ML18096A645

Atlantic Energy Annual Rept 1991.

ML18096A645
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Site:	Salem, Hope Creek
Issue date:	12/31/1991
From:	HUGGARD E D, JACOBS J L ATLANTIC ENERGY, INC.
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• ** 9204270198 920415 PDR ADOCK 05000272 I PDR ATLANTIC ENEHGY Delivering P.ower at Atlantic Electric, Delivering Heliability, Delivering Affordability, Planning a Smootti Transmission Pandora's Box of the 1990s, ** Sa!Ps to Hcsidential rustomers increased 3.1%. Sales to the twelve hotel-casinos were almost 7% of total sales. Sales to Industrial customers declined slightly .

• fl:\A'.\CIAL HIGHUGllTS

%Change 1991 1991-1990

%Change 1990 1990-1989 1989 *****************************************************************************************************************************************************************************************************************

Earnings Per Common Share Dividends Paid Per Common Share Book Value Per Common Share $ $ $ 3.49 2.98 29.68 Return on Average Common Equity Electric Operating Revenues (000) 12.10% $ 777,970 Operating Expenses (000) $ 633,114 Net Income (000) $ 85,635 Utility Cash Construction Expenditures (000) $ 172,425 Total Assets (000) $2, 151,416 Sales ofElectricity (KWH) (000) 7,935,600 Price Paid Per Kilowatt-hom (All Customers) 9.a12c Total Electric Customer Accounts (Year-end) 453,100 Number of Shareholders

-Common Stock (Year-end) 43,802 Number of Atlantic Electric Employees (Year-end) 2,032 4 ,, 4.03 3.68 3.74 3 ,t 3.02 2.6S 2.77 2.82 2.92 2<1 l o r*-:*:-!*

• 'I Earnings and Dividends Paid Per Share of Common Stock e EARNINGS e DIVIDENDS 3.49 15.6 2.1 3.3 14.5 8.5 6.9 24.3 3.4 7.2 2.3 5.6 0.8 3.6 (1.1) 2.98 Earnings per share of Common Stock is net income divided by the average number of common shares outstanding.

Dividends paid per share is the sum of the quarterly dividend payments made in January , April , July and October. $ $ $ 3.02 2.92 28.73 10.57% (19.3) $ 3.5 0.7 $ $ 3.74 2.82 28.54 13.64% $ 716,779 (22.5) 1.7 3.8 $ 705,020 $ 592,217 $ 570,275 $ 68,879 (14.9) $ 80,964 $ 166,818 15.0 $ 145,081 $2,006,010 7.6 $1,864,461 40 30 20 10 7,756,867 1.8 7,617,784 9.288¢ 449,717 42,295 2,055 32.7S 30.62 1.4 1.3 (2.5) 1.7 38.SO 'I ATLANTIC ENERGY Market Price Per Share of Common Stock

• 9.161¢ 444,018 43,383 2,021 41.00 33.87 This is the closing price of Atlantic Energy's Common Stock on the last trading date of each year as reported by the New York Stock Exchange Composite Transactions listing. 1 J W hen all was said and done, 1991 turned out to be another fine year for . Atlantic Energy. Per share earnings rebounded to $3.49, a 15% improvem'ent over the $3.02 reported in 1990. We have the good performance of Atlantic Electric to thank. Here's how it happened.

We negotiated a $50 million increase in base rates in July to coincide with our peak sales season. In granting the higher rates, the New Jersey Board of Regulatory Commissioners (BRC) set our allowed return on equity at 12.5%. Mother Nature helped out, too. It was the hottest summer ever recorded at the Jersey shore. Kilowatt-hour sales grew 2.3% to almost eight billion, a record for Atlantic Electric.

The hot atures pushed the demand for energy to new highs. Peak demand reached 1,911megawatts,10%

greater than last year. We are cially pleased to note that many of the businesses located along the shore had their best year ever. Our 1991 financial results were weakened by our nonutility operations.

These businesses reported a combined loss of 22 cents per share. Most of that, about 15 cents, came from sions recorded by Atlantic Gener-ation Inc. (AGI). These provisions were the result of a one-time write-off of several small tion projects that were losing money. AGI is now better able to devote its attention to three larger projects with potential for contributing to future earnings.

In June, your Board of Directors increased the quarterly dividend on Common Stock by one cent, to 75 cents per share. This is the 39th consecutive year of es in cash dividends paid. Even though the amount was modest, it was our way of saying that in spite of the ups and downs, our core business is solid and our future holds promise. The very nature of our utility ness involves making substantial investments in facilities and equipment.

In the next three years, our capital expenditures will reach almost $500 million. About half of that is earmarked for ments to our power delivery system. As you look through the pages of this Annual Report, you'll learn why these are important investments.

You'll also see how we protect the environment as we go about our work. We continue to give high priority to the way we take care of our natural resources.

There is more good news for 1991. By all measures, it was the safest year in our history. Other operational and financial goals were met as well, particularly with respect to controllable expenses.

Overall, they increased only 2.5% over 1990, well below the 3.1 % growth in the consumer price index.

• Our ability to develop and achieve meaningful goals is essential to you and to our customers in today's economy. Ideal summer weather has not protected ern New Jersey from the effects of the recession.

Housing starts in the area a.re at a post World War II low. Just over 4,100 new customers were added to Atlantic Electric's system in 1991. a drastic drop from the average of 11,300 new tomers each year since 1986. We also felt the effects of competition and structural changes in our industry this year. In October, our largest industrial customer began generating its own * *

• electricity.

In the coming years, a few more of our large customers will follow. But our strategic plan can comn:iodate a slowed economy and competition.

We are mitted to finding ways to replace kilowatt-hour sales lost to petition.

And, we're doing our share to stimulate the local economy. We have revitalized our economic development efforts to attract new businesses to our region and to encourage nesses already here, to stay. Through our marketing activities we keep in closer contact with our customers and discover ways to serve them better. These are long term commitments that will help us be successful in a competitive energy marketplace.

We. continue to believe that tunities for growth exist with the activities of our nonutility nesses. Our strategy is to direct resources to investments that complement Atlantic Electric's goals. Our newest subsidiary, Atlantic Energy Technology, Inc. (AET), was formed in 1991. To date , it has invested in a company that state-of-the-art, energy effi,cient heating and cooling systems. AET's activities, along with the cogeneration development investments of AGI, will dominate our nonutility vities. AGI made progress on three large cogeneration projects in 1991. AGI's financial results are e xp e cted to improve in 1992 when two of the three projects will be pleted. Atlantic Southern Properties and ATE Investment continue to manage their existing portfolios . o new investments are planned in the near term for these companies.

Je r ry Jacobs, Doug Hugga r d Looking ahead, Atlantic Electric, the utility business, will remain our driving.force.

Its performance will guide the future for Atlantic* Energy. We are doing our work to prepare for a dated management audit that is expected to begin in late 1992. We intend to get an '/\ on our report card. The good news of1991 is pered by the loss of one of Atlantic Electric's most admired and respected employees, Senior Vice President Brian A. Parent. Brian died suddenly in July. We miss his humanity, his intellect and his sense of fun. The tribute we have prepared for Brian on page 5 of this Annual R e port only begins to e xpress our gratitude for the many contributions he made to this corporation.

' On behalf of the Board of Directors of Atlantic Energy, we thank our shareholders for their support and loyalty. You have our promise that we c onduct our business in y_o ur best interest , adhering to the highest ethical standards and at all times showing respect for tomers, concern for employees and care for our environment.

For the Board of Directors, E.D. Huggard Chairman and Chi e f Ex e cutive Offi ce r J.L. Jacobs Pr e sident January 31, 1992 THE NEWS OF 1991 New Sources of Capacity

• for Atlantic Electric In May, Atlantic Electric's new 84-megawatt combustion turbine , located in Vineland, New Jersey, went into service in time for the peak summer period. The unit Deepwater's Employee features high performance emis-Involvement Team , the Morale sion and noise control systems Boosters, contributed to this fine Nuclear News and can use natural gas or kero-record. They promoted safety The 1991 capacity factor for sene as a fuel source. It was built through a program to keep the Atlantia-Electric's five jointly-on schedule and at less than green light on the plant's safety owned nuclear units was 66.9%, expected cost. -sign "burning." When the green and as a result, no penalties were In September, Atlantic Electric light is lit, the station is accident-incurred under New Jersey's free. The program has gained nucl e ar performance standard.

began purchasing power from a recognition for the team, placing Over 70% of our customers' ener-nonutility power producer located them in the final round of a gy needs were supplied by coal in Chester, Pennsylvania under a national competition honoring 25-year contract.

The generating and nuclear sources, providing a unit is expected to provide up to excellence in employee teamwork.

savings of more than $135 million 75 megawatts of capacity using New Rates in Effect over the use of oil. municipal solid waste as its On July 3 , the New Jersey Board Hope Creek Nuclear Generating energy source. This marks the of Regulatory Commissioners Station received a manufacturer's first time in Atlantic Electric's (BRC) granted Atlantic Electric a award for outstanding perfor-history that capacity and energy $50 million increase in base

• mance of a boiling water reactor. is being_ provided by a non utility rates. The return on common Hope Creek achieved a lifetime power producer under a long equity was set at 12.5% with an capacity factor of and a term arrangement.

overall return of 10.52% on a test lifetime availability factor of ' Safety Continues to Shine year ending May 31 , 1991. The 82.4%, placing it among the top BRC also made permanent a perfoD?ing boiling water reactors Atlantic Electric proudly completed

$41.6 million provisional base in the nation. its second consecutive "safest year rate increase that had been in Hope Creek also set a record for ever." Workers at B.L. England effect since June 1990. It was and Deepwater Stations helped ruled that a Phase II to the continuous operation.

At the end make it happen. In early 1992, proceeding was appropriate to of 1991, it had completed 234 both generating stations, as well determine the regulatory days (and still counting). This as the rest of the production treatment of tax benefits. from the record helped establish another: section, recorded over one year nonutility affiliates.

The three units on Artificial without a lost-time accident.

Island-Hope Creek, Salem Unit 1 On August 30, Atlantic Electric and Unit 2-set a record for the filed a Phase II petition with BRC. island of 84 days of simultaneous Atlantic Electric asserts that no continuous operation.

changes in customers' rates Demand Hits New Record should be made as a result of tax benefits from the nonutility On July 23, Atlantic Electric re-affiliates.

The petition asked for a corded a record peak demand of Deepwater's Morale Boosters are: $25.8 million base rate increase 1 , 911megawatts,a10%

increase O to r) J. Sunderhauf, J. Rumaker, to recover the costs associated over 1990. Atlantic Electric's F. Jones, P. Humanick,. T. Harris, with recent changes in New

• direct load management program, M. Mason, J. Jenkins, T. Donofrio, Jersey's Gross Receipts and the Summer Savers Club, helped M. Kiger, J. Famkopf, J. Thompson, Franchise Tax law. A dec_ision is J. Rhoda, P. Harwood, G. Averiett, to reduce the demand by about K. Drummond and H. Hoover. expected in the second quarter 33 megawatts. Not Pictured:

E. Moore of 1992. 14 A LIVING TRIBUTE In the Fall of 1992, Atlantic Electric and the citizens of Millville, New Jersey will celebrate the opening of the Brian A. Parent Center. The Center is being built adjacent to Atlantic Electrics holly orchard. It will replace a farm house that once displayed all forms of holly artifacts and memorabilia.

Together with the holly orchard, the Cf(nter will renew a South Jersey tra_dition-the Millville Holly Orchard Tour. The Center is named after senior vice president Brian Parent, the man who spearheaded the holly orchard project, who died suddenly last July. The idea was to create a living memorial in honor of his many contributions to the Company, its share-. holders and its employees. . Honoring Brian in this way is fitting for another reason, one that stems from the kind of man he was. Brian believed that. a corporation has an obligation to give something back to the nities it serves. He put this belief into practice many. times, but never with as much enthusiasm as with the holly orchard and visitors, center. Thanks to Brian, the citizens of South Jersey will have a special place to view artists* exhibits, learn about their heritage, tour a commercial holly orchard and hold community events. If Brian were with us today, he would be extremely proud. Marketing Goes Gangbusters, Exceeds Goals Eleven of the fifteen major marketing programs exceeded operating goals in 1991. The B.E.S.T Home program (Built for Energy Saving Tomorrows) signed up over 1,100 homes, exceeding the program goal by over 700%! This year, the Summer Savers Club was a hit with commercial customers, gaining over six times more participation than expected.

The Save-A-Watt efficient lighting program achieved more than double its target. Capital News In May, Atlantic Electric redeemed its First Mortgage Bonds, 11 5/s% Pollution Control Series A of 1981 due 2011 with proceeds from the issuance of $38.865 million of First Mortgage Bonds, 6.80% Pollution Contrel Series A of 1991. The refunding is expected to save Atlantic Electric approximately

$2 million per year in interest costs. In May, Atlantic Energy sold a total of 2,000,000 shares of new Common Stock at a price to the public of $34.50. Also in May, Atlantic Electric sold 700,000 shares of $7.80 No Par Preferred Stock at a price to the public of $100 per share. Proceeds from the sales of these securities were used primarily to fund Atlantic Electric's on-going construction program. Construction expenditures in 1991 totaled $172.4 million in cash, plus $4.9 million in allowance for funds used during construction.

A VERY SPECIAL DELIVERY SYSTEM Specialized equipment helps Atlantic Electric keep the power flowing to more than one million people in southern Jersey FROM TO-DOOR A generating station converts fuel such as coal, oil, natural gas or uranium to supply electrical energy. Electricity is generated at a voltage or pressure too low to be trans-. ported through conductors tively over long distances 0 .. DELIVERING POWER AT ATLANTIC ELECTRIC Electricity. We depend on it to be there when we need it. If you're an average Atlantic Electric customer , that's about 99. 99% of the , time. We call that "reliability.

and it's a record we're proud to share. That kind of service requires a very special delivery system. It's called a transmission and distribution system. Electricity is unique. It is produced and distributed at the very instant it is used. From one second to the next, customers vary the amount of electricity they use. Electrical generators and the transmission and distribution system respond instantaf!.e0!-1-sly to meet t_hese changing conditions.

At the heart of it all is our system control center. From generation to end use, every aspect of our power delivery system is managed from this point. Each day, thousands of details come together there, helping us make decisions that electricity reliable and affordable . (Italicized words are defined in the Glossary of Terms. p. 8) A transmission substation may be located right next to a generating station. Here, a transformer does the job of creasing-" stepping up" the power to move it along the lines more efficiently

• *

• TRANSMISS I ON & DISTR I BUT I ON PROD UCT I O N ----* Over the next three years, more than half of Atlantic Electric's construction dollars will he used to expand, improve and strengthen the transmission and distribution system An interconnection with a, neighboring utility or a nonutility power producer occurs at higher voltage levels known as transmission voltage. Atlantic Electric's system transmission voltage is either 230 kV, 138 kV or 69 kV ustomer satisfaction and success. You can't have one without the other. It is tradition in the utility business to measure tomer satisfaction with words like "reliability" and 'affordability.,, These are the features of good, sound service that customers expect. But, theres more. Customers tell us that satisfaction is also measured with words like "care," "concern" and "protect." They 're about our world, and we couldn't agree more. The system that delivers the power is the most visible part of our business.

Poles, wires and ! armers are seen on virtually every s_treet served by an electric utility. At the end of 1991, Atlantic Electric had about $850 million invested in its transmission and distribution system. Through 1994, another $260 million will be invested, over ' . 50% of our expected total capital spending.

In todays competitive energy market, it.s a sound strategy to invest in the power delivery system. A well-planned, well-maintained system delivers energy efficiently.

It keeps prices competitive and service at its highest level. Our.success depends on earning our customers' respect and loyalty. We do that by delivering power safely, continuously, at a reasonable cost, at all times showing respect and concern for our world.

GLOSSARY OF TERMS Conductors wires through which electricity flows readily with little resistance or loss of voltage Current a flow of electric charge Distribution feeders conductors that connect the distribution substation to the final transformer before hook-up with the customer , Generating station the site where fuel is converted to electric energy Interconnection a hook-up between electric utilities or nonutility power producers that allows the transfer of electric energy in either direction kV kilovolt: a measure of voltage; i kV= 1,000 volts Substation points of interconnection for transmission and distribution lines where the voltage level of electricity is changed and regulated Transformer a device that increases-"steps up" or decreases-"steps down" the voltage level of electrici_ty Transmission and distribution system the delivery network for electr i city that ties generating stations to customers; it consists of land, wires, poles, substations and all equipment necessary to transport power Transmission lines conductors that transport electric energy at higher voltages over long distances between substations Volt unit of measure of pressure or force Voltage the level of force applied to electric current in a conductor, measured in volts, generally described as kilovolts There are many reasons why we make investments in power delivery, but none more important than reliability.

For customers, reliability is a simple matter: The lights come on at the flip of a switch. For us, ity is far more complex. We build safeguards

• into our system to keep our customers' lights on and 99.99% of the time, we're successful.

But, severe weather or problems can cause occasional power interruptions.

We keep those situations to a minimum by making sure electricity can travel to a customer's door by more than one route. If one path is blocked, we can get there-another way. Protective devices, ing circuit breakers, are used to isolate problems from the rest of the system. This protects expensive equipment from damage and lets energy 'continue to flow over an alternate path. We look for trouble before it happens. An elaborate network links the system. Almost 100 times a day, computer technology scans for potential problems.

If something is spotted that's not just right, we can take quick, corrective actions before customers are affected.

New customer growth can put heavy demand on parts of the system and stretch existing equipment to its capacity.

When that happens, we make investments in new equipment or find ways to upgrade existing equipment to keep the lights on. We've set some tough standards for reliability.

Our efforts are paying off. Except for major storms in 1991, on average, customers were without electricity less than once and, when an outage did occur, we restored service in a little over an hour. We think customers should expect that kind of reliability.

It's our job to make it happen. This transmission substation houses

• Transmission lines transj>ort higher voltage power over long distances to another transmission substation a transformer that steps down the voltage to lower, sion levels

• DELIVERl'.\G AFFORIHRILITY Dollar for dollar, the cost of fuel and energy is passed along to Atlantic Electric's customers.

That's why it's important to seek out the most economical source of fuel and energy available . A top-notch system delivers low-cost power* from where it's generated to where it's needed, when it's needed. Energy supply is a two-way street. There are times when Atlantic Electric is able to supply energy to the Pennsylvania-New Jersey-Maryland Interconnection (PJM). Other times the P JM, a neighboring utility or a non utility generator supplies us with economical power. Any savings are passed along to customers.

The point is that a strong power delivery system lets us make choices for customers to help .keep their energy costs affordable.

Atlantic Electric is expanding its 230 kV transmission system to make more choices possible.

This project is state-of-the-art in terms of longrange planning and construction.

For customers, it means improved reliability, affordability and room to grow. Making these improvements to our high voltage transmission system will span several years. In 1988, we finished the first phase:* a 33-mile line that begins in the north central part of our service territory and delivers energy to our fast growing ern region. The second phase*will be finished in early 1992. This 21-mile line on the western side of our territory has special importance.

It ties three non utility power plants to Atlantic Electric.

Both of these lines have used money-saving planning and construction techniques. tional phases are planned to connect the eastern and western links and complete the project. After the turn of the century, it's expected that customers will continue to be served by an improyed, highly-reliable transmission "loop" within southern New Jersey. The Cardiff-New Freedom mission line is the first link in an proved high voltage transmission loop that will serve southern 'ew Jersey into the 21st_ century Large industrial customers may be connected to the utility's system at these mission levels Planning a power delivery system mixes sound engineering and cal cost control with thoughtful insight. It begins with questions:

Who will our customers be? How much will they need? Where will the energy be needed? What new sources of energy will be available?

I We develop forecasts based on oiir experience and our expectations.

We study the past, analyze the options and ask more questions:

Will new generating sources have to be built or can we use existing facilities?

What happens if energy use grows faster than we thought? How much will it cost? The help usylan for the future. In the final analysis, a well-planned power delivery system has certain traditional characteristics.

It has room for: growth. It can accommodate customers' changing use and can keep up with the interchange of energy between utilities, nonµtilities and power pools like tpe PJM. It can stand Mother Nature's bad days or the loss of a generating unit. Atlantic Electric's goes *beyond the basics. We have "master plans" for our power delivery system to guide long-range planning, *design, construction and maintenance

._ What makes these plans sp.ecial is that they provide for the orderly development of a power delivery system giving consideration to all the unknowns'that exist. The ples and standards adopted in those are based on the knowledge that circumstances change, new technologies emerge, demand for energy varies and philosophies shift. To some, it might seem like a whole lot to keep track of. But not for us, we'r_e ready. At these lower voltages, electricity flows to a distr ib ution sstation where it is ste p ped down even more for use b y homes an d businesses.

Each distribution substation provides electricity to a local area *by means of distribution feeders or lines Distributio n line transformers a r e loca t e d on p r actically every street served by a utility. They step down the voltage to its lowest level (120/240 volts) to provi d e electric service to customers TRANSMISSION PANDORA'S BOX OF An impnrtAn:

cy., is e xchanging e nergy. In 1 990, about 15% of the e n e rgy g e n e rat e d in our nation reached custom e rs as a r e sult of th e s e e xchanges

11 % from utiliti e s and 4% from nonutilities.

En e rgy is deli ve red through compl e x , d e licately-balanc e d transmission systems that op e rate in conc e rt. Utilities dep e nd

• on each oth e r to coordinate thos e systems and to keep reliability high. R e cently , regulations have been proposed that could forc e utilities to open th e ir transmission lines to oth e rs for the purpos e of deliv e ring en e rgy. Those in favor say that ultimately , customers will be serv e d by lower rates. We disagree.

Th e risks ar e too great. From our perspective, op e ning transmission lines threatens r e liability. Numerous pow e r produc e rs competing for open access to a transmission syst e m would c omplicate and impair syst e m operation.

Costs would in c reas e. ating problems would b e come mor e difficult to det ec t and s e rvice r e storation far mor e complicat e d and ex pensive. We cannot support r e gulations that.

• would surrend e r som e control of a very complex transmission syst e m. This system has b e en dev e loped ov e r th e years by p e opl e experienc e d in m e eting southern New Jersey's e n e rgy needs. Our shareholders and customers li:av e paid for that system and our customers are entitled to be served by \t. We cannot support rules that would give priority to power deliveries that would benefit only a few. Rul e s like this could make it impossible to tak e advantage of economical purchases that could benefit all. Our ability to provid e customers with safe , reliable and affordable en e rgy is why we are in business. We oppose any effort that jeopardizes our obligation to s e rv e customers.

• *

• High strength, low maintenance sleet poles are replacing the familiar vanized steel lattice towers for higher 'voltage transmission lines. When exposed to the elements, the finish on these high strength poles "weathers" to blend in with the sur-, rounding area. These poles and lines can withstand per-hour winds and a 1 'lz-inch thick coating of ice "My favorite picture (below, left) shows the

• past and the future in the same spot. Our new weathering steel poles are next to the lattice towers we've used for years. Most of the lattice towers still have a lot of service left in them. But you can bet that as they need replacing, we'll use the new steel poles. Y.ou can really see how much better they blend in with . the environment.

They not only look better but they turned out to be the best choice for an important transmission project. "A COUJ!le of years ago we added a new 230 kV line to our system to bring more energy into the part of our territory, including the shore. Some of the line had to be built through wetlands and the Jersey pinelands.

We had to figure out how we could bring it in without ing tliese areas and without spending a fortune. "It turned out to be one of the best projects I've ever worked on. We learned how to install these new poles without building costly access roads. We didn't have to clear as much land because of the poles' special design. We're using a new type of foundation that doesn't need nearly as much concrete carried to the site. We used helicopters to string some of the wires. What's more, we're using many of the same construction techniques on the new 230 kV lines we're building now. 'Tm really proud that Atlantic Electric is doing things this way." Dave Beckmann is Superintendent of Transmission and Civil. *

• * * -* .. Atlantic Electric's extensive transmission and distribution system makes sure that power is the r e when customers need it. More than 10,000 miles of wire wind tllrough Atlantic Electric's 700 square-m¥e service territory, bringing the power door to door "Once we know where the power is needed, we have to figure out the best way to get it there. Sometimes, it's a tough job because you have to get from "point A" to "point B," but you can't always go in a straight line. "We have lots of things to consider when we plan a line route. First, we try to use rights of way that already exist. Then, we see if we can use industrial areas, roadways or railroad tracks as corridors for new lines. We try our hardest to keep our transmission lines out of developed dential areas. Sometimes we wind up with a line that has a lot of twists and but in the end it's the most prudent way to go. "Our new pole design for higher voltage wires uses a narrower right of way. Now, they only have to be about half the.width of what we used to need for the same line voltage. That means we have less area to clear. But when we do have to clear an area, wE)'re very careful about how we do it. We clear only the areas that might impact the safety or reliability of our lines. In environmentally sensitive areas like pinelands or lands we are especially careful. We try to leave the low-growth plants and smaller trees in the area. We've even re-seeded areas with annual plants and other ground cover that will like partridges and songbirds.

To make things look more pleasing, we'll plant trees or shrubs to act as a screen or buffer, making our facilities less visible. "Maintenance is a full time job. We try to keep the areas free of debris. Unfortunately, our rights of way sometimes get used by others as a dump site. When that happens, we'll do our best to barricade the area to stop the problem. Tl;le bottom line is, the area must be clear enough to permit the safe operation of our lines, but remain natural enough to allow plants and wildlife to flourish." George Henry is Superintendent of Right of Way and Forestry.

A right of way is a narrow corridor or cleared land that runs on either side or a utility transmission or distribution line. Narrower rights of way mean more land can be left in its natural state. ew high voltage pole designs make this possible Part of the job. for George Henry and Nancy Sullivan or the Right of Way Depf1.rtment involves discussing plans for a right of way with customers

• .. A compatible tree is one that works gether with a utility's distribution lines. These trees, like wood or cherry, grow at a slower rate and mature at ll smaller height, keeping their branches at a safer distance from power lines. "Keeping the power flowing means we have to keep all of our lines free and clear. With sion lines, our job is a bit easier because they are located in wider rights of way. When it comes to distribution lines, like the ones you see in front of your house, we sometimes have a tough time. Our biggest challenge is trees. You get one good ice or wind storm ap.d the next thing you know, tree limbs are down all over power lines and our customers are out of service. It hurts our reliability and it can cause soine serious safety problems. "That means we have to trim the trees near our power lines. It's my job to see that the health of the tree gets proper attention.

We use a method called 'directional trimming' researched by the US Forest Service. This kind of trimming encourages the tree to grow away from the lines. Over a period of years, *we won't have to trim as often and that's healthier for the tree. "Sometimes we find a tree that can't be saved. It may be unsafe or ardous to our lines. When that happens, we ha.ve to recommend to the property owner that the tree be removed. In the not too distant future, we'll be able to replace a lost tree with a 'compatible tree: one that grows a bit slower and matures a bit shorter. These trees fit in well with our lines while still providing shade and beauty for the community.

We've tested the program in a few communities and it's been very successful. "You might wonder where we get these trees from. Well, we're starting to grow our own. A few years ago, Atlantic Electric began fixing up a holly orchard in Millville, New Jersey. I'm real proud of the way it has come along. We have over 50 acres of orchard and nursery With just about ever:y type of American holly tree you could imagine. We've also planted an area for our "co_mpatible trees." Once they'r_e ready, they will be the source for replacement trees in our communities.

We'll also use trees from this farm to landscape areas around our facilities. "It's nice to know that the work we do gives something to our community and our world." Matt Simons is Superuisor of Forestry.

Directional trimming (depicted above) maintains the health of the tree and the safety of power lines Mike eal Oeft) and Matt Simons, Forestry Department, examine the growth of newly planted holly seedlings

• Electric Field only (no current) Electric and Magnetic Fields (with current) Electric and Magnetic Fields (EMFs) are invisible lines of force that occur whenever an electric charge is present and moving. Electric fields are invisible fields of force created by the pressure (voltage) of an electric charge. -Magnetic fields are invisible fields of force created by the motion (amperage) of ar electric charge I "Today the most complex issue facing us is electric. and magnetic fields_:known as EMFs-and the public's interest in their possible health effects. Customers are as concerned about this as anything in recent history. That's why it's my job to make sure that our company knows as much as possible about this issue. That way, we can respond knowledg_eably to our customers' and employees' questions. "What makes this difficult is that there are no simple answers. But, that doesn't mean we are ignoring the questions.

So far, almost 50 scientific studies have been published examining possible relationships between . EMFs and health. The results may appear confusing and contradictory.

However, there-has been no sufficient scientific evidence to conclude that exposure to EMFs causes any illness or disease. There's more research going on today, but it will be several years before it's completed. "The way I see it, there are three ways to deal with public concern about EMPs now. First, we could ignore it and hope it goes away. That's just not acceptable at Atlantic Electric.

Second, we could start spending a lot of money on procedures that could significantly reduce, but not eliminate EMFs. That's not very wise since the cost would be astronomical and not really justified. "I think we've chosen the most prudent course of action for now. We're managing EMFs through careful placement and layo'ut of our new mission and distribution lines and substation facilities.

If customers ask, we'll go to their homes and businesses and measure the level of EMFs. Where we can reduce the level of EMFs through modest costs, we're doing so. We're supporting scientific research at the academic and fessional levels.

out talking to citizens who have raised concerns about the health effects of EMFs. We've even involved those citizens in our plans to provide future service. And, we're continuing to dedicate a small group of people, myself included, to study and learn from information supplied by outside medical, technical and _other experts. "Like I said, we_don't have all the answers today. But we're asking the right questions." Mike Picucci is Coordinator of the EMF Management Seruices Team. A gaussmeter is an instrument used to measure the level ofEMFs . ..

Residential Customers Sales to Residential customers increased 3.1 % in i 991 because of hotter weather during the sumnier months. More than 3,300 new Residential customers were added to the system during the year. %Annual Est.%Annual For the Growth Rate Est. Growth Rate ten-year period 1986-1996:

1986 1991 '86-'91 1996 '91-'96 Sales (billion kwh) 2.839 3.370 3.5% 3.631 1.5% % of Total Sales 43 42 43 Average Use (kwh) 7,982 8,440 1.1% 8,424 (0.4)% Peak (Mw) . 786 1,086 6.7% 998 (1.7)% Commercial Customers Sales to Commercial customers grew 2.8% as a result of a modest increase in the number of new customers and higher average use per customer.

Sales to , 12 hotel-casinos increased 3.5%, and comprise 6.9% of total sales. 8 7 6 5 4 3 2 1 %Annual Est.%Annual For the Growth Rate Est. Growth Rate ten-year period 1986-1996:

1986 1991 '86-'91 1996 '91-'96 Sales (billion kwh) 2.401 3.147 5.6% 3.497 2.1% % of Total Sales 37 40 41 Average Use (kwh) 52,938 61,619 3.1% 59,872 (0.6)% Peak (Mw) 528 622 3.3% 659 1.2% Industrial

& Other Customers Sales to Industrial

& Other customers decreased by 0.6% in 1991. During the fourth quarter, ACE's largest industrial customer became a self-generator and will now supply virtually all its own f)nergy needs. For the ten-year period 1986-1996:

1986 Sales (billion kwh) 1.281 % of Total Sales 20 Average Use (000 kwh)* 1196.7 Peak (Mw) 145 *Industrial customers only 1.435 1426 1.395 1.382 3.063 2.742 2.917 2.592 3.040 3.213 3.266 3.268 'I ATLANTIC ELECTRIC Energy Sales by Customer Class RESIDE TIAL e COMMERCIAL e I DUSTRIAL AND OTHER %Annual Growth Rate 1991 '86-'91 1.418 2.1% 18 1371.1 2.8 o/o 203 7.0% 1418 3.147 The growth in kilowatt-hour sales is determined by how 3.370 many new customers are added, how much electricity each customer uses and weather conditions.

Since 1986, kilowatt-hour sales have increased an average of 4.0% each year as a result of customer additions and increased usage per customer.

Est.% Annual Est. Growth Rate '1996 '91-'96 1.333 (1.2)% 16 1249.5 (1.8)% 154 (5.4)% Atlantic Electric serves more than 450,000 customers in a 2, 700 square-mile area in the southern one-third of ew Jersey. Peak load has occurred during the summer months. _ Major businesses include gaming, stone, clay, glass, chemical, petroleum, rubber and food processing

• *

• CONTENTS

• Report of Management

• Report of The Audit Committee

• Independent Auditors' Report CD Consolidated Statement of Income

• Consolidat e d Statement of Cash Flows e Consolidated Balance Sheet

• Consolidated Statement of Changes in Common Shareholders' Equity e Notes to Consolidated Financial Statements

• Management

's Discussion and Analysis of Financial Condition and Results of Operation

-G Summary Financial and Statistical Review Atlantic Energy, Inc. and Subsidiaries HEPORT OF '.\L\\AGE'.\1E\T The management of Atlantic Energy, Inc. and its subsidi-aries (the Company) is responsible for the preparation of. the financial statements presented in this Annual Report. The financial statements have been prepared in conform-ity with generally accepted accounting principles.

In preparing the financial statements, management made informed judgments and estimates, as necessary, relating to events and transactions reported.

Management is also responsible for the preparation of other financial informa-tion included elsewhere in this Annual Report. Management has established a system of internal account-ing and financial controls and procedures designed to provide reasonable assurance as to the integrity and ability of financial reporting.

This system is examined by management on a continuing basis for effectiveness and efficiency.

Management believes that, as of December 31, 1991, the system of internal accounting and financial con-trols is adequate to accomplish its objectives.

Management also recognizes its responsibility for fostering a strong ethical climate in which the Company's affairs are con-ducted according to the highest standards of corporate conduct. This responsibility is characterized and re-flected in the Company's code of ethics and business conduct policy. The financial statements have been audited by Deloitte & Touche, Certified Public Accountants.

The auditors provi.de an objective, independent review as to management's di. charge of its responsibilities insofar as they relate to the fairness ofreported operating results and financial condi-tion. Their audits are based on procedures believed by them to provide reasonable assurance that the financial statements are not misleading and include a review of the Company's internal control structure and tests of transactions.

The internal auditing function conducts audits and praisals of the Company's accounting and other tions, and evaluates the financial and operational control procedures which have been established and compliance with those procedures.

Both Deloitte & Touche and the internal auditors periodically make recommendations concerning the Company's internal control structure, and management responds to such recommendations as appropriate in the circumstances.

None of the mendations made for the year ended December 31, 1991 represented significant deficiencies in the design or opera-* tion of the Company's internal control structure.

9-/ J. L. Jacobs President J. G. Salomon e Vice President and Treasurer

• Atlantic Energy , Inc. and Subsidiaries The Audit Committee of the Board of Directors is com-*rised s?lely directors.

The members of e Audit Committee are: Matthew Holden, Jr., Chairman, Michael Galvin, Jr., Gerald A. Hale, Madeline H. McWhinney and Harold J. Raveche. The Committee held six meetings during fiscal year 1991. The Audit Committee oversees the Company's financial reporting process on behalf of the Board of Directors.

In fulfilling its responsibility, the Committee recommended to the Board of Directors, subject to shareholder tion, the selection of the Company's independent public accountants.

The Audit Committee discussed with the internal auditors and the independent public accountants the overall scope and specific plans for their respective audits. The Committee also discussed the Company's consolidated financial statements and the adequacy of the Company's internal control structure with the independent public accountants.

The Committee met regularly with the Company's internal auditors and independent public accountants, without management present, to discuss the results of their examinations , their evaluations of the Company's internal control structure and the overall quality of the Company's financial reporting. The meetings also were designed to facilitate any private communication with the Committee desired by th e internal auditors or independent public accountants.

I *-4 dtMJ I Jr. Matthew Holden, Jr. Chairman , Audit Committee Atlanti c t: nergy , I n c. and S u bsidia r ies Deloitte&

Touche C e rtifi e d Public Accountants Two Hilton Co urt , P.O. B ox 3 19 Parsippan y, N ew J e rs ey 07054-0319 To the Shareholders and the Board of Directors of Atlantic Energy, Inc.: We have audited the accompanying consolidated balance sheets of Atlantic Energy , Inc. and subsidiaries as of December 31, 1991 and 1990 and the related consolidated statements of income, changes in common shareholders' equity, and of cash flows for each of the three years in the period ended December 31, 1991. These financial statements are the responsibility of the Company's ment. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards.

Those standards require that we plan and perform the audit to obtain reasonable ance about whether the financial statements are free of material misstatement.

An audit includes examining , on a t e st basis , evidence supporting th e amounts and disclosures in the financial statements.

An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects , the financial tion of Atlantic Energy, Inc. and its subsidiaries at b e r 31 , 1991 and 1990 and the results of th e ir operations and their cash flows for each of the three years in the period ended December 31, 1991 in conformity with generally accepted accounting principles.

January 31, 1992

• Allanlic Energy, Inc. and Subsidiaries CONSOLIDATED STATEME:\T OF INCOME (fhousands of Dollars) For the Years Ended December 31 *********************************************************

• lml******************

llmll******************llml******* Operating Expenses:

Energy Costs Operations Maintenance Depreciation and Amortization Gross Receipts and Franchise Taxes Federal Income Taxes Other Taxes

.. Other Income: Allowance for Equity Funds Used During Construction Other Income-Net Total Other Income

... Interest Charges: Interest on Long Term Debt Interest on Short Term Debt Other Interest Expense .............................................

Total Interest Charges

..

...

..... ... Net Income $777,970 156,718 221,712 51,960 66,023 88,932 36,244 11,525 633,114 144,856 1,814 7,043 8,857 153,713 51,601 1,946 1,179 54,726 (3,059) ...............

.... 51,667 (16,411) $ 85,635 ****************************::::::::::*:::::::::::::::::

************************:t:::**:::::::::::

:::::;:::::::::::::::::::

Average Number of Shares of Common Stock Outstanding

$716,779 161,428 190,951 52,351 62,141 87,314 26,917 11 , 115 592,217 124,562 1,727 7,585 9,312 133,874 54,803 1,510 109 56,422 (2,226) 54,196 (10,799) $ 68,879 $705,020 $ 173,724 167,435 55,203 58,485 83,396 22,865 9,167 570,275 134,745 5,450 5,450 140,195 47,131 5,231 909 53,271 (2,805) 50,466 (8, 765) 80,964 (in thousands) 24,504 22,795 21,634 :::::::::::::::::::::::***

***********::::::::::::*::::::::::::::<::::::::::::::::::::::

Per Common Share: * $3.02 $3.74 * .......................

,,,,,,,,.,,,,,,,,.,,,,,,,,,,,,,,,,, , ,,,... "' $2.99 $2.94 $2.85

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, ... Dividends Declared $3.49 ************::::::::

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 1'f::::::::::***

Dividends Paid $2.98 $2.92 $2.82 **************:*:::::::::::::::::::::::::::::::::

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Atlantic Energy, Inc. and Subsidiaries (Thousands of Dollars) For the Years Ended December 31 *********************************************************************

• lml****************

• • lllllDl******************

lllm******* Cash Flows Of Operating Activities:

Net Income Deferred Purchased Power Costs Deferred Energy Costs Noncash items affecting operating activities:

Preferred Stock Dividend Requirements of Subsidiary Depreciation and Amortization Allowance for Funds Used During Construction Investment Tax Credit Adjustments-Net Deferred Income Taxes-Net Net (Increase)

Decrease in Other Working Capital Other-Net ..

Cash Flows Of Investing Activities:

Utility Cash Construction Expenditures Leveraged Lease Investments Leased Property Nuclear Decommissioning Trust Fund Deposits *nutility Property and Equipment ility Plant Removal Costs Other-Net

$ 85,635 (12,938) 13, 180 16,411 66,023 (4,873) (2,348) 15,761 (2,821) 10,508 184,538 (172,425) 3,960 (8,793) (13,777) (538) (5, 157) (6,822) (203,552) ..

..

...............................................................

................

....... Cash Flows Of Financing Activities:

Proceeds from Long Term Debt Retirement and Maturity of Long Term Debt Increase (Decrease) in Short Term Debt Proceeds from Capital Lease Obligations Common Stock Issued Preferred Stock Issued Redemption of Preferred Stock Dividends on Preferred Sto c k Dividends on Common Sto c k Other-Net .. ..

... Net Increase (Decrease) in Cash and Temporary Investments a.5.1.1. .11:1.1?. !

p?. r.11:1:!'. : .. ?. e.

.?.f ye a.r. .....

.11:1.1?. ! Il:1 P.?.r.11:1:!'.

e.11 . Ild . 0 f x e.a.r. ..... Supplemental Schedule of Payments:

Interest .....

... 38,779 (50, 170) (23,350) 8,793 72,698 70,000 (1,050) (16,411)

(62,769)

... 28,120 9,106 8,961 $ 18,067 $ 57,221 $ 23,721 $ 11,304 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. $ 68 , 879 (21,840) 20,136 10 , 799 62,141 (3, 953) (2,349) 15 , 177 9,591 1,290 159,871 (166,818) 3,993 (10,576) (1,920) (129) (3 , 912) (4,200) (183,562)

(28,625) 43,950 10,576 4,694 50,000 (1,050) (10,799) (56,673) (4,329) 7,744 (15,947) 24,908 $ 8,961 $ 58,080 $ 19,279 $ 10,412 $ 80,964 (19,660) 8,560 8,765 58,485 (2,805) (2,449) 17,616 (23,060) 902 127,318 (145,081)

(27,777) (9,229) (3,263) (3 , 536) (4,286) (4,548) (197 , 720) 150,183 (15,998) (61,000) 9,229 71,605 (4,050) (8, 765) (52,756) (4,044) 84,404 14,002 10 , 906 $ 24,908 $ 52,817 $ 14,284 $ 9 , 639 Atlantic En e rgy , Inc. and Subsidiaries

• CO:\SOLIDATED BALA:\CE SHEET (Fhousands of Dollars) December31

......................

..........................

...........................................................................................................................

• IIIIll*** .............. *ll!l!Ill

• ..... . Assets Electric utility Plant: In Service: Production Transmission Distribution General Total In Service Less Accumulated Depreciation

...................................................................................

Net Construction Work in Progress Land Held for Future Use

.. Electric Utility Plant-Net

......................... Nonutility Property and Investments:

Investment in Leveraged Leases Nuclear Decommissioning Trust Fund Nonutility Property and Equipment-Net Other Investments and Funds

... Current Assets: Cash and Temporary Investments Working Funds Accounts Receivable:

Utility Service Miscellaneous Allowance for Doubtful Accounts Unbilled R e venues Fuel (at average cost) Materials and Supplies (at average cost) Prepayments D e ferred Taxes $1,009,776 295,044 557,494 152,441 2,014,755 545,829 1,468,926 102,708 5,045 53,093 1,629,772 75,293 26,489 15,039 4,233 121,054 18,067 15,955 49,842 16,703 (2,400) 38,078 21,646 27,394 11,267 11, 142 $ 953,342 281,431 494 , 807 119 , 892 1 , 849 , 472 504,202 1,345,270 114,622 5 , 073 57,971 1 , 522,936 75,156 11 , 784 15,003 7,425 109,368 8,961 14,709 48,461 17,767 (2,000) 34,849 26,262 28 , 221 12 , 113 * ................... . . ..............

.... ... ...... ...............

..........

.. ........ . ........................ ************

.................

... . 7,476 196,819 Total Current Assets Deferred Debits: Property Abandonment Costs Unr e covered Purchased Power Costs D e ferred Energy Costs Unamortized Debt Costs Other Total Deferred Debits Total Assets Th e accompanying N otes to Consolidated Financial Stat e ments are an integral part of these statements. 207,694 8,502 137,818 10,360 22,505 13,711 9,443 124 , 880 10,360 22,379. . 9 , 825 ... 192,896 176 , 887 ..........

• • • $2, 151,416 $2,006,010

• December31

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • llm***

• • • • • • • • • • • • • • • lml*******

Liabilities and Capitalization Capitalization:

Common Shareholders' Equity: Common Stock, no par value; 50,000,000 shares authorized . Total Common Shareholders' Equity Preferred Stock of Atlantic Electric:

Not Subject to Mandatory Redemption Subject to Mandatory Redemption Total Capitalization Current Liabilities:

Preferred Stock Redemption Requirement

.ng Term Debt due within one year pita! Lease Obligations due within one year Short Term Debt Accounts Payable Taxes Accrued Interest Accrued Dividends Declared Customer Deposits Deferred Energy Costs Other Total Current Liabilities Deferred Credits and Other Liabilities:

Deferred Investment Tax Credits Deferred Income Taxes Obligations under Capital Leases Other Total Deferred Credits and Other Liabilities

.mmitments and Contingent Liabilities (Note 10)

... $ 520,345 $ 436,343 234,894 223,749 755,239 660,092 40,000 40,000 191,300 122,350 1,552,086 1,398,019 1,050 1,050 49,450 48,900 740 686 20,600 43,950 57,467 61,890 7,367 10,776 13,638 13,128 23,550 20,127 2,988 2 , 777 24,592 11,412 16,093 20,997 217,535 235 , 693 59,249 61,597 255,495 236,068 52,353 57,285 14,698 17,348 381,795 372,298 $2, 151,416 $2,006,010

• Al/antic Energy, Inc. and Subsidiaries C:O:\SOLIDATED STATEME;\;T OF CHANGES I'.\ C:OMMO'.\:

SHAHEllOLDEHS' EQUITY

...........

...........................

...........................................................

...........................

........................... Balance, December 31, 1988 20,011,561

$339,993 $203,594 Common stock issued: Public offering Other Net income Common stock dividends Balance, December 31, 1989 Common stock issued Net income Capital stock expense of subsidiary Common stock divid e nds Balance, December 31, 1990 Common stock issued: Public offering Other Net in co me Capital stock expense of subsidiary Common stock dividends

............................. ............................... . .........................

.... .

... . . .............. . As of December 31, 1991, there were 50 million shares authorized of no par value Common Stock. Other than public offerings, Common Stock issuances in 1991 , 1990 and 1989 were for the Dividend Reinvestment and 2 , 200,000 334,156 22,545,717 430 , 271 69,730 11,514 421,237 15 , 106 22,975,988 436,343 2 , 000,000 472 , 049 66,970 17,032 80,964 (62,395) 222,163 68,879 (208) (67,085) 223,749 85,635 (417) (74,073) .............................. ************

• • ......

Stock Purchase Plan (DRP) and ACE employee benefit

• plans.AtDecember31, 1991, 109,910and 75,176shar were reserved for issuance under the DRP and ACE em-ployee benefit plans , respectively.

The accompanying N otes to Consolidated Financial Statements are an integral part of these statements.

• Atlantic E n e r g y , I nc. and Subsidiaries e NOTE 1. SIGNIFICANT ACCOUNTING POLICIES .................................................

............................................................................ . Organization Atlantic Energy, Inc. (the Company) is the parent of a solidated group consisting of the following wholly-owned subsidiaries:

Atlantic City Electric Company (ACE), Atlantic Generation, Inc. (AGO. Atlantic Southern Properties, Inc. (ASP), ATE Investment, Inc. (ATE) and Atlantic Energy Technology, Inc. (AET). ACE is a public utility primarily engaged in the generation, transmission, distribution and sale of electric energy. Rates for service are regulated by the New Jersey Board ofRegulatory Commissioners (BRC). formerly the Board of Public Utilities.

ACE's service tory encompasses 2, 700 square miles within the southern one-third of New Jersey. The majority of ACE's customers are residential and commercial.

ACE, with its wholly-e wned subsidiary that operates certain generating facilis, is the primary company within the consolidated oup. AGI and its wholly-owned subsidiaries are engaged in the development of cogeneration power projects in var-ious locations through several partnership arrangements.

ASP owns , develops and manages a commercial office and storage facility located in southern New Jersey. ATE vides fund management and financing to affiliates and manages its existing portfolio ofinvestments. AET, formed in April 1991, invests in companies with energy-related products and technologies and currently has an equity terest in a company that markets and installs geothermal heating and cooling systems in the Pennsylvania, New York and New Jersey area. Principle s of Con s olidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant company accounts and transactions have been eliminated in consolidation.

AGI and AET account for their ments using the equity method by recognizing their portionate share of the results ofoperations. The results of operations of the nonutility companies are not significant and are classified under Oth e r Incom e in the Consolidated Statement of Income. Regulation accounting policies and rates of ACE are subject to the of the BRC and in certain respects to the eral Energy Regulatory Commission (FERC). All significant accounting policies and practices used in the determination ofrates are also used for financial reporting purposes.

Electric Operating Revenues Revenues are recognized when electric energy services are rendered, and include estimates for amounts unbilled at the end of the period for energy used subsequent to the last billing cycle. Electric Utility Plant Property is stated at original cost. Generally, the plant is subject to a first mortgage lien. The cost of property tions , including replacement of units of property and betterments, is capitalized.

Included in certain property additions is an Allowance for Funds Used During struction (AFDC) which is defined in the applicable regulatory system of accounts as the cost during the period of construction of borrowed funds used for construction poses and a reasonable rate on other funds when so used. AFDC has been calculated using a semi-annually pounded rate of 8.95%, as approved by the BRC, for the years presented. Deferred Energy Costs As approved by the BRC, ACE has Levelized Energy Clauses (LECs) which are based on projected energy costs and include provisions for prior period underrecoveries or overrecoveries of energy costs. The recovery of energy costs is made through levelized rates over the period of projection.

Any underrecovery or overrecovery of costs is deferred on the Consolidated Balance Sheet as Deferred Energy Costs , which can be an asset or liability as priate. These deferrals are recognized in the Consolidated Statement of Income as Energy Costs during the period in which they are subsequently recovered through the clauses. Depreciation ACE provides for straight-line depreciation based on the estimated remaining life of transmission and distribution property , and based on the estimated average service life for all other depreciable property. The overall composite rate of depreciation was approximat e ly 3. 7% in 1991 and 3.6% in 1990 and 1989. Accumulated depreciation is charged with the cost of depreciable property retired together with removal costs less salvage and other ies. Depreciable property of the nonutility companies is not significant.

Atlantic Energy, Inc. and Subsidiaries

\OTES TO CO:\ SO LIDATE D Fl :\A:\C: IAL STATE ME :\TS ( rnn tin urd) Nuclear Fuel Fuel costs associated with ACE's participation in owned nuclear generating stations, including spent nuclear fuel disposal costs, are charged to Energy Costs based on the units of thermal energy produced.

Income Ta x es Deferred Federal and state income taxes are provided on all significant current transactions for which the timing of reporting differs for book and tax purposes.

Investment tax credits from utility property, which are used to reduce current Federal income taxes, are deferred on the dated Balance Sheet and recognized in book income over the life of the related property.

The Company and its sidiaries file a consolidated Federal income tax return. Income taxes are allocated to each of the companies within the consolidated group based on the separate return method. Property Abandonments and Disallowance s of Plant Costs A loss is recognized ifthe carrying amounts of abandoned utility assets exceed the present value of future revenues to be generated by those assets. Any disallowance of the cost of a newly completed utility plant, including an indirect disallowance which provides no return on investment of any portion of the plant, is recognized as a loss. Property Abandonment Costs , stated at their net present value in the Consolidated Balance Sheet, consist of ACE's investment in the following as of December 31, 1991: Net Present U namortized Investm e nt Valu e ($000) Cost ($000) R e maining Recov e ry Period (y e ars) .......................................................

......................

......................... Offshore uclear Generating Units Nuclear Generating Unit Unrecovered uclear Fu e l $ 953 3,730 $1,525 5,366 6 Advanc e s 1,914 3 , 213 9'1. Proposed Plant Site Costs 1,905 2,519 4 11. ************************************************************************

• • The investment level fixed by the BRC for ratemaking poses associated with the construction of the Hope Creek Generating Station is $217.4 million, of which $3.4 million has been excluded from rate base for purposes of ing a return on the investment.

Since no return on these abandoned or excluded costs was granted by the BRC, the excess of the carrying value of the assets over their discounted present value was recognized as a loss at the date of abandonment.

Such discount is being restored to income by accretion over the tion period allowed for ratemaking. Unrecovered Purcha s ed Po wer C o sts

• ACE has agreements forthe purchase of125 megawatts (MW) of capacity and related energy from Pennsylvania Power and Light Company (PP&L) under two Capacity and Energy Sales Agreements. The agreements provided for the purchase of capacity and energy from PP&L' s hanna nuclear Unit 1 and Unit 2 through September 30 , 1991, and from certain PP&L coal-fired units through tember 30, 2000. The base rates approved by the BRC to recover the non-fuel costs of this arrangement are based on a levelization of the estimated non-fuel contract costs to be incurred over the 17-year period of the agreements. The estimated non-fuel contract costs of the nuclear tion of the agreements are higher than the estimated fuel contract costs of the coal portion of the agreements. During the nuclear portion of the agreements , the estimated non-fuel costs exceeded the levelized revenues. The excess estimated non-fuel costs were deferred on the solidated Balance Sheet as Unrecovered Purchased Power Costs. Related deferred Federal income taxes have been provided.

Beginning with the coal portion of the agre ements effective October 1, 1991 , the levelized rates are greater than the estimated non-fuel costs. This enables ACE to amortize the deferred non-fuel costs over the re-maining term of the agreements to Operations on the Con-* solidated Statement of Income. Differences between actual non-fuel costs incurred and those estimated are subject to usual base rate recovery procedures.

Nuclear DecommiHioning Trust ACE has established a trust to fund the future costs of decommissioning each of the five nuclear units in which it currently has an ownership interest.

The current alized funding amount, as authorized by the BRC, totals $6.4 million and is provided for in rates charged to tomers. The funding amount is based on estimates of the future cost of decommissioning e ach of the units, the dates that decommissioning activities would occur and the turn to be earned by the assets of the fund. In its most cent base rate order , the BRC determined that the total estimated cost to decommission ACE's share in nuclear units is $65.5 million in 1987 dollars. That order further established that decommissioning activities would begin in 2006 and continue through 2032. Actual costs and timing of decommissioning activities may vary from the current estimates.

ACE will seek to adjust these estimates and the level ofrates collected from customers in future BRC ceedings to reflect changes in decomissioning cost mates and the expected levels ofinflation and interest to be earned by the assets in the fund. Approximately

$16 million of the funds deposited into the trust are qualified

• for Federal income tax purposes. In May 1991, ACE de-posited approximately

$9 million into the trust, represent-ing amounts collected from customers in prior years but not funded. The fund balance in excess of deposits repre-sen ts net earnings of the trust. At December 31, 1991, ACE had an accumulated liability for decommissioning costs of $25.5 million, which is included in Accumulated Depreciation.

Othe r Debt premium, discount and expenses of ACE are tized over the life of the related debt. Costs associated with debt reacquired by refundings are amortized over the life of the newly issued debt as permitted by the BRC in ac-cordance with FERC guidelines.

Temporary investments considered as cash equivalents for Consolidated Statement of Cash Flows purposes represent purchases of highly liquid debt instruments maturing in three months or less. Working funds, which consist primarily of advances to jointly-owned stations, are excluded from cash. Certain prior year amounts have been reclassified to conform to the current year reporting.

e NOTE 2. FEDERAL INCOME TAXES .............

................................................

...........................

............

..........................

...................... . ($000) For the Years Ended December 31 ******************************

llml******************

IDlll***********

• • • • • • • llBll******* The components of Federal income tax expense are as follows: Current $ 24,202 $ 16,652 $ 9 , 711 Deferred 13,043 12,292 14,554 Investment Tax Credits Recognized on Leveraged Leases (500) (752) (1,000) Total Federal Income Tax Expense 36,745 28,192 23,265 Less Amounts Included in Other Income 501 1,275 400

• ederal Income Taxes Included in Operating Expenses $ 36,244 $ 26,917 $ 22,865 :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::***

eferred Federal income taxes result from the following:

Liberalized Depreciation

$ 10,558 $ 11,156 $ 9,564 Unrecovered Purchased Power Costs 3,477 5 , 845 5,104 Deferred Energy Costs (3,825) (5,781) (2,750) Leveraged Leases 11,623 7,932 10,279 Deferred Investment Tax Credits (2,348) (2,349) (2,449)

Other-Net (6,442) (4,511) (5,194)

A reconciliation of the reported Federal income tax expense compared to the expected Federal income taxes computed by applying the statutory rate follows: et Income $ 85,635 $ 68,879 $ 80,964 Preferred Stock Dividend Requirements of Subsidiary 16,411 10,799 8,765 Federal Income Tax Expense ...........................................................................

Book Income to Tax Statutory Federal Income Tax Rate 34% 34% 34% Income Tax Computed at the Statutory Rate $ 47,189 $ 36,676 $ 38,418 Items for which deferred taxes are not provided:

Difference Between Tax and Book Depreciation 3,631 4,661 2,437 Investment Tax Credits (3,038) (3,277) (3,519)

Reversal of Excess Deferred Taxes (2,641) (5,678) (5 , 934) .moval Costs (2,722) (2,245) (2,659) her-Net (5,674) (1,945) (5,4 78)

... $ 36,745 $ 28,192 $ 23,265 *****************************************************************************::::::::::::::***

Effective Federal Income Tax Rate 26% 26% 21% ...............

................

.........................................................................................

.....................

...............................................

....................................

Atlantic Energy , I nc. and Subsidiaries J\OTES TO CO'.\SOLIDATED Fl'.\A'.\CIAL STATEME'.\TS

(<'ontinu<'d)

In 1991, 1990 and 198 9 the Company's computed native Minimum Tax (AMT), attributable to nonutility operations, exceeded its regular tax by $2.0 million, $9.4 million and $5.9 million, respectively.

The cumulative AMT credit available at December 31, 1991 is $17.3 million. The AMT credit is available for an indefinite carryforward period against future Federal income tax payable, to the extent that the regular Federal income tax payable exceeds future AMT payable. At December 31, 1991, the cumulative amount of deferred Federal income taxes which have not been provided on timing differences, principally depreciation, amounted to approximately

$5 7. 9 million. Federal income tax returns for 1983 and prior years have been examined by the Internal Revenue Service (IRS). The IRS has proposed certain changes in taxes for 1980 through 1983, which will not have a significant effect on the Company's results of operations or financial position. In December 1987, the Financial Accounting Standards ing for Income Taxes" which was originally effective for years after 1989. Statement No. 96 changes the recording methodology relating to deferred income taxes to a liability approach.

The principal impacts to the Company relate to the recording, on a current basis, of changes in tax rates and the recording of deferred tax liabilities not previously recorded by ACE. The FASB issued in June 1991 an sure draft entitled "Accounting for Income Taxes" which, if adopted, will supersede Statement No. 96. The impacts to the Company of the new proposal will be principally the same as those under Statement No. 96. In response to this exposure draft, Statement No. 108 was issued in ber 1991 to further delay the application of Statement No. 96 until 1993. When implemented, the Company expects the impacts of the final standard , which is anticipated to be issued in the first quarter of 1992 , to be lessened due to rate regulation.

In the opinion of management, the impacts of the final provision are not expected to have a material effect on results of operations or financial position.

• Board (FASB) issued Statement No. 96 entitled "Account-* e NOTE 3. RATE MATTERS OF ACE **************************************************

Energy Clause Proceedings ACE's energy clauses are subject to annual review by the BRC. In September 1988, ACE filed petitions with the BRC seeking to continue its then existing energy clauses through 1989. The petitions requested deferral of a sufficient level of prior period underrecovered fuel costs to maintain the existing rates. In January 1989, ACE amended its petitions to request a net increase in energy revenues of$9.3 lion. Contained in these amended petitions was an tive for energy clause rates to utilize a cost basis of 18 months rather than the usual 12 months. This alternative would produce a net increase of$4.5 million in annual energy clause revenues. The petitions also provided for a reduction in revenue of $5.3 million for the application of the nuclear unit performance standard regarding 1988 nuclear operations.

Earnings for 1988 had been reduced by a provision of$4.6 million for such disallowance.

In January 1990 , ACE and other parties signed a joint position designed to settle certain contested issues in the proceeding.

The joint position provided for an increase in annual base rate revenues of$41.6 million for ACE's year power purchase agreement of 200 MWs of capacity and associated energy from Philadelphia Electric pany (PE). Coincident with the base rate increase, energy clause revenues were to be decreased by a like amount. A level of capacity costs in excess of those recovered through the base rate increase would have been deferred and covered through the energy clause over successive threeyear periods commencing June 1991. ACE also agreed that it would not, except under certain circumstances, further increase base rates before October 1992. The BRC reopened the record in the 1988 proceeding to accept additional evidence as presented by the joint position.

In May 1990, the BRC rejected the joint position, ruling that the capacity costs associated with the PE purchase were reasonable, but only would be considered within a formal base rate proceeding.

However, ACE was granted a provisional base rate increase of $41. 6 million effective June 1990. Capacity costs incurred under the PE ment, including those not covered by the provisional rates, are charged to operating expenses as incurred.

A motion to the pending base rate case proceeding, as discussed below under 'Base Rate Case Proceedings', was filed in November 1990 seeking BRC approval to defer the costs not covered by the provisional rates. In December 1990, the BRC denied ACE's motion. In March 1990, ACE filed proposed LEC tariffs with the BRC for the period June 1990 through May 1991, which reflected the terms of the joint position discussed above. *

• As a result of the May 1990 BRC action, in June 1990 ACE amended its request to provide for a decrease in annual LEC revenues of$26.2 million. This amendment included a request to begin recovery over three years of certain Salem Nuclear Generating Station costs deferred since 1984 amounting to $10.4 million, recovery of interest ments previously made by ACE related to the deferred Salem replacement power costs and the nuclear ance standard and retention of a portion of fuel and energy savings associated with the PE power purchase ment. In June 1990, the BRC approved an interim net crease in LEC revenues of$35.8 million effective June 1990. This ruling was contingent upon subsequent tion of the ratemaking treatment of the Salem deferred costs, certain interest calculations on overrecoveries and underrecoveries and ACE's proposal to retain a portion of the fuel savings associated with the PE agreement.

In uary 1991, an Initial Decision issued by an Administrative Law Judge (ALl) ruled against ACE's requested recovery of the three contested issues remaining in the proceeding.

In March 1991, ACE filed a petition requesting revisions of its Cs to reflect an increase of$30.6 million for the period e 1, 1991 through May 31, 1992. On June 11, 1991, BRC ordered a net increase in annual LEC revenues of $21.2 million , effective on that date. The June 1991 sion upheld the ALJ's decison and, as a result , ACE was not permitted to begin recovery of the deferred Salem costs and associated interest payments previously made by ACE. The June 1991 decision denied ACE's request to retain a portion of the fuel and energy savings associated with the PE purchase. On January 10 , 1992 , ACE filed with the BRC a request for rehearing and reconsideration of these issues. Base Rate Case Proceedings In compliance with the May 1990 BRC provisional rate der discussed under 'Energy Clause Proceedings', in tember 1990, ACE filed a petition with the BRC requesting an increase in base rate revenues of$112.989 million on an annual basis. Additionally in this filing, ACE requested that the $41.6 million provisional base rate revenue crease granted by the BRC effectiv e June 1990, as cussed in 'Energy Clause Proceedings', be confirmed and continued in permanent rates. Also, ACE requested ery of the first year costs of the PE agreement not covered by the provisional increase, plus full recovery of the costs for the remaining three years of the agreement.

In its g, ACE sought to increase its n e t rate base by an al $400 million to $1.4 billion and requested an overall e of return of 11.13% and a return on common equity of 13.7%. At that time, ACE had an authorized overall return of 11. 42% and a return on common equity of 14 .1 %. On June 24, 1991, an Administrative Law Judge (ALJ) sued an Initial Decision accepting a stipulation between ACE and the parties in the base rate proceeding.

The ulation provided, among other things , for an increase in base rates of $50 million based upon a test year ending May 31, 1991, with a net proforma rate base mately $1. 3 billion, an allowed overall rate of return of 10.52% and a return on common equity ofl2.50%. In dition, the parties agreed to confirm and make permanent in base rates the $41.6 million provisional increase. On July 3, 1991, the BRC adopted the Initial Decision of the ALJ and the stipulation of the parties and authorized an annual increase in base rate revenues of$50 million. During the course of the proceeding, the ALJ ruled that a Phase II was appropriate for the determination of the ulatory treatment of consolidated Federal income tax efits derived from affiliated nonutility entities.

In its July 3, 1991 written Order , the BRC ordered that the issue of solidated taxes remain open and that ACE file a petition in this matter no later than 60 days from the date of the BRC Order. The stipulation also provides that ACE would not be prevented from requesting regulatory treatment in a Phase II or other proceeding of any obligations arising from changes in state law with respect to Gross Receipts and Franchise Taxes (GR&FT) that were enacted on June 30, 1991. Under the new GR&FT law, beginning in 1992, ACE must remit to the State, in a single payment, GR&FT on or fore April 1. In addition, ACE will be required to remit an additional year of tax within the two year period 1993-1994 along with its regular tax payments for these years. The additional payments for 1993 and 1994 will amount to between $46 and $50 million in each year. A deficiency in rates to recover these increased expenses would tively affect earnings in 1993 and 1994 when the tions for the payments arise. On August 30, 1991, ACE filed for an increase in base rate revenues of$25.8 million primarily to recover the creased costs relating to the changes in the GR&FT law. Such amount would recover the additional payments to be made in 1993 and 1994 over a five-year period ing in April 1992 with a return on the unrecovered portion of the additional tax. With respect to consolidated Federal income tax benefits, in its petition and supporting mony , ACE has asserted that no changes in customer rates should be made on the basis that tax benefits are ated by nonutility affiliates. The Company allocates eral income taxes using the stand alone method. Hearings are underway and a decision by the BRC is expected in the second quarter of 1992. ACE cannot predict the outcome.

Allanlic Energy, Inc. and Subsidiaries NOTES TO CO'.\SOLI DATED Fl '.\:ANCIAL STATEMENTS (eon tin uPd) Other Rate Proceedings ACE is a 7.51 "lo owner of the Peach Bottom Atomic Power Station, which is operated by PE. Proceedings were ated before the BRC to determine the appropriate making treatment associated with the station while it was out of operation under a Nuclear Regulatory Commission (NRC) order effective March 1987. In March 1989, the BRC approved a stipulation which resolved rate treatment for Peach Bottom for 1989. This stipulation provided for an itial revenue credit to ACE's customers of$5. 7 million that was applied in April 1989 and covered 12 unit-months of nonoperation. Earnings for 1989 were further impacted by revenue credits given to customers amounting to $3.8 million for the nonoperation of Unit 3 during the period July 1989 to December 1989. PE received approval from the NRC in April 1989 to restart Peach Bottom Unit 2. In July 1989, the unit was considered returned to commercial operation in accordance with the provisions of the stipulation.

In October 1989, the NRC lifted its March 1987 shutdown order permitting PE to operate both units under normal NRC regulations and review. In January 1990, Unit 3 was considered returned to commercial operation under the stipulation.

e N OT E 4. R E TIRE MENT B ENEF I TS ...................

................

.....................................................

.............................................

................. . ACE has a noncontributory defined benefit retirement plan covering substantially all its employees and those of water Operating Company. Benefits are based on an ployee's years of service and average final pay. The plan's policy is to fund pension costs within the guidelines of the minimum required by the Employee Retirement Income Security Act, and the maximum allowable as a tax tion. Pension costs for 1991 , 1990 and 1989 were $8.0 million, $7.2 million and $6.8 million, respectively. proximately 67% of these costs were charged to operating expense and the remainder, which is associated with construction labor, was charged to the cost of new utility plant. Each company whose employees are covered under the plan is allocated their participative share of plan costs and contributions. Net pension costs for 1991, 1990 and 1989 included the following components:

($000) 1991 1990 1989 ******************************

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Service cost-benefits earned during the peri()d. .............

.....................

$ Interest cost on projected benefit *********

.. Actual return on plan assets (22,188) . .. Expected return on plc:ti:i. . Amortization of unrecognized net transitional asset N e t periodic pension c osts (14,977) $ .. .* $ 6 , 843 16,179 3,060 (18,755) (15,695) (172) 7 , 155 $ $ 6 , 094 14 , 294 (34 , 648) 21,249 (13,399) (172) 6,817 A reconciliation of the funded status of the plan as of December 31, 1991and1990 is as follows: ($000) 1991 1990 ........................................

......................................

.....................

..... Fair value of plan assets $204,000 $189,000

()l:Jlig'1.ti()I1 . .......

.. "11 204 ,314 Plan assets under projected benefit obligation Unrecognized net transitional (4,416) (15,314). asset

...

... Accumulated benefit obligation:

Vested benefits (2,238) (2,410) 7,578 19,178 ... ***********************

$ 924 $ 1,454 $158,473 ...............................................

......................... .* ... At December 31, 1991approximately64%

of plan assets were invested in equity securities, 22% in fixed income securities and 14% in other investments. The assumed rates used in determining the actuarial present value of the projected benefit obligation at year end were as follows: 1991 1990 ************************************

• • • • • Weighted average discount 8.50% 8.50% Anticipated rate of increase in

.... 6.00% 6.00% The assumed long term rate ofreturn on plan assets was 8.00%for 1991, 1990and1989. In addition to pension benefits, ACE provides certain health care and life insurance benefits for its retired ployees and those of Deepwater. Substantially all ees may become eligible for these benefits if they reach

• retirement age while working for the companies.

Benefits are provided through insurance companies and other plan providers whose premiums and related plan costs are based on the benefits paid during the year. ACE has a tax qualified trust to fund these other postretirem e nt benefits. Funding on behalf of active employees is based on the gregate c ost method over their service lives and is l e nt to normal cost. For current retire e s, funding is based on curr e nt actual experience and amortization of expected benefits over the remaining life expectancy of the retiree group. The actuarial present value of accumulated other postretirement benefits under the plan was $68.6 million and $45.2 million atJanuary 1, 1991and1990, tivel y , exclusive of the effects of new accounting standards discussed below. The cost of these benefits was $4.9 lion for 1991, $3.5 million in 1990 and $3.4 million in 1989. The net asset valu e of th e trust fund was mat e ly $11. 0 million at D e cember 31, 1991 and $8. 7 million at December 31, 1990. In December 1990, the FASB issued Statement of cial Accounting Standards No. 106 entitled "Employers

' Accounting for Postretirement Benefits Other Than sions." This statement requires employers to record an obligation for unfunded accumulated other postretirement benefits immediately or, alternatively, on a delayed basis over the plan participants' future service periods, or 20 years iflonger , and to record on the accrual basis th e nual cost of benefits earned. The accounting and reporting requirements of this statement are effective in 1993. An actuarial study, conducted in accordance with the r e quirements of the FASB statement , on ACE's other postr ement benefits plans existing at January 1, 1991 projects that the annual cost of these benefits could increase approximately

$7 million to $10 million and result in an unfunded accumulated other postretirement benefit obligation of approximately

$90 million to $100 million at December 31 , 1992. ACE cannot predict what r e gulatory treatment, if any, would be afforded these costs. e NOTE 5. JOINTLY-OWNED GENERATING STATIONS*********************************************************************************************************************

ACE participates with other utilities in the construction

• d operation of several electric production facilities.

K ey ston e The amounts shown represent ACE's share of each plant at December 31, including AFDC as appropriate . Con e mau g h P eac h Bott o m S a l e m H o p e C r ee k *********************************************************************************************************************

Energy Source Coal Coal Nuclear Nuclear Nucl e ar Company's Share(%) 2.47 3.83 7.51 7.41 5.00 Ele c tric Plant in S e rvice ($000): 1991 9,893 15,825 118,050 186,920 233,985 1990 9,507 15 , 435 112,902 182 , 316 230,677 Accumulated D e preciation

($000): 1991 2,956 5,507 45,305 68,407 33,743 1990 2,833 5,165 42,300 62 , 828 26,691 Constru c tion Work in Progress ($000): 1991 449 1,383 5,046 10,238 2,060 1990 381 436 5,089 5,109 1,863 Operation and Maintenance Expenses (including fuel) ($000): 1991 5,398 1990 4,855 1989 4 , 768 Gen e ration (MWH): 1991 285,506 1990 276,080 .. 292,627 ACE provides financing during the construction period for its share of the jointly-own e d plants and includes its share 10,061 28,651 23,720 9,640 8,358 27 , 340 19 , 154 8,458 7 , 740 25,871 19 , 851 8,772 463,113 758,637 1,068,307 368,900 448,978 1 , 062,569 837,486 404 , 084 433,660 302 , 310 1,035,718 329,426 of direct operations and maintenance expens e s in the Consolidated Statement of Income.

Atlanli c En e rgy, Inc. and Subsidiaries

\OTES TO C:O\SOLIDATED Fl\A\C:IAL STATE'.\1E\TS (continurd) e NOTE 6. NONUTILITY COMPANIES

......................................................................

..........

..................................................

.................

.. Assets of AGI at December 31, 1991 and 1990 of mately $5 million and $8 million, respectively, primarily represent equity investments in and loans to cogeneration project partnerships.

AET's assets of approximately

$2 million at December 31, 1991 are primarily associated with an equity investment in a geothermal heating and cooling company. Assets of ATE primarily are investments in leveraged leases which amount to approximately

$75 million at December 31 , 1991and1990. Assets of ASP consist primarily of a commercial real estate site with a book cost at December 31, 1991and1990 of approxi-mately $15 million. The combined results of operations of these companies for 1991 , 1990 and 1989 were losses of $4.9 million, $275 thousand and $1.9 million , tively , net of income tax benefits of$1.8 million , $231 thousand and $738 thousand , respectively. The increased losses recognized in 1991 are primarily attributable to AGI's investment in a cogeneration project development and management partnership which reduced the carrying value of several of its small Oess than 1 MW) projects to net realizable value in anticipation of the sale of these projects.

e NOTE 7. CUMUIATIVE PREFERRED STOCK OF ACE .................................................................................................................... . ACE has authorized 799 , 979 shares of Cumulative ferred Stock , $100 Par Value, two million shares of No Par Preferred Stock and three million shares of Preference Stock, 1991 Series P a r Valu e Shares Amount ($000) No Par Value. Information relating to outstanding shares at December 31 is shown in the table below. 1990 Shares Amount ($000) Current Optional Redemption Pri ce ************

• • • • • • • • • • • • • • • • • • • • • • • Not Subject to Mandatory Redemption

4% $100 77,000 4.10% 100 72,000 4.35% 100 15,000 4.35% 100 36,000 4.75% 100 50,000 5% 100 50,000 7.52% 100 100,000 Total Subject to Mandatory Redemption:

9.96% $100 56,000 $8.25 None 67,500 None one None 600,000 500,000 700,000 s s s 7,700 7,200 1,500 3,600 5,000 5,000 10,000 40,000 5,600 6,750 60,000 50,000 70,000 77,000 72,000 15,000 36,000 50,000 50,000 100,000 64,000 70,000 600,000 500,000 $ 7,700 7 , 200 1,500 3,600 5,000 5,000 10,000 $ 40,000 $ 6,400 7,000 60,000 50,000 $105.50 101.00 101.00 101.00 101.00 100.00 103.01 $103.90 105.29 105.22 $8.53 $8.20

$7.80 Total ********************************************************

• • • • 192,350 123,400

..

..

....... . Total 1,050 $191,300 ....................................................................................

,,::::1:::::

Cumulative Preferred Stock Not Subject to Mandatory Redemption is redeemable solely at the option of ACE. 1,050 $122,350 operation of a sinking fund at a redemption price of $100 per share. ACE may redeem not more than an additional 2,500 shares on any sinking fund date without premium. ACE redeemed 2,500 shares in each of the years 1991, 1990 and 1989.

• On August 1 of each year, 8,000 shares of the 9.96% mulative Preferred Stock must be redeemed through the operation of a sinking fund at a redemption price of $100 per share. ACE redeemed 8,000 shares in each of the years 1991, 1990and1989. Beginning November 1, 1994 and annually thereafter,

• 120,000 shares of the $8.53 No Par Preferred Stock must On November 1 of each year , 2,500 shares of the $8.25 No Par Preferred Stock must be redeemed through the be redeemed through the operation of a sinking fund at a redemption price of$100 per share. At the option of ACE, not more than an additional 120,000 shares may be redeemed on any sinking fund date without premium. Refunding of this series is restricted prior to November 1993. eginning August 1, 1996 and annually thereafter, 100,000 shares of the $8.20 No Par Preferred Stock must be redeemed through the operation of a sinking fund at a redemption price of $100 per share. At the option of ACE, not more than an additional 100,000 shares may be redeemed on any sinking fund date without premium. Other than in connection with the sinking fund, this series is not redeemable prior to August 1, 2000. lion. Annual sinking fund requirements at a redemption price of$100 per share are 115,000 shares in the years 2001through2005, and 125 , 000 shares in 2006. ACE has the option to redeem up to an additional 115 , 000 shares on each May 1 of these years at $100 per share. Other than in connection with the sinking fund, this series is not redeemable prior to May 1 , 2006. The annual minimum sinking fund provisions of the mulative Preferred Stock Subject to Mandatory Redemption aggregate

$1.05 million in each of the years 1992 and 1993, $13.05 million in each of the years 1994and1995 and $23.05 million in 1996. In May 1991, ACE issued and sold 700,000 shares of $7.80 No Par Preferred Stock, with proceeds of$69.7 mil-e NOTE 8. LONG TERM DEBT ........................................................................... , .....................................................................................

.. Maturity S e ri e s Dat e De ce mber 3 1 *****************************

• • • • • ************************

IIIIl************************************llllDI*******

Long term debt of ACE consists of th e following: First Mortgage Bonds: 4%% 4 1/z'Y o 4%% *5 1/: 0/o 8% 8% ?1/2% 7%% 7% % Pollution Control 6% % Pollution Control 11 % % Pollution Control Series A 10 1/2 °/o Pollution Control Series B 7% % Pollution Control Series A 10%% Pollution Control S e ries C 8 7/8% 8%% Pollution Control Series A 9%% 6.80% Pollution Control Series A Total D e bentur e s: Unamortiz e d Pr e mium and Discount-Net "

.......

?f. ...

..

... Total Term Debt March 1, 1991 July 1, 1992 March 1, 1993 February 1, 1996 November 1, 1996 Sept e mber 1, 2000 May 1 , 2001 April 1 , 2002 June 1, 2003 January 1, 2005 Decemb e r 1, 2006 May 1, 2011 July 15 , 2012 April 15, 2014 July 15, 2014 May 1 , 2016 July 15, 2017 Octob e r 1, 2019 March 1, 2021 June 1 , 1992 $ 10,350 9,540 9,980 95,000 19,000 27,000 20,000 29,976 6,500 2,500 850 18,200 23,150 125,000 4,400 135,000 38,865 575,311 4,886 (4,300) 575,897 39,100 ($000) $ 10 , 000 10,350 9,540 9,980 95 , 000 19,000 27,000 20 , 000 29,976 6,500 2,500 39,000 850 18,200 23,150 125,000 4,400 135,000 585,446 2,267 4 , 886 (4,755) 585 , 577 38,900 48,900 Atlantic t:nergy, Inc. and Subsidiaries

\OTES TO C:O'.\SOLIDATED Fl'.\A'.\C:IAL STATEME'.\TS (continu<'d)

In March 1991 , ACE issued $38.865 million of First gage Bonds, 6.80% Pollution Control Series A of 1991 Due 2021. ACE redeemed in May 1991 $39.0 million of First Mortgage Bonds, 11 % % Pollution Control Series A of 1981 Due 2011 at a price of 103% of principal.

The aggregate cost of this reacquisition was $1.5 million, net of related income taxes. Sinkingfund deposits are required for retirement of the 5 1/4% Debentures on February 1 annually through 1995 and for the 7 1/4 % Debentures on May 1 annually through 1997 in amounts in each case sufficient to redeem $100,000 principal amount. ACE may, at its option, redeem an additional

$100,000 annually in each case. Through December 31, 1991, ACE acquired and cancelled

$633,000 and $481,000 principal amount of the 5 1/4% and 7 1/4 % Debentures, respectively, to satisfy its requirements for 199 2 and subsequent years. Certain series of First Mortgage Bonds contain provisions for deposits of cash or certification ofbondable property currently amounting to $400 , 000, which ACE has elected to satisfy through property additions.

Additional sinking fund requirements are as follows: S e ries Beginning Dat e Annual Sinking Fund ****************************************************

6% % Pollution Control Series Due 2006 December 1 , 1997 $ 75 , 000 7% % Pollution Control Series Due 2005 January 1, 2000 500,000 ATE has a revolving credit and term loan agreement which provides for borrowings ofup to $70 million during cessive revolving credit and term loan periods. In ance with provisions of the agreement, the expiration of the revolving credit period was extended from May 31, 1991 to June 1, 199 2. Interest rates on borrowings are determined with reference to periodic pricing options available under the facility. Interest rates on borrowings outstanding in 1991 ranged from approximately 5.5% to 8.6%. The aggregate amount of debt maturities , in addition to sinking fund requirements, of all long term debt ing at December 31, 1991 are $49.45 million in 1992, $9.54 million in 1993 and $107.25 million in 1996. No outstanding long term debt matures in 1994 and 1995. *

• e NOTE 9. SHORT TERM DEBT ..............................

............

................

....................................................

............

..................................... . As of December 31, 1991 , ACE had available for use bank lines of credit of$130 million. ACE is charged commitment fees, which were not significant , for these available credit lines. As of December 31 , 1991, th e Company had no pensating balance requirements. ($000) Short term debt outstanding at December 31, 1991 and 1990 consisted of commercial paper of$20.60 million and $43.95 million, respectively.

No short term debt was standing at December 31, 1989. Additional information regarding short term debt follows: *************

• • • • • • • • • • • • lml***********************

ll1Jlll***********************

llml-*****************

For the year ended: Maximum amount of total short term debt at any month end: Commercial Paper Notes Payable to Banks Average amounts of short term debt (based on daily ing balances): Commercial Paper Notes Payable to Banks Weighted daily average interest rates on short term debt: Commercial Paper Notes to Banks $82,700 $26,802 6.6% $46,850 $16,979 8.1% $76,550 $10,000 $50,015 $ 3,351 9.4%

• e NOTE 1 0. C O MM I TMENTS AN D C O NT I N G ENC IES .............................................

...........

..............................................

...............

.... . Construction Program E's cash construction expenditures for 1992 are ated to be approximately

$160 million. Current ments for the construction of major production and transmission facilities approximate

$117 million, of which it is estimated approximately

$39 million will be expended in 1992. These amounts exclude AFDC and customer contributions.

Insurance Programs ACE is a member of certain insurance programs which provide coverage for decontamination and property age to members' nuclear generating plants. Facilities at the Peach Bottom, Salem and Hope Creek Stations are insured against property damage losses up to $2 .45 billion per site under these programs.

In addition, ACE is a member of an insurance program which provides coverage for the cost ofreplacement power during prolonged outages of nuclear units caused by certain specific conditions.

Under the property and placement power insurance programs, ACE could be sessed retrospective premiums in the event the insurers' losses exceed their reserves.

As of December 31, 1991, the maximum amount of retrospective premiums ACE could be assessed for losses during the current policy year was $4.56 million under these programs.

• e Price-Anderson provisions of the Atomic Energy Act 1954, as amended by the Price-Anderson Amendments Act of 1988, govern liability and indemnification for nuclear incidents.

All nuclear facilities could be assessed, after exhaustion of private insurance, up to $66.15 million each, payable at $10 million per year, per reactor and per incident.

Based on its ownership share ofnuclear facilities , ACE could be assessed up to $23.05 million per incident.

This amount would be payable at $3.48 million per year, per incident.

Energy and Capacity Arrangements UTILITY ACE has an arrangement to purchase 125 MWs of ity and energy from PP&L through September 30, 2000. Costs of the contract, exclusive of energy, are charged to Operations and totaled $28. 7 million, $25.8 million and $29.9 million in 1991, 1990 and 1989, respectively.

The cost of energy associated with the purchase amounted to $8.6 million, $6.7 million and $6.5 million in each of those years. Estimated costs, exclusive of energy and recovery of deferred ainounts, are expected to be $10 million, $10 lion, $11 million, $12 million and $12 million in the years 1992-1996 respectively, and aggregate

$56 million thereafter.

• has an arrangement to purchase 200 MWs of nd energy from PE through May 31, 1994. Costs of the tract, exclusive of energy, are charged to Operations and totaled $48.2 million and $27.5 million, respectively, in 1991 and 1990. The cost of energy associated with the purchase amounted to $22.6 million and $13.7 million in each of those years. ACE is committed to minimum ity charges of$52 million, $56 million and $24 million, for the years 1992, 1993 and 1994, respectively.

The minimum costs are subject to annual adjustments under certain conditions.

ACE has arrangements with certain other electric utilities for the purchase of short term generating capacity, energy and transmission capacity on an as-needed basis, which are utilized to the extent they are economic and available.

ACE is a member of the Pennsylvania-New land Interconnection (P JM), an integrated power pool that is connected with other utilities for the interchange of ergy on an as-needed and as-available basis. ACE is required to plan for reserve capacity based on aggregate P JM requirements allocated to member companies.

ACE has satisfied its current reserve requirements.

ACE also has an interchange agreement with the City of Vineland, New Jersey, which operates a municipal utility located in ACE's service territory.

The cost of purchases incurred through interchange agreements are reported as Energy Costs on the Consolidated Statement of Income and totaled $11.3 million, $28.5 million and $30.8 million in 1991, 1990 and 1989, respectively.

NONUTILITY Additional sources of energy and capacity for use by ACE are expected to be made available from nonutility sources, principally cogenerators.

ACE has currently contracted, and received BRC approval, to purchase a total of 569 MWs of energy and capacity from nonutility sources. One project, a 75-MW facility, became operational in ber 1991. During 1991, the unit performed at less than expected output. Another project will provide 106 MWs and is scheduled for completion in early 1992. The remaining two projects, providing 388 MWs , are expected to be in operation by 1995. Based on the terms and tions of the existing agreements , ACE is obligated to struct transmission facilities related to these projects.

The cost of the transmission facilities is to be shared by ACE and the nonutility producers, with ACE's portion of the cost approximating

$18 million. Certain specified mum amounts of energy and capacity are to be purchased annually, subject to adjustment for actual performance levels achieved by these facilities.

Purchases of energy and capacity in 1991 from the one operating facility amounted to $4.3 million. Envlronmental MaHers The provisions of the Clean Air Act Amendments of 1990 (CAAA) will require, among other things, phased tions of sulfur dioxide (S0 2) emissions by 10 million tons per year, and a limit on S0 2 emissions nationwide by the year 2000, and reductions in emissions of nitrogen oxides (NOJ by approximately 2 million tons per year. ACE's wholly-owned B.L. England Units 1 and 2 and its owned Conemaugh Station are affected during Phase I Atlantic Energy, Inc. and Subsidiaries MlllJ .. lllilf4111111Qllilld\iill4.ilill11MJ.

.. ii.iliiiii!ii!IM (1995) and all of ACE's other fossil-fuel steam generat-ing units are affected by Phase II (2000) of the CAAA. ACE currently plans to install flue gas desulfurization ment (scrubber) on B.L. England Unit 2 costing mately $75 million. By scrubbing B.L. England Unit 2, Phase I S0 2 emission requirements are met for both units. Construction is expected to commence in late 199 2 and be completed in late 1994. The Conemaugh owners have elected to install scrubbers on Conemaugh Units 1and2, with ACE's 3.83% share of the total cost estimated to be $14 million. Construction for Conemaugh Unit 1 is to be completed in 1994, and for Conemaugh Unit 2 in 1995. The jointly-owned Keystone Station is impacted by the S0 2 and NO , provisions of Title IV of the CAAA during Phase II, and the Keystone owners are studying various methods of compliance. ACE plans to seek recovery through rates of costs associated with CAAA compliance, which ACE rently estimates would increase revenue requirements b y approximately 2% based on 1991 revenues. This increase may be offset, in part, by utilization of certain allowances as permitted by the Act, the value of which is not presently determinable.

In addition, certain power purchase ments will be affected by the CAAA, in amounts that are not presently determinable. Federal and state legislation authorize various mental authorities to issue orders compelling responsible parties to take cleanup action at sites determined to ent danger from releases of hazardous substances.

Th e various statutes impose joint and several liability without regard to fault for certain investigative and cleanup costs for all responsible parties. ACE has received notification with respect to certain sites as an alleged responsible party for cleanup and remedial action. Such costs are not pected to be material.

Public concern regarding the possibl e health effects due to electric and magnetic fields (EMF) is an emerging tional health issue , with some states setting limits on EMF. The outcome of EMF study and/or regulations and public concerns regarding EMF could affectACE's design and location of future electric power lines and facilities and the costs thereof. Such effects , if any , are not presently determinable. Other ACE is subject to a performance standard for all of its jointly-owned nuclear units. This standard is used by the BRC in determining recovery of replacement energy costs. The standard establishes a target aggregate capacity tor within a zone of reasonable performance to be achieved by the units. Performance outside of the zone results in penalties or rewards. Any penalties incurred would not be permitted to be recovered from customers and would be charged against income. For 1991, the formance of ACE's nuclear units was within the zone of reasonable performance.

In 1990, the New Jersey Department of Environmental

• Protection and Energy issued to Public Service Electric and Gas Company (PS) a revised Draft Permit for surface water discharges for Salem Station. PS is the operator of the sta-tion, in which ACE has a 7. 41 % ownership interest.

The Draft Permit contained more stringent terms and condi-tions, and, if adopted as proposed, could require the im-mediate shutdown of the two generating units for up to a four-year period pending the construction of cooling tow-ers. Public hearings on the Draft Permit have been held and PS has filed written comments and demonstrations, which PS believes support its position that cooling towers are not required.

PS estimates that if construction of cool-ing towers is necessary, under the most adverse scenario the costs to construct mechanical draft cooling towers are estimated to be $627 million (in 1990 dollars), of which ACE's share would be 7.41 %. Replacement power costs during such four-year outage would amount to approxi-mately $25 million per year for ACE. In addition, a perma-nent derating of 5% of the station capacity would also occur. PS plans to vigorously defend its position.

PS advised ACE that an equipment failure in the nuclear portion of the plant caused severe damage to Salem Unit 2 resulting in that unit's shutd.own in Novem-ber 1991 with no release ofradiation.

PS expects that af-* fected equipment repairs and/or replacements could cost between $65 million and $75 million, of which substan-tially all of ACE's share is exp e cted to be covered by prop-erty insurance. PS also advises that the unit may return to service during the second quarter of 199 2. This outage will cause ACE to incur replac e ment energy costs approximat-ing $1 million a month. Replacement energy cost insur-ance in effect for ACE is believed to be sufficient to cover the replacement costs incurred.

The insurance is subject to an initial 21-week policy deductible period. ACE did not incur a nuclear unit performance standard penalty in 1991. ACE estimates that a return to service of Unit 2 after May 1992 could result in a penalty for 1992. The amount ofreplacement energy costs that could be subject to penalty would be based on the length of time that the unit is out of service, and the actual operating formance of ACE's other jointly-owned nuclear units , as well as the unit costs of fuel and replacement energy curred by ACE. At the present time, it is not possible to termine exactly when Salem Unit 2 will return to service , or the full effect of such outage on ACE except that such effect is not expected to have a materially adverse impact on financial results. In connection with the extended outage of the Peach Bottom Station under the 1987 NRC order , ACE filed suit. along with another co-owner of the station against PE. ACE is seeking compensatory and punitive damages re-sulting from the outage of the station , including the costs incurred for replacement energy necessitated by the out-age. The first stage of the trial in litigation has been tenta-**vely scheduled to begin in May 1992. ACE is unable to the outcome of this litigation or its effect at is time. The BRC has deferred consideration in rate proceedings since 1985 ofreplacement power costs of$10.4 million stemming from certain nuclear outages that occurred in 1984 at Salem Station. ACE has continued to defer these costs pending regulatory resolution of this matter. ACE cannot predict when this matter will be ultimately decided or the outcome. In the opinion of management, the come thereof would not materially affect financial results. AGI , through its subsidiaries, has partnership interests in common with affiliates of Columbia Gas System, Inc. (Columbia) in certain cogeneration projects.

In 1991, bia filed for bankruptcy protection under Chapter 11 of the Federal Bankruptcy Code which temporarily impacted the construction fmancing for two projects.

Agreements have been reached with each of the project lenders in order to continue construction financing and timely completion of the projects.

Under the respective lending agreements, subsidiaries of AGI are committed to provide equity capital totaling $8 million. Additional amounts up to $6 million may be required. e NOTE 11. LEASES *************************************************************************************************************************************************************************************

ACE leases various types of property and equipment for use in its operations.

Certain of these lease agreements are capital leases consisting of the following at December 31: ($000) 1991 1990 *******************************************************************************************************

erating stations from Pearl Fuel Corporation.

The asset and related obligation for the leased fuel are reduced as the fuel is burned, and are increased as additional fuel purchases are made. No commitments for future ments beyond satisfaction of the outstanding obligation exist. Operating expenses for 1991, 1990 and 1989 include leased nuclear fuel costs of approximately

$14. 7 million, $15.4 million and $8.6 million, respectively, and rentals and lease payments for all other capital and operating leases of$4.5 million, $4.2 million and $4.5 million, respectively.

Future minimum rental payments for all noncancellable lease agreements are not significant to ACE's operations.

Production plant $13,521 $13 , 521 Less accumulated amortization 7,308 6,622 Net 6,213 6,899 Nuclear Fuel 46,880 51,072

=.n.:et ... $53,093 $57,971 *E has a contractual obligation to purchase nuclear fuel the Salem, Hope Creek and Peach Bottom nuclear gen-e NOTE 12. QUARTERLY FINANCIAL RESULTS (UNAUDITED)

Quarterly fmancial data, reflecting all adjustments neces-sary in the opinion of the Company for a fair presentation of such amounts , are as follows: Quarter Operating Revenues Operating Income Net Income Earnings Per Share *************************************************************************************************************************************************************************************************************************

1991 ($000) ($000) ($000) hi $170,918 $ 22,735 $ 8,519 $ .37 2nd 175,711 25,379 10,667 .44 3rd 250,363 69,597 54,786 2.17 4th 180,978 27, 144 11,664 .46 Annual $777,970 $144,856 $85,635 $3.49 1990 1st $166,738 2nd 165,132 3rd 218,885 4th 166,024 -Annual $716,779 quarters may not add to the total due to ing, as well as the effect on earnings per share of ing average number of common shares outstanding.

$ 28,247 $15,114 $ .67 25,407 12,111 .53 53,237 38,310 1.68 17,670 3,344 .15 $124,562 $68,879 $3.02 The revenues of ACE are subject to seasonal fluctuations due to increased sales and higher residential rates during the summer months.

• Atla n tic E n e rg y, I nc. and Subsidiaries

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• Atlantic Energy, Inc. (the Company) is the parent of a consolidated group consisting of the following wholly-owned subsidiaries:

Atlantic City Electric Company (ACE), Atlantic Generation, Inc. (AGO, Atlantic Energy Technology, Inc. (AET), ATE Investment, Inc. (ATE) and Atlantic Southern Properties, Inc. (ASP). ACE, the primary subsidiary, is an electric utility regulated by the New Jersey Board of latory Commissioners (BRC; formerly Board of Public ties). ACE has a wholly-owned subsidiary that operates certain generating facilities.

AGI is engaged in the ment of cogeneration and alternate energy projects through various partnership arrangements.

AET was established in 1991 to invest in companies with energyrelated products and technologies. ATE's current business activities include providing financing and fund ment to affiliates and managing its existing portfolio of vestments. ASP owns, develops and manages commercial real estate property. The Company's business plan has been and will continue to be concentrated on the operations of ACE. Approximately 95% of consolidated assets belong to the utility. With respect to the nonutility businesses, the Company intends to continue to follow a conservative and modest strategy:

Investments will be made only in activities that utilize existing management skills and resources, provide acceptable returns in relation to the level of risk and are functionally related to the utility business.

The Company reviews and modifies the business plans and operations of the nonutility companies as necessary to reflect changes in consolidated tax position, economic conditions in the service territory and operating results. As a result, management expects to direct resources to AGI and AET and make investments in activities functionally related to the utility business.

ATE and ASP will continue to manage their existing investments. Financial Results Consolidated operating revenues for the twelve months endedDecember31 , 1991, 1990and 1989were$778.0 million , $716.8 million and $705.0 million, respectively.

The increases in 1991and1990 revenues reflect increased sales of energy and the effect of net rate increases in each of these years. Consolidated earnings per share for 1991 were $3.49 on net income of$85.6 million, compared with $3.02 on net income of$68.9 million in 1990 and $3.74 on net income of$81.0 million in 1989. Net income increased in 1991 primarily due to increased operating revenues offset, in part, by the full year costs associated with the purchase of capacity from Philadelphia Electric Company (PE), and increased Federal income taxes and Preferred Stock dividend requirements. The decrease in net income in 1990 reflects higher operating expenses, primarily the purchase of capacity from PE, without corresponding rate relief, and increased taxes and interest expense. Earnings in 1989 were impacted by regulatory actions relating to the down of the Peach Bottom Atomic Power Station. The per share effect of those actions amounted to reductions of $.30 in 1989.

• Nonutility subsidiary operations for 1991, 1990 and 1989 resulted in losses amounting to $4.9 million, $275 thousand and $1.9 million, net of income tax benefits, or $.20, $.01 and $.09 per share, respectively. The increased losses recognized in 1991 are attributable to AGI which lost $.16 per share. About $.15 of that was the result of provisions that resulted from a write down by AGI's cogeneration project management development partnership which re-* duced the carrying value of several small Oess than 1 MW) projects to their net realizable value in anticipation of the sale of those projects. During 1991, AGI continued to ex-perience development and administrative costs associated with th e construction oflarge (greater than 50 MWs) eration facilities.

Two such facilities currently under struction are scheduled to be placed in service in 1992 and are expected to make a contribution to consolidated ings. AET lost $.04 per share due to restructuring and start-up costs associated with its investment.

AET is pected to continue recording modest losses in 1992. ATE contributed

$.02 per share from its investments in aged leases and from reduced interest expenses.

ASP lost $.02 per share in 1991 as a result of vacancies at its mercial office and warehouse property. In June 1991, the quarterly dividend on Common Stock was increased by $.01 to $.75 per share, or an annual rate of$3.00 per share. This is the 39th consecutive year in which cash dividends paid were increased. Information with respect to Common Stock for the period 1989-1991 is as follows: 1991 19 9 0 19 8 9 ******************************************************************************************************

Dividends Paid P e r Share $ 2.98 $ 2.92 $ 2.82 Book Value Per Share $29.68 $ 28.73 $28.54 .nualized Dividend ield 7.3% 8.7% 7.5% Return on Average Common Equity 12.1% 10.6% 13.6% Total R e turn (Dividends paid plus change in share price) 29.8% (4.4)% 26.2% Market to Book Value 138% 118% 135% Price/Earnings Ratio 12 11 10 Closing Price-New York ... .................... ..... ...

...... Liquidity and Capital Resource*

Overview The Company commenced its business under a holding company structure on November 1, 1987. Since inception, the Company's cash flows have been dependent on the cash flows of its subsidiaries, primarily ACE. Principal cash inflows of the Company are the payment of dividends to it by ACE and funds provided by the issuance of mon Stock. Principal cash outflows of the Company are inv e stments (capital contributions and advances) in its subsidiaries for their investing activities and th e paym e nt -dividends to common shareholders.

Cash invested in Eis utilized primarily for the construction of utility nerating , transmission and distribution facilities, demption and maturity oflong and short term debt, and redemption of Preferred Stock. Current inv e sting activities of the nonutility subsidiaries are primarily for the ment ofnonutility power generation projects and related technologies.

To facilitate the activities and operations of the aries, separate credit support agreements exist between the Company and ATE , ASP and AET. In addition , ments between the Company and each of its subsidiaries provide for allocation of tax liabilities and benefits ated by the respective subsidiaries. In 1991, 1990and 1989, theCompanyrecorded$74

.1 million, $67.1 million and $62.4 million , respectively, in dividends from ACE. Other sources of funds available to the Company, which include the issuance of Common Equity through public offerings, optional cash purchases under the Dividend Reinvestment and Stock Purchas e Plan (DRP) and ACE's employee benefit plans ar e shown as follows: Issuance of Common Stock ($000) 1991 1990 1 98 9 ********************************************

Public Offerings Shares issued Pro c eeds DRP Optional Cash Pur c hases Shares issued Proceeds Employe e Benefit Plans Sh a r e s issued Pro c eeds 4 3.68 3 3.06 2 2,000,000

$67,140 2 , 200 , 000 $69 ,8 50 150,636 86,274 60,145 $ 5,537 $3,012 $ 2 , 101 6,208 $ 249 319 2.94 'I 50 , 672 $1,753 8 , 716 $ 326 3.68 Th i s rat io m eures t h e ab ili ty of A tl a n t ic E l ect r ic to m eet its inest p ay m e n t s to cre di to r s. I t is t h e numb e r of t im es t h at i nt e re st c h a r ges a r e " cove r e d" by ea rnin gs befo r e the paym e nt of income taxes. Fo r a n "A" r ated u ti li ty, pr e-tax coverage s h o uld b e between 2.5 a nd 4.0 t im e s. ATLANTIC ELECTRIC Pre-Tax Interest Coverage Ratio Atlantic Energy , I nc. and Subsidiaries MA:\AGE'.\IE:\T'S DISCt:SSIO:\

A:\D A:\.\LYSIS () F F I :\ A :\ CI A L c () :\ n IT IO :\ ,\ :\ n B E s t: LT s () F () p E RA TI () :\ ( ('() II l i II LI (' d ) Additional Common Equity is provided by reinvested dends through the DRP. Common shares issued in 1991, 1990 and 1989 were 315,205, 293,325 and 279,458, spectively. The Company's current financing plans for 1992-1994 contemplate the issuance of approximately

$56 million in additional Common Equity through the operation of the DRP. In 1991, the Company declared $7 4.1 million in dividends to its common shareholders, and made $83.8 million in capital contributions and advances to its subsidiaries.

In 1990 and 1989, the Company declared $67.1 million and $62.4 million , respectively, in dividends.

In 1990 and 1989, $10.6 million (net of repayments) and $83. 7 million, respectively , in advances and capital contributions were made to subsidiaries.

ACE Cash construction expenditures for the 1989-1991 period amounted to $484.3 million and included expenditures for two new combustion turbine units and upgrades to irig transmission and distribution facilities. ACE's current estimate of cash construction expenditures for the 1992-1994 period is $490 million. These estimated expenditures reflect major improvements to transmission and tion facilities and compliance with provisions of the Clean Air Act Amendments of 1990. ACE also utilizes cash for mandatory redemptions of Preferred Stock and maturities oflong term debt. Optional redemptions of securities are reviewed on an ongoing basis with a view toward reducing the overall cost of funds. 100 0 80 46 42 4S 41 10 11 40 4* 20 43 44 4 6 0 (in p e r ce nt) 'I Yea r-End C ap ita l izatio n e C OMMON E Q U ITY e PR E FF E RED S TO C K e LO G TE RM D E BT e S HORT T E RM D E BT 38 14 47 A tl antic E n e r gy's capitali za ti o n is t h e r e l a ti ve pr o p o rti o n o f e qui ty fund s prv id ed b y i ts o wne r s , c ommon and pr e f e rr e d shareh o l d e r s, a nd b o rrow e d funds provid e d by c r e dit o rs , h o ld e rs o f s h o rt and long t e rm d e b t s ec urit ies. Redemptions of Preferred Stock (at par or stated value) and redemptions and maturities of First Mortgage Bonds for the period 1989-1991 are shown as follows: 1991 1990 1989 .......................................................................................................

Preferred Stock (Series) 9.96% $8.25 $9.45 Amount (000) First Mortgage Bonds Principal Amount (number of shares) 8,000 8,000 8,000 2,500 2,500 2,500 30 , 000 $ 1,050 $ 1,050 $ 4,050 . ..

..

.................

... ......

......

In March 1991, $10 million principal amount of First Mortgage Bonds, 4%% Series due 1991 matured. In May 1991, $39 million principal amount of First Mortgage Bonds, 11 % % Pollution Control Series A due 2011 were redeemed at a price of 103%. In October 1990 , ACE

• redeemed $21.215 million principal amount of First Mortgage Bonds, 11 1/2 % Series due 2015 at a redemption price of 108.53%. During 1989, $2. 775 million principal amount of First Mortgage Bonds, 4 1/2% Series due 1989 matured in April and $13.025 million principal amount of First Mortgage Bonds, 11 7/8% Series due 1993 were redeemed at a price of 101.52% in December.

Scheduled debt maturities and mandatory Preferred Stock sinking fund requirements aggregate

$35.0 million for the years 1992-1994. ACE's cash flows from operating activities after dividends on Preferred Stock and Common Stock (internal tion) amounted to $85.2 million, or 49.4% of 1991 struction expenditures.

In 1990 and 1989, ACE's internal generation was $75.2 million and $58.8 million , and resented 45.1 % and 40. 5%, respectively , of construction expenditures. For the three-year period 1992-1994 , ACE's internal eration is expected to average 53.9% of currently mated construction expenditures. However, actual levels may vary within the period based upon specific amounts of construction expenditures and internally generated funds in the individual years. Beginning in 1991 through 2000, ACE's cash flows will be positively affected by the

• recovery of its Unrecovered Purchased Power Costs. ACE expects that such recovery will provide $13. 4 million, $14.0 million and $14.6 million in cash flows in 1992, 1993 and 1994, respectively.

6 4 2 9.1 9.0 9.0 ATLANTIC ELECTRIC 9.2 'I 9.7 This is Atlanti c El ec tri c's t o t a l r e v e nu e divid e d b y t o tal hours as r ec ord e d on th e books of the c ompan y. It r e pr e s e nts th e av e rag e amount of r eve nu e r ecee d for e a c h kilow a tt-hour s old. Average Booked Revenue per Kilowatt-Hour On an interim basis, ACE finances that portion of its struction costs and other capital requirements in excess of internally generated funds through the issuance of cured short term debt consisting of commercial paper and borrowings from banks. Permanent financing by ACE is undertaken by the issuance of its long term debt and Preferred Stock and from capital contributions by the Company. ACE's nuclear fuel requirements associated

• 'th its jointly-owned units have been financed through rangements with nonaffiliated corporations.

In 1991, ACE received proceeds of $38. 9 million and $69. 7 million, respectively, from the issuance of First Mortgage Bonds , 6.80% Pollution Control Bonds Series A of 1991 and the issuance and sale of 700,000 shares of $7 .80 No Par Preferred Stock and received $78.1 million in capital contributions from the Company. In 1990, ACE ceived proceeds of$49.9 million from the issuance and sale of 500,000 shares of$8.20 No Par Preferred Stock and received $13.5 million in capital contributions from the Company. In October 1989, ACE received proceeds of $131.8 million from the issuance and sale of$135 million principal amount of First Mortgage Bonds, 9 1/4 % Series due 2019 and received $69. 3 million in capital contributions from the Company. During the three-year period 1992-1994, ACE expects to issue $190 million in long term debt, including First gage Bonds, and to receive $56 million in capital tions from the Company. In October 1989, a major rating agency lowered its ratings on ACE's senior debt to a rating equivalent to 'A'. In ary 1991, a major rating agency lowered its ratings on ACE's senior debt to a rating equivalent to 'A' and Pre-tl rred Stock to a rating equivalent to 'A-'. In taking these tions, the agencies cited ACE's on-going construction ogram and its continuing need for external financing and growing capacity requirements.

The effect of the actions will be to increase ACE's financing costs. Provisions of ACE's charter, mortgage and debenture agreements can limit, in certain cases, the amount and type of additional financing which may be used. At ber 31, 1991, ACE estimates additional funding capacities of$424 million of First Mortgage Bonds, or $582 million of Preferred Stock, or $358 million of unsecured debt. These amounts are not necessarily additive.

AGI Net cash outlays for investments by AGI for the period 1989-1991 totaled $6.6 million. AGI's activities are sented by partnership interests in cogeneration ment projects.

Such activities have been funded by a combination of capital contributions , loans and advances. AGI's current business plan for the period 1992-1994 is to invest an additional

$25 million in cogeneration, ing and alternate power projects.

AGI's business activities are directed toward developing new projects and therefore it does not generate cash from operations at this time. However, two cogeneration projects are scheduled to become operational in 199 2 and are expected to provide positive cash flows. AET AET was formed in April 1991 to invest in and to manage investments in companies with energy-related products and technologies.

AET has acquired an equity interest in a company that owns a patented technology and has prietary knowledge relating to the design, installation and operation of a closed-loop, ground coupled, geothermal heating and cooling system. Funding of this investment through a combination of capital contributions and loans totaled $2. 7 million at December 31 , 1991. AET obtained the funds for its investment activity through advances from the Company. To date, no cash has been generated from operating activities. In 1992 , AET expects to increase its equity interest in this company. AET's future investments and business opportunities will be evaluated to determine ifthe potential for return is acceptable relative to the ciated level of risk. ATE ATE has invested in leveraged leases of three commercial aircraft and two containerships with a cash outlay for that equipment of$60.9 million during 1988 and 1989. ATE also made loans to ASP which totaled $8.5 million, ing unpaid interest, at December 31, 1991. Additional ital requirements associated with lease investments include a final deferred equity payment of$2.3 million in 1992. As of December 31 , 1991, ATE obtained funds for its business activities and loans to ASP through capital contributions and advances of$13.9 from the Company. Funds also have been provided by a revolving credit and term loan cility. At year-end 1991, borrowings under the $70 million facility totaled $39.l million. Future investments by ATE

• Atlantic Energy, Inc. and Subsidiaries

• IHJHi111j4"111Lii4iillM\11Md1KiGM

• lllllWfilljillptillllNMllllJilliililillQllUlllWllllllllllllOllM may be undertaken after consideration of the Company's consolidated tax position.

ATE's cash flows from tions are expected to continue to be provided from lease rental receipts and realization of existing tax benefits.

ASP ASP's real estate investment to date has been the purchase and improvement of a 280,000 square foot office and warehouse facility in Atlantic County, New Jersey, of which approximately 56% of the office space is leased to ACE. As of December 31, 1991 , ASP's investment has been funded by capital contributions from the Company and borrowings under a loan agreement with ATE. ASP's rent agreement with ATE provides for the repayment of such borrowings on or before June 30, 1992, but this date may be extended.

ASP's cash flows from operating ties are principally affected by rental income. ASP mates that its business activities in the 1992-1994 period will be limited to the development of the existing property and that additional investments will not be significant.

RESULTS OF OPERATION Operating results are dependent upon the performance of the subsidiaries, primarily ACE. Since ACE is the principal subsidiary within the consolidated group, the operating results presented in the Consolidated Statement of Income are those of ACE, after elimination of transactions among members of the consolidated group. Results of the nonutility companies are reported in Other Income. Revenues Operating Revenues-Electric increased 8.5% and 1. 7% in 1991 and 1990, respectively.

Components of the overall changes are shown as follows: (in millions) 1991 1990 ***********************************************************

• • • • • • • • • • • • • • • • • • • • • Base and Unbilled Revenues $50.0 $16.2 Levelized Energy Clauses (5.9) (17 .5) Kilowatt-hour Sales 17.1 13.1 ..............

.... Total $61.2 $11.8 Base revenues increased in 1991 as a result of a $50.0 million base rate increase effective July 3, 1991 and a $41.6 million base rate increase effective June 1990. Base revenues in 1990 increased as a result of the $41. 6 million base rate increase. Levelized Energy Clause (LEC) revenues decreased in 1991 as a result of the net effects of a $21. 2 million LEC rate increase effective June 11, 1991 and the full year's impact of a $35.8 million LEC rate reduction fective June 1990. LEC revenues declined in 1990 as a sult of the $35.8 million rate reduction.

Changes in kilowatt-hour sales are discussed under "Sales." Overall, the combined effects of changes in rates charged to customers and kilowatt-hour sales resulted in increases of 5. 2% and 1. 7% in revenues per kilowatt-hour in 1991 and 1990, respectively.

Changes in operating revenues in the future will result from changes in customer rates and general economic conditions in the service area, as well as the impacts of load management and conservation programs instituted by ACE and cogeneration projects providing alternate sources of energy to ACE's customers.

Sales Changes in kilowatt-hour sales are generally due to changes in the average number of customers and average customer use, which is affected by economic and weather conditions.

• Energy sales statistics, stated as percentage changes from the previous year, are shown as follows: *****************

lml******************************-lllm*****************

Customer Avg Avg# Avg Avg# Class Sales Use ofCust Sales Use ofCust Residential 3.1"/o 2.3"/o 0.8"/o 0.1% (1.6)% 1.6% Commercial 2.8 1.1 1.6 5.0 3.4 1.5 Industrial (0.6) (0.2)

(0.4) (0.3) 0.3 (0.6) Other (0.3) 2.2 (2.4) (7.6) (5.5) (2.2) Total 2.3 1.4 0.9 1.8 0.2 1.6 .........................................

................................................

................. In 1991, the increase in total kilowatt-hour sales resulted from higher sales to the Residential and Commercial classes. Virtually all of the Residential sales increase was the result of unusually hot summer weather in 1991. dential customer growth continued to decline in 1991 due to the impact of general economic weakness in the housing industry.

Commercial sales in 1991 increased due to higher average use per customer, due in part to the hot summer weather. Sales to the hotel-casinos contributed to

• the 1991 Commercial sales increase as well. Industrial sales declined slightly in 1991 primarily due to ACE's larg-est customer providing most of its own electric generation in the last quarter of 1991.

• The increase in total kilowatt-hour sales in 1990 is ily the result of in c reased numbers of customers in th e Residential and Commercial classes and higher average use by Commercial customers.

Sales in 1990 to Residential and Commercial customers were adversely affected by milder weather during the heating season. The slight crease in 1990 sales to Residential customers was due to an increase in the number of customers. Commercial sales in 1990 increased due to higher average use per customer and an increase in the numb e r of customers, including the opening of a new hotel-casino. In 1990, Industrial sales declined slightly as a result of a general economic down, notably in the construction-related sector. Along with the r e st of the northeastern United States, ACE's service territory has experienced general economic weakness. This economic weakness was greatest in the construction , services and trade sectors , affe c ting all ACE customer classes. *E is also experien c ing the effe c ts of competition and ructural changes in the electric utility industry.

ACE's largest industrial customer began generating almost all of its own e lectric needs in October 1991. Future sales to this customer will be significantly reduced. ACE will primarily 300 2 5 0 2 00 1 5 0 100 5 0 16.7 1114.B 15.l 187.6 75.3 19.9 253.5 700 ATLANTIC ENERGY 27.9 179.2 94.5 'I Cash Requirements and Internal Generation of Funds e C O NS TR UCT IO & OTH E R 50.l 228.l Thi s co m p a res t he a m o unt o f cas h e xp e nditur e s for c onstru c ti o n a nd ot h e r ca pi ta l n ee d s to t h e a m o unt o f cas h t h at is ge n e r a t e d 105.4 in te rn a ll y fr o m t h e co mp a n y's o p e r a ti o ns a ft er t h e p ay m e nt o f di v id e nd s to sh a r e h o ld e rs. e I N TERNAL C A S H G E N E RATIO N*

• MA T U RITI ES, RETIR E M EN T S. S I KI NG FUN D S Th e diff ere n ce b e tw ee n th e a m o unt o f cas h th at i s r e quir ed a n d the a m o unt o f cas h t h a t is ge n e ra te d i nt e rn a ll y is t h e a m o unt o f funds t h at will h a v e t o b e r a is e d in t h e ca pit al m a rk e ts.

• Res t ated f r o m p r ior y ea r s supply stand-by and auxiliary power. For the twelve months ended September 1991, sales to this customer represented approximately 16% and 3% of industrial and total sales , respectively.

For the twelve months ended tember 1991, revenues from this customer were 2% of total operating revenues. Costs and Expenses Total Operating Expenses increased 6.9% and 3.8% in 1991and1990, respectively. Included in these expenses are the costs of energy, operations , maintenance, depreciation and taxes. Information with respect to the changes in these expenses and others follows. Energy Costs reflect the amount of energy needed to meet load r e quirements, as well as the various fuel, interchange , and purchased energy sources used, and the operation of the LECs. Changes in these costs refl e ct the varying availability oflow cost generation from both owned and purchased sources and in the unit prices of the fuel sources used, as well as changes in the needs of other utilities ticipating in the Pennsylvania-New Jersey-Maryland Interconnection.

The cost of energy is recovered through base rates and by the operation of LE Cs. Earnings are not affected by Energy Costs because such amounts are adjusted to match amounts recovered through revenues.

In any period, the actual amount of LEC revenue recovered from customers will be greater or l e ss than the actual amount of energy 7 6 5 4 3 2 6.0 4.0 4.0 4.0 'I Allowance fo r Funds used During Construction as a Percent of Net Income A tl a ntic E n e r gy's 6.0 n et in co m e in cl ud es an a cco unting a ll owan ce for t he c ost of bo r ro w e d a nd e quit y funds u se d for s o m e co n st ru c tion proj e ct s. B ecause AFD C r e pr e s e n ts a n o n-cas h t i on to net in co m e, i t i s pr e f e r a bl e t o maint a in a l o w rat i o.

Atl a ntic Energy, I nc. and Subsidia r ies MA\AGE\IE\T'S DIS(:tSSIO\

.\\I> .\\.\LYSIS lllllW\illjlllbliillli.W\11111Jili4

.. lllllQllQlllHllllllllll!i§!IM 7t 61. lOt 11t m 147. 27t 29t 6 1t 31t S 6t S1t 4 S t O (in billi o ns of kil owa tt-h o ur s) r--1' :1:

• ELECT R IC Tota l Sources and Costs of Ene r gy 8 7 88 3.07 3.40 3.95 4.10 0.93 0.89 1.85 2.05 1.92 1.99

• Includ es e n e rgy and capac it y costs r ecov e r ed through th e LEC t In cl ud es purchas e d p ow e r fr om PE :* 8 9 2.86 3.44 0.87 2.09 1.96 costs incurred in that period. Such respective overrecovery or underrecovery of current energy costs is recorded on the Consolidated Balance Sheet as an asset or liability as appropriate.

These amounts are recognized in the Consolidated Statement of Income as Energy Costs during the period in which they are subsequently recovered through the LECs. Excluding the deferred costs of$10.4 million associated wit h Salem Nuclear Generating Station ages, ACE was overrecovered by $24.6 million and $11.4 million at December 31, 1991and1990, respectively, and underrecovered by $8.7 million at December 31, 1989. Energy Costs for 1991 decreased

2. 9%, primarily due to a reduced level of deferred energy costs recognized during the year. Costs of energy related to the production of electricity increased in 1991, due to a 3.4% increase in net generation.

Overall, 1991 average energy cost per watt-hour was 1.65 cents compared to an average energy cost per kilowatt-hour of 1.66 cents in 1990. This decrease was due to increased availability in 1991 oflower cost ergy, primarily from PE, which commenced in June 1990. Energy Costs in 1990 decreased 7 .1 %. Costs of energy lated to the production of e l ectricity decreased in 1990 due to an increase in lower cost nuclear generation from the Peach Bottom Station, and a slight reduction in net energy output. Improved availability ofnuclear sources and the lSt 6t 3Bt 41t 'I 90 1.59 3.52 0.83 2.06 1.66 1t 19t For eac h of th e last five years , coa l and Bt nucl ear fuel sources 33t combined h ave pro-duced 70% of Atlantic Electric's tot al energy requirements.

In 1991 , Atlantic E l ectric 39t began purchasing e n e r gy and capacity from a non utility genera tor und e r a long te rm arrange-m ent. 91 4.9 5 e NONUTILITY PURCHASES*

1.4 3 e I TERCHANGE' 3.49 e OIL & NATURAL GAS 0.78 e NUCLEAR 1.94 1.6 5 e COAL YEARLY AVERAGE purchase of energy from PE resulted in an average energy cost per kilowatt-hour of 1.66 cents, compared with 1.96 cents in 1989. Changes in Operations and Maintenance expenses in 1991 and 1990 reflect changes in the costs of operating and maintaining ACE's wholly-and jointly-owned generating units and the costs of purchased power. Costs of chased power, exclusive of fuel, are included in Operations expense and principally reflect purchases of capacity under long term arrangements.

Operations expense creased 16.1%and14.0% in 1991 and 1990, respectively, primarily as a result of capacity charges under the PE rangement, which began in June 1990. Maintenance pense decreased slightly in 1991 and reflects the net effects of increased expenses at ACE's jointly-owned clear units, while maintenance expenses at certain other plants decreased. Maintenance expense decreased 5.2% in 1990 reflecting completed major nuclear unit overhauls principally undertaken in 1989. In addition, various cost containment programs have been successful in controlling

• the growth of certain expenses.

• Depreciation and Amortization expense increased 6.2% and 6. 3% in 1991 and 1990, respectively, and reflects the cost and type of electric utility plant in service, the respec-tive in-service dates and amounts of new plant additions.

Net plant additions resulted in increased expenses in each of those years. Gross Receipts and Franchise Taxes (GR&FD have been computed on the basis ofrevenues collected from tomers. Increases in GR&FT in 1991 and 1990 were 1. 9% and 4. 7%, respectively, and reflect increased levels of nues subject to the tax. Federal Income Taxes increased

34. 7% in 1991 due to an increased level of taxable income. Federal Income Taxes increased

17. 7% in 1990, as a result of increased taxable income without a corresponding effect on book income subject to tax. Changes in Federal Income Taxes are tailed in Note 2 of the Notes to Consolidated Financial Statements.

-erest on Long Term Debt decreased 5.8% in 1991 as esult of various redemptions and maturities of certain ries of First Mortgage Bonds having higher average rates than new long term debt issued in 1991. In March 1991, ACE issued $38.865 million of its First Mortgage Bonds, 6.80% Pollution Control Series A. In May 1991, ACE deemed $39 million of First Mortgage Bonds, 11 % % tion Control Series A due 2011. Interest on Long Term Debt increased

16. 3% in 1990 and reflected the effect of a full year's interest expense on $135 million of First Mortgage Bonds, 9% % Series due 2019 issued in October 1989. AtDecember31, 1991, 1990and 1989,ACE'sembedded cost oflong term debt was 8. 9%, 9. 2% and 9. 2%, tively. Interest expense on short term debt increased 28.9% in 1991 as a result of higher average balances standing offset, in part, by a lower weighted average est rate. Interest expense on short term debt decreased 71.1%in1990 because oflower average balances outstanding and a lower weighted average interest rate. Allowance for Funds Used During Construction (AFDC) includes a Borrowed Funds portion, which reduces est expense, and an Equity Funds portion, which increases Other Income. AFDC increased 23.3% and 40.9% in 1991 and 1990, respectively.

The amount and apportionment of AFDC is primarily a function of the amount of construction work in progress.

a ferred Stock Dividend Requirements of ACE increased and 23.2% in 1991 and 1990, respectively, and reflects the issuance and sale of new series of Preferred Stock in each of those years. In May 1991, ACE issued and sold 700,000 shares of$7.80 No Par Preferred Stock. In July 1990, ACE issued and sold 500,000 shares of$8.20 No Par Preferred Stock. The increased requirements were partially offset by the operation of sinking funds of certain series of Preferred Stock. Embedded cost of Preferred Stock as of December 31, 1991, 1990 and 1989 was 7.8%, 7.7% and 7.5%, respectively.

Outlook The nature of the electric utility business is capital sive. ACE's ability to generate cash flows from operating activities and its continued access to the capital markets is affected by the timing and adequacy of rate relief, competition and the economic vitality of its service territory. Income of ACE can be affected by the operational performance of nuclear generating facilities.

ACE is subject to a BRC-mandated nuclear unit performance standard.

Under the standard, penalties or rewards are based on the gate capacity factor of ACE's five jointly-owned nuclear units. Any penalties incurred would not be permitted to be recovered from customers and would be charged against income. Certain accounting standards applicable to the Company have been issued by the Financial Accounting Standards Board but not yet adopted by the Company. One standard, effective in 199 3, relates to the accounting for income taxes and is not expected to have a material effect on the results of operations or financial position. Another ard, also effective in 1993, relates to the accounting for postretirement benefits other than pensions and will nificantly increase the annual costs of benefits recognized in future years over the amount now recognized.

ACE currently estimates that the annual cost for such benefits could increase approximately

$7 million to $10 million and result in an unfunded accumulated other ment benefit obligation of approximately

$90 million to $100 million at December 31, 1992. This impact should be lessened by continued contributions to the plan's trust. The financial performance of ACE will be affected in the future by the level of sales of energy and the impacts of ulation. The amount earned on capital investments by the utility is subject to general business conditions and tion. Other issues which may impact the electric utility business include p u blic health, safety and environmental legislation.

• Atlantic Energy, Inc. and Subsidiaries

• lliljlf4\jll!W11Mlillm4fillillL111L'*lilliQl;Mllldli*iliilll!i§!IM In June 1991, state legislation was enacted which ates the payment schedule ofGR&FT payable by public utilities to the State of New Jersey, and alters the method of computing such taxes. The new GR&FT law is expected to initially result in higher taxes payable, reduced internal generation of funds and increased external financing quirements of ACE. ACE is seeking to recover through rates the increased costs relating to the changes in the law. ACE is currently in a rate proceeding to determine the propriate ratemaking treatment of consolidated Federal income tax benefits derived from losses ofnonutility diaries of the Company. In its petition and testimony fore the BRC, ACE has asserted that no changes in customer rates should be made on the basis of these tax benefits.

A decision by the BRC is expected in the second quarter of 199 2. If such benefits are allowed to be flowed through to customers, ACE's revenues could decrease and earnings of the Company would be impacted.

Recent Federal legislation has served to encourage the development of electric generating facilities by non utilities.

One such project, in which AGI is a partner, is expected to be in service in 1992 and will serve one of ACE's largest industrial customers.

Two other projects, expected to serve other large industrial customers, are currently underway in ACE's service territory and are expected to be in service by 1995. It is estimated that, if all three projects are pleted, by 199 5 they could displace the equivalent of 2. 7% and 1.8% of 1991 kilowatt-hour sales and revenues, spectively.

These effects could be offset to some extent by natural growth in the service territory and additional forts by ACE to reduce the impact of the potential loss of kilowatt-hour sales and revenues.

As a result of economic conditions in the service territory, ACE estimates that the rate of growth of overall sales of energy will be slower than that experienced in recent years, the extent of which ently is not determinable.

The amount and timing of ACE's projected construction program is premised on the bility of generating capacity from non utility sources scribed above. If for any reason these projects are delayed or do not materialize, or ifload growth is greater than mated, it may become necessary for ACE to increase its construction expenditures.

Such an increase would put ditional burdens on ACE to generate cash from operations and on ACE's financing programs.

Amendments to the Clean Air Act enacted in 1990 relating to acid rain and limitations on emissions at electric ating plants will require modifications at certain of ACE's facilities.

Compliance with the Act will cause ACE to incur additional operating and/or capital costs. Presently, ACE's construction budget for 1992 through 1994 includes $61 million related to the cost of compliance.

ACE plans to seek recovery through rates of costs associated with compliance, which ACE currently estimates would increase revenue quirements by approximately 2% based on 1991 revenues.

This increase may be offset in part, by utilization of certain allowances as permitted by the Act, the value of which is not presently determinable.

In addition, certain power purchase arrangements will be affected by the Act, the effects of which are not presently determinable.

The New Jersey Department of Environmental Protection and Energy (DEPE) has proposed modifications to certain environmental permits at Salem. The Salem owners have opposed these modifications.

Comp"liance with the DEPE proposed modifications would require the immediate shutdown of both Salem units, the construction of cooling towers at costs which are estimated to be substantial, and extended outages for the design, licensing and tion of such towers. In addition to the cost of construction, ACE would be required to purchase replacement energy, the cost of which could also be substantial.

The retrofitting of cooling towers at Salem would also result in a nent capacity derating of up to 120 MWs, as well as creased operation and maintenance costs. Public Service Electric and Gas Company (PS), the operator, has filed written comments and demonstrations which it believes support its position that cooling towers are not required.

PS plans to vigorously defend its position.

Inflation

• Inflation affects the level of operating expenses and also the cost of new utility plant placed in service. Traditionally, the rate making practices that have applied to ACE have involved the use of historical test years and the actual cost of utility plant. However, the ability to recover increased costs through rates, whether resulting from inflation or

• otherwise, depends upon the frequency, timing and results ofrate case decisions.

A ll a n lic E n e r gy, I nc. an d Subsi d ia r ies ***************

• • • • • • • • • • • IIIIl***********

llDDll .. *********llDBll***********

lllBBl***********llllBlll***********

lllllBll t l antic Energy, Inc. vestor /nf ormation erating Revenues ($000) Net Income ($000) Average Number of Shares Outstanding (000) Earnings per Average Common Share Total Assets (Year-end)

($000) Long Term Debt and Cumulative Preferred Stock Subject to Mandatory Redemption (Year-end)

($000) Capital Lease Obligations (Year-end)

($000) Dividends Declared on Common Stock Dividend Payout Ratio Book Value per Share (Year-end)

Price/Earnings Ratio (Year-end) Times Fixed Charges Earned (pre-tax, Atlantic Electric)

Shareholders and Employees (Year-end): Common Shareholders

• 11u11Jv"'"" (Atlantic Electric)

$ 777,970 $ 85,635 24,504 3.49 $ $2, 151,416 $ 807,347 $ 53,093 $ 2.99 $ 85o/o 29.68 12 3.68 At l antic Ci t y E l ectric Com p any (Principal Subsidiary)

F a cilities for Service Total Utility Plant ($000) Additions to Utility Plant ($000) Generating Capacity (Kilowatts) (a) (b) Maximum Utility System Demand (Kilowatts)

Capacity Reserve at Time of Peak (%of Installed Generation)

Energy Supp l y (Thousands ofkwh): Net Generation

' Purchased and Interchanged

-Net :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

• • • • Total System Load l ectric Sales (Thousands of kwh) Residential Commercial Industrial All Others $2, 175,601 $ 177,298 2,134,200 1,911,000 7.8% 6,296,036 2,296,020 8,592,056 3,370,327 3,147,318 1,368,329 49,626 Total (c) 7,935,600 R esU:le n tia l Electric Service (Average per Customer)

Amount ofElectricity Used During the Year (kwh) 8,440 Revenue for a Year's Service $ 906.66 Revenue per Kilowatt-hour 10.74c Customer Data (Average)

Residential With Electric Heating Residential Without Electric Total Residential Commercial Industrial All Others Total Customers (c) O p e ra ti ng R even u e ($000) Electric Revenues:

Residential Commercial Industrial All Others 399,324 51,077 998 524 451,923 $ 362,050 292,349 102,202 10,136 Total Electric Revenues 766,737 er Electric Revenues 8, 112 $ 716,779 $ 68,879 22,795 $ 3.02 $2,006,010

$ 747,877 $ 57,971 $ 2.94 $ 97% 28.73 11 2.94 $2,027,138

$ 170,772 1,959,700 1,741,000 10.9% 6,265,335 2 , 044,174 8,309,509 3,267,606 3,063,069 1,376,423 49,769 7,756,867 8,251 $ 844.37 10.23¢ 447,821 $ 334,375 271,688 96,766 9 , 668 712,497 (4,055) 8,448 :::::::::::::::::::::::::::::

• • • • • • • • • • i:::**:***

$ 705,020 $ 80,964 21,634 $ 3.74 $1,864,461

$ 725,329 $ 33,146 $ 2.85 $ 75% 28.54 10 3.19 $1,846,122

$ 147,886 1,879,700 1,700 , 000 9.6% 6,260,9 4 2 2 , 110,554 8,371,496 3,265,918 2,917 , 162 1,380,832 53,872 7,617,784 8,382 $ 840.34 10.03¢ 80,409 309,245 389,654 49,509 1,008 549 440,720 $ 327,443 256,199 94,634 9,901 688,177 7,215 9,765 $ 675,859 $ 72,171 19,593 $ 3.68 $1,660,286

$ 594,461 $ 32,880 $ 2.74 $ 75% 27.16 9 3.06 $1,712,614

$ 130 , 281 1,807,700 1,636,000 9.5% 5,863,119 2,209 , 777 8,072,896 3,213,010 2 , 741,976 1 , 339,005 56 , 289 7,350,280 8,460 $ 838.70 9.91¢ 78,805 300,974 379,779 48 , 398 1,014 552 429,743 $ 318,520 240,890 91,661 9,935 661,006 6,716 8,137 $ 648,173 $ 73,765 18 , 311 $ 4.03 $1,499,381

$ 522,815 $ 37,694 $ 2.715 $ 66% 25.71 8 3.68 $1,602,801

$ 105 , 521 1,660 , 700 1,609 , 000 3.1% 6,157 , 938 1,483,685 7,641,623 3,040,410 2 , 592,232 1 , 323,567 58,191 7,014,400 8,281 $ 838.08 10.12¢ 367,153 46,775 1 , 015 554 415,497 $ 307 , 704 231,498 89 , 261 10,409 638,872 385 8,916 $ 582,961 $ 54,946 18,266 $ 3.00 $1,401,064

$ 534,822 $ 37,603 $ 2.61 $ 87% 24.37 12 2.99 $1,503,010

$ 109 , 303 1,660,700 1,459 , 000 9.1% 5,966,600 1,131 , 900 7,098 , 500 2,839,114 2,401,199 1,222 , 981 58,120 6,521,414 7 , 982 $ 780.43 9.78¢ 355,702 45 , 359 1,022 554 402,637 $ 277,601 211,023 78,404 10,152 577,180 (1,813) 7,594 *billed Revenues -Net 3,229 Total (c) $ 778,078 $ 716,890 $ 705,157 $ 675 , 859 $ 648,173 $ 582,961 .........................

...........................

.............

..........................

.................

...........

.................................................

.................................

....................... (a) Exclud e s c apacity allo c ated to a larg e industrial c ust o m e r. (b) Includes unit pur c has e s of ca p ac ity und e r c ontra c ts with ce rtain o th e r utilities. (c) In cl ud e s s al e s to an affiliate with i n th e Atlanti c En e rgy co n so lidat e d gr o up.

Atlantic Ene r gy, I nc. and Subsidiaries l\\'ESTOH l\FOHMATIO\

Where should I send inquiries concerning my investment i n Atlantic Energy, Inc.? The Company serves as recordkeeping agent, dividend disbursing agent and also as Transfer Agent for Common Stock. Correspondence concerning such matters as the placement of dividend checks or stock certificates, address changes, transfer of Common Stock certificates, Dividend Reinvestment and Stock Purchase Plan inquiries or any general information about the Company should be addressed to: Atlantic Energy, Inc. Investor Records P.O. Box 1334 1199 Black Horse Pike Pleasantville, New Jersey 08232 Telephone (609) 645-4506 or (609) 645-4507 Ms. S. D. McMillian, Secretary, is the corporate officer responsible for all investor services. When ar e dividends paid? The proposed record dates and payable dates for dends on Common Stock are as follows: Re co rd Dates Payable Dates ........................................................................................................

March 24, 1992 April 15, 1992 June 22, 1992 September 21 , 1992 July 15, 1992 October15, 1992

....

...............................

....

..

....... . The following table indicates dividends paid per share in 1991and1990 on Common Stock: . 1991 1990 ..........................................................................

..............................

First Quarter $ .74 $ . 72 Second Quarter .74 .72 Third Quarter .75 .74 Fourth Quarter .75 .74 ..........................

............

.. Annual Total $2.98 $2.92 Dividends paid on Common Stock in 1991 and 1990 were fully taxable. Some state and local governments may pose personal property taxes on shares held in certain corporations.

Shareholders residing in those states should consult their tax advisors with regard to personal property tax liability.

Who is the trustee and interest paying agent for Atlantic Electric'*

bonds and debentures?

First Mortgage Bond recordkeeping and interest ing are performed by The Bank of New York, 101 Barclay Street, New York, New York 10286. Debenture keeping and interest disbursing are performed by First Fidelity Bank, N.A., 765 Broad Street, Newark, New Jersey 07102. Whom can I contact regarding the Preferred Stock of Atlantic Electric?

Atlantic Electric serves as recordkeeping agent, dividend disbursing agent and Transfer Agent for its Preferred Stock. Inquiries regarding such matters can be directed to Investor Records at the address listed. Doe s the Company have a Dividend Reinvestment and Stock Purchase Plan? Yes. The Plan allows shareholders to automatically invest their cash dividends and/or optional cash payments in shares of the Company's Common Stock. Holders ofrecord of Common Stock interested in enrolling in the Plan should contact Investor Records at the address listed. In addition, shareholders whose stock is held in a brokerage account may be able to participate in the Plan. These shareholders should contact their broker for more information. where Is the Company'*

stock Hsted? Common Stock is listed on the New York, Pacific and Philadelphia Stock Exchanges.

The trading symbol of the Company's Common Stock is ATE; however, newspaper listings generally use AtIEnrg or AtlanEngy.

The high and low sale prices of the Common Stock reported in the Wall Street Journal as New York Stock Exchange-Composite Transactions for the periods indicated were as follows: 1991 1990 * * . ..................................................................................................... . .... ...... .............

.............. ... .. . .

Low .

Low First Quarter 361/a 321/a 38 11, 35 '/2 Second Quarter 371/a 341/a 3?7/8 34 7/8 Third Quarter 38 5/a 34 1 12 36% 3l7/8

.................. ...... .................

...... ...... . Who are the Independent auditors for Atlantic Energy, Inc.? Deloitte & Touche Certified Public Accountants Two Hilton Court, P.O. Box 319 Parsippany, New Jersey 07054-0319 I s additional information about the Company available?

The annual report to the Securities and Exchange mission on Form 10-K and other reports containing cial data are available to shareholders. Specific requests should be addressed to: Atlantic Electric Financial Services Department P.O. Box 1500 1199 B l ack Horse Pike Pleasantville, New Jersey 08232 Telephone (609) 645-4655 or (609) 645-4888

• WJ o f D ecember 31, 1991 *Dougla s Huggard (58/36) airman and Chief Executive Officer of Atlantic Energy rector of Atlantic Energy and all subsidiaries Chairman and Chief Executive Officer of Atlantic Electric Mr. Huggard has served as Chairman and Chief Executive Officer since 1990. He was President and Chief Executive Officer from 1985 to 1989. He joined Atlantic Electric in 1955 as an engineer.

Jerrold L. Jacobs (52/30) President of Atlantic Energy Director of Atlantic Energy and all subsidiaries President and ChiefOperating Officer of Atlantic Electric Mr. Jacobs has served as President of Atlantic Energy and President and Chief Operating Officer of Atlantic Electric since 1990. He was Executive Vice President of Atlantic Electric from 1988 to 1990. He joined Atlantic Electric in 1961 as an engineer.

Meredith I. Mariacher, Jr. (49/26) Vice President of Atlantic Energy Director of all subsidiaries Senior Vice President-Utility Operations of Atlantic Electric Mr. Har l acher has served as Vice President of Atlantic Energy since 1987 and was named Senior Vice President-Utility Operations of Atlantic Electric in 1991. Prior to that he was Senior Vice President-Corporate Planning and Services.

He joined Atlantic Electric in 1965 as an engineer.

Henry K. Levari, Jr. (43/20) Vice President of Atlantic Energy Director of all subsidiaries

• • or Vice President-Corporate Planning and Services tlantic Electric Levari was named Vice President of Atlantic Energy and Senior Vice President-Corporate Planning and Services of Atlantic Electric in 1991. Prior to that, he served as Atlantic Electric's Vice President-Power Delivery. He joined Atlantic Electric in 1971 as an engineer.

John R. Liiiy (63/3) Vice President of Atlantic Energy President and Director of Atlantic Southern Properties, Atlantic Generation, and Atlantic Energy Technology Director of ATE Investment Mr. Lilly joined Atlantic Energy in 1988 as Vice President.

He was previously self employed as a financial management consultant.

Mr. Lilly is an attorney. J.G. Salomone (51/15) Vice President and Treasurer of Atlantic Energy Director of all subsidiaries Senior Vice President-Finance & Accounting and Treasurer of Atlantic Electric President of ATE Investment Certified Public Accountant Mr. Salomone has served as Vice President and Treasurer of Atlantic Energy since 1987. He has served as Chief Financial and Accounting Officer of Atlantic Electric since 1984. He joined Atlantic Electric as Assistant Controller in 1976. Sabr i na D. McMillian (36/6) retary of Atlantic Energy retary of Atlantic Electric s. McMillian was first elected Secretary in 1986. She joined Atlantic Electric in 1985 as Assistant to the Corporate Secretary.

Ms. McMillian is an attorney.

John M. Carden (53/24) Vice President-Customer Service of Atlantic Electric Mr. Carden has served as Vice President-Customer Service of Atlantic Electric since 1988. Prior to that, he was Vice President-Administrative Services.

He joined Atlantic Electric in 196 7 as an engineer. Thomas E. Freeman (61111) Vice President-Human Resources of Atlantic Electric Mr. Freeman has served as Vice President-Human Resources of Atlantic Electric since 1981. He joined Atlantic Electric in 1980 as Manager of Administration. James J. Lee s (47/21) Vice President-Marketing and Rates of Atlantic Electric Mr. Lees has served as Vice President-Marketing and Rates of Atlantic Electric since 1989. He was Vice President-Rates of Atlantic Electric from 1987 to 1989. He joined Atlantic Electric in 1970 as an engineer. J. David Mccann ( 40/19) Vice President-Power Delivery of Atlantic Electric Mr. Mccann was named Vice President-Power Delivery of Atlantic Electric in 1991. Prior to that, he was Vice President, Treasurer and Assistant Secretary of Atlantic Electric from 1985 to 1991. He joined Atlantic Electric in 197 2 as an engineer.

Morgan T. Morris Ill (48/22) Vice President-Administrative Services of Atlantic Electric Mr. Morris has served as Vice President-Administrative Services of Atlantic Electric since 1988. Prior to that, he was General Manager-Operations Services of Atlantic Electric from 1986 to 1988. He joined Atlantic Electric in 1969 as an engineer.

Henry C. Schwemm, Jr. (50/22) Vice President-Production of Atlantic Electric Mr. Schwemm has served as Vice President-Production of Atlantic Electric since 1980. He joined Atlantic Electric in 1969 as an engineer.

John P. Smalling (31/1) Vice President and Secretary of Atlantic Southern Properties and Atlantic Energy Technology Secretary of Atlantic Generation and ATE Investment Mr. Smalling was elected to the above positions and has served as Manager of Diversified Activities since joining Atlantic Energy in 1991. He has previously held positions in corporate finance and banking with other corporations.

L ou is M. Walters (39113) Treasurer of ATE Investment, Atlantic Southern Properties and Atlantic Energy Technology Certified Public Accountant Mr. Walters was elected to the above positions and was named General Manager-Treasury and Finance of Atlantic Electric in 1991. Prior to that, he held managerial positions in treasury, taxes and accounting.

He joined Atlantic Electric in 1978 as an accountant.

As of Decembe r 3 1 , 1991 BOAIW OF DIHEC:TOHS OF .\TL\\TIC:

E\EHGY. l\C. J o s. Mlchael Galvln , Jr. Mr. Galvin, a Director since 1978, is president and chief executive officer of the South Jersey Health Corporation-The Memorial Hospital of Salem County. He is also past chairman of the board, New Jersey Hospital Association and a trustee for the Center of Health Affairs. He is currently a member of the Southern New Jersey Chamber of Commerce and of the editorial board of Modern Healthcare Magazine. Committee Chairman:

Personnel. Committee Membership:

Audit; Energy, Operations

& Research:

Pension & Insurance.

Ger ald A. Hal e Mr. Hale, a Director since 1983, is president of Hale Resources, Inc., an investment and management company. He serves as chairman of the Evans Clay Company, and as a director of New Jersey Manufacturers Insurance Company, New Jersey Business and Industry Association and Strong Systems, Inc. Committee Chairman:

Energy, Operations

& Research.

Committee Membership:

Audit; Corporate Development; Personnel.

Matth e w Ho l den, Jr. Mr. Holden , a Director since 1981, is the Henry L. and Grace M. Doherty Professor of Government and Foreign Affairs at the University of Virginia.

He is also an arbitrator and an energy and regulatory affairs consultant.

He is a former commissioner of the Federal Energy Regulatory Commission and the Wisconsin Public Service Commission.

Committee Chairman:

Audit. Committee Membership:

Corporate Development; Pension & Insurance; Personnel.

Cy r u s H. Holley Mr. Holley. executive vice president-Engelhard Corporation , was elected as a Director in early 1990. Mr. Holley joined Engelhard in 1979. where he has served in various executive positions.

He is chairman of the Independent College Fund of New Jersey and is active in several civic and educational organizations.

Committee Membership:

Corporate Development; Energy. Operations

& Research; Finance & Investor Relations; Personnel.

E. Douglas Huggard Mr. Huggard, a Director since 1984, was elected Chairman and Chief Executive Officer in 1990, and has been Chief Executive Officer since 1985. He serves as a Director ofall of the Company's subsidiaries and has been with the Company for 36 years. He is currently a director of the New Jersey State Chamber of Commerce. Committee Membership:

Ex-officio member of all committees except Audit. Jerrold L. Jacobs Mr. Jacobs was elected President and a Director of the Company in 1990 and serves as President and Chief Operating Officer of Atlantic Electric. He is a Director of all of the Company's sidiaries and has been with the Company for 30 years. He is currently vice chairman of the Southern New Jersey Chamber of Commerce and is regional chairman of U.S. Savings Bonds sales. Committee Membership:

Ex-officio member of all committees except Audit. Richard B. McGlynn Mr. McGlynn, Attorney at Law and partner in the law firm of Stryker, Tams & Dill, has been a Director since 1986. He is a member of the American, ew Jersey State and Essex County Bar Associations, as well as the American Bar Foundation and the American Law Institute.

He is a former commissioner of the New Jersey Board of Regulatory Commissioners and a former judge in Essex County, New Jersey.

• Committee Chairman:

Pension & Insurance.

Committee

• Membership:

Corporate Development; Energy, Operations

& Research:

Finance & Investor Relations.

Madeline H. McWhlnney Ms. McWhinney , a Director since 1983 , is president of Dale, Elliott & Company, management consultants.

She is a trustee of the Charles F. Kettering Foundation , the Institute oflnternational Education and the Managers Mutual Funds. Committee Chairman:

Finance & Investor Relations.

Committee Membership:

Audit: Energy, Operations

& Resea r ch; Pension & Insurance.

Bernard J. Morgan Mr. Morgan, banking industry executive, was elected as a Director in 1988. He is a director of the Philadelphia Chamber of Commerce and St. Joseph's University.

He is also chairman of the Business Advisory Group of the Greater Philadelphia Girl Scouts. Committee Chairman:

Corporate Development.

Committee Membership:

Finance & Investor Relations; Pension & Insurance; Personnel.

Harold J. Raveche Dr. Raveche, who became a Director in 1990, is president of The Stevens Institute ofTechnology.

He is chairman of the board of trustees of the New Jersey Consortium for Surface Engineered Materials, a director of National Westminster Bancorp Inc. and National Westminster Bank, NJ. He is also a member of the U.S. Council on Competitiveness, a commissioner of the New Jersey. Commission on Science and Technology, and the recipient of New Jersey Monthly magazine's New Jersey Pride Award in Education.

Committee Membership:

Audit: Corporate Development; Energy, Operations

& Research; Finance & Investor Relations.

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