ML20155C933
| ML20155C933 | |
| Person / Time | |
|---|---|
| Site: | Salem, 05000000 |
| Issue date: | 12/31/1985 |
| From: | Curtis N DELMARVA POWER & LIGHT CO. |
| To: | |
| Shared Package | |
| ML18092B116 | List: |
| References | |
| NUDOCS 8604170175 | |
| Download: ML20155C933 (48) | |
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1 On tre cow Downtown wenimtart a verant comme.rM center
3 : To Oca StocKiiotDrns I q y Our report this year is designed to reRect
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anomer year's good work and con 4dence gamed through sustainedperformance. I , 6 i i TnE SloCKilOLDERs' PtnsercTivt !
- Delmarva ikweris a Cnancially healthy climpany with I
wellrunning facilities and a balanced fuel mix. , l 1 , m: \ j r . * @ 7- l
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8 i Tiit CesTositas' PrasercTivt , Competivve atut flexible pricing is me
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) cornerstone of Delmarva ikwer2 plan to 1 l n j y? r" Ineet u.;twettain future.
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Tur EstetoYtts' Prasercnvt i i ) To seek innovadon, the company has developed a metod forinvoMng more employees irt , i w decisions attecting meirjobs. , I 12 Tiit CONiNiUNiTY's PERSrLCTivE Energy and employees work togemer to help im-i
; prove me quality of ble on me Delmarva Etnittsula 14 Tun Fultan Farnings grown will require continued sales 5
improvement costcontrolproductivitygains, l 4 . and supplemental outside investments. ' 4
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Itrcent increase FINANCIAL Hiciiucius 1985 1984 (tkcrease) RtvtNets $ 722.8 million S 702.6 million 2.9 NET INCO\tE $ 96.6 million 5 92.1 million 4.9 EARNINGS PLR $llARE $ 2.76 $ 2.63 4.9 DmntNos Dtct2Rtn $ 1.945 $ 1.83 6.3 COmtON $TOcK OursTANDING AvtRAGE bilARLs 30,481,925 30,248,482 0.8 COmf0N $TOCK BOOK VALUE $ 18.43 $ 17.70 4.1 CONSTRUCTION ExetNoireRLs $ 94.9 million $ 79.5 million 19.4 INTERNALLY GtNERAri n FuNos $ 151.3 million $ 110.5 million 36.9 El LCTRIC $Aus 8.53 billion kwh 8.31 bi!'gon kwh 2.6 EttcTRic CusTO\lER (average) 314,013 303.965 33 AvtRAGE RosIDENTIAL USAGE 8,059 kwh 8,283 kwh (2.7) gas $Atts 15.71 million mcf 17.24 million mcf (8 9) gas CUsTO\ttRs (average) 75,103 74,319 1.1 AvtRAGE RESIDENTIAL USAGE 79.7 mcf 88.8 mcf (10.2) 2
To Oun STocxitotorns l
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Tile RECORD SilOWS TilAT 1985 was ANontliR GOOD, SOllD, BUILDING BEOCK YEAR. HOWEvER, uPON REFEEcTiON,1985 was NIORE TilAN TilAT. IT WAS A YEAR WilERE SUSTAINED PERFORNIANCE GENERATED INCREASED CONFIDENCE ANIONG ENIPlOYLIX i ! Hiciiucius Aar:
- Earnings increased for the fifth consecutive year. There were no electric rate increases in the service territory. Customer approval ratings increased for the third consecutive year.
- Delmarva Power generating plants performed above national averages.
- Employee safety r records showed continued significant improvements. Employee paiticipation programs continued to mature and yield innovative ideas.
- New outside investments increased earnings.
Our report this year is designed to reflect another yeari good work and confidence gained through sustained performance. This performance and confidence is important to you now as a , shareholder or customer because in 1986, we will begin to make some decisions concerning energy supply for the mid 1990s.These decisions will be complex because of changing forces in the economy. Employees will be able to look ahead and focus on these challenges with the confidence that they can perform their current jobs well. 3
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- However, management is concerned about com-Y has established one of the lowest average electric byn each day with 7ailgate'sessas mitting to a new power plant now for several f prices in the region through reducing dependence
&stgnedtotramote safety ctroency and reasons.
- The construction costs will be large. on oil from 53% in 1979 to 20% in 1985, reducing E
partcpata Around the country,large buildmg programs have wot kforce, consolidating facilities, and developing E become financial and emononal albatrosses for a participative workstyle which encourages inno- [ utilities. A new plant in 1996 is projected to cost vauve ideas to contain costs without reducing
$3,800 per kilowatt which is more than six times quality. Technology review
- We willinvest $50 F the cost of the Indian River Unit 4 completed in million over the next ten years, to keep old plants
- - 1980. Total costs are estimated to be three quar- runnmg longer than planned rather than replace 7
F - ters of a billion dollars.
- Also, for several years them with more costly new units. Investment ex-h in this letter, concerns have been expressed about pansion
- Earnings not now needed to finance n
[ the lessons learned in the railroad industry. Large construction are being used to upgrade facilities Our report ttus yearis designed to reflect I-S capital investments can be devalued quickly by in advance of any major building program and C anomer year's Gmd work and confidence [ technology breakthroughs and structural changes to invest in related projects outside the utility L=- gained trough sustained performance. iiii within an industry.
- Finally, utility barometers business which can achieve returns greater than E-r
[ are sending contradictory signals. Forces such as the principal business
- The next few years will E- '
{ increasing summer peaks indicate building while be challenging and excning We must plan care-k-- other forces such as wheeling and cogeneration fully for the long-run needs of our customers. At 5-g indicate delay. the same time, we must find ways to maintam I
- So, in 1986, we will be asking ourselves, do earnings growth in face of modest projected growth L
y we need another plant in 1996 or can it be post- in assets and no increase in authori:cd returns. b g poned through a combination of various energy The 1985 performance shows that employees management techniques? What are the benefits if have the know-how and confidence to perform k our assumptions turn out to be correct? What are their current jobs well and take on these chal- @ the consequences if they turn out to be wrong? lenges. I appreciate their efforts and h,ok forward L {
- While future capacity planning will be empha- to working with them as Delmarva Power con-i.
[ si:cd this year, the company has been prepanng tinues to prepare for the next decade. [- for the 1990s in other ways including: Price con- sincerely, v I trol
- Competitive pricing is crucial for staying i [
r ahead of emerging competition. Delmarva Power N v ct:ar n ti bru.iry ti i+6 L = E' 5 E E
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Tile CUSTOhiERs' PERSPECTIVE COsircr:Tivt PRictS
- DLLitARVA POWIR lst-PLOYLIS tlAVI DLNIONSTRATI D lilAT IlllY CAN -
l. Special ettorts were mae tnis year toprow& businesses, as those tn kwntown Wilmingtort with usefulenergymtormalat 1101.D 'llit iINE ON PRICIS. I
- In 1985, there were no rate increases through- sidered the improvements excellent or good.
out the service territory, and none are expected Cesiosit n Oeisios Istenovis
- Customer follow-in 1986.
- Delmarva Power's average prices for up surveys completed in 1985 show that while energy rank low in the region. In cents /kWh: there is always room for improvement, customer New York,13.03; Newark, NJ,9.21; Boston,8.79; service workers at Delmarva Power generally do Philadelphia,8.79; Delmarva Peninsula,6.99; and their job well and find ways to do better. In the l Competitive and flexible pricmg is ttte l Baltimore, 6.57. Rankings of natural gas prices gas business for example,97% of the customers Thedserse ,
cornerstone at Delmarva hwr.r's plan to blendatcustomers on } (in cents /ccf) are New York,79.95: Philadelphia, surveyed rated the overall performance of the ser- tre ccimana emnsula meet an uncertain tuture. Is a strength. The varied l i 67.81; Newark, NJ,67.33; Boston 60.81; and Wil- vicemen who visited their home as excellent or energy rree; ottarms. i cmes. tones. and i mington, 60.16.
- These achievements are im- good. Customers in the Wilmington area were resorts prow & balance
} to tu sntm aM ' less mMeraanitykung portant to face developing competition such as more likely to reach a representative the first time i I extretitelhCluat01s in l wheeling, co-generation, and imported power. they telephoned (90%)than in 1984(75%)
- As the nationalermrry l
l Thts Customer $ tarmis Bitt Fonsi Rtvisto
- In 1985, the company com- a result of these and other efforts in price and s centraloelaware.
pleted a key project designed to improve customer customer service. 71 percent of customers gave understandingofits product and cost The format Delmarva Power a tavorable rating in the 1985 of the monthly electric and gas bills was revised customer survey compared to 66 percent in 1984 to include new information and highlight other and 59 percent in 1983. information that would be of most use to the cus-tomer Customers participated in the development of the new bill format and contributed several major suggestions which were used. In the 1985 customer survey,81 percent of those polled con-8 l
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lowest reasonablepuce Donaktu rers b contmues to aperate out a lost-time accident-a ic,nificant achievement training and had undertaken more than 2,100 t hiscraneattheDelaware Oty h& Plant M in this work environment.
- This is an example innovative projects with the techniques they had
^
October 1985. Texaco I andtheconpany agreed of the excellent 1985 safety record. Recordable learned
- The long-term goal of this program is
.: to a fivejear exten-E sm ot iesacos annon injuries decreased 12% to 50, lost-time injuries to encourage the ideas of the individual and to ^ toMrchasetheDelaware E oty generanno stata decreased 64% to 5; and lost workdays decreased recognize the benefits of teamwork. = The 94-megawatt plant r provdes steam and 83% to 71.
- In 1982, the company's safety pro- llenaicasr Gronia Risrossr
- Employees deserve electicty to Texaco's To seek innovadon. the company has developed g neareyretmery and gram was strengthened in an effort to reduce acci- special commendation for their efforts to restore
, electroty to other a method for involving more employees in R Delmatva mer dents and to spare employees and their famihes power and serve customers after Hurricane Gloria
- customers- decisions affecting theirjobs.
L- the accompanying pain and anxiety. Then, the delivered a glancing but powerful punch to the company ranked near the bottom in safety per- Delmarva Peninsula. The last of 50,000 customers E formance among companies in the Southeastern without electricity were restored within 51 hours (( Electric Exchange. In 1985, Delmarva Power after the storm. Customer letters complimented ranked first in its group in the safety performance Delmarva Power employees on their high level of r _' and fleet safety contests. preparation for this storm Customer letters from e Pauriciratios, Isvoivrsirst, Coscras
- In an
{ I.ong Island, where Delmarva Power employees N effort to seek innovative ideas and solutions in a also worked, were especially appreciatice of the w 7 changing business, the company. during the last time Delmarva Power workers sacrificed from three years. has developed and refined a method their families to help them. g for involving more employees in the decisions Pinsossii
- Senior Vice President and Director affecting theirjobs
- While progress can still be Frank A. Cook retired after 14 years of distin-E made in this area, by the end of 1981 1,045 guished service with the company. Ihs technical m
i employees had received at least the first level of expertise and friendly support will be missed. 11 w
Tile CONthlUNITY's PEnsPEcrivE ENVIRON M ENTAL PROTICTION
- ON Juty 16, help people in trouble through the Radio Watch program.
- While Delmarva Power employees 1985, ED LARMORI:, Vll NNA POWI.R PLANT I QUIP- have always used their equipment to summon aid for people, in 1983 the company sought to The canpany MI NI OPE RATOR, REI.EASID Tile IIRST OF 26,000 increase awareness of this service by developing helps promore area economic &veicoment a logo and advertising it. In 1985, the company cy participarm witn state atxtlocalQokern-sl RIPI D BASS l'INGl RllNGS IN TO Till. NAN ucOKl: began informing children about Radio Watch ments ttrovahovr the pensasula wI ther through a campaign in the schools. Dispatchers Avelopment e/fars andadxcatmlawrate river NEAR VilNNA, MARYLAND. also broadcast descriptions supplied by police of simctures wfuch help businesses maintain missing children.
- People in the community a competitme cdge Energy and employees work together to help im- The commercialsector
- He participated in the first hanest from a fish use this service about twice a day to call for help is arowmas symoolized prove the quality of hfe on the Delmarva Peninsula. by the new builds of brooding pond buih by the company and main- in situations ranging from a flat tire to serious cnase vanhattan sank tUSA)NA whchis rained by employees on their own time. It was accidents
- In other activities, the Good Neigh- nsina cy wilmstors innity EpiscopalCruch one of many efforts where Delmarva Power em- bor Energy Fund, raised more than $144.000 in ployees went beyond their jobs to help improve customer and stockholder contnbutions to help the quality of life on the Delmarva Peninsula. people having trouble paying their energy bilk
- In keeping with its commitment to provide
- Employees again exceeded their goal in contri-energy with as little intrusion into the environ- butions to the United Way and volunteered count-ment as possible, the company maintained its less hours to community activities schedule well ahead of the 1988 federal deadline I
to remove capacitors containing PCBs from dis- s D , tribution lines. So far, 98% of them have been removed. i Couucstry Acuvmis
- In April,1985.Delmarva Powei employees who dispatch work and who The Honorable George Romney and Presakwt Bonald Reagan present Marty Dutty manarp consumer attaws with a medal drive company vehicles were hon. .ed at a honorg oelm aa ttwer employees tor nacio watch luncheon in the East Room of the White House by President Ronald Reagan for their efforts to 12
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18 Fixasciai Rtvitw Aso As.uvsis 22 Rtroni 01- NIANAci:sii s i-l 23 Quanti:ni.y CONistoN stock DIVini Nos ann Paici: RAscis 23 Ri ront or Isni.ri sni s t AccoesTAsis 24 CossounAri n FisAsciAt Sirti sii: sis 30 Nori:s to Cossounxti n FisasciAt Suri sii sis 42 Cossoiinrii n S r.uistics 44 Oiiic i us, I)ini(: ions sNo Siianiiloi ni a Isioasiaiios
Deinurva i\wver 6r Light Comluny Stucno FINANCIAt. DArA (Ibilars in Thousands) li>r the Years Ended neember 31 1985 1984 1983 1982 1981 OMRAUNc Operating Revenues S 722,834 5 702,593 S 649,799 5 636,666 5 608,5M OperanngIncome 135,515 133,209 129,138 116,573 107,325 Net income %,638 92,110 85,003 73,571 58,711 EARNiNcs ANo DivinENos Eamings Per Share 7 76 2 63 2.45 2.I 3 1.78 Dwidends Declared on Common Stock 1.945 1 83 1.68 1.595 1.535 Average Shares Outstanding (000) 30,482 30,248 29,541 28.489 25,747 Total Assets 1,674,770 1.591 630 1,533.263 1,509,771 1,460,529 Construction Expenditurc9 " 94,923 79,488 76,056 110 646 84.206 Intemal Generation of Funds 151,349 110,485 117,582 77 061 72,346 CarnAuzAnoN long Tenn Debe 2' 638,090 567,761 567,935 542.615 596,219 Preferred Stock without mandatory redemption 105,000 105W0 105,000 -101000 105,000 Preferred Stock with mandatory redemption
- 5,992 47,836 49,383 50.000 50.000 Common Equity 561,811 539.650 503,513 468.073 437,080 Total $1,310,893 51,260 247 $1,221831 S1,21 1688 S1,188.294 CAri rAUZATION llUiOS [Dng Term Debt 49% 45% 46% 49% 50 %
i Preferred Stock without nundatory redemption 8% 8% 9% 9% 9% Preferred Stuk with mandatory redemption 0% 4% 4% 4% 4% Common Eqmty 43% 43% 41% 38 % 37% Total 100 % 100% 100 % 100% 100% Er rcmc/ GAS SAns Ekctric Sales (1<wh 000) 8,530,520 8.308.233 7.878.476 7,249,442 7,391324 Gas Sales (Mcf 000) 15,708 17,239 16.449 15604 16,520 o 1 xliales Alkm ance for i unds l % d Dunng Gingnatain. I o Inthales king tenn debe due wuhin one year
- rindudes nundatory n dempain due wnhin one year 17
twarva Iw & tyht canpany FINANCIAL Rnvn:w Asn ANALYSIS REstus or On RArioNs Eausisc.s 3 Delmatra Power & Licht Company's financial performance and strength continued to im-prove in 1981 Eamings per share of common stock were $2 76 for 10M an increase of 13e or 4.9% from 1984. Conmbuting to the higher 1985 camings level were higher electne sales, addinonal amortcation of the credit arising from the sa!c of contraus (Summitt and increased investment income. The 1984 increase of 18e m caming per share to $2M was pnmanly attnbutable to increased sales which resuhed from a stro,g economy in the semcc temtory and cold-winter weather condaions. Divmts.os in December 1985. the floard of Dircuors incremed the quarterly dividend 5 2% to 50 5e per share, the ninth conwcutive annual increase. The current mdicated annual dividend rate has increased to $2 02 per share from $192 per share. This merease reflect., a dividend pohcy which is to gradually increase dividends on an anntul basis. caming permimng and thus pmvide stockholders wuh a fair and competinte return on their inve.stment. 4 Earnings and Etra RC Rt vi sats wn S u i s Dnidends Declared
<ama Electnc revenues, net of fuel. mueased $12.3 milhon or 3 0% in 1985 and 5144 milhon er 5
4.9% in 1984 The increases in both years are net of refunds to Delaware retail elettnc
; % customers. Refunds of $14.7 milhon in 1983 and S5 8 milhon in 1984 were designed to bnng 250 %f camed rates of retum in hne wah authorted rates of retum. as sales of cleaneny were greater than projected in both years.
4g The increase m 1985 and 1084 net revenues was achieved pnmanly through increased sales. EA N Li' with the company reachingan all-nme peak kud of 1.705 mcpwans in Aucst 1085
# The increase in 1985 volume was primanly attnbutable to higher sales in clie commercul and
[ kf{o ' 4 resale classes. A 4.4% increase in commercul sales was partully due to an expansion of the bankmg and financul sernes scoor in Delaware. Some addinonal commeraal customers were also guned through the npple etico assocuted with increased residenna! construction in k iso "I the beach areas T he resale cLtss expenenced a 7 W sales grow th pnnopally because of a growing residential market that is dommated by clearical he.u in the municipahnes served by the company
- l I E E The increase in 1084 volume-reLued electric revenues w as largely due to higher sales in the res'dential and commeraal classes. which incremed mainly as a result of the improved 1084 cconomy and colder winter weather wndaions m the first quarter of 1u84 50 0 llll 81 82 81 84 85 E Eammg3 5 Dw&rkh 18
OchTtifVJ f0% CT N bejit Colly \lr!V FINANGAL Rixnw ann ANatssis C \s R1 \ l N1 'i s A ND $31 f ~ 1985 gis revenues. net of fuel costs. increased 2.0% due to increased rates u hich were pamally oIIset by an 8 9% decrease in sales. Industnal sales dedmed 8 0% due to swathing to ahemate fuck and decreased producnon levek Residential space-heatmg sales decreased 9.3%, pnndpa!!y due to mt! der than nonnal winter weather wndinons in the first quarter of 1085 1084 net gis revenues increased 7 8% hit fly due to higher sales Residential space-heatmg sales increased 113% in 1084. refletting an increase in customers and the cold weather in early 1984 Commercial sales increased 110% reflectmgan improved economy Ran Ruaunos. 1 he company is subject to regulanon with respect to its retail sa!cs of electncity by the Delaware and Maryland Pubhc Scruce Commis3 tons and the Virpnu State Corporano . Commission, whkh have broad pow ers over rate matters. accounnng and ternw J service. The Federal Energy Regulatory Commission i FERO exercises junsdicoon with respect to the company's accountmg systems and pohcies and the transmtssion and sale at wholesale (resale) of electnc energy in interstate commerce Generation Fuel Mix On Januatr 29.1985 the company announted a plan to voluntanly refund a mimmum of 4 ~ ""
$7 5 milhon of 1984 revenues to Delaw are electric retail customers After renew ing the hnal 1984 results. the Deiaware Pubhc % rvice Comnussion (DPSC) ruicd that an addaional 57 2 mdhon should iv refunded Also. the company recommended and the Commission agreed 100 a that Delaware c!cctne retad rates should he reduced approxunately 1% or 53 6 nu! hon an-h, j,j, lj3 hd ai ntullv, etIcctive a.s of June 28.1083 o n e -
!1 lj i MM W q. Hp Rate increase < were h!cd in the tompany's other retad jun*httions m 1084 and were gg ML!jn H E strthtured to recover increases m operanng udts and to improve the return on unhty p mvestment Dunng the founh quarter of 19H4. rate mcreases were granted in Virgmia for 5449 000 or 2 7% and in Marylind for $4 8 milhon or 3 9% On Marth i 1085. the DPSC granted a 5 3 i mdhon or 3 7% rate increa>e m gts revenues 60 In December 1081 the company reached a tentanvc settlement w ith all resale tustomers to refund $ 3 5 mdhon The tentanve agreement uould have provided lor a redutnon in resale rates for the penod covenng July 1085 through December 1086 On I ebrtury 6 1986. the company was inlonned by some of the resale customers that the tentante settlement was not g ,
aucptah!c. I he wmpany is wrrently aw.utmg funher attion on the part 01 the resaic customers Fi o M n, 20 in 1083 generation from wal. nudear and od sources was 63% 15% and 20% respecovely. Nudear generanon me reased 29% due to higher avadabihty of nudcar units I he ellet tive cllstomer lucI cost. w h!di likludes luCl Interd1.inRe Jnd part hased pow er costs. rem.uned low at 1.0 le kWh m 1085 and was 106e kWh m 1984.ind 1083 0 82 83 84 H5 86 Q O'l E N A rr o cua
}9
Detmindiwer & ughtcompany
, FINANCIAL REVIEW AND AN'ALYSis t
OnRAnNa ExetNsts - Other operation and maintenance expenses lure increased since 1983 primanly as a result of higher payroll and associated benefits. the higher cost ofjointly-owned nuclear generanng units, and increased steam senice expenses, which are billed and reflected in steam revenues. The 1985 increases were partially oliset by an additional $2.5 milhon amortization of the (- credit arising from the sale of contracts (Summit) which resuhed from an out-of-coun tax settlement During 1984, both Salem Units #1 and #2 were removed from senice due to ele (tnc genera-tor failures. Salem Unit #1 was returned to senice in October 1984 and Unit #2 was retumed L to service in April 1985. There was an extended outage at Peach Ikittom #2 from Apnl 1984 to July 1985 due to piping repbccment Peach Bottom *3 was removed from senice inJuly 1985 for refuchng and a pipmg inspectior and is anticipated to begin operating apin by the end of the first quarter of1986. lurAcT or INT LMIoN Supplementary unaudited financial infonnation sl ving the estimated cliccts of intlation on the company's operations is shown in Note 12 of the Fmancial Statements. This data should be viewed as estinutes of the approximate effects ofinflation, rather than as precise measures. LiquiDirY AND CAPITAL flNANONG AND CM MAUZAnON Rtsouncts The company is committed to maintaining its financial strength and Ilexibihty and beheves that it is imponant to have a strong capital structure. The company's financial strength is evidenced by its continuing high ratio of camings to fixed charges w hith was 4 3 in 1985 The fog'. ,"re company's financial tiexibihty was demonstrated through the refinancing of $419 milhon of Charges Preferred stock with hing-term debt This refinancing will reduce the company's cost of capital ac=60 and will enhance the company's abihty to issue additional preferred stock in subwquent years, if necessary. g
+0 t In December 1985 the company temporanly borrowed $55 nullion to redeem kWo of the
- g company's 12.56% preferred stock senes and appmximately 68% of its 9% preferred stock series; the rema'nmg funds were used to retire $10 million of T% Series First Mortpge and I
o i s Collateral Trust Bonds. In January 1086 the company issued $60 million of 10Mo Senes First 3.0 !- Mortpge and Collateral Trust Bonds. w hith nuture in January 2016. T he pnweeds from the l bond issuance were used to repay the $55 milhon bank hun with the balance bemg apphed s to general corporate cash requirements. l i i I l n
~
i Due to continued improvements in ca3h flow. and to control the increasmg equity position. 2.0 i the company further mahlied its Dividend Reinve.stment and Common Share Purchase Plan I (DRIPA Ellective January 1085. all reinvested dividends are bemg used to purchaw shares on j : the open market. 1 i 1.0 Dunng 1985 5tandard & Poor's increawd the company's pretenrd stak credit ranng from A + h ! to AA- Cndit rating on the company s first mortpge bond 3 renuined at a high level in 1 l ,l l 1985. due to the company's continued strong financial perfonnance l he company's bond l $ rating is the equivalent of a strong AA in the language of the diilerent raters l ! O 81 82 83 84 85 20
[Mmarva 1%rr 65 Light Compurj FINANCIAL Rtvitw AND ANALYs!5 FINANCING AND CAW!r.MUADON (c.ONnNcMN in September 1981 the company issued. thmugh the Delaware Economic Development Authenty. 533.5 milhon of Variable Rate Demand Exempt Fachties Revenue Bonds-Series 1985. The proceeds were primanly used to refinance $33 milhon of tax-exempt revenue notes, classified as a temt hun agreement as of December 31,1984. During 1985. Delmarva Caretal Investments. Inc., a subsidiary, borrowed $25 milhon and invested the proceeds in satclhte and aircraft leveraged leases. See the related discussion under " Liquidity? Cam.u ANo CoNst secuoN Rt et na w No For the penod 1983-1985, the company had total capital requirements of $493 mdlion, includmg $250 million for construction (excludmg AfCDC) Dunng the same penod. $ 379 milhon was generated mtemally which represents 77% of the capital requirements and 151% of the constmenon requirements Capital requirements for the period 198o-1988 are estimated Construction to be $474 mdhon including $404 mdlion for construction (excludmg AFUDO 1he com-Expenditures pany presently anticipates that. for the penod 1986-1988, internally generated funds wdl be and Internally $396 mdhon which equals 84% of the total capital requirements and 98% ofits construction Generated Funds requirements. The higher level of esumated construction expenditures dunng 1986-1988 in
<mummure nson to 1983-1985 results from the company's plans to budd a computer center, mcreased investment in environmental protection facihties and upgradmg of vanous fatihties.
"O Actual construction expenditurt3 nuy vary from the above esumates due to. among other [ factors. the rate of inflation. regulanon and legislition, rates of load growth. licensing and [ con 3truction delays. results of rate proceeding. and the cost and avadabihty of capital e h The company estmutes that its annu.d energy and peak load growth for the next 10 years no S --Rg will be at a rate of I 84% and 0 6% respecurely. The company's present generanng capacity of k, Mk 2.277 mepwatts provides a recen e of 27% apinst its company peak of 1.795 mcpwatts E fl expenenced in the summer of 1985. In 1984 the company peak was l A24 mepwatts-L Although the company continues to plan for new generation it is actively considenng g[ $ attematives to a central power stanon due to the high cost of buildmg a new power plant 1 he 90 i N4 company has a put to develor a plan to delay, by at Icast five years the in-service date of its D 6 next generation unit u hich is currently sc heduled for the mid 1990's The company connnues H to be committed to maintaining a high degree ol flexibihty as long as possible in its planning to i meet future capacity sequirements. 60 L-1 f The company has the abihty to issue commercul paper supported by adequate hnes of credit jp to meet If uctuanons in workmg capital reqmrements as well as the mtenm financing necessary d for construenon projects The company has hnes of crrJit with banks in the amount of 544.5 M [f [ mdlion These knes are avadable for bank loans and to secure commercial paper borrowing as r the need anses At December 31.1985. the company had no tommercul paper outstandmg g b I3 p 3 0 84 85 86 87 88 5 Interna'ly Generami Fu n B Cowructxe f xtenifitures teud:simg AFUDO 21
Delmarva Ibwer & Light Company Rtroar or h1ANAGENtENT ON Tile FtNAsaAL. STATEhtENTS - lacaony The company's liquidity is afIccred principally by the const mction program and, to a lesser degree, by other capital requirements such as nuturing deb: and sinking fund requirements. As a n sult oflower construction expenditures and improved financial condition, fmancial investments increased from $27.6 milhon in 1984 to $72 million in 1985 with no short tenn debt outstanding at the end of either year. In order to unh:e cash generated from ongping operations beyond construction requirements, the company has invested in both energy related and financial opponunities. During 1985, the company invested $32.1 million of equity capital in a wholly-owned subsidiary, Delmarva Capital Investments, Inc., which has arranged bonuwing; and generated cash intemally to provide an investment ponfolio of $716 million. On December 31,1985, these investments included $34.6 milhon in marketable secunties, $9.8 million m a Boeing 747 aircraft lease and
$27.2 million in satelhte leases with GTE Corporation and RCA Corporation, both of which are currently in operation. These investments are designed to provide yields higher dun those camed on the company's unhty busmess.
REronT or h1ANAGENtENT The consolidated financial statements of Delmarva Power & Ught Company have been prepared by company ocrsonnel in confonnity with generally accepted accounting princi-ples, based upon currently available facts and circumstances and management's best estinutes and judgements of the expected cifects of events and transactions It is the n'sponsibihty of management to assure the integnty and objectisity of such financial statements and to assure that these statements fairly report the financial position of the company and the resuhs of its operations. Deinurva Power & Ught Company maintains a system ofintemal controls designed to provide reasonable, but not absolute, assurance of the rehabihty of the financial records and the protection of assets. The intemal control system is supponed by wntren administrative policies, a program of intenul audits, and promiures to assure the selection and training of quahfied personnel. These financial statements have been examined by Coopers & Lybrand, independent centfied pubhc accountants. Their examir:ation was conducted in accordance with generally accepted auditing standards which indude a review of intemal accounting controls to determine the nature, t ming and extent of auditing procedures, as well as such other procedures they deem necessary to produce reasonable as3urance as to the faimess of the company's financial state-ments and to enable them to expres3 an opinion thereon. The audit committee of the Lkurd of Directors. composed of outside Directors only, meets with management, intemal auditors ar.d the independent accountants to review accounting, auditing and financial repomng mattendhe independent accountants are appointed by the Board on recommendation of the audit committee, subject to shareholder approval. 8v , W Nesius M. Cunis Chairman of the ikurd and f Roger D. Campbell Vice President Treasurer and Chief Execunve Officer Chiel 1:inancial Officer 22
odmarva rower sr ught compny - QUARTERLY CONINtoN COMMON STocx StoCx DivintNos AND [. PRICE RANGES The company's common stock is listed on the New York and Philadelphia Stock Exchanges l and has unlisted trading privileges on the Cincinnati, Midwest and Pacific Stock Exchanges. The company had 58.824 holders of common stock as of December 31,1985. The company's Cemficate of Incorporation and the Mortpge and Deed of Tmst securing the company's outstanding bonds contain restrictions on the payment of dividends on common stock which would become apphcable if its capital and retained caming bli below certain specified !cvels or if prefern'd stock dividends become in arrears. The retained earnings available for dividends on common stock as of December 31,1985 were approximately $143.810,000 under the most resmetive of these provisions. 1985 1984 Dividend Price Dividend Pnce Declared liigh low Declared tiidi Low _ First Quarter $.48 23 % 21 5.45 19 % 17 % Second Quarter .48 26 % 22 % .45 18 % 17 % Third Quarter .48 26 % 22 % .45 20 % 17 % Fourth Quarter .505 28 % 22 % .48 22 % 20 %
~ RnroRr or: INotensotNT To int BOARn Or Dini-c. TORS AND SMUHOIDtR>
CERTit sto Punuc Du MARvA POWI R N laGH T COMPANY ACCOUNTANTS Wii MiNGTON. Dr LAWA Rt We have examined the consohdated balance sheets and statements of capitalcation of Delmarva Power & Light Company as of December 31,1985 and 1984, and the related con-solidated statements of income, changes in common stockholders ~ equity and sources of funds for constmetion exrvnditures for each of the three years in the period ended December 31,1985. Our examinations were made in accordance with generally accepted auditing standards and, accordmdy, induded such tests of the accounting records and such other auditing pro-cedures as we considered necessary in the circumstances. In our opinion. the financial statements referred to above present fairly the consolidated financial position of Dehnarva Power & Light Company at December 31,1985 and 1984 and the consolidated results of their operations and sources of funds for construction expenditures for each of the three years in the penod ended December 31.1985 in confonnity with generally accepted accountmg pnnciples applied on a consistent basis
+
1900 Three Mellon Bank Center Philadelphia. Pennsylvania February 7,1986 23
< Deinurva Ibwer 6r Ught Company ' CONsouoAreo Staruimrs or INCouti (Dolln in Thuunda l'or the Years En&d Decemhcr 31 1985 1984 1483 OPERATING RtvtNets Electric $ 605.581 $ 584,163 $ 542.252 Gas 95,256 101.578 44.358 Steam 21,997 16,852 13,184 722.834 702,593 644.709 Ortnarisc EXrLNsEs Operation: i Fuel for clectric generation 240,901 278.474 275,117 i Net interchange and purch.tsed power ( 63,962) (108 011) (108,654) j Purchased ps 69,847 74 082 72.475 ;
I Deferred energy costs ( 2,549) ( 2.345) ( 24.507) Other operation 121,105 108 001 107.490 Maintenance 59,406 56,752 53.781 Depreciation 53,981 51702 49,596 Taxes on income 77,836 77.577 67.584 Taxes other than income 30,754 31,152 27.773 587,319 569,384 520.661 Ortn.uiNc INCONtl 135,515 l33.209 I29.138 O rni n INcoNtti Allowance for other funds used dunngconstruction 2,428 2.780 2.447 Other, net 6.382 3.243 2.440 8,810 6 023 4.887
~ INCONil I3tl ORii INII REST Cuom s 144.325 130.232 134.025 INTFRI;$f CllARGLs long-tenu debt 47,236 45.815 45607 Short-term debt and other 1,059 2.000 3.900 Allowance for boriuwed funds used dunng construction ( 608) ( 783) ( 7341 47,687 47,122 48.002 EARNiNos Net lacome 96.638 92,110 85ANil Dividends on preferred stixk 12,599 12.662 12.818 Eaming applicabic to common stix k $ 84,039 $ 79.4 68 5 72.245 CO\f NtON S tock Average shares outstanding t thousands) 30,482 30 248 29.541 Eaming per average share $ 2.76 5 263 $ 2.45 Dividends decLtred per share $ 1.945 $ 183 $ 1 68 4 -
4 m . 24
IXlmarva I%er 6r Lydit Gmptny CONsounalto STATDtLNrs or Souncts oi- Fesos t on CONST RUCiloN Exi Esnarcats (IMars tn lhousando Ibr the Years Dided Iktember 31 1985 1984 1983 Souncts or Fusos Provided from operations-Net income $ 96.638 $ 92,110 $ 85.063 less-Prefe:Ted dindends declared 12,599 12.602 12.818
-Common dividends declared 59,287 55.361 49.668 Eammp reinvested dunng the year 24,752 24.087 22.577 Items not requiring (providing)lunds:
. Depreciation 61,183 58,464 56.599 Amom:ation of credit ansing from sale of contracts (7,202) ( 4,762) ( 7003)
Amorticauon of nuclear fuel 6,594 2.071 2,394 Allowance for funds uwd dur ng constmction (3.036) ( 3363) ( 3,181) - Invesanent tax credit adjustments, net 21.878 2.253 3,495 Deferred mcome taxes. net 47,462 31,935 42.701 income from leveragxileases (2,307) - - less on uramum mine advances 2.025 - - Funds provided from operations 151,349 110.485 117.582 Extemal financing: Long-term debt: Vanable ra:e dem.md senes 33,500 15.500 - Tenn kaan (33000) ( 5300) 15.500 Other long-tenn debt 80,000 - - Common stock - 11.921 12.861 Redempnon of long-tenn debt (10,100) (10.100) (40.100) Redemption of preferred stock (44,387) ( I,418) ( 617) Extemally financed funds 26.013 10.401 (l2.354) Other sources (uses): Decrease uncrease) in workmg capital * (65,809) (29.557) (l7,709) Construction funds held by trustee 6,392 ( 4 033) ( l.N1 ) Investment in leveraged leases (36,959) - - Refundable taxes and interest 32,322 ( 2,188) ( 2.603) Credit ansing from sale of contracts ( 4,690) ( 926) 850 Other. net (13695) ( 3.796) ( 8.669) Other sources tuses) (82,439) (41,400) (29.172) Cossiut cTios (exdudmg allowance h r funds used Exci Not t t wi s dunng construction) $ 94,923 $ 79.488 $ 76036 Di. cat:Asi (iNcatasi,) Marketable setunties $( 32,308) $ (19.754) S( 4.314) IN wonk:Nu carit At.* Acwunts receivable 33 ( 3.0 50) ( 7.586) Deferred fuelcosts net ( 2,537) ( l.8 31) (23,120) inventones 13,997 (l5.114) 5.428 Refundable taxes and interest (35.303) - - Accounts payable 6,885 t 5.865) 7.993 Taxes accrued ( 4,455) 6 842 ( 4.488) Interest accrued 2.532 908 ( l016) Other, net (14,653) 8 307 9.400 Total $ (65.809) $(29357) 5(17.709)
*t_hhcr dun h>ng renn dda due and prefencd rotk redanut lc w nlun me scar irut tuncni defcncd nome tascs see enrunung Noics to Gnulared I nunt ul statemi nis 25
'f Delm.uva Ibwer 65 Ught Company I " . ComounAno Batact Suters tIV. irs in T hous.nis)
AssErs A,ot December 31 1985 1984 UnUTY PtaNT- Electric $1,624,881 $ 1,555,174 At onictNAL COST Gas 90,956 83.104 Steam 24,389 24.143 Common 80,541 71,391 1,820,767 1,733,812 1.ess: Accumulated depreciation 535,873 488.987 Net utility plant in service 1,284.894 1.244.825 Plant held for future uw 15,297 15.022 Construction work in pny,ress 33.184 36,372 Nuc! car fuel, at amortized cost 19,7 % 24.955 1.353,171 1.321.174 NoNunuTY PRON RIY AND Net nonutility property. at cost 34.805 5,383 OnitR INVESWENis Construction runds held by trustee 9,186 15.578 43,991 20.963 CtJRRENT Asstis Cash 17,408 16.673 Marketable secunties, at cost 59,956 27,648 Accounts rewivable: Cu3tomers 49.037 48.8 N Other 24,337 24,568 inventories. at average udt: Fuel (coal, oil and ps) 55.694 68,164 Materuis and supphes 20.648 21,975 Prepayments 4,236 3,776 Deferred fuel adts. net 1,488 (1949) Refundable taxes and interest 35.303 - 268,107 210.794 DtrtRRro CliARcts ANo Refundable uses and interest - 32.322 OmtR Assus Unamortized debt expense 5,368 4.827 Other 4,133 1.550 9,501 38 690 Toral $ 1,674,770 51.591.630 ve .uompinying Niwcs hi Con +1dued hnm ul suicnuus. 26
- . . . . . . . . . =
.Delrma Powir & b$t Company CONSOUDATED BALANCE Suters t Dolbrs in 1htwnsh1 CAPITAUZATION As of Decemhr 31 1985 1984 Asn LIAarurits CANTAUZADON Common stock $ 102,876 5 102,876 (sce statements Additional paid-in capital 235,798 235,473 IC Pdt" "I Retained earning 223,137 201.301 Total common stockholders' equity 561,811 539.650 Preferred stixk:
Without nundatory redemption 101000 101000 With mandatory redemption 5,192 47,036 tong-tenn debt 637,940 557.661 1,309,943 1,249,347 CunnexT 1iArtturies Long-tenti debt due and preferred sttxk redeemable wnhin one year 950 10A)0 Accounts payable 33,12.9 26,244 Taxes accrued 16,181 20.636 Interest accrued 22,729 20,197 Dividends declared 15,393 14.631 Nudcar fuel disposal costs - 10.888 Deferred income taxes. net 755 ( l .661_) Other 10,440 11026 99,577 116.861 Dettunro Catoits AND Credit ari3:ng from sale of contracts 16,057 27 449 O riita I iasiurits Defenrd income taxes. net 174,746 128.444 Deferred investment tax credits 70,416 61380 Other 4.031 3643 261250 225,422 Orinta Coiiimitments and Contingencies (Notes 6 and 10) Total $ 1,674,770 $ 1,541,6 30 w .u_t empimiry N wo to Gin < JabrcJ l inuns i.il 9.ircments l 27 i
I I. '- . s Deinurva ihrr 4r bght Comptny
. CONSOUDATED STATBHSGS OF CAPITA 1RAllON (IMbrun 1hiu ,.nis)
Asof Decemfvr il 1985 1984 Costs ON SrOcxiiOi otns' - Common stock, par ndue $3.375 per share l EQUUY authon:cd 35.000.000 shares. outstanding 30,481,925 shares 5 102.876 5 102.876 Additional paid-in capital 235,798 235,473 Retained camings 223.137 201.301 Total Common Stockholders' Equity 561.811 43% 539.650 43% l Ctatuurivt Pari tant n Par value $25 per share. 3.000.000 shares authonced, none outstanding SrOcw Par value $100 per shair.1.800.000 shares authonced Without Niandatory Redemption: , Series Shares Issued ) 370%-456% 2401100 241MO 241VO 5110 % 7 84 % 330.000 331100 33100 788%-846% 4801YO 48.000 481V0 Pnierred Stock without Nfandatory Redemption 1051100 8% 101000 8% With Niandatory Redemption: 91V% Series
- 30.416 and 192.000 shares 5,492 19.200 12.56% Series 0 and 300AM0 shares -
30AM0 5,992 49.200 Irss: Reacquired prefened shares held in treasury (at coso - 1364 5.992 0% 47.836 4% i ess: Amount to be redeemed withm one year 800 800 Prefennl Stock with N1andatory Redemption 5.192 47.036 LONc-Ttasi DriiT First Ntortpge and Collateral Trust Ibnds. Ntatunty Interest Rates Dec. I 1985 3%% - 10100 jun 1.1088 3% 25100 251Y0 1994-1497 4%%6W% 501100 50AY0 1998-2002 7%i1 % 158.100 158,100 2003-2007 66411% 121.250 121.250 2008-2011 9%%-12% 111,900 1 I l .400 466.250 476 250 Pollution Control Notes: Senes.197317% cticctive rate. due 1986-1908 7,700 7 800 Series. 1976 7.3% ellective rart , due 1942-2006 34,500 34 500 42,200 41KU Vanahic Rate Demand kries. duc 2014-2015 441100 11500 Other long-Tenn Debt 801100 - Term loan - 33000 Unamortred premium and discount, net 640 711 6381140 49'o 567.761 4 %, long :emi debt due within one year ( l50) (10.l00) Total Inng-Tenn Debt 637,940 U7 66I Total Capitaication $ 1,304.443 100% SI.240347 100% satempun par e twemtvr n 1+wio7 ve.mmpmpng Nur , t., und.Lunmn..no.breena ns 28
Deinurva Power & Ly,ht Com;uny Cossouaano SrArtsiexr> or CHANGE 5 IN COstMoN Siocxiiotot Rs' EQUIIY
&lbrs m Ilwusanda Additional hv the Three Years Ended Cominon Par thid-in Retained December 31.1985 Shares value Capital Eirning. Total BAiascE As Or JANUARY 1,1983 29.048.445 5 98.039 $215.397 $154.637 5468.073 Net income 85,063 85.063 Cish dividends declared Common stock ($168) (49.668) (49.668) l' referred stock (12.818) (12.818)
Issuance of common stock. Dividend Reinvestment and Common Share Ibrchase Plan 742.737 2.675 10.526 13.201 Common stotk expense ( 338) ( 338) BAIANCE AS Of Dt:CEst Br-R 31,1983 20.841.182 100.714 225.585 177.214 503.513 Net income 42.110 02.110 Cash dividends dedared Common stock (5183) (55,361) (55 361) Preferred stock (12.662) (12.662)
!*uance of common stock.
Dividend Reinvestment and Common Share Ibrchase Itin 640.743 2.16) 9.888 12.050 Gain on retirement of preferred stock 125 125 Common stock expense ( 125) ( 125) BALANCI: AS Of DtctsinrR 31,1984 30.481.925 102.876 235.473 201.301 iN 650 Net ino>me 96 638 96.638 Cash dividends dedared Common stock ($1945) (54.287) (59.287) Preferred stock (12.599) (12.549) Net loss on reurement of preferred stock 325 t 2.nin) ( 2.591) OAIANCE A5 Of-Di cr sintR 31,1985 30.481.925 $10187o $ 235.798 $22 3.137 $561811 sv .mm;unymg Nae., to cons unca i uuntui steancots 20
- Ddmarva Power 6r 12ght Company
' Nons to CossounAiro FINANCIAL STAmn:NTS
- 1. SIGNn:lCAN T FINANClu SI AH NH W AccouN nNG Poucn:s The consolidated financui statements indude the accounts of the company and its totally-held subsiduries. Delmarva Energy Company. Delmana industries Inc . and Delman a Capital Investments. Inc. and its subsidunes in conformity wah generally accepted accounting pnnciples the accounting pohcies reflect the economic efIccts of rate decisions issued by regulatory commissions h.ningjurisdiction over the company.
Certain reclassifications. not allecting income. luve been made to amounts reported in pnor years to conform to the presentations used in 1985. Rivtxt n Revenues are recorded at the time bilhngs are rendered to customers on a me.nhly cycle basis and include rate increases penmtred to be billed subject to refund pendmg final approvat At the end of each month, there is an amount of unbilled electne and pts service which has Iren rendered from the last meter reading to the month-end Et t t Cosis Fuel costs (electnc and gts) are deferred and charged to operations on the basis of fuel costs included in customer bilhngs under the company's tarills whkh are subject to periodic regulatory revi(w and approval Dr im unos aso Mmu s av i The annual prousion for depreciation is computed on the straight hne basis using wmpmte rates by cla3ses of deprecuble property. Provision for the costs of decommissioning of nuclear plant is made to the extent of the net cost of removal allowed for rate purposes (appnmmately 20% of plant cost). The relanonship of the annual provision for depreciation for hnancul accounung purposes to average deprecuble property was 3 0% for 1983 and 3 4% for 1984 and 1983 1he cost of maintenance and repairs induding renewals of minor items of property, is charged j to operanng expenws. A replacement of a unit of propeny 8 accounted for as an addinon to and a renrement from unlity plant 1he ongnal cost of the property renred is charged to accu-mutued deprecution together w nh the nei cost of removal For income tax purposes. the cost of removmg reared property is dedutred as an expense NtcliAl4It11
'T he company's share of nta. lear fuel costs relinng to iomtly-owned nudcar generanng stanons inharged to fuel expense on a unit ol production basis. u hk h indodes a factor for spent nudcar luci disposal costs purstunt to the Nudcar hre Pokcy Att of 1981 I he wmpany is collettmg future storage and dr-posal costs for spent fuel as authon:cd by the regulatory wmmissions m cath unsdicoon J and is paying sut h amounts qturterly to the Department of Energy.
30
Y~ y,w Qg - Notes to CONsoticarto FINANCIAL.STATENUNTS s M.
-Ixcom Taxr.s %
Deferred income taxes result from timing ditTerences in the iecognition of certain income and expenses for tax and financial accounting pbrposes. The principal items accounting for de-fenul income taxes an>: (1) tue of the Actcierated Cost Recovery System and other accelerated . depreciatio'n metheds for income tax purposes. (2) deferred fuel and gts production costs :
. deducted currently for income utx purposes, and (3) other uming dif ferences invohing the capitalization of certain taxes and overhead co3ts.
Investment tax credits utilized to reduce federal income taxes are defenni and generally amor-tired over the useful lives of the related utility plant. Additional tax credits in 1983,1984 and 1985 related to an Employee Stock Ownership lbn do not afTect net income and are recorded as liabilities until the contnbution is made to the Man. , AuowANcr ton Fusir Usw Duiusa Coxsnt cuoN Allowance for funds used during construction (AFUIXl is a non-cash item and is defined in . the regulatory system of accounts as the " net cost for the period of constmction of borrowed funds used for construction purposes and a reasonable rate on other funds so used
- AFUDC is segregated into two components: (1) the interest on debt component (" allowance for borrowed funds used during construction"), which is net of taxes and classified as a credit to interest charges, and (2) the common stock equity and preferred dividend component
(" allowance for other funds used during construction'), which is classified as an item of other income. AFUDC is considered a cost of unlity plant with a concurrent credit to income. It is excluded from taxable income for tax purposes. The rates used in detennining AFUDC, which includes semi-annual compoundmg, wen 9.2% in 1985,9.0% in 1984 and 7.8% in 1983.
- 2. TAXES ON INCOME Income tax expense for 1985,1984 and 1983 is as follows:
(tullars in husmia 1985 1984 1983 Operations: Federal: Current $32,557 $36,131 $16,557 Deferred 28,638 27,380 36.654 State: Current 6,320 6,560 4,345 Deferred 4,978 4,555 6,047 Investment tax credit adjustments, net 5,343 2,951 3,981 Other income: Current (29,788) 1,528 816 Deferred 13,846 - - Investment tax credit adjustments, net 12,608 - - Total $74.502 $79,105 $68,400 investment tax credits unh:cd to reduce federal income taxes payable amounted to
$24,992.000 in 1985. $6.890 000 in 1984 and $7,654.000 in 1981 The amounts for 1985.
1984 and 1983 mclude Employee Snx k Ownership lian credits of $535 000. $707AVO and
$360,000, respectively.
31
- Ikinurva ibwer6r 1.iglu Gupiny Not ts 10 Cossounano Fisasci At STAmn;xis
- 2. TAXES ON INCOME The followingis a reconciliation of the difference between income tax expense and the (ayntinuaD amount computed by multiplyingincome before tax by the federal statutory rate:
(ters m Thiusn!s) 1985 1984 1983 Amount Rate Amount Rate Amount Rate Statutory income tax expense $78,725 46 % $78,758 46% $70,594 46 % Increase (Decrease)in taxes n sulting from: Exclusion of AIUDC for income tax purposes (1,397) (1) (1.639) (1) (1,463) (1) Depreciation not nonnalced 5,026 3 2.490 1 ( 171) - ITC amortized to income (7,041) (4) (3039) (2) (3.673) (2) State income taxes. net of federal tax benefit 6.0 31 4 6.067 3 5.682 4 Amom:ation of credit arising from sale of contracts (3.313) (2) (2,100) (1) (3.221) (2) Other, net (3,529) (2) ( 442) - (62 - Income tax expense $74,502 44% $79.105 46% 68,400 45% The components of deferred income taxes relate to the following tax cliccts of nmmg diilerences between book and tax .ncome: tI 4 rsin 1 h us n hi 1985 1984 1983 Deprecianon $33,394 $ 18.887 519.251 Deferred energy costs 1,163 9 54 12.480 Capitah:cd overhead costs 1.4 32 1,508 1.648 Nuclear fuel disposal costs - - 5 675 Pollution control amortcation 3.629 3.687 3,548 ADR repair allowance 4.295 4.803 - Other. net 3,549 2.0 36 99 Total $47,462 531.935 542.701 1he company has not prouded deferred income taxes of approximardy 5123 nulhon on etunulative ummg dif ferences arising before the adopoon of full tax nonnahanon for ratemaking purposes by the regulatory authorities. T he company is currently collecung the unnormalced taxes in its Delaware and resale elcune rate junsdictions, and m the gts jurischct on on a levelced basis. over the ble of the related plant fauhties For the o.her iunsdiuions, it is anucipated that the amounts will be recoscred for rate purposes u hen paid 1he company's federal income tax retums have been examined for the years 1975 through 1981 During 1985 the company reached a snpulated Tax Court sett!cment wah the govemment regtrding the taxation of the proceeds from the sale of contracts for a nudcar steam supply system (Summitt Pursuant to the decision. the net pmceeds are taxable at a rate that approximates a capital guns tax rate, w hich resulted m a federal and state tax habihty and interest of approumately $351 milhon. pnntipally paid in prior years. As of December 31. 1981 approximately 515.4 milhon of net federal and state taxes and interest .uc sefundable to the company resulting from the reversal of the preuous tax treatment apphed to :he sale of the contracts As more fully discuwd in Note 7. the net proceeds u hith were dassified as a deferred credit on the balance sheet, are bemgamonced 1 he Tax Court dea 3 ion and resulong adjustment to the deferred credit did not have a matenal ef feu on the company's knanaal posinon or results of operations 32
Delnurva fher & Udit Com;uny ' Notts To CONsounArto FINANCIAL STAI LMLNTS (Dolbrs in Thouunds)
- 3. Tms Oriita TilAN 1985 1984 1983 INCOME Debware utihty $12,168 513,732 512,341 Propeny 6,784 6.652 6,483 Other gross receipts 5,799 4,995 4,149 Payroll, franchise and other 6,003 5.773 4,8tY Total $30.754 531,152 527,773
- 4. PENSloN PLAN AND The company has a trusteed noncontributog pension pbn covenng all regubr employees.
Post-RLTIREMLNT Pension contnbutions for 1985,1984 and 1983 were $3.284,000, 52,354.000 and 54,400.00, BLNu iTs respectively. The conmbutions provide for nomul cost and amorti:ation of prior scivice costs over periods of five to twenty-five years. The xtuanal present value of accumulated pbn benefits, detennined as ofJanuary 1,1985, was 594,410,000 for vested benefits and 515.638.000 for accrued nonvested benefits. The market value of net assets, at that date, availabic for plan benefits were 5201,398.000. The actuanal present value of accumulated pbn benefits, detenumed as ofJanuary 1,1984 was 580.31L000 for vested benefits and 513.816.000 for accmed nonvested benefits. The market value of net assets, at that date, avatbble for pbn benefits were 5191.062.000. The assumed rate of return used in determining the actuanal pn sent value of actumubted pbn benefits was 80% for 1985 and 1984. The company provides certain health care and hfe insurance benefits for retired empk>yees. Substantially all of the company's employees may become chgible for these benefits if they reach normal retirement age while still working for the company. The company recognees the cost of providmg those benefits by expensing the insurance cbims as they are paid Thew costs totalled 52.094.000,51.640.000 and $2,075NO for 1985,1984 and 1983, respectively.
- 5. CAPITALIZATION Rt taiNi n EARNINGS The curn nt first mcrtpge bond indenture restrict 3 the amount of consolidated tvtained caming available for cash dividend payrnents on common stixk to 535.000.000 plus accumubtions afterJune 30,1978, which avatbble amount at December 31,1985 was approximately 5143,810,000.
Pat ti uni n Sun The annual preferred dividend requirements on all outstanding preferred stock at December 31.1985 are 57,7611W If preferred dividends are in arrears the company may not declare common stock dividends or acquire its common sto& Wnnous MANnATORY Ri onwnos These series may be redeemed at the option of the company at any time,in w hole or in part, at the various redemption prices fixed for each series (ranging from 5103 to $106 at December 31,1985). 33 J
y -__
' Delmaru lher & bght Guruny Notts To Cossounaito FmANGAL. STATtNH.NT S Wu n hhsuuon Rm smoos (1) The company redeemed 15F00 shares of the 9% senes m December 1985 at $100 per share. Eight thousand of the 15,900 sharts were trquired to ir redeemed by the sinking fund and the remaining 7900 shares were irdeemed under an option of the sinking fund. Through a tender otter for the 4% senes the company purchased. at 5103 per share,99.834 stures m December 1985 and 3.150 shares in January 1986 (2) The 200.000 shares of the 12.56% series were calkd and purchased by the com;uny at $108 38 in December 19810) Undenenain condaions the 9% senes nuy al3o be redeemed at the option of the company. (4) htandatory sinking fund redemptions are $800 000 per year dunng the next five years As of Detrmber 31.1985, all shares previously held in the Treasury were retired LowTt ni Dt a r (1) Sinking ftmd pnwisions wnh respect to substantully all issues of the First Mortpge and j Collateral Tmst Ikinds require that there be deposaed anntully with the Tmstee cash eqtul to one percent (1%) of the greatest aggregue pnncipal amount at any one time outstandmg There slull be credaed aptinst such cash requirements (a) an amount not exceedmg sixty percent (60%) of the bondable value of propeny addnions which the company then cleos to nuke the basis of thm cred t, and (b) the aggregue principal amount of bonds which might then be made the basis of the authentication and dehvery of bonds and whwh the company then ek cts to make the basis of this creda. For the years 1983-1985, the company deacd to cemfy propeny addnions to sardfy its sinking fund requirements equal to 1% of each series as penmtred by the indenture. (2) Subsuntially all utihty plant of the company now or hereafter owned is subject to the lien of the related hiongage and Deed of Tnot (3) Purstunt to a lunk kun agreement the company has a $33 000.000 revolvmg credit commitment through November 1.1989, convemble mto a tenn loan due November 1.1992. The hun agreement requires a commitment fee of S% on any unused ponion of the revohang cretht commitment and tenn kuns may be prepaid at any time without penalty and would bear interest at 100% of the prime rate. (4) on September 26.1985, the company issued. through the Delaware Economic Development Authonty. $33.500f00 of Vanable Rate Denund Exempt Fauhties Revenue Ibnds-Senes 1985 (Vanable R.uc Demand Senes 1985); due September 1. 2015 The proceeds wen prinurily ttet to refinance $33000000 of tax-exempt revenue notes. This senes was collaterahred wnh $37000.000 Fm.t Mortpge Bonds due September I 2015, w hich secure repayment of principal and accrued interest T he mterest rates on the Variable Rate Demand Senes 1985, by election of the company, are subject to change dady weekly, or under speufied conditions anntully. on the htm of prevading rates The Vanab!c R ne Dimand Senes 1985 and the $15,500.000 Vanable Rate Demand Gas Facihties Revenue Ikinds-Senes 1984 luve put options for the bondholders whereby the bonds can be presented kir payment at speafied nmes The bonds can be sold by the remarkenng agent The com;uny has sutlicient long-tenn financmg arrangements avai!abic to redeem any bonds not renurketed. In recognition of the king-tenn financing capabihty, both the 1985 and 198heries of these lunds have been classified as long-term debt (5) Dunng 1981 a subsidary of Dehnarva Capaal Investments. Inc. entered into a hun agreement to bonuw up to 525 000 000 at a r;.te of 10k T he loan matures on February 19.1989 and may be prepaid at anyume. in some instantes subject to a penalty. At December 31.1985. $25000000 was outsundmg under this agreement (61 Dunng December 1985 the company temporanly borrowed $55 000W0 from a bank in order to redeem 544.711000 of preferred stot k (indudmg acquisition costs) and retire 510 mdhon of 3%% Senes First Monpge and Collateral Tmst ik,nds. OnJantury 111986 34
=
Delmarva ther 61 Ught Cannmy NoTts To CONsounAno FWANCIA1.STAnstLNrs Losc.-Ti nst De n t (cos uset o) the company issued $60,000,000 of 10%% Series First Monpge and Collateral Tmst Ik>nds, f ducJanuzay 1,2016. The proceeds fmm the bond isstance were used to repay the
$5HW000 bank kun in January 1986, with the balance being applied to general corporate cash requirements. As of December 31,1985, the lxmk loan was classified as long-term debt in recognition of refinancing the kun tim > ugh issuance of the bond 3 (7) Marurities oflong-term debt during the next five yean are 1986-5150,000; 1987-5150,000,1988-525350,000; 1989-525,150,000; 1990-5150,000. (8) The annual interest requirements on all twrowing classified as long-term debt at December 31,1985 are 555355,000.
UsAstonrizon Dr nr DscouNT, Pmntsi Aso Exn w These amounts are amoni:cd on a straight-line basis over the hves of the long-tenn debt issues to which they penain.
- 6. Cosist:Tsiixrs The company estimates that approximately $125,689.000, excluding AIUDC, will be expended for consnuttion purge in 1986. The company also has commitments under longnenn fuelsupply contracts Under SFAS No. 71, regulated industries were required to adopt the Icase accounting requirements of SFAS No.13 for all capital leases commencing on or afterJanuary 1,1983.
The company's capital leases commencing afterjanuary 1,1983, were not material and, therefore, were not recorded. All capital leases, includingleases commencing prior to January 1983, were treated as operating leases. However, if capital leases had been recorded on the balance sheet, related assets and liabilities would have increased by 58,609.000 and $13,324.000 at December 31,1985 and 1984, respectively. Minimum commitments as of December 31,1985 under all non-cancellable base agreements are as follows: 1986 $ 4,202.000 1987 3,203.000 1988 2,503.000 1989 1.003.000 1990 507.000 Remainder 3.642,000 Total 515.060,000 The total minimum rental commitments are apphcable to the following types of property: railroad coal cars, $1,387,000; distnbution facihties, $4,792.000; other, principally transportation and computer equipment, $8,881.000. Rentals charged to operating expenses aggregated 56.634,000 in 1985, $6.213.000 in 1984 and $6.677,000 in 1983. Nuclear fuel requirements for Peach Bottom GeneratingStation are being provided by the operating company through a fuel purchase contract. The company is responsible for payment of its share of fuel consumed and interest expense. Nuclear fuel expense totalled $4,520,000 in 1985,56,072,000 in 1984 and 54.283.000 in 1983. 35
Ddnurva 1%er @ISt Comruny Norns To CossounArto FWANCIAt STATchnNTs
- 6. CONthnIhltN t s The company has an agreement providing for the availabihty of fuel storage and pipehne konnntas facihties through 1999. Under the agreement, the company mttst make specified minimum payments momhly, which totahl 51.682,000 in 1985, $1,9121V0 in 1984 and
$2.101,000 in 1983. The amount of required payments is 52.060.000 in 1986, $1.749,000 in 1987,51.206AY0 in 1988 $1.0561100 in 1989, $812.000 in 1990 and $11.435.000 trtween 1991 and 1999.
- 7. SAui or CONTRACTS The proceeds received by the company for the sale in 1975 of the contracts for a nuc! car IoR Necitan PLANT steam supply system (Summid and related fuel, net of related plant expenditures w hich are considered of no future value to the company, are classified as a deferred credit in the balance sheet The credit has been reduced by applicable income taxes and related interest (See Note 21 The company has obtained regulatory approval for thu accounting treatment As a result of ratemaking orders commencing in 1982, the compmy is amoni:ing the net credit in all retail jurisdictions over approximately five years and is recording the credit for linancial reponing purposes as a reduction in depreciation expense. Amounts amoni:cd in 1985,1984 and 1983 were $7.2021100, $4,7621100 and $7.003.000. respectively, which includes, in 1985 and 1983 amonization of $2,5001100 and $ 3.818.000 for the resalejumdiction.
- 8. Suont-TERM Dtist ann As of December 31,1985, the mmpany had unused bank lines of credit of 544,5001100 and is Lists or Cui nir generally required to pay commitment fees for these hnes such hnes of credit are periodically reviewed by the company, at which nme they may be renewed or cancelled.
9.Joisa tv-OwNtn PrasT Information with respect to the company's share of jointly-owned plant. including nuclear fuel l for the Salem plant, as of December 31,1985 is as follows: anars in Thusado Constmction Ownership Plant in Accumulated Workin Share service Depreciation Progress Nuclear: Peach Ik>ttom 7.5t% $ 90,530 $26,384 $ 2,156 Salem 7.41 % 190.486 52.820 11.381 Coal-Fined: Keystone 3 70 % 10.701 4,158 1,199 Conemaugh 3.72% 13.699 5.430 165 Total $305,416 $88.792 514.901 The company provides its own financing for its share n o mprovements to joindy-owned plant in addition, the company is a joint guarantor of bans (5760.000 prop >nionate sharehuivanced for operation of the coal mines that supply the Keystone plant. The company's share of operating and maintenance expenses of the jointly-owned plint is included in the correspond-ing expenses in the statements of income. , 36 f m
Delmarva ioner(t3 la@t Comptny Non.s to CON 50UDAn:D FisAxc At.SrAsimitNis
- 10. CONUNGtWCIEs a) FERC Rui Casc In December 1985, the company reached a tentative settlement with all resale customers to refund $3.5 mdhon, which would luve reduced resale rates for the peritxl covenngJuly 1985 through December 1986. Accordingly, a revenue rescive of 51.2 million was estahltshed as of December 31,1985. On February 6.1986, the company was informed by some of the resale customers that the tentative settlement was not acceptable. ~1 he company is awaiting fenher action by the resale customers. In the opinion of managment, the ulanute disposition of this matter wdl not luve a nuterial clicct on the company's financial position or results of operations.
b) Ptert t h w s on Furt:kt' Usr In 1982,the company delayed the constmction schedule for the coal-fired Nanticoke #1 (formerly Vienna =0) generating unit. The plant is now scheduled to begin commercial operation in the mid 1990's. The decision is based on the company's current kud forecist, which indicates a lower rate of growth in the coming decade tlun lud prenously been projected The net investment of $14.424.000 is classified as plant held for future use and is anticipated to be recoverable through the normal raremaking pnxess. c) Nt cu AR INsURANc! The company's insurance coverages apphcable to its nuclear power units are as folknvs: (Mdhons of(Mlars) Ataximum h!aximum Retmspective Type and Source of Coverage Coverage Assessment for a Sinde Incident Public laability: Pnvate S160 None Price Anderson Assessmentm 480 $1.5m
$640m Property Damage:""
Peach Bottomm $585 - Salem * $585 52.8 All unitst7' $525 $1.3 Replacement Power Nuclear Electric Insurance Limited (NEIL)* $3 0 52 2 WRetros[ntwe ptrirnum pn yram o-der the Pnce-Arxicrson lubday pnmssons of dw Atomic Ence At of 19M as amended Subpt to retrospetuve assessment wuh trspett to loss from an madem at any twensed nuticar reAtor m the Unned Sures. U himum aesment wotdd he 5 kW OtU m the esent of more dun one uudent m any year. 4 i Lama of lubdity under the ih:c-Arxicrson Act for cath nta kur inadent * "T he company is a vil msurer, to the extent of its owncrship interest}r any pniperty loss in en ess of dic sured amounts Pfbr pnp rty durug to the Peath 110ttom nudcar plant faabnes. the company and as co4muers hwe pnv.ue manance up to $ 5m mdhon
*Ntalear Muttul Lamnett a utday-owned munul insurarne compmy wuh w hah the compuw and the %lem nudcar faahry cow ncrs are memben Ntnimum retrospetuve amnent is ten nmes anntul premium umh rc<pect to loss at any nuclear gneranng stanon insured by the mutual insurance compmy. 47 'All umts are insurrd by Nudcar I kitne insurante Lanured (NEII.In for losses in excess of 5 W mdlion Maximum retnwpemvc aussment is wven and a half nmes the annual premiuna ~ Unhty imned munul msuranic owpeny wuh w hkh the mmpany is a member wha h pnwafes onerag agung extra expense mcuned m olwaunmg repLwrment pmtr dunng prolongd acadenul out4s of nudear pm er un ts Maximum werkly mdemnay kir 52 wreks whuh unnmences after the first 26 w ceks of an ouug Also prta kles $1.W OtV weckly for an addinonal het ks htmmum retrospettive a,sessment is hve nmes anntui premiums
, d) O1nta The company is involved in certain other legal and administrative pmceedings before various courts and governmental agncies conceming rates, erwironmental issues. fuel contracts and other matters. In the opinion of nunagement. the ultimate disposition of these proceedings will l not have a matenal ciTect on the company's financial position or results of operations. 37
g-Delmarva Power 65 t@i Company Nort.s To Cossounarm FINANCIAL STARMENTS
- 11, Src.urs r INr onvai nos segment information with respect to electne, gts and steam operations was as follows:
gulars m Eusands) 1985 1984 1983 Operating Revenues: Electnc $ 605,581 $ 584.163 $ 542.252 Gas 95,256 101,578 94,358 Steam 21,997 10.852 13.189 Total 5 722,834 5 702.593 $ 649.799 Operatmgincome: Electric $ 127,148 $ 125.200 $ 122.993 Gas 6,604 6.616 4.928 Steain 1,763 1.393 1.217 Total 5 135,515 $ 133.209 $ 129.138 Utility Plant:0*D Electnc $1,284 062 $1.257,728 $ 1,242,145 Gas 64,967 59.097 51.033 Steam 4,142 4,349 4,924 1.353.171 1.321.174 1,298.102 Otheridentifiable Assets: Electric 90,348 157.437 100.347 Gas 29,985 42.685 12.301 Steam 413 440 471 129,746 200.562 119.179 Assets Not Alknited 191,853 09.894 115.982 Total Assets $1,674,770 $ 1,591.630 $1.533.203 Depreciation Expense:'" Electric $ 56,577 5 54.255 5 52.530 Gas 3,699 3.310 3,173 Steam 907 800 846 Total $ 61,183 $ 58.464 $ 56.599 Construction Expenditures:< " Electric $ 86.073 $ 69.233 $ 70.927 Gas 8,382 10.100 5,070
$ team 468 146 59 Total $ 94,923 $ 79.488 $ 76.050 01ndudes plant heki for ftaure use. awrutnon werk m pnpess and allotanon of common cohty peopcmt d Stated net of the rtspante .kmmulated pnnwous for depreanion
' Utnludes amoncanm of crnht ansing from wie of mntraos
" Exdudes ailowance for funds uel donng wnstnanon.
- Operatingincome by segments is reported in accordance with generally accepted accounting and raremaking principles within the unlity indusuy and, accordingly. mcludes each segment's proportionate share of taxes on mcome and p neral corporate expenses.
38 E
Deinurva Power 65 usht comruny
' No1Es To CONSOUDATED FINANCIAL STATEhtLNTS 12, SUPPLE % TEN TARY The following supplementary financialInfom1ation, as prescnbed by the Financial Accounting INI onstATION To Standan]s Board in statement No. 33, as amended, is supplied for the purpose of providing Disci osE TlIE ErrEc1s information about the etTects of changing prices on the company's operations The infonna-or CHANGING tion should be viewed as an estimate of the approximate efTect ofinflation rather than as a PaicEs (UNAUDITED) precise measure.
Current cost amounts reflect the change in specific prices of plant from the dare the plant was acquired to the present The current cost of utihty plant represents the estimated cost of replxing existing plant assets and was determined by indexing existing plant by the llandy-Whitman Index of Public Utility Construction Costs. Constant dollar amounts n present histoncal costs stated in tenns of dollars of equal purchasmg power, as measured by the l Consumer Pnce Index for All Urban Consumers, and difTer from current cost amounts to die extent that prices in general have increased more or less rapidly than specific prices. Supplementary Financial Data Adjusted for the EiTects of Changing Pnces. (Dollars in Ihmsmds) For the Year ended Decemirr 31. llistoncal Cost Current Cost (Average 1085 Dollars) Operating Revenues $722,834 $722,834 Operating Expenses: Operation and Maintenance 424,748 424,748 Depreciation 61,183 116,142 Amortization-Summit (7,202) (7.202) Taxes 108,590 108,590 Other income-Net (8,810) (8,810) Interest Charges 47.687 47,687 Net inccme(D $ 9ti638 5 41,679 Eaming per common share (after preferred dividend requirementsF' $ 2.76 5 0.95 increase in cunent cost of utility plant held during the yearo) $ 26,308 Adjustment to net recoverable cost 61,394 ElTect of increase in general price level (79,549) Excess ofincrease in current costs after adjustment to net recoverable cost over increase in general price level 8.153 Purchasing pu,ver pin on net amounts owed 21,441 Net 5 29,594
, o induang the adjustment to nt1 recoverable cin. the income on a current as basis for 1985 would lure been 5101073
'l bdudng adjustment to net remverable uN.
*At December 31.19H 5. the current cts of net unbry plant was 52.265170 w hile he,toncal cts was $1351171 39
Deinurva l\mcr & UghtComtuny Norns To Cossounann FmANciAt.Sramitwrs 12.Surru:MExrARY Supplementary Five-Year Comparison of Selected Financial Data INFORMATION Adjusted for the ElTects of Gunging Prices (cononued) On 1housands Dof Aseray 19t6 Dollars) for the Years ended December 31 1985 1984 1983 1982 1981 Operating revenues Ihstoncalcet dollars $722,834 $702,593 $649,799 $636,666 So08,504 Cons: ant dollars 722,834 727,428 701,626 709,560 719.750 Net income Current costs 41,679 49,331 34,128 25.065 17,774 Eamings per common share Curn nt costs .95 1.20 .72 .41 .12 Net assets at year endm Ilistoncal cost dolbrs 666,811 644,650 608.513 573 073 542,080 Current costs 655,619 656.467 646.006 631,478 620,455 Excess ofincrease in current costs over increase in general pricelevelm 8,153 (10,515) 5.848 4,033 (71,210) l Purchasing power giin on net amounts owed 21,441 25,914 24,489 25,276 59.185 Cash dividends decbred per common share llistorical cost do:brs $ 1.945 $ 1.83 $ 1 68 5 1.595 $ 1.535 Constant dollars 1.945 1 80 1.81 1 78 1.82 Market price per common share at year-end llistorical cest dollar s 27.88 22 00 19.25 16.38 12.63 Constant dollars 27.41 22.40 20.44 18 05 14.46 Average Consumer Price Index (1967 = 100) 322.2 311.2 298.4 289.I 272.4
*Except per slwr amounts
*At net rectwerable cost t After ad;ustment to net reunerable awt.
As required by Statement No. 33, the current prtwisions for depreciation on the current cost amounts of unhty plant were determined by applying the company's deprecution rates to the indexed plant amounts, even though depreciation is hmited to recovery of histoncal costs as further discuswd below. Other operating expenses were either not required to be adjusted or were not adjusted due to rate-making considerations The company, by holding monetary assets such as cash and receivables, kwes purchasing power during periods of inflation because these items can purchase less at a future date. Conversely, by holding monetary habihties, primanly long-term debt, payments in the fu-ture will be made with dollars havmgless purchasing power. For die years 1981-1985, the company's monetary habihties exceeded monetary assets which re3ulted in a purchasing power gpin on net amounts owed during the year. The rate regulatory process limits the company to the recovery of the historical cost of pbnt. Therefore, the excess of the cost of plant stated in terms of current cost over the historical cost of plant is not presently recoverable in rates as depreciation and is reflected as a reduction to net recmcrable cost. Rtwd on past practices, however, the company beheves it will be allowed to cam on the increased wst of its facihties when repbccment acttully occurs. 40
. Urinurva1%rr6rt$tCompmy
- Norns To CossounATrn FWANCML STAIENIENTS IE Sumanwraay . Since the pin from the dechne in purchasing power is attnbutable to long-tenn debt which
' INroRNtATION has been used to finance utility plant, the reduction of utility plant to net recoverable amount Xomanueu) - is netted apinst the purchasing power pin on net amounts owed dunng the year.
13 QUARTERLY FINANCIAt. The quar edy data presented below reflect all adjustments necesary in the opinion of the INI ORNIATION company for a faur presentation of the interim results. Quartedy lata normally vary seasonably
"(UNAUDn to) with temperature variations, differences between summe, 4 .d a ,nter rates. the timing of rate orders and the scheduled downtime and maintenance of electric generating units.
Eaming; Eamings Apphcable Average .per Quarter Operating Operating Net to Common Shares Average Ended Revenue income lacome Stock Outstandmg Slure ubibrs in lhtuundd tin 11munda 1985 March 31 $198,788 5 36,946 $27,114 523,964 30,482 $0.79 June 30 161,093 29,416 20,582 17,433 30,482 0.57 - September 30 1%,352 43,4 % 34,235 31,085 30,482 1.02 December 31 166,601 25.657 14,707 11,557 30,482 0.38 5722,834 $135,515 $96,638 584,039 30,482 $2.76
~
1984 Matth 31 S190,185 5 36,823 $25.996 522.809 30.003 $0.76 Junc 30 164,181 29.957 19,130 15.954 30,172- 0.53 September 30 188 901 42,862 33 092 29,937 30,337 - 0 99 j December 31 159.326 23,567 13.892 '10.748 30,482 0.35-
$702,593 5133,200 592,110 $79,448 30,248 $2.63 in the fourth quarter of 1984, adjustments for a voluntary Delaware revenue refund and other
. regulatory items were recorded. The etTect of these adjustments reduced founh quaner net income by approximately 54.200.000 (14e per share).
In the second quarter of 1985, adju3tments were recorded for the additional Delaware electne - retail revenue refund for 1984 and additional amortization of the credit arising from the sale of . contracts, which resuhed from m out-of-court tax settlement. The effect of these adjustments - reduced second quarter ner in we by approximately 51.100.000 (4e per share). l In the fourth quarter of 1985, the company wrote-of f its share of advances under urari nn supply contracts that were terminated and also accrued for a resale revenue refund. L clicct i-of these adjustments reduced fourth quarter net income by approximately $2 063,000 (7e per share). t l i 41
, ~ , -- . . - . - . , - - . - , . - - - . - _ , . - - - . . . . . . . . . . -
e-l IMm.uva timer & tWu company f Cossounann SrArisTics 19 yean d acww 1985 1984 1083 1982 Eu cTurc Revisets agat Residential $ 212,254 5205,910 $193.021 $183.258 Commercial 168.957 156.507 140.800 137.434 Industrial 135,141 128.833 126,703 127.441 Other utilities. ctc. 79,399 79.235 68,991 73,469 htiscellaneous revenues 9,830 13.678 12,728 13,168 Total electric revenues $ 605,581 5584.163 $542,252 5534,770 Euicinic SAu:s Residential 2,256,922 2.249,270 2.136.265 2.026.398 (11W kikwatt hours): Commercial 2,165,685 2.073.457 1,844,324 1,729.863 Industrial 2,606,466 2.569,572 2.600,492 2,255.673 Other utilities, etc. 1,501,447 1,415,434 1.297.395 1.237,508 Total electric sales 8,530.520 8,308.233 7.878,476 7.249.442 Eu:cTaic CusTOMt.RS 283,911 275,175 267,357 260.371 (eg gggy Residential Commercial 33.189 31/i48 30,525 29.966 Industrial 893 929 949 741 , Other utilities, etc. 492 502 434 434 Total electric customers 318,485 308,154 299,265 291.512 gas Rtvtsets ehww.,): Residential 5 39,224 5 40,933 $ 36.694 5 36.505 Commercial 17,901 18.663 16.527 15,792 Industnal 19,762 22,940 23.232 20,112 Interrupable 17,419 18.008 17.026 11,733 Other utihties, etc. 130 160 115 53 Nliscellaneous revenues 820 784 764 552 Total pts revenues $ 95,256 $101,578 $ H.358 $ 84,747 gas SAuiS Residential 5,622 6.213 5.640 6,062 (nulhon mNc kro: Commercial 2,742 2,971 2c77 2.768 Industrial 3,579 4.245 4.378 4,108 Intenuptible 3,734 3.769 3.723 2b56 Other utihties, etc. 31 41 31 10 Total ps sales 15,708 17.239 16.444 15bM Gas CusTourns (end d p nodt Residential 70,804 70.183 69 608 69.002 Commercial 4,417 4.233 4,075 4.057 Industrial 160 165 160 166 Interruptible 15 19 19 18 Other unlities. etc. I 1 1 1 Total pts customers 75.397 74b01 73.803 73.334 Ru lNERY $tRVICE Electricity delivered 335.260 298.203 3091M3 322AM ( HW kikwatt-hours) Steam delivered 6,238,829 6.683.335 6.965.904 7,778.929 t 11W pounda 42
~
l Ascrag Annual Compund % 1981 1980 1979 1978 1977 1976 1975 KucolGnuth $164,919 $144.637 $115.381 $105,237 5 97.691 $ 80,416 $ 77,069 10.66 123,099 112,166 91,798 82,796 74,641 60,111 58,169 11.25 129,601 116,401 98.023 83,972 76,801 64,458 64,141 7.74 73,602 63.698 53.782 40,840 38,974 34.896 35.606 8.35 12,898 7,025 4.682 5.261 3,461 2,398 4.370 8.44 $504,119 $443,927 $363.666 $318.106 $291,568 $242,279 $239.355 9.73 1,996,647 2.046,546 1,968,452 1,979.624 1,924.723 1,787,663 1.672,180 3M 1,660,147 1,648,776 1,598,299 1,568,600 1,495.796 1.412,259 1,359.673 4.77 2,454.685 2,429,842 2,624,438 2,418.527 2.277.630 2.260 661 2.142,151 1.98 1,283,845 1,335,216 1.300.611 1,281,498 1.207.941 1,194,155 1.218,785 2.11 7.395,324 7,460,380 7,491,800 7,248.249 6.906.090 6.659,738 6.392.789 2.93 255,646 246,887 242.745 237,925 233,106 230,579 221,780 2.50 29,450 28,162 27,998 28,421 29,648 28.345 27,345 1.96 788 821 874 858 921 1,002 923 ( .33) 434 440 478 480 561 550 545 (1.02) 286,318 276,310 272 095 267.684 264.236 260,476 250,593 2.43 $ 34.123 $ 26,525 5 25.719 $ 28,370 $ 21.829 $ 18.826 $ 15.365 983 14,344 10.342 8,954 10,I54 7,133 6.062 4,670 14.37 22,259 12,4 M 9,884 10,191 6,950 5,984 4,343 16.36 11,711 9,293 4,440 716 169 1,301 1,211 30.55 61 46 55 93 49 44 33 14.70 572 430 270 116 103 31 45 33 68 5 83,070 $ 59,043 $ 49.322 $ 49,640 $ 36.233 $ 32.248 $ 25,673 14 01 6,193 6,321 6,423 6,941 6.751 6,956 6.540 (1.50) 2,7M 2,683 2,415 2.593 2,439 2,586 2,429 1.22 4,809 3,937 3.388 3,290 2.811 3.264 2.849 2.31 2.802 2,738 1,720 319 81 953 1.073 13 28 12 14 16 24 17 20 18 5.59 16,520 15,693 13,962 13.172 12 099 13,779 12 900 1.98 68,608 67,784 66,631 66,364 66,231 67,754 68,160 0 38 3 967 3,846 3,712 3.773 3.738 4,154 4,180 0.53 167 155 131 163 163 198 198 (2.11 ) 16 16 16 21 21 21 21 (3.31) 1 1 1 1 1 1 1 - 72.759- 71,802 70,491 70,322 70,154 72,128 72.569 0.38 343.063 328,420 262,159 270.006 289.049 318.389 207.282 1.21 7,673.420 7,570,944 6,378,705 6.016.095 4.888,366 5,301.421 5.517,000 1.24
' Delnvva Ibwer & L@t Company Ot riCi ns, Diat cTOns ANo SurutnOmtn INrORMAUON NLVit % M. Cl 'R I ts iiIARt.oI t L 111 L ANNON 1 RUs(( t s Chauman of the lloard Din'tfor of 11 P Cannon & 9 n.Inc Iirsi Mortgage and Couateral Trust and Chief becunve Olhccr (warehousmg) Bndgrulle. Delaware Bonds-thenucal Bank.
Ilow ARD 1. ( ( %Ros L OSCAR L CARI Y Exetutive Vhe President he,: dent and Dirtuor of Pollunen Control Revenue Ibnds-- r nANs A. ( oog Lirmar Corporanon igeneral Mdlon Bank (DF) N A Seniot Yke President ' cal est.ne and home builders) Wdmmgron. Ddaware nahshury MarAmd Bank of DdawJrc, it. RAY LANDON senior Vue hendent ' RANK ^- ( WK Wdmmgton, Delaw are Semor Yne Prcydcnt of Wdmmgton Trust Company. Hasi AND u. wAkt i n t D. lR- the Company Semor Vk e Presdent """A'""' UCId" #' C I rank A Cook has rctued as semor s he RoGt R D. CAMPitt 1.L president and a dnet for of the company. Irving Trust Company Vice h cudi nt 1 rea surer Mr. Cook joined the company it,197 2 as New York. New York and Chief I nunual Oth<cr manager of deura pastudion and hdd meral management ;wnions dunng 8 RANM I H ^'l NI5 ^ND Rf Gh1 RAks wAYNi A. noNs Vhe Prcudent
"' } #d""I 'C'"'c He w as deued to I%dNO
% dmmgton T rust Company.
the hoard of dire tors m 1982 financt.d 5crYhes Divbion DONALD fu CAlN " " Rodney Squarc North Dn Non Yke President
"""#' l ""'"""'C "'M ^U" Wdmmeton Ddaware 19890 Northern Div mon and Occupanonal Ileakh.
Petnsliemicah Departmrnt of Cenunon Motk-DONAl D T. ( ONNI t LY i 1 du Pont de Nemours & Wdnungton Trust Company. Sa rctary Lompany U diversihed thenuta] I uundM scruces DiuNon RKilARD H IAANs Rdng Num Nonh energy and Wahy produus Yke Presidenr. Corporate %,dmmgton. Delaware 198ud. company Mdmington Delmare Commumcanons M8Ii E DTw hiNs nufauuren Hanover I st Company pal'L s. ct RRt t u N Dircuor. President and Chid beamvc Srotk Trans!cr Department Vice Presidert. Regulatory EO I50X24935 ner of DeLiwm Broadcasting Prat t kes Churs h Street s tanon CompJny Jnd PrcNdent and Gcnt raj ( HARlis M AR( IDMlVN ManJK of Nianon way g4 New York New York 1(1249 Cninptmuer broalast mp Wilnungton. Dd, siOC K s) Mik)l. I RANK j. PLRRY,jk. I \ML s O. PIPPIN. jR. Common Stot k. Dl.W-lbled on Vhe firsidct11 GJs Dn bion President and Dire (tor of the Ccntresille the New York and pinladdph a mouAs s. sH Aw, jR. Nanonal Bank of Mary Lmd. Centreville. Stot k f uhanges Vhe President. Pnslutnon Maryland Rt Lt.taloR) touusssioNs D, w As Ni u usi s wIlitut 0 sius RAl' I cdcral Energy Regulatory Commission' Dnision Vke Preudem Dirator.mJ becutne \.ac hesrdent g3 gg c, 3g S anhern Da bion and a mcmivr of the becuin e wg gg (ommmee of L 1 du Pont de Nemours Ext ( t:rn l- couui r H L
& ( ompany L. diversihed s henucal Ddaw are Pubhc Scrut e Comnusson.
Neuus M C urns Ch urm m, I %0 S du Pont ll ghw ay. 7 cncrgy and speualty produus Owar L Carcy. W dham G nd Wdnungton. Ddaware Dos er. Ddaware 19901 Nmeral. Dr E Arthur Irabant; - DR.1. ARilit 'k i RAllANI M tr)Lind Publh Serthe Commb40n. liarland M Wakchdd Jr. Amerian Budd ng President of the t:nn ersity of Ddawarc. At DH ( OMus t u i g.A Dda m 2 31 f#r BMnmordrcet. Osoir L Carey, Chairma't- Ba!nmore Mar > land 21202. John R Cooper; James O hppm.Jr DA\ ID D. W^kt iIl L D Direuor and Prcudent of Morgan Bank Vngmu $ tare Corporate Comnuwien. NoulNAIING couvi e it i WhMWhneDdaa PO Bm IIW Dr L Arthur Trabant. Chairman. Citunnan of Morg.m Chr:stiana Rahmond. Vugmu D209 Neuus M Curtis. 5 ally V Haw kms (.orpu anon. %.dnungron. Ddaware.
' "" 3"^ " ^ DDR ' "
Court Ns4 hon Couvir ti i Dircuor of Cononcnul Amerhan Wdham G Simeral Ch.urman. Life Insurantc Cumpany. Ud *"" J I"" Cf Oscar L Carcy; Neuus M Curtis. Wdmmgron. Deliw nc ' HN Mnetrcct. PO Dm DI. W'Immgton. Ddaw are 198W Davkl D. Wakeheld ltARI AND M. % Ak! 1 ll l D, lR- Idephone < M2)-+29- WI I INM SIMINI COMMIT II F %emor Vice hesident of Daud D Wakchdd. ( hannun. the Company James O Pippm. Jr ; Neuus M Corns 44
ANNUAL hltETING The Annual hieeting will be held on April 29 at 11:00 a.m.,in the Clayton Hall, University of Delaware Newark, Delaware. ADDITIoNAt. RtronTs To supplement information in this Annual Report,a Financial and Statistical Review (1975-1985) and the Form 10-K are available upon request. Please write to Stockholder Relations, Delmarva Power,800 King Street, P.O. Box 231, Wilmington, Delaware 19899. t 1 l Aar Dinecix)= se Dew,N TtarsA Zsuutau4N. Pmmx,marHv:Jcm CAtitR III,(OVER ILLL$f t4Tk1N- Pruu4 P4:an Hn.aw l
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Financial. Highlights Contents
% f PSE&G Profile 2 Message to Shareholders frhousands of Dollars where applicable) 1985 1984 ( Ns)
Electric Sales - Megawatthours 32,320,508 31,597,401 2 7 A Company in Transition Gas Sales - Kilotherms 2,125,674 2,147,315 (1) 8 The Financial Picture Total Operating Revenues $ 4,409,054 $ 4,196,124 5 ff Review of Operations Total Operating Expenses $ 3,781,268 5 3,597,986 5 26 Financial Statement Earnings Available for Common Stock $ 484,550 $ - 429,808 Responsibility 13 27 Fmancial Statements Shares of Common Stock (Thousands) Average 122,344 108,913 12 3f Independent Accountants' Year-end 131,699 112,563 17 Opinion 34 Summary of Significant Earnings per Average Share of Common Stock $3.96 $3.95 Accounting Policies Dividends Paid per Share of Common Stock $2.81 $2.70 4 35 Notes to Financial Common Stockholders - Year-end 231,732 234,156 Statements (1) 43 Management's Discussion Coverage Ratios and Analysis of Fixed Charges 3.76 3.61 Fixed Charges and Preferred Dividends 2.91 2.76 esuI f r s Return on Average Common Equity 14.03 % 14.43 % 48 OperatingStatistics Book Val . $28.04 $27.17 3 48 Financial Statistics Year <nd Market Price ~ 31 % 26% 18 sf Directors Cross Additions to Utility Plant $ 1,220,089 $ 967,365 26 52 Officers Total Utility Plant at Original Cost $10,977,321 $ 9,870,429 11 53 Corporate Information About the Cover: Public Service Electric and Gas Company joins in celebrating the Centennial of the Statue of Liberty in 1986. The Company is proud to provide the electricity to light the torch that has been a beacon of hope and a sign of welcome for millions of Americans. And it is proud to have produced a 27-minute film honoring the many immigrants who passed through Ellis Island. Harold W. Sonn, PSEAC's chairman of the board, serves as chairman of the New Jersey State Campaign for the laberty Centennial, to raise funds for the restoration of the Sta:ue of Liberty and Ellis Island.
E. E' .= E k ? s-b p-M, = Imm E m. E m r W r r P E E m E
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F
(, - - - c To Our Shareholders t In 1985, Public Service Electric and Gas Company stepped boldly toward the threshold of the 21st century. During no other year in its rich history has the Company expressed such excitement for the future and, more important, such con-fidence in its strength to meet the chal-lenges and opportunities that the years ahead will bring. The 130ard of Directors, in July, author- ' ized the fonnation of a holding company, subject to the approval of the New Jersey i lloard of Public Utilities and, of course, PSE&G's stockholders. The action, which was strongly supported by management, charted the course PSE&G would travel in order to retain its finn financial footing in a changing utility environment. The essence of our strategy is, in a
, word, diversification. A newly fonned hold-ing company would diversify, to a limited extent,into non-utility businesses with the potential for enhancing financial strength.
At the same time, electric and gas service by PSE&G as a regulated subsidiary of the holding company would continue as the principal business of the system. In short, PSE&G would be the backbone of the holding company. The holding company, which would
; bear the name Public Service Enterprise Group Incorporated, would provide an appro-priate structure for diversification and for maintaining the Company's strength in the volatile and competitive utility environment.
In the 1960s, the utility industry was generally stable with manageable capital and energy costs needed to meet customers' demands for electricity and gas. In the 1970s, the industry was faced with energy shortages, a depressed economy, greater regulatory and tax pressures and uncertainty about the future. l
~
2 w_ t i
= ..__ _ _
- 7 Today, the financial community tends
"*' /
The i#g,come " to perceive the utility business as an in- # ! creasingly uncertain investment. However, # rrom 8 - / 7 conditions of the rest of the 1980s and, where H ' #~'f ; for that matter, of the 1990s and beyond must not be viewed with trepidation-if a h eM ' company is active, fk xible and adaptive. / - During the 1980s, PSE&G has con- < j centrated on completing the Hope Creek - E Generating Station, its last major con- [',*le'"ues 5 65 ' 3' '
/
struction project in this century. We will go,enues
""'" " us$ / -
continue focusing on Hope Creek until it is runds placed in service, which is expected to be gT,79 *"' cEns,0, / _ later this year. W WA / Once this maior milestone is reached, g48 PSE&G will be ready for the future, and the holding company will fit this need. Where
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Our service area is relatively mature, 1 A'
'g with only modest growth projected. PSE&G, like the utility industry, is confronted with ,/
4 ['#
.oe
,,,si i
E formidable, unregulated competition. For example, changes in federal regulation en- / ,g# ' f; say"y*,s , os able natural gas consumers, especially large D' -
.09 users, to buy the fuel privately and make od*"d'
["u'Inased - their own arrangements for pipeline de- [os,*s' s 39 ' uateoa's n'c,, .io livery.The business of a gas distribution , .ir X y a se utility, such as PSE&G, is changing. r Diversification would provide the 8*[u's*'nes,
'3 .i 2-Company with the opportunity for growth
{ in earnings without increased rates for electric and gas customers. We feel that the holding company structure offers the best y way for diversification and provides a basis for insulating customers from results of a [ , unregulated businesses. It allows also for *
- - greater freedom for innovation and initiative.
- - Common stockholders would par-E ticipate in the benefits and the risks of the Company's investment in non-regulated ,
r businesses.The fom1ation of the holding g o.nds a company is described in much greater depth ,,,nin9s ,y ec[ in the Company's proxy statement, and you are encouraged to read it carefully. P 3
.A r:
( L m " as Ne* JerseV w g state to theI" paisin9 its IU reach ~~ Statue go8I for Ih Elli* ty 8 0d
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Today, the financial community tends no D*" TM
#go to perceive the utility business as an in- Fror" creasingly uncertain investment. However, were H ~ s*3# f conditions of the rest of the 1980s and, for that raatter, of the 1990s and beyond must not be viewed with trepidation-if a ~h 4 company is active, flexible and adaptive. e During the 1980s, PSE&G has con- > N' m -
centrated on completing the Hope Creek Generating Station, its last major con- f,$es 5* struction project in this century. We will *' g,enu es - u continue focusing on Hope Creek until it is ,oriundsS$ / placed in service, which is expected to be A g$g*"c'oas""'" " . / later this year. WAW / Once this major milestone is reached, p43 8gj D PSE&G will be ready for the future, and the ,,nt holding company will fit this need. W p / f Our service area is relatively mature, / with only modest growth projected. PSE&G, like the utility industry, is confronted with j
/ ,g ((' ,,,si 96 formidable, unregulated competition. For ,
3, , example, changes in federal regulation en- /
, , sagy *,,, os able natural gas consumers, especially large P' -
~09 users, to buy the fuel privately and make D*d*"d'
[dnased - their own arrangements for pipeline de- [ g,*s' 5 39 ' uatena'S serec,,
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livery.The business of a gas distribution ,, y utility, such as PSE&G, is changing. 12 Diversification would provide the 8Tu's'sted ness Company with the opportunity for growth in earnings without increased rates for electric and gas customers. We feel that the holding company structure offers the best way for diversification and provides a basis for insulating customers from results of , unregulated businesses. It allows also for , greater freedom for innovation and initiative. Common stockholders would par-ticipate in the benefits and the risks of the Company's investment in non-regulated
- businesses.The formation of the holding an j aends company is described in much greater depth g,,nin9s W in the Company's proxy statement, and you c' are encouraged to read it carefully. M 3
Assuming we garner all the necessary mercial operation sometime in the second approvals, including the endorsement of half of the year. our holders of Common Stock and $1.40 Hope Creek's cost has been increasing, Dividend Preference Common Stock when partly because of scheduling adjustments we meet in April, the Company would and partly because of higher labor and other undergo restructuring in May. construction charges. We are concentrating While 1985 was a year in which we on placing the plant in service as quickly as sharpened our focus on the future, it was possible, without sacrificing quality, for the also a year in which we paid careful atten- benefit of our customers and stockholders. tion to the present. The cost of the plant is now expected to be Eamings per share of Common Stock between S4.15 and S4.3 billion, which is were $3.96, compared with S3.95 in 1984 about S400 million in excess of the cost cap when there were 13.4 million fewer shares. contained in the 1982 cost containment In May, we raised the quarterly divi- agreement for the plant. The final figure dend by three cents to 71 cents a share. will not be known until Hope Creek begins It marked the tenth consecutive year we operation, because of numerous clean-up increased the dividend in line with our items and testing which must be completed. policy to raise it on a regular basis. The in- Based on our present estimate, the cost dicated annual rate is now $2.84 per share. overruns will result in a reduction in earn-New Jersey continued to hold wodd- ings per share of between 5 cents and wide appeal as a place to do business. Many 8 cents in 1987 under the carnings penalty foreign firms have found the state to be in the cost containment agreement. The an ideal home, and they now account for a reduction would be less in subsequent years. sizable portion of its workforce. Developers In December, we petitioned the New have excitedly pursued plans along the Jersey Board of Public Utilities (BPU) for Hudson River waterfront-New Jersey's a $633.6 million, or 14.2%, increase in Gold Coast-and in other key regions from annual revenues. Nearly 90% of the total is the Meadowlands to Burlington County. in electric revenues, mostly attributable to Milestones marked the year at both the completion of Hope Creek. our Salem and Hope Creek Generating The rate increase request also reflects Stations. In December, Salem I broke the anticipated savings in the cost of fuel, national record for annual electric genera- stemming from Hope Creek's operation. By tion by any type of unit-nuclear, coal, oil the time we receive a ruling on our appli-or gas. Its 277 consecutive days of service cation, our existing base rates will have was a Company record. Salem 2 returned been in effect for over two-and-a-half years. to operation in May after a long outage We believe, therefore, that the amount of because of a problem with its generator, and increase in our petition is reasonable. We it performed well for the balance of 1985. anticipate a decision in September when By the end of the year, Hope Creek's we expect Hope Creek in service. construction was virtually completed. The With the completion of Hope Creek, plant began undergoing a series of tests the Company will end a period of heavy in anticipation of fuel loading in 1986. construction expenditures. We do not plan Plans call for the unit to be placed in com- any new large generating units for at least 4
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i A Company In Transition I In 1985, PSE&G took several steps to meet the subsidiary. The corporation will serve as a vehicle challenges anticipated in the near future.The action for investing available funds so that they earn a l 3 reflected the Company's concern for its financial reasonable retum that will enhance the everall strength and its high-quality service to customers. financial strength of the Company.
' ""E * # '"" ""' "' "
Holding company proposed ities, invested in a communications satellite On July 16, the Company's Board of Directors i I unc h N fmn the space dunk Atlanus i authorized the formation of a holding company on November 27. PSRC invested $12.9 million for j which would own all voting stock of PSE&G, subject NS
- I" * ' '# #"U " * '"' "**
! to the approval of the New Jersey Board of Public p yments and tax benefits.
Utilities (BPU) and the Company's stockholders. Under the proposal, which was endorsed by the Atanagement assessments launched BPU in early 1986, a company, to be named Public During the year, there were activities on several Service Enterprise Group Incorporated, would be fronts that will figure in any restructuring the established. The present company, PSE&G, would Company may undergo. become a subsidiary of the new holding company A strategic management group was formed to 4 and would continue as a regulated electric and gas develop a process which will pmvide senior manage-utility under the laws of the state.Two present ment with early identification and effective analysis l subsidiaries of PSE&G--Community Energy Alter- of strategic options available to the Company.The natives Incorporated, and Public Service Resources strategic process will enable PSE&G to seize those Corporation-also would become subsidiaries of the opportunities which will improve its core business i l holding company. and define its role as a highly visible participant in 1 Details about the restructuring appear in the directing the future management and use of energy Company's proxy statement. All stockholders are in New Jersey. encouraged to read the statement. Holders of Com- A separate program was launched to create a mon Stock and $1.40 Dividend Preference Common leaner, more efficient organization by reducing levels Stock will be asked to vote on the proposal at the of management and broadening the span of control. Annual Meeting on April 15,1986. Nearly 200 management positions will be eliminated
~"b * "'"'"W"" " "" "'
1 Cogsneration subsidiary begins activities a on, a managemen audi of all Com-l' Community Energy Alternatives Incorporated (CEA), p ny operat ns was con acted hnde gar h formed as a subsidiary of the Company in 1984, Temple, Barker & Sloane, Inc., one of the country's began formal operations in 1985. It will participate
'"E"'"##*'" "'" " N ""' #" ' *# '
} in the development of cogeneration and small power done in line with a 1982 law which requires the BPU 4 production projects on an unregulated basis. '#" # "*""'
' '" # " ' E" '
CEA's headquarters is in Ridgewood, in Bergen and gas utihties m the state. County, and Arthur S. Nislick took office as its first president and chief executive officer on October 1. Since its formation, CEA has been explanng i i opportunities to participate in ecoaomically sound, Arthur 8 g,iick g g ofs technically efficient preiects designed to help supply ,ne first P' the energy needs of industries, commercial establish- com* hich ments and large residential complexes. CEA intends
,,ns ti" # '
to consider proimsals to join with developers and fi- ,perstlo"* in be98 'L ' I nancial institutions in launching quahfying proiccts. 9985 as , ,ubsid3
- Investment subsidiary formed o' '"* comp **
In 1985, the Company formed Public Service Resources Corporation (pSRC) as an investment i 1 4 4 7 l
The Financial Picture Despite adverse pressures from various fronts For the 1985-87 period, electric sales were
. during the year, the financial results in 1985 placed forecast to increase,on an average basis,1.5%, while the Company on firm ground. Throughout the gas sales were anticipat ed to grow, on average,2.1%
' year, the Company sought to provide a solid capital _ Thereafter, through the first decade of the 21st structure and strong credit rating. century, growth is expected to remain modest-g generally in the 1%to-2% range-for both electric
. Eamings available for Common Stock rose to $484.6 '" E'S 8#
As a result of the higher revenues m. 1985,
~
million in 1985, up from 5429.8 million in 1984. Eamings per share of Common Stock were $3.96 in New Jersey gross receipts and franchise taxes rose to
.1985, compared with $3.95 in 1984, when there were $557 million from $530 million, an increase of 5.2%
- 13.4 milliori fewer average shares outstanding. Dividemtincreased The increase of 0.3% in earnings per share, or The ik>ard of Directors in May increased the quar.
12.7% in overall camings, was attributable to the terly dividend on Common Stock to 71 cents per base rate increase, effective March 23,1984, higher share, up from 68 cents. It marked the 10th consec-electric sales, and greate'r Allowance for Funds Used utive year the dividend has been raised.The annual During Construction (AFDC). Operating expenses rate is now $2.84 per share, up from $2.72. rose at about the same rate as the previous year, The increase in the dividend, effective with to $3.8 billion from $3.6 billion, or 5.1% payments in June,1985, was in line with the Com-Reported camings for the year were reduced by pany's policy of raising dividends on a regular basis a write-off, after taxes, equal to 10 cents a share, of a and paying a dividend that is sustainable. portion of replacement energy costs which stemmed from outages at the Peach Ikittom and Salem gen-erating stations and for which recovery was disal- Construction expenditures, including AFDC, pay-lowed by the New Jersey Ik>ard of public Utilities ments for nuclear fuel and advances to subsidiaries - (BpU). The results also include a write-off, equal to increased to $1.22 billion in 1985 from S964 million about 3 cents a share, from losses associated with in 1984 the abandonment of three uranium supply agree- Expenditures in 1986 are expected to drop to ments, which were no longer economical. $739 million, as the Company bnngs to an end a Total revenues mcreased 5.1%, to $4.4 bilh.on period of heavy construction spending. in the five years through 1990, total construc-from $4.2 billion. Electric revenues accounted for
._68% of the total, rising to $3.0 billion from $2.8 tion costs are estimated at $3.0 billion, including approximately $240 million of AFDC. Much of the billion, or 6.5% Gas revenues made up the other 32% of the total, rising to $1.41 billion from $1.38 amount will be used to upgrade existing facilities.
billion, or 2.1% Hope Creek has had a targeted cost of $3.795 The higher revenues were buoyed in large ""#**"" *"'"*""'*I"*'"*I"""'
; measure by an upswing in electric sales to the ex- tive agreement approved in 1983 by the llpU. The panding commercial sector and to service-oriented agreement had been reached in 1982 with the New
- and high-technology facilities. Overall electric sales Jersey Departments of Energy and the Public Ad-vocate and also designated December,1986 as the rose 2.3% m 1985 over sales recorded a year earlier.
target date for Hope Creek's operation. Total gas sales, however, dechned 1%, an outcome of the switching from gas to oil by some customers There will be an camings penalty if Hope
; with dual-fuel capability and a slowdown in manu' Creek is completed in excess of the cost cap. Under L'
facturing activities. the agreement, the Company's revenue requirement p According to the Company,s latest financial fore-ed to rate base, as determined by the npU,
- p. cast, electric and gas sales will show modest gains would be based on the exclusion from rate base of through 1987.The brightest spot will remain the 20% of costs incurred in excess of the cost cap. lf the commercial sector, as development unfolds in cer- overrun exceeds 10% of the cost cap, the approved t
tain regions of the state, such as the Hudson River rate base would be based on the exclusion of 30%
. waterfront and the Route I corridor _m princeton. of those expenditures in excess of the 10% overrun.
L 8
The agreement also provides for the exclusion of market and cancelled a total of more than S70 costs relating to certain extraordinary costs from million of high coupon debt to help reduce interest the gnalty provision. costs. Additional retirements of high cost debt and The Company's current estimate of the cost of preferred stock are anticipated in 1986 through the plant is between S4.15 and $43 billion. Based on open-market purchases and early redemptions. that estimate, the cost in excess of the cap could During the year, pSE&G ventured for the firs, . result in a reduction of eamings in 1987 of between time into the European debt market to take advan-5 cents and 8 cents per share of Common Stock tage of lower interest rates. On December 10, the under a formula in the agreement.The reduction Company negotiated the sale of $75 million of 9%%, would decline in subsequent years over the depreci- 10 year First and Refunding Mortgage Ikmds, which able life of the plant. were sold in Europe. Entry into the Eurobond market It is difficult to predict the final cost of the will save the Company an estimated $1.5 million project as it nears completion because of numerous in interest costs over the life of the bonds, when pre-operational items and imprecision in the timing compared with the domestic market. of tests and power ascension programs which must In July, the Company issued $125 million be adjusted to meet problems as they arise. principal amount of 30-year First and Refunding Costs at the completion of the project, after Mortgage Bonds. Interest will be 9%% in each of the fuel is loaded, will include the accrua! of AFDC at first three years,and then the rate will be reset or about S18 million per month and direct costs of the bonds will be redeemed at par. about 55 million per month, until the plant is de- The Company raised dl77.8 million through clared in commercial operation. the public offering of 7 million shares of Common The Company's first priority is to get the plant Stock in January. During the year, it raised S1653 completed and operating as quickly as possible million from the sale of 5.9 million shares of Com-without sacrificing quality. Delays would further mon Stock through its Dividend Reinvestment and increase costs. Stock purchase plan and employee benefits plans. A goal of the Company has been to raise in- The Company also generated $159.9 million ternally at least half of its total capital requirements. by selling 6.2 million shares of Common Stock in a That aim has been met generally in the 1980s. rights offering. More than 88% of the shares were Now that Hope Creek will be coming on line purchased through subscription. Holders of Com-and construction costs will drop significantly for mon Stock were issued rights to subscribe to one new the remainder of the decade, the Company's goal is share for every 20 shares they owned as of October to generate all funds intemally. This will reduce 16. The subscription price was $25.75, and the offer pressure on the ratio of earnings to fixed charges ended on November 6. associated with debt and preferred stock financings, proceeds from the sale of the stock and bonds and will limit the need to issue additional shares of were used principally to pay short-term debt incurred Common Stock. as a result of the Company's construction program. Capitalstructure shows balance Changes affect reinvested dividends The principal financial objective of the Company Major modifications of the Dividend Reinvestment continues to be a conservative capital structure that and Stock purchase plan became effective with the reflects the increased risk in the utility business. start of 1986. About 92,000 or one-third of the Com-Wintaining this posture will enable the Company pany's stockholders participated in the plan in 1985. to protect its high credit rating and take advantage First, taxes on dividends reinvested in qualified of financial flexibility. utility reinvestment plans can no longer be deferred. The Company hopes to achieve interest cov- Congress did not extend the deferment granted erages, before taxes, of at least 4 times. Another through 1985 by the Economic Recovery Tax Act.
- objective is to continue reducing its long-term debt The change should be considered in tax planning for ratio, which dropped from 45.8% at the end of the year.The Company urges each participant to 1984 to 42.4% in 1985. consult the Intemal Revenue Service or a private in 1985, the Company purchased on the open advisor to determine individual tax consequences.
9
Second, the Company has eliminated the 5% The reduction is based on estimated decreases discount on shares purchased with reinvested divi- in the projected cost of gas,increa ed purchases of _ dends. The change, made only after considerable lower-priced gas on the spot market, anticipated deliberation because of the discount's popularity,is refunds from pipeline suppliers, and general changes in line with steps taken by other utilities. Since the in a business that is becoming increasingly daegu-Company's construction program is winding down, lated.These conditions have meant good news for I the need for new equity capital has diminished. customers, especially homeowners, whose bills are
; The Company is continuing the plan, however, now about 4% less than they were in late 1982.
so that stockholders can conveniently purchase Electric customers' bills rose $137.4 million on shares without paying brokerage commissions. The an annual basis, commencing in July, under a Company is also now accepting Common Stock revision of the levelized energy adjustment clause E certificates, held by stockholders, for deposit and appioved by the BPU. It was the first in:rease in safekeeping in their reinvestment accounts; future more than three years. As of the end of 1985, the dividends on those shares will be reinvested under underrecovered electnc energy costs under the the plan. clause were 5283 million. Rate increase is requested '" EE ' "E' " ' energy adjustment clause, the BPU deferred-until . The Company filed a petition in December with the i the Companys next application for a revision-Board of Public Utilities (BPU) for an increase of 5633.6 million, or 14.2%, in annual revenues. The cons er ti n of $70 million of replacement energy ~ c sts associated with certain outages at the Salem = request includes an increase of 5569.2 million, or Generating Station. The outages mvolve failures of 18.8%, in electric rates, and $64.4 million, or 4.5%, the electric generators at Salem I and 2. One of tne 5 in gas rates. The filing is sizable because it asks that 100% utages is n w the basis of pending lawsuits against k of allowable costs assxiated with the construction esunghouse Electnc Corporation, the supplier of I the stations turbine-generators. of the Hope Creek Generating Station be included In addition, the BPU disallowed S19.6 million in the rate base. in replacement costs related to certain outages at The Company believes that the amount of the ( filing attributable to Hope Creek v.ill not be un- Peach Bottom and S2.9 million at Salem.These dis-
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$ reasonably burdensome on customers because im- . - million; the subsequent effect on camings of the mediate benefits are derived from the savings in the wntemff was 10 cents per share of Common Stock. h cost of fuel once the unit begins operation. Nuclear E- fuel is less expensive than ,ossil fuels, such as oil, g and the petition reflects those savings. The filing was timed so that a decision by the BPU would coincide with the start of Hope Creek's f commercial operation. Generally, the BPU takes
- about nine months to <lecide a rate case.
- About $81 million of the requested amount would be used to pay additional New Jersey gross E receipts and franchise taxes. c-Adjustment clauses are revised i Gas customers' bills were reduced, starting in = October, after the BPU approved a S35 million [. decrease under the raw materials adjustment clause.
- " The Company had originally sought a $16 million reduction, but entered ii.to an agreement with the
, BPU staff and the New Jersey Public Advocate for a r larger decrease as the cost of natural gas continued to decline. s 10
1 Review of Operations afectric operations During 1985,2.3 million tons of coal, and 3.4 million barrels of oil were purchased and 394 million A 2% increase in electric output was recordea in therms of naturai xas were usea for pStaG s New l 1985, largely as the result of a growing demand Jersey electric production facilities The natural gas I in the commercial sector. Total megawatthours pro- displaced the equivalent of 6.5 million barrels of oil, I duced, purchased and interchanged amounted to representing a $19.9 million savings. Additional 34.9 million, up from 34.2 milhon a year earlier. savings of about S3.4 million were realized through cecords are set spot market purchases of coal and oil. Steamy weather in mid August resulted in shattered The .aerage delivered cost of coal purchased peak load records. An all-time, one-hour peak of in 1985 to generate electricity was 553.05 per ton, 7,721 megawatts occurred on August 15. Only the 4% lower than in 1984, due to more favorable day before, August 14, the peak load had reached a market conditions and lower contract prices. The new high of 7,549 megawatts, breaking the previous average cost of low-sulphur heavy oil to produce mark of 7,422 megawatts on June 11,1984. Also electricity was S28.50 per barrel,8% lower than in on August 15, the maximum day's output reached 1984, because of soft market conditions which 149,457 megawatthours, up more than 4% from the resulted in lower contract and spot prices. The diversity of the Company's energy output previous record of 143,558 megawatthours on June 11,1984. by fuel sources in 1985 is illustrated as follows: When the new peak load record was estab. nuclear-24%, coal-32%, natural gas-9%, oil-5%, lished, the Company had an installed generating and purchased and interchanged-30% capacity of 8,999 megawatts, providing a reserve uranium supplies are adequate margin of '5.6%. The Company has sufficient uranium supplies The table below shows the Company's forecast under contract with producers in the United States for generating capacity, in megawatts, over the next and Canada to meet the fuel needs of both the Salem decade, based, in part, on normal weather conditions. and Hope Creek Generating Stations through 2000. The installed capacity, in megawatts, reflects the During 1985, uranium prices stabilized at Hope Creek Generating Station starting in 1987. around $16 a pound, after declining from a high of v . ., ,. , S24 a pound in mid-1983. Uranium production in
, a the U.S. dropped off as the availability of lower-cost, 7 -- - @ higher-grade Canadian supplies increased.
In September, the Company terminated a con-
% . tract with Sequoyah Fuels Corporation, a subsidiary h '
, of Kerr-McGee Corporation.The project had been in a standby status since 1980 because open marktt
;7; m pnces of uranium had been substantially lower than
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21 the coraract price. Sequoyah was to have delivered 2]t four million pounds of uranium. In December, the Company terminated its in-T .
% . I terest in two other uranium ventures, one of which N ' ' was a proicct of philadelphia Electric Company for Ec::nomical fuelmix is sought the peach Bottom units.
The Company continued to reduce its dependence As a re< ult of these three abandonments and on high-cost oil to produce electricity, reaching in prior to regulatory approval, the Company's aggre-1985 the lowest amount used since 1948. It relied gate net losses of $21.7 million after related tax instead on more economical fucis-nuclear, coal and savings were deferred and are being amortized over natural gas. a seven-year period commencing in 1985.This
- Comparative fuel costs in 1985 per million Brit. amortization reduced net income by approximately ish thennal units were: nuclear-50.82, coal-St.99, S3.1 million in 1985. The reduction in earnings natural gas-54.05, and oil-54.73. per share of Common Stock for 1985 amounted to 1I
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c 3 cents after taxes. The Company is seeking regula- sesem f highlightsnucleargeneration tory approval to recover these losses in its current With Salem Generating Station's Unit I leading the
' base rate case. nation in electric generation, the Company's nuclear Future regulatory action may require a change performance showed significant improvement in in the level of annual amortization or could require 1985. The results mamiested the Company's basic the immediate write-off of any remaining unamor- goals of maintaining safety, demonstrating reliability
.tized balance existing at that time. Any amount not and upgrading the economic competitiveness of recovered, in the opinion of management, would not nuclear energy.
- have a material effect on the Company's position or Nuclear generation came from four operating results 'of operations. units, the ownership of which the Company shares.
At year's end, there were reports that the Two units are at the Salem station, wl-ich the United States may consider imposing import quotas Company operates, and two are at the Peach Bottom
- on uranium, which could lead to higher prices in station in Pennsylvania, which Philadelphia Electric
~ the future. Company operates. PSE&G has a 42.59% interest in The Company continued, however, to focus on Salem, and a 42.49% interest in Peach Bottom. Its cost-saving measures. An incentive price provision share of total output was 8,352,592 megawatthours.
in a new uranium enrichment service contract will - If oil had been used to generate this electricity, there
- lower enrichment costs by an estimated S50 million would have been an additional cost to customers of through 1990. The amount is on top of an estimated about S360 million.
S65 million savings stemming from consolidation of During one period of the year, Salem I was on La number of previous agreements under the contract, line for 277 consecutive days, breaking its previously which the Company signed last year with the U.S. longest run of 88 days and establishing a new mark Department of Energy. In September, a federal judge for all PSE&G generating units, regardless of fuel.
- in a case to which the Company was not a party On December 16, Salem I became the record ruled that these new contract forms of DOE for the holder for a year's gmss electric power produced in enrichment of uranium are null and void.The par- the United States when it reached 8,969,747 mega-tics involved in those proceedings have appealed, watthours. The 1079-megawatt unit won the distinc-and the Company has joined a group of other utili- tion by surpassing a record held by a 1300-megawatt, ties in seeking to have the decision overtumed. coal-fired plant, Mountaineer Unit I in West By the end of 1985, the Company had paid the Virginia. By year's end, Salem I had produced f= Federal government 579.7 million in fees to fund the 9,379,960 megawatthours.
. eventual transportation and permanent disposal of The new record for power produced by any type c
of generating station-nuclear, coal, oil or natural spent nuclear fuel.The fees were paid in accordance with the Nuclear Waste Policy Act of 1982, which gas-came three days after Salem I had established requires utilities to fund the program at a rate of a new record for generation by a nuclear unit. In one mill per kilowatthour of nuclear energy pro- reaching 8,892,300 megawatthours,it bested a record duced.The cost to the Company is for its share of set by Peach Bottom 2 in 1979. energy produced by the Salem and Peach Bottom Salem 2 was returned to service in April after generating stations. its failed generator was replaced with one that had been purchased for Hope Creek Generating Station's purchesedpowe. yields savings mt 2, de constmcen 6M M ken can-During 1985,30% of the Company's energy output
. celled in 1981.
.- came from the purchase of relatively low-cost power reach Bottom 2 was retumed to service in July from n'eighboring electric utilities, mostly through
# ' ' ' ' # "E " **# "" E "*"' "E the Pennsylvania-New Jersey-Maryland (PJM) Inter- a B ttmn 3, tk oder unn r de stanon, len s.
- connection and the Allegheny Power System. The operated well before it was removed from service in
- purchased energy was generated primarily by coal July for refueling and piping work. It was scheduled and thus replaced more costly oil- and gas-fueled to return in the first que.tv of 1986.
generation. 13
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3 i gore 9'*" Theodore Barry & Associates. Both auditors are and st, tion 5 nationally recognized engineering and consulting sing meet frms. SE& 11 h5'p P
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' h the an operatmg license for Hope Creek. In the Sargent & Lundy audit, Hope Creek's dec8 design was considered techmcally adequate and in line with licensing requirements and standards. In the Barry report, the project was described as well-managed, comparing very favorably with other projects in the nuclear industry. Nuclear operations are improved Hope Creek approaches completion During the year, the Company's Nuclear Depart-By year's end, construction work on the Hope ment, which oversees the Salem and Hope Creek Creek Generating Station was essentially completed, Generating Stations, instituted a series of measures while startup, testing and turnover of the plant to improve controls and reduce costs. systems were about 93% completed. The loading The steps included a realignment of the organ-of fuel was planned for the first quaner of 1986 ization for increased accountability, a reduction in and the commercial operation scheduled for the budgets and projected staffing levels, a decrease in second half of the year. the use of outside services, and the implementation The present schedule for commercial operation of a fixed-bid approach to betterment projects to in the second half of 1986 should precede the tar- diminish cost increases associated with plant mod-geted operation date of December,1986 which was ification activities. established in the cost containment agreement. The Department also initiated measures to Achievement of the current schedule will enhance long-term planning. The measures are aimed require a continuing dedication to quality and cost at improving performance of the Company's nuclear control, as well as aggressive licensing, construction units through the reduced length of outages and and testing schedules. The Company recognizes that the elimination of delays in the return to service. there are uncertainties, such as completion costs, y,,,,,r ,,,,,,,g , c ,,,,,,, , with any large construction project, particularly in
. Major training programs for the Salem G,enerating the nuclear field. The license for a nuclear plant is . .
Station received accreditation from the Institute of solely within the discretion of the Nuclear Reg-Nuclear Power Operations in 1985. 9.lem is only ulatory Commission (NRC), and hinges on satisfying the second nuclear station in the nation to win full NRC requirements. accreditatmn in February 1985, the Company reached accord INPO's accreditation is based on rigomus with the New Jersey Public Advocate to withdraw . scrutmy of a nuclear plant's training program. All 55 intervention in proceedings before the NRC,s nuclear utilities in the nation are committed to gain-Atomic Safety Licensing Board for the issuance of ing full accreditation for training operations, which an operating license for Hope Creek. is in line with INPO's mandate to develop and mon-In 1985, the first group of Hope Creek's nuclear itor high level standards to make sure the industry operators underwent training and received operator operates its plants safely. licenses from the NRC. A total of 14 reactor operator The Company's training of nuclear personnel and 21 senior reactor operator licenses was issued. s based at the Nuclear Training Center in the The Company agreed to two maior indepen-city of Salem, about eight miles from the salem and dent audits of the Hope Creek project. One was an Hope Creek stations. Operators are trained on full-independent design verification program conducted scope simulators that duplicate the control rooms at by Sargent & Lundy, and the other covered gen-Salem and Hope Creek. eral management practices and was performed by 14
Distribution systems are improved I he daik capatits m thenns was da uled as Durmg 19% the Compant installed 21 new 131)00 rollow s pipchne natural gas I ; x46 (H K) hquctied volt powcr hncs. 26.000-volt services to three new or pet role um I '94 (H)U oil gas x 2; 0i X ) ss n expandmg customers and a high-voltage substation thetic naturai gas I12;1xx) and retiners gas In addition. the Compans mstalled nearh 40]HK) 4001 x x). new electnc meters, the most m a scar smcc 1966 supplies are stable T he construction or a 41mde ;UOmu solt I he uinym aintmucd to lim adepte mpphes transmission hne onginating at the Hiipe Creek in a M k o> m unM lig n rm (eenCrating 5tation w h t11mpleted lii March l he ,gy,gs,,g
, , , , g , ,. g, new hne strengthens power dntnhutmn rehabihts m Mb h io m G> potion llX a wh hoth the Compansi ustem and the Pennsvlvarna udim m PMM, W tbmd &n tenn arrang New lcrsev-Marsland plM Interto inccti..n -
eihrpumw e m#iemd prI nd tit e rs pgaj_ps- - - - Ilicsc supplies were suppleriiciited bs R.h he Ciimpany s gas sendiitit iii 198,- w as purthawd Inim t he [.Will Bas was and Aincrada
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lu llion e hernw i hlme of I 3%. triim the 19Ml oldrk "L' '""1 ' #' of 2.li hih, ion thenns ( eneralh warmer w cpher tri>ni the t ilinpans s i>w ri priiduttna tatilitics 011 competitlolt and lack or growth m the manutat Natural g.h purchawd ti,r distrib ituiti ti) tunng sector u ntnhuted to the detrea,c I he clistinIncts w as 21)h hillnlil t hcMib ti tulpJred w it h sendout of IT994,000 therms on lanuars 21.198,- 21; bilhon thcrms in 19x4 I he au race (ost was set a 24 hour record and the sendout of h21(x)o00 53 62 per milhon Brithh thermal una Btu s thenns in lanuars estahhshed a monthh mark compared wIth 53.69 Rctiners gas purchast i totaled 1443 unihon therms. t ompared w ith x' O iniJion Daily capacity increases therms Its prite ascraged 53 49 per milhon Bt t, s Ihe dalh capacits was up hs 134]XX) thenns. t' ag.nnst the 190 as cragt ut 54 0; I he produtt mt ut 19,990,0(M) thernls .n or l)cccmher 3l. An additional manuf actured gas Teathtd iI ? milhim thenns 21;JM)0 therms or pipchne gas 322 000 thenas of tompared with x ; nullion therno firm storage sers ite. alld 14;(M X) thernb (>f retlners I he adequate stippk aint the stahic prite re gas more thaii iittset a reductii>n iit ;48 (XX) therms ticct the natiiinwide surplin < >I cn aiiJ the gniw inc [ ill' manutJttured gas resultlllg inim the retircinent ti,mpetitum iii the gas indtntrs I:i ( )t ti >ber t iit or the West lnd has Ilant. I he plant was closed as f ederal E ncro Regulators Dimnusso,n issued new part id an i)ngibillg pri) gram (t) ihethe miist regtilatic an design J t< > priis ide greater at tt w ti, ccimilmical Mitirces i)t R.h ! . . ~ . ~um , . ,vn, nm -~ - ies r
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interstate pipeline transportaton. As a result, there sewer construction project in Camden.The Company L may eventually be substantial changes in the negotiated an agreement with the Camden County I J way natural gas is marketed, which would lead to Municipal Utilities Authority to be reimbursed a increased competition. : total of $1.12 million, essentially the overall cost of The Company introduced, in August, a new the Company's work. rate that it will charge for the transportation of gas g ,,, ,,, which large volume customers purchase directly from third parties. A number of customers have The Company announced that all employees in-volved in gas appliance service will undergo specially made such purchases, arranged for interstate pipe-lines to transport the gas to PSE&G, and used the developed, hands-on training to prepare them for ' work on advanced gas-fired equipment that is now Company s transportation service to deliver the gas on the market.The program was launched after a - to their facilities.These direct purchases may result pilot study completed in May showed a considerable m substantial savings to the customers, largely through the partial avoidance of gross receipts and mprovement in service capability among employees. franchise taxes which represent nearly 14% of the cost of regulargas service. CDC's levels remain high n 1985, the Company demonstrated repeatedly its Energy Development Corporation (EDC), the deep concern for the New Jerseyans it serves, as
. Company's exploration and production subsidiary, the number of customers reached 2 million for the s' upplied 8% of the total gas purchased by the first time.
l Company in 1985. During the previous year, EDC Employees meet the test accounted for 6% of the Company's supplies. Electric service to more than 239,000 PSE&G cus-
- Revenues from the sale of natural gas and oil tomers was interrupted by Hurricane Gloria during were 594.3 million, up 19.6% from the 1984 figure.
its rampage through the state on September 27. Net income fell 8.1% to 59.5 million, due to in-Crews worked around the clock and restored all creased amortization charges. power within 48 hours. In 1985, EDC drilled 45 wells,13% less than The Company then responded to appeals for L last year. Twenty <ight were onshore and 17 were assistance by dispatching 68 crews to areas of long
- offshore. At year's end,13 were still being drilled.
Island, Connecticut and Massachusetts to help Onshore operations took place in the Gulf utilities there restore service to their customers.
; Coast regions of Texas, louisiana, Mississippi, On Labor Day, electric and gas crews cooperat-
' Alabama and Florida. Fourteen wells were success-ed with firefighters battling a blaze that destroyed ful, and 14 were abandoned. Offshore activities in-40 acres in the heart of passaic's industrial section.
cluded exploratory drilling on 14 lease blocks and One volunteer, William Koenemund, who worked in
' ' development drilling to delineate prior discoveries-the Company's electric transmission and distnbu-Six wells were successful, and 11 were not.
tion headquarters in Secaucus, died of a heart attack About 48% of EDC's 1985 gas sales was deliv-while fighting the fire as a member of the Secaucus cred through Casdel Pipeline System Incorporated, Fire Department. Later, the Company offered bill-t an EDC subsidiary. paying assistance to customers who were left home-Tl:tribution expemis less and iobless by the blaze.
- The Company continued in 1985 to install new gas in mid-October, eight gas distribution crews mains and services at record levels. Nearly 300 miles and 20 service personnel answered an appeal from of mains and nearly 275 miles of services were the llrooklyn Union Gas Company. Water from a placed throughout the Company's service territory. broken main had entered the gas distnbution system,
' In addition, some 30,000 new gas meters were in. causing widespread outages over a 100-bhick area stalled, the most since the 1950s. and forcing 11rooklyn Union to seek restoration A maior project involved the relocation of assistance from other utilities.
18,000 feet of mains and 500 services as part of a ouelity emietticiency emphasised The Company maintained its aggressive approach 16
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