common Stock

$434,774,000

$409.707,000 6*.

Eo nings per Aseroce Common Shore

$2.56

$2 70 (5*.)

Cash Dividends Paid per Common Shore

$2.20

$2.20 Avemge Shores of Common Stock Outstanding 169,784,471 151,803,698 12*.

Construct.on ExpendNres

$664,700,000

$1,063,00 000 (19*.)

T ol Assets

$10,165,314,000

$9,555.729,000 6".

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50.nf g Dollo,s 3 00 Dare 1200 7 50 10U0

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81 82 83 84 85 81 82 83 84 85 i

Earrangs Per Share Ewenal Sources em 0,vxtends um HernalSources

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k 1985 was a year of solid accompleshmoms fcr the were oko dowti.

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Company, a A 2&2% eNrr11ciateinuease regoest, the i

a Limerick th.it No. I rnelved its full-powe-op-largest in the Cosiipmsy's history, wos fi:ed in f.

eroting Ircease on August 8. After the unit was Septemoet to bring Linerkk Unit No. I hito rate i

exheustively testeil white gradually being base.To moderete the impcct of h incease on

,,e ns! sed to full capacity, et was placed in cemmer-customars, A Company proposed to r.fysa in clui operation on February 1,1966.

the increcse syver es three-yeee period ist three o Ismers:k Unit No. 2 received Pennsylvania equalstepsof 9A%each.

P Publ6c Utility Commission IPUC) permissio.iin e Gas t.crWs were reduced by approximo*ely h

De(ember to be iompleted render o cost contain.

$2a millic n per year in severcl reductions that ment and operationalintentive pec,gro n whicn took effect during 1985. These e eductions makh

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Mcle,sdes o construction cost cap, operating ard comoarable rsductions in cuppliers' prices to h

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maintenance cost contrals and performance in.

Ccmpany and did not affect Company eornings.

contives and panatties. Full constivction re-

" FN PoletP8ensnnt Wcter Propert, whi:h is de-6 sumed in Febru6ry 1986, with a forgeted signed to provide per nanent supple nental i

empleteon date oflate 1990.

cooleng water for trie oper stion af 4imerick,was ordered completed ' y the Court of Comn.on c fornings per shore were $2.56,o decline of n

Pleas u Bucks County in Febrvary,which was s

14 cents from last year. A PUC disollowaiece in October of approx 3mately 573 million of orlor caf8irneed by the Commonwealth Court in Octa-y eers' defee red cocts reduced *arn!ngs per her Beck s County und the f4esimminy Water 'te-s there by 20 cents. The Company has oppealed sources Asthority have petitioned the LJ9reme this disallewan:e tc the Common weabh Coc.t CMniof Pennsrivaniaforallowanceof an t

of Pennsyivacia, opoeol.

j o flectdc sales 'o e etail custcmers remained es-1996 w!Il be another year of challenges as the o

seratio'ly flaiaovr: pared te bst y*6e os miider Company n* tempts to put its inv eshner? In Lim -

weWr eaffsW 3rowth ln custor,ers. Gas sold erlu Urtit No. l info bose rales. Coststruction

• nd transpo*9eC dcctined sligidy dut to warmer wory hes begun ago;n or1 Unit No 2 and will be 2

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s pursued vigorously during 1986 and until com-The counties that we serve in southeastern pletion. These items comprise our top priorities Pennsylvania and northeastern Maryland are for 1986.

rkh in history, culture, scenk beauty, recreo.

The Company's accomplishments in 1985 are tional activities and economic opportunity. We l

sfiereruitof theconHnuingeffodof adedicated have ottempted to capture some of these ele.

I and talanted group of ereployees.Their commit-ments in the photography of this year's report.

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ment tp efficnt operation, high. qual:ty cus-As we face the future, we recognize the sup.

tomet serdce and innovative technology serves port of our investors that has made this year's our Co rpany vaell.They are ciso actively in-Ognificartt achievements possible. Thank you vv.,1ved in our local comrnanit'es, leading and fur your continuing support.

participating En a vride variety of activities that comritnote to she quality of life vrt% the Com" James L f verett Chairman of the Board and Chief Executive Officer Wnv's serWe arco. Exorr.ples of our employaes, activitws c.re highlighted in Hiis report.

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John H. Avstm, Jr.

President and Chief Operating Officer 4

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ha Schuylkill River !raverses our service terri-l tory from above Pottstown along the Chester County and Montgomery County borders and through Philadelphia and provides many recrea-

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tional activities for area residents. The Temple University varsity crew completes a workout.

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.L-common stoc h por n ngs amourted tC $435 m.!Lon up

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$25-n or or 6 % f rorr last vem *hae the aa age

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A, number o' shar es outstand ng nc r easeu 12% to 170

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x m Aor shares The c<-Lne e per shore ear n:ngs :s attobutatie to a

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d>sanowa-.e ov 're emasvhan'a Pub.c Uut Com D

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- " w.'i rr.ss,on PUC o+ acc*ormaterv $73 m:il.o* of fue: and e

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-w O're' Costs.Pc ur red " I9b Ond l 9b4 wh ch reduced eof"i"gs De share b. 20 ce-+s The cor pa, has op pea!ed t* s dec s on 'o "'e C orr m o r eoits ( c u +n' l

Pen e.s v !va ma 4+

f.non< ro' Statemen's and Notes beg " O" Doge 23 boles Ond Cus'omers Tota: eieur c so es amourted to 281 ox r = to e

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WO"hou s 3 :ec ease of 4 : 60- re 29 4 o,t.on

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The number of electnc customers grew 1 *, in 1985, 1985 Motor Financings I

MJhons totalling nearly 1.4 milhon at year-end The number of Month of Do'iors gas customers also grew, increasing 2*. to 311,700 Apr.

Common Stock 4.000.000 shores n $15 48 5 61.9 Additional information on sales, revenue and cus-May Pollution Control Bonds 10 ?.

tomers con be found on pages 42 and 43-due 2015 245 0 I

Financing Oct.

Pollution Control Bonds-10 ;*.

due 2014 81 0 The Company raised over $1.0 b Ilion in new capital Nov Modgoge Bonds-i l

dunng 1985 to provide funds for construction, debt re-10'.*. due 1995 l a0 0 111 *. due 2014 250 0 funding and other needs As a result of lower interest Jo -Dec. Common Stock Purchase Plans Dividend Reinvestment, rates, the Company sold $250 milhon of 11 -3/4 *. mort.

Employee. PAYSOP-7,990.000 shores gage bonds due 2014 and $150 million of 10-7/8".

Averoge Pnce of $15 77 126 0 n odgoge bonds due 1995 in November for the pur.

Common Stock continuous oHenngs:

pose of repurchasing, through a tender oHer, certo.n of 3,387,100 shores Average Pnce of $15 65 53 0 the Company's outstondmg bonds cons:st:ng of the 18-Sub-Total 5 9269 3/4 *. Senes due 2009, the 18*. Senes due 2012 and the timenck Cred.t Agreement-Net odd.tional borrowing 17-5/8*. Senes due 2011. As a result of the oHer, $217 (Outstanding 12/31/85-$550 mA n) 150 0 million of bonds were tendered enobhng the Company to reduce its annual interest payments by opproxo mately $9 6 mill,on per year. Funds not needed for the Construcnon Expend tures tender offer will be used for constructron and other Inveement in new plant and equipment amounted to 4

corporate purposes.

$865 milhon in 1985 with approximately 70*. spent on timenck and related transmission facilit.es Outlors for 1986 ore expected to amount to approximately $771 L

m.lhon includ.ng $304 million for Limer ck Un+t No 2.

L,n-inu tion i rane lononate llr il" ant"un l%halI ind P

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E. \\lartin 5haneit trea Desclonnent arul Franci* l.

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Gacy of Ir.Justrial and G ennwn ial Nn ices ninfer near y_

a nuidel of One lilirrty l%ce, which i* tlw first pha.e of My a $U U million Ibiuse & %.ciates dnelopnent. The project will im hmle two offi e towers, a fann,m lusun hotel twolnelauf

.ul spicc arwi a puling garage.

Si heihiini to be n,mpletni in tie fall of l'E, One I.ih-l eny Ibcc will ri e Nbtones aime gnauwIInel. higler than ile tower and statue of Elliam ibnn atop Gas llall I

I lo stories).

Ro+es orJ Regulatica recovered offer the third or final step is effective, but Effective January 25,1985, the PUC odopted on Order without interest. The PUC suspended the rote increase granting the Company a net increase in onnvol electric until June 27,1986, and ordered full public heorings.

revenues of $49 milhon, comprised of a base rate in-In December, the PUC issued on Order in the timer-crease of $150 mdhon, reflecting the inclusion of Solem ick Unit No. 2 Show Cause proceeding that opproved the Unit No. 2, less $101 million in fuel cost savings. The completion of construction of Unit No. 2 provided the Company agreed to guorontee that Salem Unit No. 2 Company agreed to o cost containment and opero-would produce $116 million of fuel sovings for the pe-tional incentive program. This program includes a $3.2 l

riod from ebruary 1,1985 to March 31,1986.

billion cop on the total cost of the unit for rate-making F

in September, the Company filed c $671 million elec-purposes and two plant performance requirements with tnc rate increase to begin earning a cash return on the incentives and penalties. Aber careful cont deration, the

$3 8 billion investment in Limerick Unit No. I and 100*.

Company's Board of Directors unonimously accepted the l

of common plant and to recover the costs of operotmg terms of the PUC Order and full construction resumed on the unit. The request reflects on estimated $207 milhon Unit No. 2 in Februo.y 1986. U,it No. 2 is needed by the i

in annual fuel cost savings resulting from the operation early 1990s to provide additional capacity for new load of Unit No.1. The Company proposes to phase in the growth and to r eplace old oil fired generohon. The 28.2*o increase over three years in three equal steps of Company has scheduled the unit to be completed in late 9.4% each and thereby lessen the impact of the m-1990 of a total cost of $3.2 bill;on, including the 5901 crease on customers. In addition, the Company pro-million spent through December 1985. The Company O -

""",3 poses that revenues deferred by the phase-in plan be believes that it con complete the unit on schedule with the 1:

-1 highest degree of quality and within the PUC's cost con-S

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g to nment cap.

f' In October, the PUC issued on Order denying the g

Company recovery of opproximately $73 million of the m

$101 million of deferred replacement fuel costs associ-

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1984 and costs incurred dunng operation of the Com-t pony's magnesium oxide (MgO) regeneration equip-l k

ment in 1983- (The MgO regeneration equipment is part E,

of the Company's scrubber system for remov ng sulfur j

j l%ul lludolph. Jr. of Ga, Operatines neas he-la.u 1

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F 1 he Brandywine Battlefield Park in Delaware County is one of many historic sites located in the county. Both Washington's and Lafayette's headquarters are located in this scenic park which dates back to the mid-17th century. This l

cernetery, which is still in use, has gravestones

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dioxide from the stock s of its cool fired plants located in

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9 ogo.nst third quorier income and reduced common stock earnings by $34 7 million, or 20 cents per shore The 4

Company has filed a petition for review of this decision N

with the Commonwealth Court in a later oction on No vember 14, the PUC approved a revision to the current

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l Iorld famous longwood Gardens in scenic Chester County consists of 350 acres of outdoor gardens and woodlands, glassed conserva-tories encompassing 20 indoor gardens, and

,y a h illuminated fountains.

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Th Limenck Un t No.1 test program went extremely Bucks County petitioned the Supreme Court of Pennsyl.

l well and surpassed evnectations. The program was vania for allowance of on oppeal. Work on the protect l

completed in January 1986, and the unit was placed in has been halted since early 1981 commercial operation on February 1,1986.

Dunng 1985, in order to provide on intenm st:pply of Water Requirements supplemental cochng water necessary for the timenck A critical component of the permanent stipp emental Umt No. I testing progrom,the Company applied to the l

coohng water system for timenck is the Point Pleasant Delaware River Bosin Commission (DRBC) and ob.

Water Protect, which was designed to be constructed and toined approvals for the mod 1fication of restnctions on i

operated by the Neshominy Water Reso,rces Autbonty the use of the Schuylkill River and the reallocat on of l

(NWRA), a municipal authonty created by Bucks County, coohng water to timenck from two other fossibf aed under a contract among NWRA, the Company and Buc k s power plants on the Schuylkill River. The DRBC approv.

l County. The Point Pleasant proiect has been the subsect als for the above mentioned mod.ficatons of restoc-of substantial oppos. tion from vanous groups, includ.

tions and reallocations were effective through December ing a maionty of the current Commissioners of Bucks 31,1985, and the Company has again f, led requests w,th County and a motonty of the new members of the board the DRBC for its 1986 supplemental rochng water needs of NWRA, which has resul'ed in interruption of con-pending resolution of the Point Pleasant proiect.

i struction and in htigation in March 1985, appeals were in September, Governor Thomas Kean of New Jersey filed by Bucks County and NWRA with the Common-and other d'gnitanes partic: pated in ground breaking wealth Court of Pennsylvania from the decision of the ceremonies for the Mernli Creek Proiect. This 5217 mil-Court of Common Pleas of Buck s County which found the hon reservoir facility, which will be owned jointly bv PE Point Pleasant contract to be vahd and enforceable and and six other elat >c ut.hties,is scheduled to be m ser-f ordered completion of the Project in October 1985, the vice by May 1988 and will provide water for power piants a

Commonwealth Court afbrmed the decision of the Court along the Delaware River as well os Limerick. PE's shore re of Common Pleas of Bucks County, and NWRA and of the proiect cost will be 196 milhon.

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ernpl. ares are an imi..rtant c. onhutn n to nor u n n.

area. Ib.lert %. kane ni Encro Informanon.u I

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filo ain.n u.lunteers hi enin r Io th. -tu. lent, an 1 -ialt of the (.h ~ter (.nunis tini.I ai 1I arcer I b eh.pnieni Lenicr. a w h...I for Inhlren a sh leannne.h-al..hn. -

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I h lores E. % Guigan of Genmen ial 0;rratkomened as e hairman of ihm L. Gumtf 1% l'nii.,1 Wav Cam-pugn. ble iuhown si iting the lha k* Giunty Amia-tu.n for itetante,I Citiwns l'n wh.=>l Center in Cn y.lon, a l nitril Way agem y.

Located near Phillipsburg, New Jersey, obout 50 miles M_orketing north of Philodelphia, Merrill Creek is a small tnbutary The Company continued to oggressively market pro-of the Delowore River which is being dommed to create grams designed to encourage the use of high-efficiency t

a 15 billion gallon reservoir. Water w?t be stored there equipment and opphonces and to promote greater off-l when it is plentiful, then, during times of extreme low flow peak use of our energy services.

on the Delaware, this stored water will be returned to the Much of our marketing effort is derected to electric 1

Delaware River to replace the water the project owners space heating. Our terntory expenenced a record level use in operating their power plants. This will ensure that of commercial construction in 1985-16 million square the reg;on's electric generation needs will not be cur-feet of new space underway. Over 65% wJI be heated toiled due to lack cf water. Construction of a water stor-electricolly, while 18*. will be heated by Company gas, i

i t

age facility was ordered by the DRBC in connection with resultmg in a total Company penetration of 83% in this its authorization to take water from the Delowore River important market.

for certain generating units, inclu4ng Limerick.

The residential mark et was also unusuolly ottive with 12,200 new units connected. Electric space heating was i

installed in 65% of these units. Heat pumps, which are octively promoted by the Company because of their ef.

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ficiency and economy, will heat and cool 58% of these g

new dwelling units. Another 23% will have gas heat, so if

~8 that over 88% of new homes in the service terntory will

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v 4d M.w Areo_Developm_ent smh gre p

Southeastern Pennsylvania is on the c ave and Philadel-N phia Electnc Company continues to play a leading role in promoting economic development in the crea Copi-tolizing on the successful theme, "We Know the Terri-tory", Area Development's rod.o and print advertising Curts. Ilial lle. Jr. of E.otern lbsi ion enakes an aerial continues to promote the many benefits the Greater in gretion of ele liighlanel<. a erw rni.lential commu-

i. ins of apiennirnarets 1 :W in.m.s. Iwaie,lin Chalfoni.

Philadelphio metropolitan area hos to offe.

Ihw km G unts, de honr* are pert of l'E** Ewellence in Errrgy Effi iency ll LEt l'n. gram arvi willline ficat inimim.

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I ucks County offers abundant visual wealth and has attracted a commumty of artsts and craft-men. Noted furniture designer George Naka-3 - -

shima inspects wooden slabs at his stadio in New Hope.

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County is one of several major military installa-tions in the Company's service territory Major

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Stainless steel piping connected to the reactor vessel nos replaced with on improved alloy pipe to prevent weld pm m;

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quired for a new plant, was corried out to assure

• hot no d"IM hief of the Enteqin=c fire Gimpany in llattuns, cond.tions or system chorocteristics were creo+ed dur.

ing the outoge wMch would in any way jeopardize the safe operot:on of the plant.

Likewise, Peach Bottom Unit No. 3 was shut down for and operated at 76.1 *. of full copocity for the remo:n-a scheduled refueling and pipe inspection in July 1985.

der of the year. However, as o result of lower oil pnces, Weld cracks were found in the stainless steel piping the unit did not fully achieve its contemplated fuel sov-cont'ected to the reactor vessel and were repaired us-ings that the Company agreed to guarantee, necess; tat-ing a weld overlay technique. The unit is expected to be ing on $8 m.lhon charge against 1985 pre-tan income.

returned to service in February 1986. A p1pe replace.

The Company owes 42.59*. of the Salem Generating ment progrom similor to that performed on Unit No. 2 is Station which is operated by Pubhc Service Electric and be ng studied for the next scheduled refuenng outage m Gas Company.

early 1987.

Eddystone Stahon celebrated its 25'h anniversary in in 1985, Salem Unit No.1 estol.Ahed a new Unaed October. When first completed in 1960, the two super-f States record for electncol product:on m o coiendor year cntical, high-pressure, cool-fired units were the most ef-by a smgle unit, operating of full copoc ty 95.3*. of the ficient in the world. The stanon has more than doub!ed t!me. Sclem Unit No. 2 returned to full operatson m May its generating copocdy since the in hol operation of these pioneering base load units with totol capacity now equating 1.5 m,Ilion kilowatts, enough to serve o c ty of 650,000 people The station nchievad ono'her engi-neenng milestone m 1983 by instalhng a particulate and sulfur diomde removal system or scrubbers which ute hze a unique magnesium oxide regeneration system to remove in excess of 90*. of the sulfur dioxide from the flue gos.

TFe Company's new magnesium oxide regenerot on facilities. located at Albed Chemical Company in Clay-Ilmi.lmg, un.lcr o.n-inu tu.n m ihn lilue llcIl of ta e o.mples espify the -in,ng olin e gn,wth in the neighl.,r.

mont, Delaware, and Essex Chemical Company h Cltf-ing o,untiet \\n a4hininal 16 nullynn =;uase feet of oth< e pace were un.lemas m 1% p.uin ul.uls m the ton, New Jersey, conhnued to perform well dunng 1985.

the ter an.1 \\lontgomen Lount5 arca of breas \\ alles.

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suflur dioxide frcm the magnesium sulfite by product of the flue gas scrubbmg systems at the Eddystone and Cromby cool burneng stations and recovers the mag-18

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r beyond Tha sacond a computer: zed I g t, ng detec-

+hrough reduced commod.ty ra'es from both of ts eter-h t.on syvem loca'es cloud to-grouad I.gh'n.ng str L es sta'e p pel ne supphers. and by purchas ng 25* of :ts ual supp y through spot transac' ons c* a avmgs of anywhe e o'ong the east coast The mforma'.on f om ann l

bem sys* ems,s used tw +e Company +o an' c.pa'e storm

$14 9 mdhon Reduct o~ m the Company's gas rates to-actv+y and to be"er aUcca+e manpower m o der to re-ta! ng $28 m Aon per year made in September and No-ouce the serv'ce evorat on t me to Company cus-vember passed +ese sorngs through to our customers

'orners a ec'ed by +e s'orms in add t on, Se Company transported and Jei vered d

Gas Operat ces 10 3 blhon cub,c feet of gas purchased daect'y by arge l

Ph lade ph4a Electr c Company has cons veey been a end-users for consumpton at +e r local f acJ t es i

eader m t*e gas ut i tf indust y m developmg and us rg Othe Developments new 'echnoiogy The p.pehne insea on macFme P!M for in 1985. tre Company mstoPed a 40 LJowa* proto+ype cast iron gas mam rep!acement con' nues th s t ad t.on f ve! ceH on 'he s 'e of 'be Var <ety Club cb Jdren's camp in d

Worces'er. PennsyIvan a, as a iomt research effort n cue. cost e ect.ve sys'em + bat perm ts trea PlM 's a u the Gas Resea<ch Mst +v e. tre U S Depa+

piace replacement of cast aan gas ma os w.th polyeth-f nded bf e

u etene gas p pe cf 'Fe same cr ic<ge< d a-ete-ment of Energy and PE. The fuel cell uses natural gas as T ave,I ng a' speeds up to seven feet per m.nu'e +e fuel By a process s.m lar to tha+ of an e ectnc ba"ery. 4 l

converts the chemical energy conta red m +e gas to d.-

P:M, geded by a w nch-puhed cobie. is oneumat cohr pusFad t'out +e eu st ng cast iron ma n, sha*e ng '*e rect cunert TF,s current is converted to abernat ng cur-OId p pe os *t mcves and s muttaneousf y puH ng tFe rew rect and fed mto "'e d er but on system The wave energy r g d pbv c sfeeve to f !! the vo,d la by the en sf ng cast f'om the process 's used to beat a la'ge mdoor sw m-

"on p ce Th s ta'er serves as a cond#t throut whch a mmg pool used for rehobl foton therapy APhouqF not ne a pol e'Fy'ene piastc gas ma n is ense ted The ecomorr:c m 's present conf qu'at on, the fuel ceH con-y me+od y a'ds many benef % for tt e Compvv.the mos' capt holds prorn se l')r the fu'ure it could uh ma'elyub s gn.' cant and obv ous be ng less escava' on and res lie gas f,ed cool to produce electoc power in large fora' on of pawng ce"' al va'ons The Company is fodowmq advanced fuel An oversuppy cf na%rof gas in the m+erva'e mq4et ceh concepts w th gmot.nte.est cont nued 'o depress pnces throug out 1985 it-e Com.

h 20

Philodilphia Electric Company and Subsidiary Companies Management's Discussion And Analysis Of Financial Condition And Results Of Operations General. The revenue growth of recent years has been occomponied by substantialincreases in operating costs and carrying charges on increased investment in plant and equipment. Any future increases in such costs and charges mov be expected to adversely offect future net income and eornings per overage common shore unless periodic rote relief is obtained to offset them.

The capital carrying charges ossociated with the construction of Limerick, which are capitalized by crediting income with on allowance for funds used during construction (AFUDC) and recovered through future depreciation, continued to represent a maior portion of net income during 1985. These charges will decrease os the commercial operation of Limerick Unit No.1 is reflected in revenue. On September 27,1985, the Company filed with the Pennsylvania Public Utility Commission (PUC) for on additional $671 million per year in electric revenue, net of fuel savings, to recover the costs associated with placing Unit No.1 and one hundred percent of common plant in rate base. The PUC is expected to issue o final order in late June 1986. The Company has PUC opproval to utilize on accounting treatment which synchronizes the expense accounting for Limerick Unit No. I with rote recognitionof theunit.

On January 25,1985, a $150 million per year base rote increase for electric service was put into effe. to recover the costs associated with placing Salem Unit No. 2 in rote base. Output from the unit had previously been sold to Jersey Centrol Power &

Light Company under o contract which expired on December 31,1984. Despite the increase in electric rotes granted in January 1985, the return on investment is still below that allowed by the PUC os o fair return in the Company's lost rote order.

Electric Operating Revenue. Increased electric revenue in 1985 over 1984 is primarily attributoble to higher base rates. Revenue associated with Salem Unit No. 2 output, formerly sold to Jersey Centrol Power & Light Company, is now reflected in the base rotes for retail customers. The increase in 1984 compared with 1983 s eflected higher base rates and higher fuel-related revenue.

Kilowatthour sales of electricity to retail customers were essentially the some in 1985 and 1984.

Electric Revenue Increase /(Decrease) Millions of Dollars

'85 vs. '84

'84 vs. '83 RoteIncreases

$141.4

$140.0 Fuel-Related Revenue (2.8) 104.0 Solem Unit No.2 (67.0) 36.5 Other 8.9 47.3 Total 5 80.5

$327.8 Gas Operating Revenue. Decreased gas revenue in 1985 compared with 1984 is attributable to o decrease in sales and lower fuel-related revenue resulting from reductions in the price of gas purchased from suppliers. Gas operating revenue net of fuel costs increased 6.7 percent in 1985 over 1984.

Fuel and Energy interchange Expense. For accounting purposes, fuel and energy interchange costs are deferred until billed as fuel odiustment revenue. In 1985, gross fuel and energy interchange costs were $212 million lower than in 1984 due primarily to the excellent nuclear performance of Sofem Station. Fuel and energy interchange costs deferred in previous years and charged to expense in 1985 omounted to $135 million, resulting in net fuel and ener < interchange expense remaining essentially the some in 1985 as in 1984. Inauded in net fuel and energy interchange expense in 1985 was approximately $73 million of replacement energy costs associated primarily with Salem Unit No.1 outoges in 1983 ond 1984 and costs incurred during the operation of the Company's flue gas scrubbing systems at cool-burning static,ns in 1983. Recovery of these costs was disallowed by the PUC in on order which the Company has appealed. Also included was on $8 million charge in recognition that Solem Unit No. 2 fuel savings were not expected to reach the minimum guoronteed to the PUC when the unit was included in the rate base. The $73 million write-i off and the $8 million Salem charge reduced 1985 earnings by opproximately 23 cents per shore.

j in 1984, gross fuel and energy interchange cests were essentially the some os in 1983. However, electric fuel costs deferred were lower by $104.2 million, resulting in a net increase in fuel and energy interchange expense compared with 1983.

Other Operotmg and Maintenance Expenses. Other operating oc.d maintenance expenses have increased in the lost two yaors due to inflation, growth in utility plant, and increased sts ossociated with the Company's nuclear generating units and with operating the new flue gas scrubbing systems of the Company's two cool-burning stations.

Depreciation. Increases in depreciot'on in the lost two years reflect additions to plant in service.

Income Tones, income taxes charged t 3 operations decreased in 1985 compared woh 1984 as o result of lower operating income.

income tax credits, net, included in othe income, have increased in the lost two years os a result of the higher allowance for borrowed funds used during construction.

Other Tones. Other taxes have increased primarily due to higher capital stock ono realty tones.

Allowance for Funds Used During Constructic,n. The increases in AFUDC for the lost two years have re sulted primarily from increases in construction work in progress.

Interest Cho,ges. Interest charges on debt increased in the lost two years due to additional debt outstonding. The ratio of earnings to mortgage interest, which is one measure of the Company's ability to issue additional mortgage bonds, was 1.98 times at December 31,1985.

21

Capital Expenditures and Changes in Financial Position. The Company is carrying on a construction program which is estimated to require expenditures of $771 million in 1986 and $2.9 billion from 1987 to 1989. A majority of these expenditures relates to the construction of the Company's second 1055 mW nuclear generating unit at Limerick. Successful completion of this program is dependent on the Company's ability to obtain extemol financing, primarily through debt arrangements and soles of equity securities which are subject to market conditions and to meeting certain earnings tests. The program also is subject to the licensing requirements of the Nuclear Regulatory Commission,to financing opprovals by the PUC,and to change due to htigation. The Company connot predict the outcome of such regulatory reviews, but believes the safety requirements have been or will be met, the economic desirobility of the program hos been demonstrated, and that the program will be successfully completed and opproved.

Interim financing of the construction program is provided by commercial paper borrowings and short-and intermediate-term bank loans, which also are dependent on the Company's financial position.

RETURNON AVEit%E RAnOOf EARN 4NGs COMMON STOCK EQulTY TO MORTGAGE INTEREST Percere 18 TasCovered 300

)$

2 50 T

is T

isi T

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0 50'

~

81 82 83 84 85 81 82 83 84 8s Accountants' Report To the Shoreholders and Board of Directors Philadelphia Electric Company We have examined the consolidated bolonce sheets of Philadelphia Electric Company and Subsidiary Companies as of December 31,1985 and 1984, and the related consolidated statements of income, retained earnings, changes in common stock, preferred stock, and other paid.in capital, and changes in 'inancial position for each of the three years in the period ended December 31,1985. Our examinations were mode in accordance with generally accepted auditing standards and, occordingty, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion,the financial statements referred to above present fairly the consolidated financial position of Philadelphia Electric Company and Subsidiary Companies os of December 31,1985 and 1984, and the consohdoted results of their operations and changes in their financial position for each of the three years in the period ended December 31,1985,in conformity with generally accepted accounting principles applied on o consistent basis.

1900 Three Mellon Bank Center Philadelphia, Pennsylvania February 3,1986 1/AA Y n

q Philadelphio Electric Company and Subsidiary Componies Consolidated 5tatements ofIncome l

For the Year Ended December 31 1985 1984 1983 (Thousands of Dollars)

Operotmg Revenues Electric

$2,516,191 $2,435,731 $2,107,897 Gas 428,984 462,966 417,042 Steam 68,529 82,320 71,111 TofolOperatung Revenues 3,013,704 2,981,017 2,596,050 Operstmg Expenses Fueland Energy interchange 1,139,553 1,122,177 986,634 Other Operating Expenses 565,713 527,060 449,101 Maintenance 265,173 245,583 222,6J0 Depreciation 184,%5 178,326 165,327 income Taxes 201,823 246,749 200,026 Other Taxes 241,524 206,863 178,615 TofolOperating Expenses 2,598,751 2,526,758 2,202,343 Operatmgincome 414,953 454,259 393,707 Orherlocome and Deductrons Allowance for Other Funds Used During Construction 176,310 134,485 108,126 income Tax Credits, Net 133,415 116,423 87,912 Other, Net (3,464) 239 (3,125)

Totolotherincome andDeductrons 306,261 251,147 192,913 income 8eforeinferest Charges 721,214 705,406 586,620

. Interest Charges Long-Term Debt 435,373 402,475 330,200 Short-Term Debt 17,721 30,912 35,199 Allowance for 8orrowed Funds Used During Construction (257,181)

(220,370)

(167,868)

Netinterest Chorges 195,913 213,017 197,531 Netincome 525,301 492,389 3t?,089 Preferred 5fock Dmdends 90,577 82,682 67,384 Earnings Applicable to Common Stock

$ 434,724 5 409,707 $ 321,705

?

l Average Shores of Common Stock O tstanding (Thousands) 169,784 151,804 133,852 Carnings Per Aurage common 5hore (Dollars)

$2.56

$2.70

$2.40 Dividends Per Common Shore (Dollars)

$2.20

$2.20

$2.12 l

See notes to financial statements.

23

Philadelphia Electric Company and Subsidiary Companies Consolidated Balance Sheets ASSETS December 31 1985 1984 (Thousanc, of Dollart) 8 Utility Mont, of orsgenolcost Electric

$ 4,982,099 54,806,476 Gas 474,599 443,946 Steam 54.138

$3,846 Common.esed in ali services 132,323 129 649 5,643,159 5,433,937 Less: Accumulated Depreciation 1/124,420 1,726,321 Net Utility Plantin Service 3,318,739 3l/07,616 Construction Work in Progress 4,929,093 4,400,16e Leased Property, net

_ 332,14l_

352,133 Not Utility Mont 9,py,973 8,4593 investments 87,670 8,0.87_1...

CurrentAssets Cash and Temporary Cashinvestments 1*,8 765 30,157 Escrow Deposits 13,30h 88.*76 Accounts Receivable Customers

$48,233 046,018 Other 2168T 38,284 Inventories,of overage cost Fossil Fuel 63,594 93,004 Materials and Supplies 60.152 57,532 Deferred Energy Costs 101,655 729 G?5 Compensated Absences 46.370 41,478 Other 12,101 7 '192 Total Current Assets 856.978 937_0_3_6 Deferred Debets 134,793 87,907 Total

$10,165,314 $9,$5V27 See no;es to financial statements.

24

l CAMTAUZATION ANO UA8LUTIES December 31 1983 1984 1

(Ikwsonds of DcIlois)

Copeditation Corpreon Shoreholde<s' Equty

{

Common Stock

$ 2,401,*89 82,350,948 i

Other Poid b Cepitol 7,331 6,727 Retoined Earnings 533,728 523,300 3,193.048 74909/S Preferred Sicck Without Mondatory Redemp+,on 512,472 572.472 With Mondatory Redemption 318,309 326,235 Longterm Debt 4,309,131 3,777,961 TotalCaprealisation 8,392,960 7,567,643 Cwrentliabdures Sho+ Term Oebt Bankloans 1,000 20,000 Pollution Contrcl Notes 240,000 tong-Term Debt Due Within One Year 80,800 50,361 Cap.tol Lease Obligations Due WPhin One Year 76,326 68,332 Accounts Poyab'e 144,407 156,245 Toies Accrued 58,509 40,314 Deferred income Taxes-Energy 51,814 117,729 Interest Accrued 93,008 91,110 Dividends Declared 40,698 43,796 Compenso'ed Absences 46,370 41,478 Other 25,583 85,749 TotolCwrent uobilities 618,515 955,114 Deferred Credits and Other liabilities Deferred income Toxes 502,621 373,343 Unamortized investment Tax Credits 302,409 299,419 Capitol Leose Obligations 261,815 283,802 Other 86,994 76,408 Total Deferred Credits and Other liabilities 1,153,839 1.032,972 Total

$10,165,314 $9,555,729 25

Philodelph c Etertric Company and Subsidiary Companies

~

Consolidomi Statements of Changes in Financial Position For the Year Ended UEce rher31 1985 1984 1983 (Thwsonds of Dol!ars)

Sources offwds Funds From Operatioris N-t laccme 5 525,301

$ 492,389

$ 389,089 Principal Nen-Cosh Charges (Credits) to inconic Deprec o' ion 184,%5 178,326 165,327 Nuclear Fue! Disposo! Costs 5,601 13,201 12,166 Deferred intoine Toses 66,281 76,197 175,307 investmer t Tax Cred;is, Net of Amortiration 3,567 49,927 (46,064)

A!!awence for Other Funos Used During Constructicn (176,310)

(134,435)

(108,126)

Total from Operchons 609,405 _

675,555 587,699 Funds from Financings Sales of Securities Common Stock 241,041 250,445 284,305 100,000 150,000 Preferred Stock Long-Term Debt 686,000 258,700 175,000 240,000 Short Term Pollution Controf Notes Net Borrowings Under Revolving Credit Agreements 150,000 200,000 200,W)

$5,928 37,679 Sole of Magnesium Oxide Regeneration Facilit;es inct ease in Capital lease Obligotions 46,364 12,690 72,514 202,800 increase in Short. Term Debt Totalfrom Financings 1,123,405 1,117,763 1,122,298 Totol$ources

$1,732,810

$1,793,318 11,709,997 Uses ofFunds Additions to Utility Plant

$ 826,609

$1,053,133

$1,030,321 Addihons to Leased Assets 46,364 12,690 72,514 A!!owance for Other Funds Used Dsring Construction (176,310)

(134,485)

(108.126)

Dividends on Preferred and Common Stock 464,003 418,098 352,553 Retirement of Long Term Debt 273,394 11,194 41,573 Premium on Retirement of Long. Term Debt 48,589 Redemption of Preferred Stock 7.926 8,628 7,427 Redemption of Short-Term Pollution Control Notes 240,000 Decrease in Short. Term Debt 19,000 247,500 Net Changein Deferred Energy Costs (128,240) 80,649 234,625 Net Change in Nuclear Fuel Escrow Account (51,816) 37,160 1,113 Net Change in Other items of Working Capitol 153,528 50,340 71,451 Other, Net 9,763 13,411 546 TotolUses

$1,732,810

$1,793,318

$1,709,997 See notes to financial statements.

i 26

Philadelphia Electric Company and Subsidiary Componies Consolidated Statements of Retained Earnings Forthe Year Ended December 31 1985 1984 1983 (Thovsonds of Dollars)

Solonce,JanuaryI

$ 523,300 $452,964 $423,596 i

Net income 525,301 492,339 389,089 1,048,601 945,353 812,685 Cash O!vidends Dectored l

Pieferred S*ock (of specified annuoi rates) 90,524 83,820 68,970 l

Cc,r, mon Stock (per shere, $2.20 in 1985 and 19BS,52.12 in 1983) 373,479 334,278 283,583 bpenses of issuing Preferred or.d Common Stock 870 3,955 7,168 464,873 422,053 359,721 8elonce, Decemler37 5 583,728 $523,300 $452,964 Consolidated Statements of Changs in Common Stock, Preferred Stock and Other Poid in Capital Other Common Stock Preferred Stock Poid in Shcres Amount Shores Amount Capitol (All Anvwn's in thousands)

Balonce, January 1,1983 125,767 51,826,198 6.648

$664,762

$4,641 hsvonce of Stock Public Scles 11,000 186,055 1,500 150,000 Employes Stock Ownersh.p Plans 1,256 21,054 Dividend Reinvestment and Stock Purchase Plan 4,788 77,196 Redemptions (75)

(7,427) 1,215 8clance, December 31,1983 142,811 2,110,503 8,073 807,335 5,856 lszonce of Stock Pubt;c Sales 11,613 14 t,548 1,000 100,000 Employee Stock Ownership Plans 914 10,563 Dividend Reinvestment and Stock Purchase Plan 6,965 95,334 Redemptions (86)

(8,623}

871 Bolonce, December 31,1984 162,303 2,360,948 8,987 898,707 6,727 issuonce of $tock Public Sales 7,387 115,008 Employee Stc,ck Ownership Plans 873 15,294 Dividend Reinvestreent and Stock Purchase Plan 7,117 110,739 Redempt.ons (79)

(7,926) 604 Solonce, December 31,1985 177,680 $2,601,989 8,908

$690,781

$7,331 See notes to financial statements.

27 L

Philodelphia Electric Company und Subsidiary Componies Notes to Financial Statenwnts 1.SIGNIFICANT ACCOUNTING POUCIES General. All utility subsidiary compcnies of Philadelphia Electric Company are wholly owned and are included i, the consolidated financial statements. Nonutility subsidiaries are included in investments and accounted Ior by the equity method.

Accounting policies are in accordance with thosa prescribed by the regulotory outhorities having jurisdiction, principolly the Federal Energy Regulatory Commission (FERC) and the Pennsylvania Public Utility Commission (PUC).

Nevenues. Revenues are recorded in the accounts upon bilhng to the customer. Rote increases are billed from dotes authonzed or permitted to become effective by the regulatory outhorities.

Fuel Expenses. Fuel expenses, which are recoverable under energy od ustment clouses, are recognized when tha related revenue i

is billed to customers. Nuclear fuel used h the Peach Bottom and Salem Generating Stations is le sed, and the costs of such leased fuel are charged te fuel expense on the unit of production method. Nuclear fuel disposal costs are being charged te fuel expense os the related fuel is burned.

Depreciation. For financial reporting purpctes, depreciation is provided over the estimated service lives of the plant on the straight.line method ond, for tax purposes, generolly, over shorter lives on accelerated methods. The e.timated decommissioning costs of nuclear plonts, totaling opproximatel $181,862,000 of Dece nbee 31,1985, are being charged to operations os permitted y

for rote-making purposes. The amounts charged are deposited in on eserow occount and invested for fuding of future costs. The Company believes that any increase in the estimated costs would be recoverobk through odiustments of rotes charged to its customers. Annual depreciation orovisions, expressed as o percent of overage deprecioble ut;!;ty plant in service, were approximately 3.35% for 1985,3.29% for 1984 and 3.20% for 1983.

locome Tones. Deferred income taxes are provided for differences between book and toxoble income to the extent permitted for rote.moking purposes. Investment tax credits, other than credits resuhing from contributions to employee stock ownership plans, which do not offect income, are deferred and omortized to income over the estimated useful hfe of the related utihty plant.

Allowance for Funds Used During Construction (AFUDC). AFUDC is o non cosh item which is defined in the eniform systems of accounts os "the net cost for the period of construction of borrowed funds used for construction purposes and a reesonoble rate on other funds when so used." AFUDCis recorded as o charge to Construction Work in Progress, and the equivolent u edits cre to

" Interest Chorges" for the pretax cost of borrowed funds and to "Other income' for the remainde os the allowcace for equity funds. The rate used for capitalizing AFUDC, whk h overaged 9.5%n 1985,9.4% h 1984, and 9.3% in 1983, is compored under o method prescribed by the regulatory authonhes. The rate is a " net offer-tax rote" and the current income tax reductions applicable to the inter est charges capitolind are recorded in "Other income " AFUDC is not irdsded in toyoble income aM the depreciation of capitalized AFUDC is not tax deduct,ble.

Gas Exploration and Development Joint Ventures. The Company hns invested in severot icint ventures for explorire oad a ithng for natural gas. Costs are capitchzed under the full cost method and chorgad to c,ueroens commenserate witbroduct;on.

2. JOlflTLY OWNED ELECTRIC UTluTY PLANT The Company's ownership interests in jointly owned ubhty plantet December 31, M85, were us fo lo.vs.

Transn.ission ProAction Plants Plont Peach Bot'om Solem Keystone Cone. nog penill(.rcek Operator P!ntadethio Public Service Pv.,syhrer.;c Pennstvunu Jersey Cenk 01 Vonous Electric Electric ond Sec+nc Electnc Power &

Companies Company Gos Cornpany Cor pony Compocy Ught Company Portripoting Intere.t 42.49 %

42.59 %

70.99 %

7'1 72 %

4424%

21% to 43%

(Thoi.snds of Do:lars)

Company's shore of:

Ut,hty Plant

$510,652

$903,473

$60.683

$62,186

$68,658 Accumulo'ed Depreciot;on 129,522 145,577 23,464 23,520 13,991 Construction Work in Progress 12,717 19,9',6 7,791 2,49

$18,458 TFe Company's porticipating intemsts are finon ed whh Compc.ny 4 ras ond, when pincebn service, oli operotions ore accounted for as if such po'ticipating interestwers wholly owned fecihtics.

28

3. COMMON STOCK At December 31,1985 and 1984. Common Stock, without por value, consisted of 240,000,000 shores authorized and 177,679,077 I

and 162,303,390 shores, respectivel, outstand:ng. At Det ember 31,1985, there wer e 8,394,449 shores reserved for issuor:ce y

t,nder stock purchasr plans.

4. PREFERRED STOCK At December 31,1985 and 1984, Preferred Stock 5'00 por, cumulative Shores Amount Ct,rrent Refund;ng Redemption Restricted Outstandrog Price (o)

Prior to (b)

Authorized 1985 Ic.'t4 1965 1934 (Troucends of Do!lors)

Series (withou* mondatory redemption) 14.15%(c) 5114.15 2 8-90 50M00 300,000 500,000

$ 50,03t) 5 50,009 13 35% (c) 113.35 2-1-8o 750.000 750,2 0 15A,000 75,000 75.000 1 *I8*. ict 112.80 54 -88 750,000 750,000 750.000 7$,,000 75h00 9.50".

103.53 750,000

'.'50,020 750,000 75,000 75,000 07X 104.00 650.003 650,G00 650,000 65,b00 65,000 715%

103.60 500.000 500 0GJ 500.000 50,000 50,000 7 80 %

103.00 750,000 750,000 750/]00 75.000 75,000 7 75 %

10') 90 200 000

?00,000 200h00 20,000 20.000 4.6 %

10(00 150,000 150,030 150,000 35.000 15,000 4 4*.

112.50 274,720 274,710 274720 27,472 27,472 4.", %

102.00 150,000 150,000 150,000 15,000 15.000 3.8%

10100 300,000 330,000 300,000 30,000 30,000 5,724,720 5,724,720 5,724,720 572,472 572,472 Series tw;'h mondulcry rederopt.onl(d) 17 ESS 5117.13 5-1-87 300,000 300,000 300,000 30,000 30,000 15.25 %

110 00 5-1 90 500 000 500,000 500,000 50,000 50,000 14.625 %

108 70(c) 514'O 500,000 500,000 500,000 50,000 50,000 10 %

104 44 5190 220,000 220 300 220,000 22,000 22,000 9.52 *.

1062$

5-1 86 500,000 393,690 401,650 39,369 40,165 8.75 %

105.15 51-83 500.000 433,400 4U,700 43,340 46.670 7.325 %

103.81 750,000 540,000 57C,000 54,000 57,v00 7%

101.00 400,000 296,000 304,000 29,600 30,400 3,670,000 3,183,090 3,262,350 118,309 32(,235 Undossified 605,230 TotulPreferredStock 10,000.000 8.907,810 8,987,070 5890,781 58?8,707 (o) Redeemable, of the option of the Company, of the indicated do.lar amounts per shos e, pivu occ.t,ed dividends.

(b) Prior to the dote specified, none of the shores of each ser,es indicoted enay be redeen,ed through refundin of er,ir,:erest co;t j

i or dividend rare which is less than the drvidend rote c,f such series.

(c) Ownership of these series of Preferred Stock is evidenced by Depository Preference Shores, each represci, ting I/10 of, shore of Preferred Stock, (d) Sinking Fund requirements (por value) in the period 1984 -1990 ore os fo!Ious-1986-514,399,000;1987-515,230,000 1988-517,530,000;1989-517,530,000,1970-527,530,000.

(e) Not redeemobh prior to M ay 1,1990.

1

??

(...

- Ph% +lpko Elen.ic company and 0ub2iaiory Companies j

Notes to Finandal $tatements (Continued) j

=

- w __

5.LONG-TERM DEST g

/

• Decembee 31,19E and 1984 i

Series Due 1Y85 1984 (TFousands of Dollars)

First oad Pe%nding Morigoge Bcadz (o) 3 'l/8%

1985

$ 5 0,0'10 4-3/8%

1986 5 50 000

$0,000 4-5/8%

1987 40,000 40,000 3-3/4 % 14 %

1788 52,!%0 52,5')0 5 % 14 %

1C89 62,500 e2,500 14 %

i990 11,0W) 11,000 4-U2%1t% 1991 1Y95 506,225 35"l/00 6-L 8415-1/4% 1995-2000 668,684 619,217 7-3/84121/2% 2001-2005

.160,t00 4S0 000 6%i8-3/4% 2'.106-2910 447,367 523 500 10-1/2 10 % E011 20~5

'/45.N3 250,000 Total First and Refurdag Mortgage Bonds 3,005,561 7 590,017 Notes Peyoble-Banks (b) 1937 1980 725/100 225,000 Notes Pnycb;e-Other 17 %

1986 1537 20,000 20,00n Revolving Cred:t otid Term Loon Agreements Ic,'

1988 1991 550,000 4R000 Pc,llut;on Control Notes 5 1/2 % 13 % M97-2'li3 272.685 274,190 Debenture; 4.85 %

1986 4 8'10 21,i61 Debentsres 14-1/0 %

1990 50,000

')0,000 Debentu.es 14 3/4 %

2005 100,000 100,000 Debentures 14.5 %

2009 150,00;;

150,000 Sinking Fund Debentures-Phi!adelph;o Eleetnc Power Company, o SubsWion 41/2%

'995 15,325 16,397 (19,4461 Q8,443.i Uncmortized Debt Discount and Premium, Net Totallong-Term Debt 4,369,9J1 3,84323 Due Within One l' ear fd) 80,600 ~ - -50,'4 1 Long TermDebtincludede capitalization (e) 54,309,131 $3,777.961 n

m-p b) 1)tility plant is subject to the I;en of the Company's mortg :ge Procee ds from the Novemoer.1785 so!v of $250,000,000 principal omount cf 11-3/4% Series due 2014 ond $150.000,00G principal amo' int cf 10 7/8% senes duc IN we re used m port to repurchase $76,131,000 porrjpol amount of 1 S3/4% Seriee Jue 2009, $62,621,000 piir cir.ol emount of 18*' Serie-due 2'112, and $78,096,000 pnncipalamount of 17-5/8% 5enes due 2011. Premium on the repurchase of $18,588 515 was choeged in

)

Deferred Debits. The Company,in its currer.tly pending e:ectric rate cose,wJi req est the PUC to chew recovery h rotes of this

)

omount over the weighted overoge life of the new debt, approximotely 21 ycoes. Amc,rt;zonen of the pcemium will be ho ged to interest erpense over the period of recoverf.

l (b) At interest rates ranging from prime rate to prime rote plus 1/2%.

(c) The Company has a $550 m;ll;on revolving credd and terr, loan agreement with es group of Lor.k2 whth provided the financiig reg Fred to complete Limerick Unit No.1. The revo?ving credit arrongement converts into o ter m loo, in Augssi 1987. The borrowings are due in eight semi-annual insto!!ments w;th the first paymeri due 6 mombs cher the envers;ot into the te m loon.

Interest on outstandmg borrowings is based on specific f ymulos selected by the Compoay invof <ing f elds on seeral types of i

debt instruments. There is on onnvol commitment fee of 1/2% r.,n the unused amount. At December 31,1985, $550 r illion was outs'andmg under this agreement.

The Compan/ otso has a $400 million revolving cred't or.d tenn loan ogreernent with a g c,vp of banks wl ich espire s in 1987, but which rr.cy t,e ex' ended through 1990 upon opproval of the oo iks. There is on onnual comtrJtrr.ent fee of 3/8% on the unused amount. There w ere no borrowings under this agreement dur ing the year.

(d) Long term debt maturities n the period 1987-1990 are os folicws.

1987.$167,844,000,1988-$281,775.000;1989 5241,850,000;1990-5215,350,000 (e) The onnvolized :nterest on long-term debt at December 31,1985, wus $ 455.7 nu'lon of wh.c.h $309.3 rmlhon wo; c:sociated wHi mor+goge bond ond $146 4 million was assxioted with other fong-tern, debt.

I ao

6.SHORT. TERM DEBT '

1985 1984 1983 (Thovsondsof Dollars) i Average Shen.Terrr Borrowings

$127,392

$166,713

$164,429 Aurage Intenst Rates, Computed on Daily Bosis 6.38 %

9.83 %

9.06 %

Mayimum ShaTerm Pon owings Oetstanding

$360,000

$302,500

$340,000 Averege Interest Ru+es on Shc,r+. Term Bo rowings at Deceinber 3i:

Bank loans 930%

9.95 %

10.53 s Commerc'ai Poper-Tcx Exen pt 5.61 %

Comrrercio' Poper-Toxoble 10.64 %

PollutionControl Notes 6.44 %

At De' embei 31,1985, the Cornpany had borroweti $1.0 md; ion ur. der formcl or.d ii.forr. oi lines cf credit witti banks ogg egoting c

oporex:motc'y $371 million. The Company generoli Joes not hava funnel corrpensating belonce arrangements with these

/

bar.ks

7. RETIREMENT BEllEFITS The Company and it, subs:Sarie: have noncontribefory trusteed retke< rent p!ans opplicable to c41 re,qubt employees. Fension costs irclcdo normo @ostforthe reos end amortizntior, of unfunded prior serv.ce costs cuer ten to twenty yects. Approximotely 80% of such co<,ts weruhc. ged to operating expenses end the remoinder, ossociated witt. construct;on lobor, to the cost cf new util;ty plant. f<stirement p'on costs, whkh are furded os occ:ged, tvere $46.700,000, $42,000,000 ond $41,0%000 in 1985,1984 or.cl 198't, resocctivpiy Pension Picn dcto os of the dotes of the most recent or.tuuriol voluo* ions is os follows:

Janu.ory 1 1985 1984 (Tho >sonds of Dollars)

Ac'ucool preseat vclue of occLmulated plan beriefits (7.0% essnmed rote of return)

Vestml

$312,639 $447,994

_-_ested 60,990 S4.174 Norv 1573.629 $502,168

.--n -.4 Net assnts ovoilobie for bertsf3s

$645,776 $573,372 Chnnges in p'on p rovis:ons, effecti <e Janua: y 1,1985, increased the octuario! present voice of occurculated p cn benefits by i

coproximat?ly $16.3 million and increused pension e spense by approxiinately $2.8 miWon. The octuorici methcds and ossumpt.cr.s, os weil os the occountMg pr,licy, om the some os thc,se in the prior year.

The p eceding tobefor disclosures are reqmred under opphcc,bie acco;rt:.ng ponciples. However,4 e Company is of the opinion toot comparing the octuorial pi eser.t volve of cccumulated plan benefits with the net asses avoitable c,e benefits may be 8

r.isleeding. The plan is of a long term notare c.nd is ft nded on a basis cnnsistent with thb concept. The ccturxial volve of occ.;mu'ofed pbn benefits is, essenticlly, o hypctheticol phn tarminot,on calculation which does not toke into occount future solaries or inture service. Net assets, which are measured of fair volve ofJonvory 1, ore subject to fluctuations in ene securities merkets and there ere, may not be indicative of the plon's long-term funded status.

8 in December,1983,the inancial Accounting 5'ondords Board issued Staternen+ of Financial Accounting Sto,dords No. 87 (FASB F

87), Employer's Accovatirg for Pensior.s. FASB 8/ super:edes ex. sting occoenting prit.ciples for defined benefit pension plans and beromes opp'iccble to the Company in 1987. The Compor,y has not fully evoluo'ed F ASB 87, but it believes it would not have o rnaterio! negative imroct on the financial statements.

In add; tion to providing pension benefits, the Cornpony provides certain health core and I fe insurance benefits for retired en.picyees Substortially all of 4.e Co.npony's errpioyees may becorr.e eligible for these benc8;ts if they reach retirement oge wh le st.Il wor king for the Company. Tnese benefits and similar t,enefits ior acti ce errp'oyees are prev;ded by on insurance company whose premiurrs are based on the benefits paid dunng tru year. The Comory recognizes the cost of providing these beneht3 by cho ging the annual insurance premiums to expense. The cost of pioviding bm.ehts for opproximately 2,400 retirecs dui ng the years 1983 to 1985 is not separable from the cost of providmg bericiits for coproximately 10,000 octive employees for i

the some period Total premiums amounted to $29.3 million, $26.6 milhon, and $23.3 million,in 1985,1984 and 1983, respectivefy.

l 31

Philadelphia Electric Company and Subsidiary Componies Notes to Financial Statements (Continued) 8.INCOMETAXES 1985 1984 1983 (Thousands of Dol!an)

Inc!vdedin operatrons:

Federal Corrent

$106,994 5 96,915

$ 54,495 Deferred 59,837 49,770 151,259 investment tax credits, net 3,567 49,927 (46.064)

State Current 24,981 23,710 16,288 Deferred 6,444 26,427 24,048 Includedin other income and deductrons (principally current):

Federal (109,580)

(93,818)

(70,902)

State (23,835)

(22,605)

(17,010)

Total

$ 68,408

$130,326

$112,114 investment tax credits and income tax credits resulting from contributions to employee stock ownership plans reduced Federal income taxes currently payable by $12 million in 1985 and $58 million in 198.f Approximate;j $244 million of such odditional tax credits generated from 1982 through 1985 have not been utilized due to I;mitotions based on taxod-income. These credits may be used to reduce Federat income taxes in future yects and expire of vorious times from 1997 to 2000.

Effective wi:h the PUC's electric rate ocder d sted Jonvory 24,1965, the Company begon flowing through the sta;ncome tax benefits ossociated with accelerated depreciation attributable to its electric operations. This change reduced operating revenues and operating expense; by opproximately $1.8 million but hod no effect on operating income and net income.

For a number of years the Company has used accelerated depreciation for income tax purposes and straight line depreciation for financial reporting purposes. Deferred taxes were recorded only on those timing differences recognized for rote-making. The cumulative net amount of such timing differentes for which deferred taxes were not recorded was approximately $ 790 milhon at December 31,1985. Since the Company expects to charge customers for taxes paid when the timing differences reverse, the tax effect of such timing differences is not recorded currently.

Provisions for deferred income taxes on operating income consist of the tax effects of the following timing differences: ~

1985 1984 1983 (Thousands of Dollars)

Depreciatien ond omortization 5 34,417

$ 33,965

$ 38,792 Nuclear waste disposalcosts (5,932) 17,355) 24,281 Deferred erergy costs (65,915) 41,212 119,867 Precommercial operation of Limerick Unit No I 97,867 Premium on retirement of long-term debt 24,731 Other (18,887) 8,375 (7,603)

Total

$ 66,281

$ 76,197

$175,307 The total income tax provisions differ from amounts computed by applying the Federal statutory tax rate to income and odjusted income before income toxes for the following reasons:

Netincome

$525,301

$492,389

$389,089 Totalincome tax provisions 68,408 130,326 112,114 income before income taxes 593,709 622,715 501,203 Deduct-ellowance for funds used during construction (nontaxoble) 433,491 354,855 275,994 Adjusted income beforeincome taxes

$160,218

$267,860

$225,209 income taxes on obove at Federal statutory rote of 46%

73,700 123,215 103,596 Increase (decrease)due to:

Depreciation tim;ng differences not normalized 7,297 7,247 7,941 State income taxes, net of Federal income tax benefits 4,099 14,867 12,597 Amortization of investment tax credits previously deferred (8,265)

(7,752)

(6,210)

Other, net (8,423)

(7,251)

(5,810)

Totolincome ton provisions 5 68,408

$130,326

$112,114 Provision for income taxes os o percent of:

Income beforeincome taxes 11.5 %

20.9 %

22.4 %

Adiusted income before income taxes 42.7 %

48 7 %

49.8 %

J2

9. TAXES,OTHER THAN INCOME 1985 1984 1983 (Thousands of Dollars)

Gross receipts

$128,346 $122,881 $108,211 Capitalstock 28,246 13.240 19,198 Recify 62,296 48,030 30,975 Other 22.636 22,712 20,231 Total

$241,524 $206,863 $178,615

10. ESCROW DEPOSITS Escrow deposits are stated at cost plus occrued interest, which approximates market, and consist of cash equivalent securities held in trusteed accounts which are restricted as to withdrowol pending the Company's incurring qualified costs. Below is a summory of such escrow deposits of December 31,1985 and 1984.

1985 1984 (Thousands of Dollors)

Pollution Control Focilnies Under Construction 5 5,415

$31,305 Other Focilities Under Construction 7,886 4,955 Nuclear Fuel Disposal 51,816 Total

$13,301

$88,076

11. INVESTMENTS At December 31 1985 1984 (Thousands rei Dollars)

Gas Exploration and Development Joint Ventures

$44,743

$46,406 Real Estate Developments and Other Ventures 15,433 12.120 Nonutility Property 13,931 13,441 Escrow Deposits for Decommissioning Nuclear Plants 12,563 7,792 Other Deposits 1,000 1,112 Total

$87,670

$80,871

12. LEASES Leased property included in Utility Plant at December 31,1985 and 1984:

1985 1984 (Thousands of Dollars)

Nuclear Fuel

$445,699 $424,721 Electric Plant 48,342 48,342 Common Plant 3,116 3,702 Gross Leased Property 497,157 476,765 Accumuloted Amortization (159,C16) (124,632)

Net leased Property

$338,141 $352,133 The nuclear fuel obligation is amortized as the fuel is burned. Amortization of leased property totaled 550.9 million, $39.1 million, and $28.8 million in 1985,1984 and 1983, respectively. Other operating expenses include interest on capital lease obligations of

$18.2 million, $22.0 million, and $19.0 million in 1985,1984 cnd 1983, respectively. Minimum future lease payments os of December 31,1985,are:

Year Ending December 31 Capital Leoses Operating Leases Total (Thousands of Dollars) 1986

$103,780

$ 30,700

$134,480 1987 89,861 29,502 119,363 1988 91,072 26,917 117,989 1989 56,851 27,327 84,178 1990 45,790 26,483 72,273 Remaining Years 32,047 108,324 140,371 Toto! Minimum Future Lease Payments 419,401

$249,253

$668.654 Imputed Interest (rotes ranging from 6.5% to 17%)

(81,260)

Present Value of Net Minimum Future Lease Payments

$338,141 Rental expense under operating leases totoled $43 9 million, $29.2 million, and $19.3 million, in 1985,1984, and 1983, respectively.

33 L

Philadelphio Electric Company and Subsidiary Componies Notes to Financial Statements (Continued) 13.SEGMENTINFORMATION 1985 Electric Gas Steam Total (Thovsonds of Dollars)

Operating revenues

$2,516,191 5428,984 $68,529 $ 3,013,704 Operating expenses, excluding depreciation 1,974,222 375,399 64,165 2,413,786 Depreciation 168,208 14,841 1,916 184,%5 Total operating expenses 2,142,430 390,240 66,081 2,598,751 Operating income

$ 373,761 $ 38,744 $ 2,448 $ 414,953 Utility plant additions

$ 793,195 5 32,896 5 518 5 826,609 December 31:

Allocoble ossets Net util;ty plant (*)

8,675,701 389,396 20,876 9,085,973 inventories 100,793 22,745 208 123,746 Deferred energy costs 109,244 (4,766)

(2,823) 101,655

$8,885,738 $407,375 $18,261 $ 9,311,374 Nonallocable ossets 853,940 Totolossets

$10,165,314 1984 Operating revenues

$2,435,731

$462,966 $82,320 $ 2,981,017 Operating expenses, excluding depreciation 1,858,505 413,938 75,989 2,348,432 Depreciation 162,959 13,474 1,893 178,326 Total operating expenses 2,021,464 427,412 77,882 2,526,758 Operating income

$ 414,267 5 35,554 5 4,438 5 454,259 Utility plant additions

$1,022,496 5 30,613 $ 135 $ 1,053,244 December 31:

Allocoble ossets Net utility plant (*)

8,068,233 369,239 22,443 8,459,915 Inventories 116,775 32,572 1,189 150,536 Deferred energy costs 227,524 4,147 (1,776) 229,895

$8,412,532 1405,958 $21,856 $ 8,840,346 Nonallocoble ossets 715,383 Totolossets 5 9,555,729 1983 Operating revenues

$2,107,897 $417,042 $71,111 5 2,596.050 Oparating expenses, excluding depreciation 1,592,02/

377,624 67,365 2,037,016 Depreciation 150,898 12,694 1,735 165,327 Total operating expenses 1,742.rns 390,318 69,100 2,202,343 Operating income

$ 364,972 5 26,724 $ 2,011 $ 393,707 Utility plant additions

$1,004,219 $ 26.020 $

82 $ 1,030,321 December 31:

Allocable ossets Net utility plant (*)

7,257,594 353,979 24,599 7,636,172 Inventories 98,391 32,350 343 131,084 Deferred energy costs 116,661 29,359 3,226 149,246

$7,472,646 $415,688 $28,168 $ 7,916,502 Nonol.ocable ossets 627,962 Totolossets

$ 8,544,464

(*) Includes construction work in progress, leased property and allocated common utility property.

The Company is considering a proposal for the sole of its steam operation. Ultimate sole of the steam operation is subject to many factors, including acceptance of the proposal by the Company's monogement and Board of Directors and opproval of the sole by the PUC. The Company estimates that a sole of the steam operation would result in no significant gain or loss.

34

14. LIMERICK GENERATING STATION The Company's Limerick Unit No. I commenced commercial operation on Februory 1,1986. Construction of the second of the two nuclear units of Limerick resumed in Februory 1986, following a suspension of opproximotely 2 years. Unit No. 2 is scheduled to be completed in late 1990. As of December 31,1985, the Company had invested opproximately $4 61 billion in the Limerick Generating Station, consisting of $2.48 billion in Unit No.1, $901 million in Unit No. 2 and $1.23 billion in common facilities.

On September 27,1985, the Company filed with the PUC for on electric rate increase designed to yield $671 million annuolly, net of fuel savings. The increase, designed to recover the costs ossociated with Limerick Unit No.1 ond 100 percent of common plant was requested to become effective November 27,1985. On November 1, !985, the PUC issued on order which suspended the effective date of the increase until lune 27,1986, pending hearings and investigotion into the reasonobleness of the requested increose. In order to lessen the impact of the increase on customers, the Company has proposed to phase in the increose in three equal steps over three veors and to collect from customers the amounts unrecovered by the phase-in plon, without interest, offer the lost step is effective. In addition, the Company hos announced that it does not intend to file for another electric base rote increase prior to September 27,1987, unless, in the Company's judgment, o failure to file such a request would jeopardize its financiol viobility. S the past, the PUC's practice hos been to include in any rote increase with respect to one unit of a two. unit generating station only one-half of the costs of the common facilities. On January 21,1986, the PUC entered on order stating tHt the prudence of the Company's 1976 ond 1978 construction deferrol announcements would not be examined in the rate proceeding, because o finding of imprudence had allegedly been issued in en earlier PUC proceeding. The Company intends to oppeol this dec;sion to the Commonwealth Court of Pennsylvania. As a result of these construction deferrof onnouncements,the PUC s'off and the Office of Consumer Advocate contend that certain amounts of construction costs should be escluded from rate base. The Company maintains, however, that the 1976 ond 1978 construction deferrols were prudent and that rate base should not be reduced.

The unovailability of sufficient supplemental cooling water would limit or prohibit operation of Limerick during certain months of the year. Until the planned supplemental cooling water system is completed and in operation, the Company must obtain interim supplemental cooling water for the operation of limerick during such months. The Delowore River Basin Commission (DRBC) opproved, for o portion of 1985, two Company requests for modification of restrictions on the use of the Schuylkill River for Limerick cooling water and for o reo!!ocation of cooling water to Limerick from two other power plants on the Schuylkill River.

The DRBC's opprovals were effective through December 31,1985. The Company filed one similar modification raquest and the some reallocation request with the DRBC for its 1986 supplemental cooling water needs. lf only the request for reallocation were granted, supplemental cooling water is expected to be available to permit Unit No. I to operate of opproximately 25 percent of its capacity. Bosed on historic river conditions, even if both the modification request and the reallocation request were granted, it is unlikely that there would be sufficient water to operate Unit No.1 of 100 percent copocity throughout the year. Therefore, the Company is investigating other possible sources of supplemental cooling water for 1986, all of which would require regulatory approvol.

One component of the supplemental cooling water system for Limerick is the Point Pleasant project to be constructed and operated by Bucks County and by the Neshominy Water Resources Authority (NWRA), o municipal authority created by Bucks County, under o contract omong NWRA, the Company and Bucks County. The Point Pleasant project has been the subject of substantial opposition frcm various groups, including a majority of the Commissioners of Bucks County and a maiority of the members of the Board of Directors of NWRA. This oppos! tion has resulted in disruption of construction and in litigation. During 1985, the Court of Common Pleos of Bucks County ordered completion of the Point Pleasant project,this decision was offirmed by the Commonwealth Court, and NWRA and Bucks County petitioned the Supreme Court of Pennsylvania for on allowance of an oppeo! from the decision of the Commonwealth Court. The Supreme Court of Pennsylvania has not yet ncted on the petition.

35

Philadelphia Electric Company and Subsidiary Companies Notes to Financial Statements (Confinued)

Following a lengthy investigation, on December 5,1985 the PUC determined thot the Company could complete construction of Unit No. 2 suoject to o cost containment and operational incentive program ("Progrom"). The Company agreed to the Program on December 23,1985. Principal elements of the Progrom are o ronstruction cost cop of $3.2 billion, which would represent the maximum allowed rate base for Unit No. 2 throughout its lifetime; on operating performance incentive / penalty related to the unit's capacity factor; and operating and maintenance expense standards. The construction cost cop of $3.2 bitlion includes AFUDC, but does not include any costs related to common plant.The cost cop includes capital odditions offer commercial operation, net of occumulated depreciation. Any expenditures in excess of $3.2 billion connot be recovered from rotepayers or included in rate bose. Adjustment of the cop for inflation, e egulatory scope changes, or any other factors is not permitted. The estimated total cost of Unit No. 2 does not exceed the cost cop.

In 1984 the Commonwealth of Pennsylvanio enacted a low which requires the PUC to compare the octual cost of construction of on electric generating facility with the estimate submitted of the commencement of construction. The low provides that if the octual cost exceeds the estimated cost, the PUC must exclude the excess cost from the utility's rote base unless the utility con show that some or all of the excess cost was necessary and proper. in 1974 the original estimated cost of construction of the Limerick Generating Station was in the range of $1.7 to $2 billion. Estimates at earlier stages were significontly lower but the Company does not believe that such earlier estimates are applicable to determine the excess cost opplicable under the low.

On December 19,1985, the Financial Accounting Standards Board issued on exposure droft of a proposed omendment to the accounting principles opplicable to rote regulated enterprises, such as the Company. The proposed omendment, if adopted in its present form, would become opplicable to the Company in 1987 and would offect, principally, accounting for phase-in plans and disallowances of plant costs. In generol, this amendment would accelerate the timing of recognition of expenses in the Company's financial statements. Under the exposure draft, allowable costs could be deferred in connection with a phase-in plan only if the regulatory authority agreed to the plan and all omounts deferred were recovered within ten years; otherwise, no deferrois would be allowed. lf the PUC disallowed a portion of Limerick's construction costs through either a reduction in rate base or rote of return, or if the Company estimated that the total construct;on costs of Unit No. 2 would exceed the cost cop, on immediate write-off of portions of Limerick's construction costs would be required. Such a write-off could be material to results of operations or retained earnings of the Compony in the year of write-off and could offect the Company's obility to pay dividends and to finance its construction program. Under existing accounting principles,it is unlikely that the aforementioned circumstorices would cause the Company to write off immediately any emounts of Limerick's construction costs.

15. COMMITMENTS AND CONTINGENCIES The Company has incurred substantial commitments in connection with its construction program. Construction expenditures are estimated to be $771 million for 1986 ond $2.9 billion for 1987 through 1989. These estimates are reviewed and revised periodically to reflect changes in economic conditions, revised load forecasts and other appropriate factors. Plant facilities under construction, porticularly the Limerick Generating Station, require numerous permits and licenses, which the Company cannot be assured will be issued of completion of the facilities.

The Price-Anderson Act places a " Limit of Liabihty" presently of $650 million, for claims that could orise from on incident involving any licensed nuclear facility in the nation. All nuclear utilities, including the Company, have covered this exposure through a combination of private insurance and mandatory porticipotion in a secondary financial protection pool. In the event of such a nuclear incident at any licensed nuclear facihty in the notion, the Company could be ossessed up to $13.5 million per incident, with a maximum omount of $27 million in any one year.

36 I

~

The Company maintains property insurance, including radiction contamination coverage, for loss or domoge to its nuclear facilities. Although it is impossible to determine the total amount of the loss that may result from on occurrence at these facihties, the Company maintains the maximum omount of insurance presently available, $1.1 billion for each station. Under the terms of the various insurance agreements, the Company could be assessed up to $35 million for losses incurred of ony plants insured by the insurance componies. The Company is a member of an industry mutual insurance company which provides replacement power cost insurcnce in the event of a maior outage of a nuclear stofion. The premium for this coverage is subject to on assessment for adverse loss experience. The Company's maximum shore of any assessment is $13 million.

The PUC hos conducted several investigations involving the Company's management of major plant outages during 1983 and 1984 and the resulting impoct on energy costs recoverable from customers under the electric energy cost rote. On October 24, 1985, the PUC issued its final order in on investigation which addressed the prudency of outoges cf certain base load nuclear and cool units during 1983 and 1984. As a result of this order,'he Company was denied recovery of opproximately $73 million of energy costs. The disallowed energy costs were charged to expense os of September 30,1985, and reduced operating income and earnings opplicable to common stock by $34.7 million and earnings per overage common shore by approximately 20c. On November 26,1985 the Company filed a Petition for Review with Commonwechh Court appealing the PUC order.

The PUC is holding hearings in connection with $47 million of replacement energy costs related to other outoges of nuclear units during 1984 and 1985. The Company believes its monogement of those outages was prudent and that it should not be precluded from recovering the replacement energy costs. Ultimate resolution of this matter will not have o meterial adverse effect on the eesults of operations or financio: position of the Company. A final decision by the PUC is not expected until mid 1986.

On October 9,1985, o low was enacted in Pennsylvania granting the PUC statutory authority to modify or halt construction of any generoting unit if the PUC determines that such construction is not in the public interest. The low provides that a util;ty may recover a return of, but not a return on, prudently incurred costs of any portially completed facihty, the concellation of which is found to be in the public interest.

The Compor y is o nominal defendent in a class action and derivative suit against certain of its directors and officers, brought by four shareholders owning in the aggregate 202 shores of common stock. The suit orises out of the construction of the Limerick Generating Station and seeks to cause Unit No. 2 to be obondoned,its cost to be wntten c,ff as o loss, dividends on common stock to be terminated until certain earnings levels have been met, and the shores authorized under the 1983 Amendment to the Articles of Incorporation to be declared invalid. Additional domoges also are sought. While the outcome of htigotion cannot be predicted with certainty, monogement believes resolution of the suit will not have o material offect on the Company's financial position.

The defendants have filed a motien to dismiss the complaint.

i 37

Phifadefphia Electric Compony and Subsidiary Componies Notes to Financial Statements (Continued)

16. QUARTERLY DATA (Unoudited)

The dato shown below include oil cdjustments which the Company considers necessary for o fair presentation of such amounts.

Operating Revenues Operating Income Net Income Quarter Ended 1985 1984 1985 1984 1985 1984 (Thousands of Dollars)

March 31

$852,299

$818,031

$126,892

$128,942 5151,166

$134,838 June 30 683,519 703,219 98,153 100,680 118,859 108,151 September 30 750,904 755,619 93,240 121,524 124,163 132,339 December 31 726,982 704,148

%,668 103,113 131,113 117,061 Earnings Applicoble Average Shores Earnings Per to Common Stock Outstanding Averoge Shore Quarter Ended 1985 1984 1985 1984 1985 1984 (Thousands of Dollars)

(Thousands)

(Dollars)

March 31

$128,422

$115,451 162,859 143,044 5.79

$.81 June 30 96,212 87,098 168,723 150,266

.57

.58 September 30 101,569 111,340 171,993 153,519

.59

.73 December 31 108,521 95,818 175,401 160,274

.62

.60 1985 third quarter results include o charge of opproximately $34.7 million (net of related income taxes) resulting from the PUC's denial of recovery of approximately $73.0 million of energy costs (see Note

• 15).

17. SUPPLEMENTARY INFORMATION TO DISCLOSE THE ESTIMATED EFFECTS OF INFLATION FOR THE YEAR ENDED DECEMBER 31,1985(Unoudited)

The following supplementary information is supplied to show the estimated effects of inflation under the "corrent cost method.

The techniques required to develop this information ore opproximate and complex, and may not necessarily reflect the true effects of inflation on the Company. Under existing regulatory low, the Company is permitted to recover octual operating and capital costs incurred to serve customers and a reasonoble return on investment, and the Company believes it will be allowed to recover cost increases caused by inflation as such increases are octually incurred.

Effect o(InHotion on Reported lncome. In odiusting the Consolidated Statements of Income, os shosvn below, only deprecio' ion expense was odiusted for the effect of intiation. Depreciation expense was determined by applying the Company's depreciation rates to restated 1985 overage deprecioble plant in service. Other Operating Expenses were not required to be odiusted.

If the Company had to replace its entire utility plant at this time, the costs to do so would greatly exceed the original costs incurred when the facilities were built because of the cumulative effect of inflation. These plant replacement costs, net of occumuloted deprecioiion, are estimated at $14.2 billion. The effect ($496 million) of general inflation in 1985 on net utility plant was greater than the increase ($456 million) in specific prices by $40 million.

[

Consolidated Statements of Income Adjusted for inflation for the Year Ended December 31,1985.

As Adiusted As Reported (Average 1985 Dollars)

(Thousands of Dollars, except per shore amounts)

Operating Revenues

$3,013,704

$3,013,704 Depreciation 184,965 477,987 Other Operating Expenses 2,413,786 2,413,786 Operating income 414,953 121,931 Other Income 306,261 306,261 Income Before Interest Charges and Preferred Stock Dividends 721,214 428,192 Interest Charges and Preferred Stock Dividends 286,490 286,490 Earnings Applicable to Common Stock 5 434,724 5 141,702 Earnings Per Average Shore 2.56 0.83 1

38 1

Adjustment of Selected Five Year Financial Information.

In order to reflect the impact of general inflation on selected financial information for each of the years 1981 through 1985, the following table shows actual dato compared with data odiusted to 1985 dollars.

Five Year Summary of Selected Financiallnfermation and Current Cost Data (Thousands of Dollars, except per share amounts) 1985 1984 1983 1982 1981 Development ofAdjustment Factors Consumer Price Index Average During Year 322.2 311.1 298.4 289.1 272.4 YearEnd 327.4 315.5 303.5 292.4 281.5 Consumer Price Index Multiplier A = Average (322.2 +1ndex) 1.00 1.04 1.08 1.11 1.18 B = Year End(327.4 + Index) 1.00 1.04 1.08 1.12 1.16 Actual and Adjusted Historical Financial Information Dividends Per Common Shore Actual Poid

$2.20

$2.20

$2.12

$2.06 51.90 Adjusted (Actual x A)

$2.20

$2.27 52.29 52.29 52.24 Market Price Per Common Shore ActualYear End

$17.38 514.87 514.38

$17.00 513.63 Adjusted (Actual x B)

$17.38 515.46 515.53 519.04 515.81 Operating Revenues Actual

$3,013,704 $2,981,017 52,596,050 52,644,753 52,433,425 Adjusted (Actualx A) 53,013,704 $3,100,258 52,803,734 $2,935,676 52,871,442 Earnings Applicable to Common Stock Actual 5434,724

$409,707

$321,705 5278,623

$223,761 Adjusted (Actual x A)

$434,724

$426,095 5347,441

$309,272 5264,038 Earnings per Average Common Shore Actual

$2.56 52.70

$2.40

$2.39 52.25 Adjusted (Actual x A)

$2.56 52.81

$2.59

$2.65

$2.66 Common Shoreholders' Equity Actual Year End

$3,193,048 $2,890,975 52,569,323 52,254,435 51,963,527 Adjusted (Actual x B)

$3,193,048 $3,006,614 52,774,869 52,524,967 52,277,691 Current Cost Data Ex cess of increase in General inflation over increase in Specific Prices on Utility Plant Cost Actual Current Cost

$39,973

$296,690

$147,379

$(9,011)

$186,585 Adjusted (Actual x A)

$39,973

$308,558

$159,169

$(10,002)

$220,170 Purchasing Power Goin on Net Amounts Owed ActualCurrent Cost

$199,010

$190,521

$165,235

$148,672

$307,972 Adjusted (Actual x A)

$199,010 5198,142 5178,454

$165,026

$363,407 Earnings Applicable to Common Stock Actual Current Cost

$141,702 5113,662

$51,049

$48,471 523,044 Adjusted (Actual x A)

$141,702

$118,208 555,133 553,803

$27,192 Earnings per Average Common Shore Actual Current Cost 50.83

$0.75 50.38 50.42 50.23 Adiusted (Actual x A)

$0.83

$0.78 50.41

$0.A7 50.27 39

Philodelphia Electric Company and Subsidicry Componi;s Financial Statistics

SUMMARY

OF EARNINGS (Millions of Dollars)

For theYear Ended 1985 1984 1983 1982 1981 1980 1975 Operating Revenues (for detoils see pages 42 and 43)

$3,013.7 $2,981.0 52,596.0 $2,644.8 52,433.4 $2,123.4 51,134.8 Operating Expenses Fuel and Energy Interchange 1,139.6 1,122.2 986.6 1,128.5 1,187.6 1,090.5 457.8 Labor 370.8 345.3 317.2 291.1 256.8 232.1 152.2 Other Materials, Supplies and Services 460.0 427.3 354.6 320.5 260.9 184.5 72.6 Total Operation and Maintenance 1,970.4 1,894.8 1,658.4 1,740.1 1,705.3 1,507.1 682.6 Depreciation 185.0 178.3 165.3 143.8 130.3 122.9 91.2 Taxes 443.3 453.6 378.6 372.2 274.8 227.4 163.9 TotalOperating Expenses 2,598.7 2,526.7 2,202.3 2,256.1 2,110.4 1,857.4 937.7 Operatingincome 415.0 454.3 393.7 388.7 323.0 266.0 197.1 OtherIncome" Allowance for Other Funds Used During Construction 176.3 134.5 108.1 65.7 65.0 50.5 23.3 Income Tax Credits, Net 133.4 116.4 87.9 75.8 63.2 49.0 22.3 Other, Net (3.5)

.2 (3.1)

(0.7) 2.5 3.4 2.0 TcfolOtherincome 306.2 251.1 192.9 140.8 130.7 102.9 47.6 locome Before interest Charges 721.2 705.4 586.6 529.5 453.7 368.9 244.7 Interest Chorges long-Term Debt 435.4 402.5 330.2 308.9 266.7 225.0 136.5 Short-Term Debt 17.7 30.9 35.2 32.0 33.2 13.9 7.9 Allawonce for Borrowed Funds Used During Construction (257.2)

(??0.4)

(167.9)

(147.6)

(123.8)

(97.1)

(43 6)

Netinterest Charges 195.9 213.0 197.5 193.3 176.1 141.8 100.8 Netincome 525.3 492.4 389.1 336.2 277.6 227.1 143.9 PreferredStock Dividends 90.6 82.7 67.4 57.6 53.8 52.2 36.0 Earnit:gs Applicable to Common Stock 434.7 409.7 321.7 278.6 223.8 174.9 107.9 Dividends on Common Stock 373.5 334.3 283.6 240.5 189.5 157.4 95.4 Earnings Refoined

$61.2 575.4

$38.1

$38.1

$34.3 517.5 512.5 3

Earnings Per Average Common Shore (Dollars)

$2.56 52.70 52.40

$2.39

$2.25

$2.00 51.86 Dividends per Common Shore (Dollars) 52.20

$2.20

$2.12

$2.06

$1.90

$1.80 51.64 Common Stock Equity (Per Shore)

$17.97

$17.81

$17.99

$17.93 518.10

$18.72

$19.05 Average Shores of Common Stock Outstanding (Millions) 169.8 151.8 133.9 116.5 99.6 87.3 58.1 Ratings on Philadelphia Electric Company's Securities Mortgage Bonds Debentures Preferred Stock Agency Rating Date Establ6hed Roting Date Established Rating Date Established Duff and Phelps,Inc.

9 3/80 10 3/80 11 2/83 Fitch investors Service BBB 9/82 BBB -

9/82 BB+

9/82 Moody'sinvestors Service Boo 3 1/83 Bol 1/83 bol 1/83 Standard & Poor's Corporation BBB -

9/82 BB +

9/82 BB 9/82 40

SUMMARY

OF FINf.NCIAL CONDIT!ON (Millions of Dollars)

December 31 1985 1984 1983 1982 1981 1980 1975 Assets Utility %nt, et originoicost

$10,572.2 $9,834.1 $8,864.2 $7,905.7 $7,044.7 ' 56,415.7 $4,445.6 Less: Accumulated Depreciation 1,824.4 1,726.3 1,592.0 1,450.1 1,330.6 1,235.7 775.8 Leased Property, net 338.1 352.1 364.0 299.1 270.0 1393 91.0 Net Utility Plant 9,085.9 8,459.9 7,636.2 6,754.7 5,984.1 5,3193 3,7603 lavestments 87.7 80.9 99.4 91.4 77.0 58.7 123 CurrentAssets Cosh ond Temporary Cosh investments 188.8 30.4 57.2 50.0 30.7 6.7 17.4 Escrow Deposits 133 88.1 8.0 Accounts Receivable 370.9 384.2 338.6 342.2 342.4 3003 139.8 inventories 123.7 150.5 131.1 143.0 132.2 121.1 88.0 Deferred Energy Costs 101.7 229.9 1493 (85.4)

(31 3) 11.0 17.9 Other 58.5 48.9 443 40.2 35.1 31.8 19.2 DeferredDebets 134.8 82.9 80.4 24.9 31.5 18.5 13.8 Total

$10,165.3 $9,555.7 $8,544.5 $7,361.0 $6,602.5 $5,867.4 $4,069.2 Capitalization and Gobilities Common Stock

$ 2,602.0 $2,361.0 $2,110.5 $1,826.2 $1,572.4 $1,377.4 $ 916.6 Other Poid-in Capitol 7.3 6.7 5.9 4.6 3.9 2.6 1.5 Retained Earnings 583.7 523.3 452.9 423.6 387.2 353.6 304.7 Common Shoreholders' Equity 3,193.0 2,891.0 2,569.3 2,254.4 1,963.5 1,733.6 1,222.8 Preferred Stock Without Mondatory Redemption 572.5 572.5 522.5 372.5 372.5 372.5 372.5 With Mondatory Redemption 318.3 326.2 284.9 292 3 266.9 2743 113.4 Long. Term Debt 4,309.2 3,778.0 3,381.8 3,028.5 2,745.7 2,371.9 1,776.9 Total Conitalization 8,393.0 7,567.7 6,758.5 5,947.7 5,348.6 4,752 3 3,485.6 Current Uobilities Short-Term Debt 1.0 260.0 267.5 64.7 54.2 52.6 108.0 Current Maturities of Long. Term Debt 80.8 50.4 21 3 36.1 130.8 60.9 Capitol Lease Obligations due within one year 76.3 68 3 61.5 32.5 53.9 18.5 12.4 Accounts Poyable and Dividends Declared 185.1 200.1 179.9 188.5 188.9 187.6 80.1 Taxes Accrued ond Deferred 110.3 158.0 102.3 22.6 51.4 77.8 44.2 Interest Accrued 93.0 91.1 91.8 99.8 82 3 64.9 37.8 Other 72.0 127.2 54.1 24.7 18.1 17.4 20.2 Deferred Credits and Other Gobilities Capitol Lease Obligations 261.8 283.8 302.5 266.6 216.1 120.8 78.6 Other 892.0 749.1 726.4 692.6 552.9 444.7 141.4 Total

$10,165.3 $9,555.7 $8,544.5 $7,361.0 $6,602.5 $5,867.4 $4,069.2 41

r Philodelphio Electric Company and Subsidiary Componi:,s Operating Statistics ELECTRIC OPERATIONS 1985 1984 1983 1982 1981 1980 1975 Output (Millions of Kilowotthours)

Steam 9,455 11,085 10,457 8,598 9,931 11,234 12,814 Nuclear 8,359 6,462 5,520 10,743 7,464 7,333 4,387 Hydraulic 1,484 2,085 1,739 1,581 1,397 1,240 2,275 Pumped Storage Output 1,235 1,100 979 1,126 1,101 1,050 1,275 Pumped Storage input (1,754)

(1,579)

(1,427)

(1,665)

(1,624)

(1,526)

(1,785)

Purchase and Netinterchange 10,252 11,?75 12,181 11,120 11,173 9,973 7,363 Internal Combustion 178 425 491 178 283 442 914 Other 1,254 528 TotalElectric Output 30,463 31,553 29,940 31,681 30,253 29,746 27,243 Sales (Millions of Kilowatthours)

Residential 8,440 8,515 8,467 7,877 8,014 8,341 7,424 SmallCommercial and Industriol 3,731 3,543 3,284 3,142 3,115 3,065 2,624 Large Commercial and Industrial 14,920 14,881 14,478 14,178 14,916 15,056 14,060 All Other 1,044 1,061 1,003 1,012 1,005 1,159 1,227 Service Territory 28,135 28,000 27,232 26,209 27,050 27,621 25,335 Jersey Centrol Power & Light (Solem #2) 1,395 346 3,352 1,218 TotalElectric Sales 28,135 29,395 27,578 29,561 28,268 27,621 25,335 Number of Customers, December 31 Residential 1,245,481 1,230,883 1,217,635 1,206,944 1,200,238 1,190,312 1,120,981 Small Commercialand Indetriol 124,719 121,676 119,292 118,407 117,016 116,808 114,896 Lorge Commerciol and industrial 4,881 5,100 5,437 5,616 5,790 5,820 5,719 All Other 773 751 751 762 746 736 2,305 TotalElectric Customers 1,375,854 1,358,410 1,343,115 1,331,729 1,323,790 1,313,676 1,243,901 Operating Revenues (Millions of Dollars)

Residential 5923.9

$854.9 5744.0 5694.4 5643.7 5607.8 5344.7 Small Commercial and Industrial 388.7 360.2 316.6 310.6 285.9 249.8 138.9 Large Commercial and Industrial 1,061.8 1,008.5 877.4 922.3 917.1 613.9 418.3 All Other 141.8 145.1 139.4 118.3 109.5 95.4 56.5

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Service Territory 2,516.2 2,368.7 2,077.4 2,045.6 1,956.2 1,766.9 978.4 Jersey Centrol Power & Light (Solem #2) 67.0 30.5 135.4 45.9 TotalElectric Revenues 52,516.2 52,435.7 52,107.9 52,181.0 52,002.1 51,766.9 5978 4 Operating Expenses (Millions of Dollars)

Operating expenses excluding depreciation 51,974.2 51,858.5 51,592.0 51,688.4 51,586.5 51,414.0 5717.6 Depreciation 168.2 163.0 150.9 130.2 117.3 111.1 81.6 TotalOperating Expenses 52,142.4 52,021.5 51,742.9 51,818.6 51,703.8 51,525.1 5799.2 Electric Operating income (Millions of Dollars) 5373.8 5414.2 5365.0 5362.4 5298.3 5241.8 5179.2 Average Use per Rer.idential Customer (kilowatthours)

Without Electric Heating 6,034 6,160 6,3i9 5,875 6,022 6,411 6,354 With Electric Heating 15,923 17,293 16,523 16,813 18,054 19,482 18,916 Total 6,820 6,960 6,990 6,544 6,699 7,058 6,645 Electric Peak Lood, Demand (thousands of kws) 6,034 5,925 5,879 5,691 5,731 6,095 5,530 Net Electric Generating Copacity-Year

~ind Summer roting (thousands of kws) 7,599 7,765 7,974 8,006 8,006 7,698 7,186 Cost of Fuel per Million Btu 51.72 52.22 52.25 51.57 52.10 51.90

$1.23 l

Btu per Net Kilowatthour Generated 10,843 10,920 10,906 10,918 10,930 10,787 10,523 42

GAS OPERATIONS 1985 1984 1983 1982 1981 1980 1975 Sales (Millions of Cubic Feet)

Residential 1,810 1,941 2,168 2,442 2,446 2.461 2,334 House Heating 23,227 25,429 22,981 24,237 24,675 23,671 20,817 Commercial and Industrial 32.254 41,145 39,043 41,660 45,670 42,890 30,012 All Other 1,209 1,282 672 422 127 92 74 TotalGos Sales 62,500 69,797 64,864 68,761 72,918 69,114 53,237 Gas Transported for Customers 10.262 3,794 789 TotalGos Sales & Transported 72,762 73,591 65,653 68,761 72.918 69,114 53,237 Number of Customers, December 31 Residential 69,632 70,794 72,501 76,638 78,426 81,346 90,117 House Heating 217,840 211,984 206,443 198,910 193,038 182,246 162,914 Commerciai and Industrial 24,234 23,442 22,810 22,324 21,578 20,197 19,874 TotalGos Customers 311,706 306,220 301,754 297,872 293,042 283,789 272,905 Operating Revenues (Millions of Dollars)

Residential 518.7 519.0 519.1 518.1 515.4 514.0 58.1 House Heating 185.4 191.7 165.8 147.1 128.5 108.5 54.8 Commercial and Industrial 214.1 243.7 227.3 221.1 209.7 166.7 54.5 All Other 5.2 5.6 3.0 1.8 0.5 0.3 0.1 Subtotal 5423.4 5460 0 5415.2 5388.1 5354.1 5289.5 5117.5 Other Revenues (including Transported for Customers) 5.5 3.0 1.8 2.3 2.3 1.2 0.5 TotalGos Revenues

$428.9 5463.0 5417.0 5390.4 5356.4 5290.7 5118.0 Operating Expenses (Millions of Dollars)

Operating expenses excluding depreciation

$375.4 5413.9 5377.6 5354.1 5322.0 5258.0 593.7 Depreciation 14.8 i3.5 12.7 11.9 11.3 10.2 8.3 TotalOperating Expenses

$390.2 5427.4 5390.3 5366.0 5333.3 5268.2 5102.0 Gas Operating income (Millions of Dollars) 538.7 535.6 526.7 524.4 523.1 522.5 516.0 STEAM OPERATIONS Sales (Millions of Pounds) 4,229 4,735 4,552 5,086 5,484 6,044 7,117

• NumberofCustomers, December 31 487 540 545 571 593 618 689 r

Operating Revenues (Millions of Dollars) 568.5 582.3 571.1 573.4 574.9 565.8 538.5 Operating Expenses (Millions of Dollars)

Operating expenses excluding depreciation 564.2 576.0 567.4 569.8 571.6 562.4 535.3 Depreciation 1.9 1.9 1.7 1.7 1.7 1.7 1.4 TotolOperating Expenses

$66.1 577.9 569.1 571.5 573.3 564.1 536.7 Steam Operating income (Millions of Dollars) 52.4 54.4 52.0

$1.9 51.6 51.7 51.8 fMUNUndNo h A

MD g,

25 1s 20 60 '

81 82 83 R4 85 81 82 83 84 85 aus solem und No 2 so es 43

Philodelphia Electric Company ond Subsidiary Companies Shoreholderinformation Stock Exchange Listings provide information. Please address your comments to Mrs Most PE securities are listed on the New York Stock Exchange L S. Binder, Secetary, Philodelphia Electric Company,2301 Market Street, P.O. Box 8699, Ph;lodelphia, PA 19101.

ond the Philodelphio Stock Exchange. Philadelphia Electric Power Company debentures are listed on the Philadelphio Inquiries relating to shareholder accounting records, stock transfer and change of oddress should be directed to Stock Exchange.

Philadelphia Electric Company, Dividends 2301 Market Street, P.O. Box 8699, Philadelphio. PA 19101, The Company hos paid dividends on its common stock Ann:St ckTrans4rSection,S6-4.

continvolly since 1902. The Board of Directors normally considers common stock dividends for poyment in March, Toff-Free Telephone line June, September and December.

Toll-free telephone lines are available to the Company's The Company er.timates that 4% of the $2.20 per shore shareholders for inquiries concerning their stock ownership.

dividend paid to common shareholders in 1985 represents a When colling from outside Pennsylvania, diol 1 -800-123-return of capital which is not taxable os dividend income for 7326. From within Pennsylvania dial 1 -800-242-7326. Local Federal income tax purposes. All dividends on preferred Philadelphio calls should be mode to 841 -5795.

stock are taxable.

AnnualMeeting Dividend heinvestment and Stock Purchase Plan The Annual Meeting of the Shoreholders of the Company will Shoreholders may use their dividends to purchase additional be held on April 9,1986, at 10:30 A.M.of the Adoms Mark shores of common sta.k through the Company's Dividend Hotel, Monument Rood & City Line Avenue, Philadelphia,PA.

Reinvestment and Stock Pu chose Plon. Philadelphio Electric Commonstockshareholdersof recordof thecloseof pays all brokerage and service fees.

business on February 28,1986, are entitled to vote of this Customers of the Company who are not shareholders may meeting.

enroll in the plan by making a one-time purchase of common Notice of the meeting, proxy statement, and proxy will be stock directly from the Company.

mailed under separate cover. Prompt return of the proxies All shareholders have the opportunity to invest odditional will be oppreciated.

funds in common stock of the Company, whether or not they Form 10-K have their dividends reinvested otso wPh all fees borne by Form 10-K, the annual report filed with the Securities and the Company.

Exchange Commission,is available, without charge, to Over 35% of the Company's common shareholders were shareholders upon written request to Philadelphia Electric porticipants. In 1985, they invested more that $110 million Company,2301 Market Street, P.O. Box 8699, Philadelphia, through the Plan, including cash payments. Information PA 19101, concerning this Plan may be obtained from M.W. Rimerman, Attn: Financial Division,S21-1.

Treasurer, Philadelphia Electric Company,2301 Mn.ket Shoreholders Street, P.O. Box 8699, Philodelphia, PA 1 H 01.

The Company has 302,097 shareholders of record of Comments Welcomed common stock, a 13% increase in 5 years.

The Company always is pleased to or s*er questions and

(

Transfer Agents and Registrars PHILADELPHIA ELECTRIC COMPANY-PHILADELPHIA ELECTRIC COMPANY-Debentures Preferred and Common Stocks PHILADELPHIA ELECTRIC POWER COMPANY Registrors:

Mellon Bank (East) N.A., Four Mellon (ASubsidiory)-Debentures Bank Center, Philadelphia, PA 19102 Trustee:

The Philadelphia National Bank, Morgon Guaranty Trust Co.of NY, Brood & Chestnut Sts., Philo., PA 19101 30 W.Broodway,NY,NY 10015 Transfer Agents: Philadelphia Electric Company, NewYork Agent: Irving Trust Co., One Wall Street, NY, 2301 Market St., Philo., PA 19101 NY 10015 Morgan Guaranty Trust Co. of NY, 30 W. Broadway, NY, NY 10015 0l M r S reet, P.O. Box 8699, Philo., PA 19101.

PHILADELPHIA ELECTRIC COMPANY-(215)841-4000.

First and Refunding Mortgage Bonds Trustee:

Fidelity Bonk, National Association, Brood & Wolnut Sts.,

Philo., PA 19109 NewYork Agent: Morgan Guaranty Trust Co.of NY, 30 W. Broodway,NY, NY 10015 NYSE-Composite Common Stock Prices, Earnings and Dividends by Quarters (Per Shore) 1985 1984

[

Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Ovorter High Price

$17Y.

$16Y.

$16Y.

$16Y.

$157

$13Y.

$14Y.

$16 Low Price

$14

$14

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$14%

$127

$9

$11 v.

$14 Earnings 62c 59c 57c 79c 60c 73c 58e 81c Dividends 55c 55c 55c 55c 55c 55c 55c 55c 44

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