ML18100B014

Atlantic Energy Annual Rept 1993.

ML18100B014
Person / Time
Site:	Salem, Hope Creek
Issue date:	12/31/1993
From:	Huggard E, Jo Jacobs ATLANTIC ENERGY, INC.
To:
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ML18100B011	List: ML18100B010 ML18100B013 ML18100B014 ML18100B015
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NUDOCS 9404210193
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• 9404210193 940413 PDR ADOCK I PDR I I -f I

2 1.5 .5 Earnings Per Common Share Div i dends Paid Per Common Shar e Book Va l ue Per Common Share Number of Common Shares Outstanding

-Year-end (000): Average Actual R e turn on Av e rage C o mm o n Equit y El e ctric Operating Re v enu e s (000) Operating Expenses (000) Net Income (000) Utility Cash Construction Expenditures (000) To t a l Asset s (000) Sa l es of E l e c tr i city to Ultimate C u sto m er s (KWH) (000) Price Pa i d Per Kilowatt-hour (Ultimate Customers) Total Ultimate Electric Customer Accounts (Year-end) N u mber of S hareholders

-Common Stock (Year-end)

Number of Atlantic El e ctric Employees (Year-end) 25 1.87 !3.13 20.50 20 19.2 5 1 9.94 1 5 1 0 5 1993 $ 1.80 $ 1.53 $ 15.82 52 , 888 53 , 507 11.71% $ 885,875 $ 708,091 $ 95,297 $ 138 , 111 $2,487,508 8,088,412 10.318$ 483,073 2 1.71 47,832 :g .£: "" .:. :\] 1,835 90 91 92 93 0 Atlantic Energy Earnings and D i vidends Paid Per Share of Common Stock .EARN I NGS .DIVIDENDS Earnings per share of Common Stock is net income divided by th e average number of common s h ares outstanding.

Dividends paid per s har e is th e sum of th e quarterly di v id end payments made in January , April , July and October. 89 90 91 92 93 Atlantic Energy Market Price Per Share of Common Stock Thi s is th e closing p ri ce of A tlanti c Energy's Commo n Stock o n th e last trading date of each year, as reported by the New Y o rk Stoc k Exchange Composi t e Transactions listing. %Cha n ge %Change % Change 1 993-1 992 1992 1992-1991 1991 1991-1990 7.8 $ 1.67 (4.6) $ 1.75 15.9 1.3 $ 1.51 1.3 $ 1.49 2.1 3.0 $ 15.17 2.2 $ 14.8 4 3.3 2.5 51 , 592 5.3 4 9 , 0 08 7.5 2.5 52 , 199 2.6 50 ,8 96 10.8 5.1 11.1 4% (7.9) 12.10% 1 4.5 6.0 $ 8 16 ,8 25 1.0 $ 808, 37 4 9.1 3.9 $ 679 , 657 2.4 $ 66 3, 51 8 7.7 10.5 $ 86 , 210 0.7 $ 8 5 , 635 24.3 5.7 $ 130 , 700 (2 4.2) $ 172, 4 25 3.4 1 2.l $2 , 219 , 338 3.2 $2 , 151,416 7.2 5.4 7,655 , 138 (3.5) 7,935,600 2.3 0.6 10.257¢ 4.5 9.812¢ 5.6 1.0 45 8, 5 4 9 1.2 453 , 1 0 0 0.8 2.8 46 , 524 6.2 43 , 802 3.6 (9.3) 2 , 023 (0.4) 2,032 (1.1)

Award Winning Performance The New Jersey Business and Industry Association

'.5 Award for Excellence was presented to Atlantic Electric in nition of its products and vices as well as the work the company does to i mprove the quality of life in southern New Jersey. The Edison Electric Institute (EE!) recognized Atlantic Electric with its 1993 Common Goals award for its work in partnership with the Bayside Prison. Atlantic Electric provides supplies and tools for inmates to build nest boxes for a var i ety of ened birds. EE! cited Atlantic Electric's concern for the environment and its munity involvement as rsons for the award. For the third consecutive year, an Atlantic Electric emp l oyee involvement team has won the Team Excellence Award for its region given by the Association for Quality and Participation.

The BEACH Patrol team , made up of employees from human resource services, will go on to compete for the national title. The team identified improvements and cant cost savings to the pany's prescription plan. Team members pictured above are: (back row, l to r) Eileen Cappellucci , Reily Favinger, Cindy Hirsh (leader), Liz Pullan , Jill Perna , JoAnn Fitzgerald, Mary Parrish, Liz Thomas, Jo-Ann Hurley and Riesa Levine (facilitator); (front row, l tor) Andy Dias, Harry Phillips , Bob Pavlovski and Ron Migliore.

Previous Atlantic Electric winners were: the ACT team from customer service who streamlined and redesigned hazardous condition ing; and the Morale Boosters team from Deepwater Generating Station who greatly improved safety at the station. Money Does Grow on Trees A group of Atlantic Electric employees found a way to save money and benefit the environment:

a tree ment program. Under this program , " compatible" or lower-growing shade trees are used to replace problem trees that grow up into power lines, causing outages and injuries.

Compatible trees retain their shape and ance without being trimmed, representing a substantial cost savings over the life of the tree. As an added fit , the compatible trees are grown at Atlantic Electric's Millville Holly Orchard. Nuclear News The combined capacity tor of Atlantic Electric's five jointly-owned nuclear unit s was 70.8% in 1993. Thi s figure is well within the range of acceptable performance as defined by New Jersey's nuclear performance dard. As a result, Atlantic Electric is not subject to any penalties for 1993. The Financial Page Throughout the year, Atlantic Electric issued and sold $240 million of medium term notes (MTNs). The MTNs have ing maturity dates between 5 and 15 years. They have a weighted average interest rate of 6. 7%. In addition, Atlantic Electric issued and sold three series of First Mortgage Bonds for a total of $225 million principal amount. The new series had interest rates of 6%% (20 years), 7% (35 years), and 7% (30 years). Proceeds from the MTNs and First Mortgage Bonds were used primarily to refund higher coupon debt. This ing brings a savings of roughly $5 million in interest expense annually. The Dividend Reinvestment and Stock Purchase Plan had another banner year in 1993. Shareholders invested over $30 million in new shares of Common Stock through their participation in the plan. Home Based Business In April , Atlantic Electric began a pilot program to allow employees to work from home. The program provides extended hours for customers' calls and greater coverage for heavy calling periods. Computer terminals and phone lines set up in ees' homes work just like the ones in the office , giving tomers the full range of serv ices. Data collected from th e pilot project will be used to e valuate expanding the gram. Preliminary benefits of the program include ter coverage during periods of heavy call volume and ing major storms. New P e ak Established On July 10 , 1993 , Atlantic Electric hit a new level of peak demand of 1 , 962 megawatts (MWs). This record surpasses the 1991 record of 1 , 911 MWs by 2. 7%. (The mild summer of 1992 didn't break any records.)

Reserve margin (additional available capacity) at the time of the peak was 11.2%. Teamwork Triumphs Special effort was required to meet the challenge of peak demand this summer. Workers at Atlantic Electric'.s B.l. England Generating Station battled eel grass , a fine hair-like seaweed that clogged intake screens and reduced water pressure at the plant. To keep the water ing , all hands took turns at cleaning the two-story tall screens. Working around the clock for six weeks , they removed four 55-gallon drums of seaweed every half hour. Through their extraordinary effort , employees kept the plant running and the power on. Atlantic Energy

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you learn a lot from listening to your c u stomers. You find out w h at your common interests are-i nterests li ke i mprov i ng business profits, competing s u ccessf ull y and i nc r easing safety. When you know what yo u share , you know w h a t customers expect of you. Our job is m eeting and ex c ee ding those expectations by providing quality service at competitive prices. Here's how some of our custom e rs think we'v e done. International, an insulation manufacturer , was look i ng for ways to cut energy costs , increase energy efficiency and i mprove some of i ts processes-a ll of w h ic h can boost a business' bottom line. "A tlantic Electric worked with us to get a compre h ensive energy aud i t done. They he l ped us find a consultant who would go through a ll areas of o u r business , looking for ways we could save money and be more efficient ," sa i d Bob Mooney , in d u str i a l eng i neer. " The co n s u ltant's suggestions were great. N one of them cost mo n ey to imp l ement. B ut t h ey did r equire ou r ope r ators to manually shut things down or switch things over ," he added. "W e wanted to take the improvements one step f u rther. Atlantic Electric really helped u s deter-mine which processes co u ld be automated.

T h ey put us in touch wit h all t he r i g h t vendors and equip-ment we needed to make the improvements

," Mooney said. T im Logsdon , plant engineer, summed it all up. " In this economy, b u sinesses and u t ilit i es h ave to work together.

At l antic Electr i c l ived up to that team spirit. They h e l ped us u ncover not o nly t he s m a ll c h ange, but the big dollar savings as well. When you're under pressure to keep your costs i n line, every li tt le b i t helps." utilities are learning what manufacturing has known for a long time: the competition is tough. In a region where the competition is tougher than most, it's impo r tant for a ll sides to wor k toget h er. J m Slough, director of purchasing for Wheaton G l ass Products finds that Atlantic Electr i c is m oving in a Energy (

refreshing new direction.

" They sponsored an important thre e-way m ee ting in v ol v ing th e utility ' company , local industry and stat e regulators.

The me e ting included v e ry frank discussions from all s ide s and was an important step in solving issues that aff e ct everyone ," Slough said. " No other utility I've dealt with ha s displayed the courage to bring controversial issues out into the open so they can be mutually solved ," he added. "A Jltlantic Electric knows that energy i s one of manufacturing

's largest costs and they're willing to work with us. Their experts areas of energy waste and installed sub-metering to help us monitor usage in those areas. That information will enable us to fix problem areas," Slough indicated. "E very industry in New Jersey faces international competi-tors. If any of us aren't efficient, we won't survive against foreign companies.

Atlantic Electric recognizes this tough business environment. They see that jobs can be maintained or increased if industry uses energy efficiently and keeps its costs down. I wish the other utilities that serve Wheaton were equally as progressive," he emphasized.

ended by saying , " More projects are underway for the coming year that will continue the close relationship between our two companies.

Atlantic Electric's progressive approach enjoys my complete support." Impro v ing safety is also an interest we share with customers.

So is staying on a budget. For a recent project wit h the Memorial H os pit a l o f Sa l e m Co unty , w e we re a bl e to h e lp them achi e v e both. Atlantic Energy "W

• e needed to replace the old lighting in our parking lots. But we were on a tight budget to get it done," said Les Wilson , vice president of plant operations.

" We got some costly estimates and asked Atlantic Electric for help. Through their Night Guard leased lighting program, we were able to get efficient, uniform lights that really improve visibility." "O ur biggest problem was finding an affordable pole design that matched what we already had in some areas. With a lot of hard work, Atlantic Electric found us a great alternative.

Now, all of the old lights have been replaced and we're getting more light out there for less money," he added.

wa s the hospital's prime concern , especially for night shift employees. " Before the new lights, we'd wait for security or other employees to go out to our cars," explained nurse Janeen Buirch. " We used to walk out in pairs, but in some parts of the parking lot, you couldn't see each other very well." B uirch is an enthusi-as tic customer of the new lights. " They make a world of difference because they make me feel safe. Even our patients and visitors have com-mented about the lights. I'm really glad that Atlantic Electric and the hospital worked together In our 107 years in business , we have been a source of light , heat, products and services. We're an employer ,

• a supplier and a buyer. Most important of all , we're a neighbor. As we look to the future , our success will come from being an integral part of the community.

It requires us to build a basis for mutual understanding-common ground-on which w e all can stand. We do that by being involved and accessible.

Nowhere in our area have we renewed that commitment more firmly than in Atlantic City. Earlier this year, we re-established an office in the city to be more closely in touch with an important part of our business at a critical time in its development.

Over the next few years, plans for growth in Atlantic City include the addition of a new convention c center, new and expanded hotels and a shopping and entertainment

> complex to rival ones in Baltimore and New York. That amounts to over $1 billion in planned investment-the largest economic development venture i n South Jersey. c > %* c: I What's more, it is the first cohesive effort put forth by city and state government , business and industry to make Atlantic City a fi r st-class destination. > c > Atlantic Electric is at the forefront of these developments.

On the business side, we will be providing heating and cooling to the new convention center. On the human side , our people are lending their time and expertise to many commu-nity organizations, helping them grow and prospe r along with t he c ity. c > One such organi z ation that Atlantic Electric has teamed up with is the c: Atlantic Energy Atlantic City Education Foundation , led by Arthur Lewis, foundation president and co r porate vice president of the Sands Hotel and Cas i no. He explained t h at "from t h e very beginning, Atlant i c Electric suppo r ted the foundation with financial and human resources. The i r invo l ve m ent helps us offer a variety of programs tailored to the individual needs of students and teachers." p rograms vary in content from providing management courses for admin-istrators and teachers to broadening students' interests by expos-i ng them to a var i ety of topics. Ot h er programs enco u rage g r owt h and l earning by allowing students to sample college courses or observe different professio n s. " T he i mportant th i ng to reme m ber is t h at these progra m s and all of t h e ot h ers we support have one goal in m i nd-to help teachers teach and students learn ," Lewis re m arked. " If we can accomp li sh t h at, we've all got something to be proud of." " I 'm impressed with the leadership A tlantic E l ectric has shown to the foundat i on and t h e educational community ," said Lewis. " T h ey bel i eve as we do that providing quality education is in everyone's best i nte r est. It builds a b e tt e r train e d workforc e, a strong e r community and a more vita l economy."

providing safe, reliable electricity with envi-", ronmental sens i tivity is a balancing act. It requires sound and prudent judgement-

-common sense-to meet both bus i-ness and environmental needs. Technology g i ves us t h e tools. Common sense ena bl es us to use those tools wisely for customers' benefit. New technology in solar energy filled the bill for t h e Mar i ne Ma m ma l Strandi n g Center in Br i gantine, New Jersey. This faci l-ity is comm i tted to the health and welfare of sea l ife in our area. Atlant i c Electric is committed to researc h-ing t h e possib ili t i es of solar energy and we needed a few test sites. Bringing the two together was a perfect fit. "{) u ne day I looked outside the window of the Center and noticed a wo m an studying o u r building ," explained Bob Scho e lkopf, director of the center. " We get v isitors quit e often so I walked outsid e to talk with her. She explained that she was from A tlantic Electric and was checking to see what kind of sun exposure our building had. When she said we might be a good candidate for a so l ar ene r g y site , I was thrilled.

We're in contact with A tlantic Electric pretty often , both for business reasons and because many of their employees have been volunteers over the years. So I wasn't surprised that they chose our facil i ty. They know how I feel about the environment and that I'm a supporter of alternate energy," he added. " T h e solar pane l s were insta ll ed this sum m er. T h ey've worked o u t we ll. We've saved about 25% in our electric bills. That money goes direct l y into car i ng fo r the anima l s. This yea r , we have near record numbers of an i ma l s to care for , so t h e sav i ngs rea ll y h e l p." " I n my dealings w i t h the company, I've a l wa y s found t h at the peop l e we r e ve r y down-to-eart h ," Schoe lk opf rema r ked. " A p r o j ect l ike thi s confirms m y fee li ng t h at those sa m e caring people a r e n ot on l y u p-to-date with the latest technology but are also t h e ones making sound business decisions." Business and the environment can work together another way: by promoting i mprovements in heat-i ng and coo li ng tec h nology. Geothermal energy systems offer state-of-t h e-art energy efficiency.

So , it makes sense to match these systems wit h a B.E.S. T. (Built for Energy Sav i ng Tomor r ows) Home. The result is a super-efficient h ome that saves energy and money. One c u stomer w h o's sold on the idea is builder Bob Gajewski. "W hen I heard about Atlantic Electric's programs for builders, I signed u p ri g h t away. I get a kick out of building a house that's the most efficient thing on the market. In my opin i on , you can't get a better home th an o ne t hat's a co mbination of a B.E.S. T. Hom e and a geothermal system." Atlantic Energy "T -hese homes are efficient and clean. They cost very little to run and don't burn any fuels. There are no emissions going into the air or into the house. They are also safe. Since there's no flame, you can locate the unit almost anywhere you like. And, they take reusable well water and exchange only its heat. They're good for the environment all around," he added. "T he people who've bought these homes are really happy with them," Gajewski remarked.

" I've sold quite a few. Even dur-ing the slow real estate market over the last few years, these homes sold well. I have a few under construction now and I have plans for a small development in the near future." "T he employees at Atlantic Electric are a great resource.

They give me any information I need f o r p e op le w h o are in t ere s t e d in geothermal systems. They also put me in touch with all the right vendors and manufacturers so that I can have the latest equipment and expert advice. Atlantic Electric's pro-grams are first rate. I wouldn't have come this far without them."

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-F T EPORT OF MANAGEMENT The management of Atlantic Energy, Inc. and its iaries (the Company) is responsible for the preparation of the financial statements presented in this Annual Report. The financial statements have been prepared in conformity with generally accepted accounting ples. 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 information included elsewhere in this Annual Report. Management has established a system of internal ing and financial controls and procedures designed to provide reasonable assurance as to the integrity and reliability of financial reporting.

In any system of cial reporting controls, there are inherent limitations.

Management continually examines the effectiveness and efficiency of this system, and actions are taken when opportunities for improvement are identified. ment believes that, as of December 31, 1993, the system of internal accounting and financial controls over financial reporting is effective.

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

Deloitte & Touche provides an objective, independent audit as to management's discharge of its responsibilities insofar as they relate to the fairness of the financial statements.

Their audits are based on procedures believed by them to provide reasonable assurance that the financial ments are free of material misstatement.

The Company's internal auditing function conducts audits and appraisals of the Company's operations.

It evaluates the system of internal accounting, financial and operational controls and compliance with lished procedures.

Both Deloitte & Touche and the internal auditors periodically make recommendations concerning the Company's internal control structure to management and the Audit Committee of the Board of Directors.

Management responds to such dations as appropriate in the circumstances.

None of the recommendations made for the year ended December 31, 1993 represented significant deficiencies in the design or operation of the Company's internal control structure.

J. L. Jacobs President and Chief Executive Officer J. G. Salomone Vice President and Treasurer January 31, 1994 Atlantic Energy EPORT OF THE AUDIT COMMITTEE The Audit Committee of the Board of Directors is prised solely of independent directors.

The members of the Committee are: Jos. Michael Galvin, Jr., Gerald A. Hale, Matthew Holden, Jr., Kathleen MacDonnell and Harold J. Raveche. The Committee held three meetings during 1993. The Committee oversees the Company's financial ing process on behalf of the Board of Directors.

In filling its responsibility, the Committee recommended to the Board of Directors, subject to shareholder tion, the selection of the Company's independent tors, Deloitte & Touche. The Committee discussed with the Company's internal auditors and Deloitte & Touche the overall scope of and specific plans for their tive activities concerning the Company. The Committee also discussed the Company's consolidated financial statements with Deloitte & Touche. The Committee NDEPENDENT AUDITORS' REPORT Deloitte&

Touche Certified Public Accountants Two Hilton Court Parsippany, New Jersey 07054 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, 1993 and 1992 and the related consolidated statements of income, changes in common ers' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management.

Our responsibility is to express an ion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards.

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

An audit includes ining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

An audit also includes assessing the accounting principles used Atlantic Energy meets regularly with the internal auditors and Deloitte & Touche, without management present, to discuss the results of their activities, the adequacy of the Company's system of accounting, financial and operational trols and the overall quality of the Company's financial reporting.

The meetings are designed to facilitate any private communication with the Committee desired by the internal auditors or Deloitte & Touche. No cant actions by the Committee were required during the year ended December 31, 1993 as a result of any private communications conducted.

Matthew Holden, Jr. Chairman, Audit Committee January 31, 1994 and significant estimates made by management, as well as evaluating the overall financial statement tion. 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 position of Atlantic Energy, Inc. and its subsidiaries at December 31, 1993 and 1992 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in formity with generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes to conform with ment of Financial Accounting Standards No. 109. As discussed in Note 4 to the consolidated financial ments, in 1993 the Company changed its method of accounting for the costs of postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106. January 31, 1994 ONSOLIDATED STATEMENT OF INCOME (Th o u san ds of D o llar s) Operating Revenues-Electric Operating Expenses:

Energy Purchased Capacity Operations Maintenance Depreciation and Amortizati o n State Excise Taxes Federal Income Taxes Other Taxes Total Operating Expenses Operating Income Other Income: Allowance for Equity Funds Used During Construction Litigation Settlement , net of tax of: 1993-$(1 , 321); 1992-$4 , 982 Other-Net Total Other Income Income Before Interest Charges Interest Charges: Interest on Long Term Debt Interest on Short Term Debt Other Interest Expense Total Interest Charges Allowance for Borrowed Funds Used During Construction Net Interest Charges Less Preferred Stock Dividend Requirements of Subsidiary Net Income Average Number of Shares of Common Stock Outstanding (in thousands)

Per Common Share: Earnings Dividends Declared Dividends Paid T h e accompa n ying Notes to Consolidated Financial Statements are an i n tegra l part of these statements. Atlantic Energy , Inc. and Subsidiaries F o r t h e Y ea r s En d ed D ecem b er 3 1 , 1993 1992 1991 $865,675 $816 , 825 $808,374 159,438 161 , 134 1 8 2 , 972 110,781 103 , 173 79 , 314 162,151 148 , 917 146 , 548 45,360 49 , 837 51 , 960 67,950 69 , 371 66 , 023 104,280 97,969 8 8, 932 45,277 37 , 143 36 , 244 10,854 12 , 113 11 , 525 706,091 679 ,657 663 , 518 159,584 137 ,168 144 , 856 2,368 2 , 212 1 , 814 (2,564) 9 , 671 12,884 9,519 7 , 043 12,688 21,402 8 , 857 172,272 158,570 153 , 713 59,385 53 , 284 51 , 601 1,421 1 , 579 1 , 946 212 1 , 099 1 , 179 61,018 55 , 962 54,726 (1,448) (1 , 414) (3 , 059) 59,570 54 , 548 51 , 667 17,405 17 , 812 16,411 $ 95,297 $ 86 , 210 $ 85 , 635 52,888 51 , 592 49 , 008 $ 1.80 $ 1.67 $ 1.75 $ 1.535 $ 1.515 $ 1.495 $ 1.53 $ 1.51 $ 1.49 Atlantic Energy ONSOLIDATED STATEMENT OF CASH FLOWS (Th o u s ands of D o llar s) Cash Flows Of Operating Activities:

N e t Income Deferred Purchased Power Costs D e ferred Energy Costs Preferred Stock Dividend Requirements of Subsidiary Depreciation and Amortization Allo w ance for Funds Used During Constructi o n Nuclear D ec ommi s s io ning Res e rve Def e r r ed Inc o me Ta x es-Net Prepaid State E x cise Taxes Net Decrease (Increase) in Oth e r Work i ng Capital Other-Net Net Cash Provided by Operating Activities Cash Flows Of Investing Activities:

Utility Cash Construction Expenditures L e ased Property Nuclear Decommissioning Trust Fund Deposits Other-Net Net Cash Used by Investing Activities Cash Flows Of Financing Activities:

Proceeds from Long Term Debt Retirement a nd Maturit y of L o ng Term Debt Decrease in Sh o rt Term Debt Proceeds from Capital Lease Obligations Proc ee d s from C o mmon Stock Is s ued P rocee ds fr o m Pr e f e rred Stock I s sued D iv idends D e clar e d o n Pr e f e rred Stock D i vidends D e clared on Common Stock Oth e r-Net Net Cash Provided (Used) by Financing Activities Net Increase in Cash and Temporary Investments Cash and Temporary Investments, beginning of year Cash and Temporary Investments , end of year Supplemental Schedule of Payments:

Intere s t Income ta x es Noncash Financing Activities:

C o mm o n Stock i ss ued fr o m di v id e nds declared under dividend reinve s tment plan The accompanying Notes to Consolidated Financia l State m e n ts are an i nteg r a l part of these statements.

Atlantic Energy $ $ $ $ $ Atlantic Energy, Inc. and Subsidiaries Fo r the Years Ended December 31, 1993 1992 1991 95,297 $ 86, 21 0 $ 85,635 (6,050) 1 3,4 1 0 (12,938) (15,269) (6 , 1 43) 1 3, 1 80 17,405 17 ,8 12 1 6,4 11 67,950 6 9 ,3 71 66,023 (3,816) (3, 6 26) (4,873) 6,424 6,424 3,0 1 0 20,901 23,38 6 1 3,4 1 3 (35,982) 54 0 (98) 32,364 7 , 685 (2, 7 23) (1,074) 2,8 5 2 7,498 178,150 2 1 7,921 1 84,538 (138,111)

(1 3 0 , 70 0) (1 72,425) (9,946) (9 , 565) (8,793) (6,424) (6,4 2 4) (13,777) (9,832) (8, 52 4) (8,557) (164,313)

(1 5 5 ,2 1 3) (2 0 3,552) 464,633 74,65 5 38,779 (370,541)

(40, 59 9) (50,170) (14,600) (6,000) (23,350) 9,946 9, 5 65 8,793 16,208 1 6, 11 0 72,698 69,720 (17,405) (17,812) (16,411) (67 ,259) (65, 6 44) (62,769) (6,831) (5,403) (9,170) 14,151 (35,128) 28,120 27,988 27,580 9,106 45,647 1 8,067 8,961 73,635 $ 45,647 $ 1 8,067 52,765 $ 55,275 $ 57,221 19,565 $ 24,3 1 2 $ 23,721 14,088 $ 1 2,692 $ 11,304 ONSOLIDATED BALANCE SHEET (Th ousan d s of D o llars) 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 Leased Property-Net 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 Total Nonutility Property and Investments Current Assets: Cash and Temporary Investments Accounts Receivable:

Utility Service Miscellaneous Allowance for Doubtful Accounts Unbilled Revenues Fuel (at average cost) Materials and Supplies (at average cost) Working Funds Prepaid State Excise Taxes Other Prepayments Deferred Energy Costs Deferred Income Taxes Total Current Assets Deferred Debits: Unrecovered Purchased Power Costs Recoverable Future Federal Income Taxes Unrecovered State Excise Taxes Unamortized Debt Costs Property Abandonment Costs-Net Other Regulatory Assets Other Total Deferred Debits Total Assets The accompanying Notes to Consolidated F i nancial Statements are an integral part of these statements.

Atlantic Energy, Inc. and Subsidiaries D ece m be r 3 1 , 1993 1992 $1,054,217

$1 , 042 , 567 338,584 312 , 374 627,649 583 , 890 173,206 155 , 679 2,193,656 2,094 , 510 668,832 607,198 1,524,824 1,487,312 156,590 130,248 6,901 5 , 045 45,268 49 , 304 1,733,583 1 , 671 , 909 77,268 76,465 43,163 34 , 617 14,535 15 , 561 18,102 11 , 132 153,068 137 , 775 73,635 45,647 51,502 47 , 928 11,420 12,533 (3,000) (3 , 000) 39,309 39,281 14,635 20 , 874 28,230 25 , 763 14,315 15 , 433 8,386 6 , 110 7,410 4 , 137 7,180 3,283 6 , 218 256,305 220,924 130,458 124,408 85,855 33,706 39,306 20 , 693 10,325 10 , 297 31,380 23,655 13,522 9 , 677 344,552 188 , 730 $2,487,508

$2 , 219 , 338 Atlantic Energy ONSOLIDATED BALANCE SHEET (Th o u s and s of D o ll a r s) Liabilities and Capitalization Capitalization:

Common Shareholders' Equity: Common Stock , no par value; 75 , 000 , 000 shares authorized

issued and outstanding

1993 -53,506 , 786; 1992 -52 , 198 , 624 Retained Earnings Total Common Shareholders

' Equity Preferred Stock of Atlantic City Electric Company: Not Subject to Mandatory Redemption Subject to Mandatory Redemption Long Term Debt Total Capitalization (excluding current portion) Current Liabilities:

Preferred Stock Redemption Requirement Long Term Debt due within one year Capital 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 Income Taxes Deferred Investment Tax Credits Capital Lease Obligations Other Total Deferred Credits and Other Liabilities Commitments and Contingencies (Note 10) Total Liabilities and Capitalization Atlantic Energy Atlantic Energy , Inc. and Subsidiaries December 31 , 1993 1992 $ 579,443 256,549 835,992 40,000 173,750 766,101 1,815,843 12,250 861 63,847 16,020 22,149 24,910 2,890 21,875 164,802 383,347 54,180 44,407 24,929 506,863 $2,487,508

$ 549 , 147 2 4 2, 76 8 7 9 i.q1 c; 40 , 000 190 , 250 6 3 1 , 5 8 0 1 ,653, 7 45 1 , 050 19 ,3 56 79 8 14 , 600 5 2, 028 7 ,6 97 14 , 7 0 6 2 4 ,2 75 2,9 55 8, 0 8 9 16 , 794 162 ,3 4 8 2 7 6, 49 2 56 , 715 4 8 , 505 21 , 5 33 403 , 245 $2,2 1 9,338 ONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY (Thousands of Dollars) Balance, December 31 , 1990 Common Stock issued: Public offering Other Net income Capital stock expense of subsidiary Common stock dividends Balance, December 31 , 1991 Common Stock issued Net income Common stock dividends Balance, December 31, 1992 Common Stock issued Net income Capital stock expense of subsidiary Common stock dividends Balance, December 31, 1993 Shares 45 , 951,976 4,000 , 000 944,098 50 , 896 , 074 1,302 , 550 52,198 , 624 1 , 308,162 53,506,786 Atlantic Energy, Inc. and Subsidiaries Common R e tained Stock Earnings $ 436,343 $ 223 , 749 66 , 970 17 , 032 85 , 635 (417) (74,073) 520 , 345 234 , 894 28 , 802 86 , 210 (78 , 336) 549 , 147 242 , 768 30 , 296 95 , 297 (169) (81,347) $579,443 $256,549 Th e acco mp a n ying Notes t o C onso lid a t e d Fi n a n cia l S t atemen ts a re an i n t eg r al pa r t of t h ese sta t eme n ts. Common Stock issued in 1993, 1992 and 1991 was through the Dividend Reinvestment and Stock chase Plan (DRP) and Atlantic City Electric Company (ACE) employee benefit plans. In 1991, Common Stock was also issued through a public offering.

In July 1993, an additional 2,000,000 shares of Common Stock were registered for issuance under the DRP. At December 31, 1993, 1,423,468 and 135,992 shares were reserved for issuance under the DRP and ACE employee benefit plans, respectively.

Atlantic Energy OTES TO CONSOLIDATED FINANCIAL STATEMENTS Organization Atlantic Energy, Inc. (the Company or parent) is the parent of a consolidated group consisting of the ing wholly-owned subsidiaries:

Atlantic City Electric Company (ACE), Atlantic Energy Technology, Inc. (AET), Atlantic Generation, Inc. (AGI), Atlantic Southern Properties, Inc. (ASP) and ATE Investment, Inc. (ATE). 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 of Regulatory Commissioners (BRC). ACE's service territory encompasses approximately 2, 700 square miles within the southern one-third of New Jersey. The majority of ACE's customers are dential and commercial.

ACE, with its wholly-owned subsidiary that operates certain generating facilities, is the primary company within the consolidated group. AET invests in companies with energy-related products and technologies and has a wholly-owned subsidiary that owns patented technology for geothermal heating and cooling systems. AGI and its wholly-owned iaries are engaged in the development of cogeneration power projects which are located in New Jersey and New York through several partnership arrangements.

ASP owns, develops and manages a commercial office and warehouse facility located in southern New Jersey. ATE provides fund management and financing to affiliates and manages its portfolio of investments in leveraged leases for equipment used in the airline and shipping industries.

Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries.

All significant inter-company accounts and transactions have been eliminated in consolidation.

ACE, AET and AGI consolidate their respective subsidiaries.

AGI accounts for another investment using the equity method by recognizing its proportionate share of the results of operations of that investment.

The results of operations of the nonutility companies are not significant and are classified under Other Income in the Consolidated Statement of Income. Atlantic Energy Regulation The accounting policies and rates of ACE are subject to the regulations of the BRC and in certain respects to the Federal Energy Regulatory Commission (FERC). All significant accounting policies and practices used in the determination of rates 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 quent to the last billing cycle. Nuclear Fuel Fuel costs associated with ACE's participation in jointly-owned nuclear generating stations, including spent nuclear fuel disposal costs, are charged to Energy expense based on the units of thermal energy produced.

Electric Utility Plant Property is stated at original cost. Generally, the plant . is subject to a first mortgage lien. The cost of property additions, including replacement of units of property and betterments, is capitalized.

Included in certain property additions is an Allowance for Funds Used During Construction (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 purposes and a reasonable rate on other funds when so used. AFDC has been calculated using a semi-annually compounded rate of 8.95%, as approved by the BRC, for the years presented through July 31, 1993. Effective August 1, 1993, ACE reduced, the AFDC rate to 8.25%, as approved by the BRC on an interim basis. Depreciation ACE provides for straight-line depreciation based on the estimated remaining life of transmission and bution property, remaining life of the related nuclear plant operating license for nuclear property, and mated average service life for all other depreciable property.

The overall composite rate of depreciation was approximately 3.3% in 1993, 3.5% in 1992 and 3.7% in 1991. Accumulated depreciation is charged with the OTES TO CONSOLIDATED F I N A N C I A L S T A T E M E. N T S cost of depreciable property retired together with removal costs less salvage and other recoveries.

Depreciable property of the nonutility companies is not significant.

Nuclear Decommissioning Trust ACE has a trust to fund the future costs of sioning each of the five nuclear units in which it has an ownership interest.

The current annual funding amount, as authorized by the BRC, totals $6.4 million and is provided for in rates charged to customers.

The funding amount is based on estimates of the future cost of decommissioning each of the units, dates that missioning activities are expected to occur and return to be earned by the assets of the fund. The BRC has established that the total estimated cost to sion ACE's share in nuclear units is $65.5 million in 1987 dollars. The BRC has further established that decommissioning activities are expected to begin in 2006 and continue through 2032. Actual costs and ing of decommissioning activities may vary from the current estimates.

ACE will seek to adjust these esti-. mates and the level of rates collected from customers in future BRC proceedings to reflect changes in missioning cost estimates and the expected levels of inflation and interest to be earned by the assets in the trust. As of December 31, 1993, the trust had a market value of $46.4 million. Of the $43.2 million in the trust, $31.9 million has been qualified for Federal income tax purposes.

ACE had an associated accumulated liability for decommissioning costs of $42.2 million at December 31, 1993. Deferred Energy Costs As approved by the BRC, ACE has Levelized Energy Clauses (LECs) through which energy and related costs (energy) are charged to customers.

LEC rates are based on projected energy costs and prior period underrecoveries or overrecoveries of energy costs. Energy costs are recovered through levelized rates over the period of projection, which is generally a 12-month period. In any period, the actual amount of LEC revenues recovered from customers will be greater or less than the actual amount of energy costs incurred in that period. Energy expense is adjusted to match the associated LEC revenues.

Any underrecovery (an asset representing energy costs incurred that are to be lected from customers) or overrecovery (a liability representing previously collected energy costs to be returned to customers) of costs is deferred on the solidated Balance Sheet as Deferred Energy Costs. These deferrals are recognized in the Consolidated Statement of Income as Energy expense during the period in which they are subsequently included in the LECs. Income Taxes Effective January 1,1993, deferred Federal and state income taxes are provided on all significant temporary differences between book bases and tax bases of assets and liabilities, transactions that enter taxable income in an earlier or later year than for book income and tax carryforwards.

Prior to 1993, deferred Federal and state income taxes were provided on all significant current transactions for which the timing of recognition differs for book and tax purposes.

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

The Company and its subsidiaries 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. Unrecovered Purchased Power Costs ACE has an arrangement for 125 megawatts (MWs) of capacity and related energy from Pennsylvania Power and Light Company (PP&L) which commenced in 1983 and continues through September 30, 2000. Levelized base rates were approved by the BRC to recover certain estimated costs to be incurred over the term of the arrangement.

Through September 30, 1991, estimated costs exceeded levelized revenues, and these excess costs were deferred on the Consolidated Balance Sheet as Unrecovered Purchased Power Costs. The BRC granted a return on these unrecovered amounts. Subsequent to September 30, 1991, levelized revenues are greater than the estimated costs, permitting the previously deferred costs to be charged to Purchased Capacity expense on the Consolidated Statement of Income over the ing term of the arrangement.

Differences between actual costs incurred and the estimated costs being recovered are subject to the usual base rate consideration.

Also included within Unrecovered Purchased Power Costs are amounts paid by ACE associated with contract tiations with independent power producers, for which ACE expects recovery through rates (see Notes 3 and 10). Atlantic Energy Property Abandonment Costs Certain costs of property of ACE, for which the purpose of the property was subsequently terminated or cancelled, continue to be recorded as assets. This is because these costs have been permitted by the BRC to be recovered in rates over more than one year, or because future ery in rates is probable.

At December 31, 1993, costs that are being recovered in rates with no return on the unamortized amount invested are as follows: Net Remaining Present Unamortized Recovery Investment Value (000) Cost (000) Period (years) Offshore Nuclear Generating Units $ 774 $1,119 6 Nuclear Generating Unit 2,745 3,578 4 Unrecovered Nuclear Fuel Advances 1,646 2,518 8 Proposed Plant Site 1,114 1,333 3 The excess of the costs of the assets listed in the above table over their discounted present values was recognized as a loss at the date of abandonment.

The discount, which is not significant, is being restored to income by tion over the amortization period of the abandoned costs allowed for ratemaking.

Costs being recovered are tized to expense over the recovery period. Other doned property for which future recovery is probable amounted to $4.0 million at December 31, 1993. Regulatory Assets Costs incurred by ACE that have been permitted by the BRC to be deferred for recovery in rates in more than one year, or for which future recovery is probable, have been recorded as regulatory assets. Regulatory assets are amortized to expense over the period of recovery. amortized costs currently being recovered in rates at December 31, 1993 are: Unrecovered State Excise Taxes of $33.7 million (remaining recovery period is nine years); decommissioning and decontaminating Federally-owned nuclear units of $8.4 million (remaining recovery period Atlantic Energy is 15 years) _and asbestos removal of $9.9 million covery period is over the life of the related generating station).

Recovery of regulatory assets for Unrecovered Purchased Power Costs (Note 1), Recoverable Future Federal Income Taxes (Note 2) and Postretirement Benefits other than Pensions (Note 4) are separately discussed in the Notes to Consolidated Financial ments where indicated.

Other regulatory assets for which future recovery is probable amounted to $5.1 million at December 31, 1993. Financial Instruments A number of items within Current Assets and Current Liabilities on the Consolidated Balance Sheet are sidered to be financial instruments because they are cash or are to be settled in cash. Due to their short term nature, the carrying values of these items approximate their fair market values. Accounts Receivable-Utility Service and Unbilled Revenues are subject to tion of credit risk because they pertain to utility service conducted within a confined geographic region. ments in leveraged leases are subject to concentration of credit risk because they are exclusive to a small ber of parties within two industries.

The Company has recourse to the affected assets under lease. These leased assets are of general use within the respective industries.

Other 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 accordance with FERC guidelines.

Temporary ments considered as cash equivalents for Consolidated Statement of Cash Flows purposes represent purchases of highly liquid debt instruments maturing in three months or less. Certain prior year amounts have been reclassified to conforrri to the current year reporting of these items.

OTES TO CONSOLIDATED FINANCIAL STATEMENTS (000) The components of Federal income tax expense are as follows: Current Deferred Investment Tax Credits Recognized on Leveraged Leases Total Federal Income Tax Expense Less Amounts Included in Other Income Federal Income Taxes Included in Operating Expenses A reconciliation of the expected Federal income taxes compared to the reported Federal income tax expense computed by applying the statutory rate follows: Statutory Federal Income Tax Rate Income Tax Computed at the Statutory Rate Plant Basis Differences Amortization of Investment Tax Credits Deferred Tax Adjustments Other-Net Total Federal Income Tax Expense Effective Federal Income Tax Rate State income tax expense is not significant.

Items comprising deferred tax amounts are as follows at December 31, 1993 and 1992: Deferred Tax Liabilities:

Plant Basis Differences Leveraged Leases Unrecovered Purchased Power Costs State Excise Taxes Other Total Deferred Tax Liabilities Deferred Tax Assets: Deferred Investment Tax Credits Other Total Deferred Tax Assets Total Deferred Taxes-Net Effective January 1, 1993, the Company adopted ment of Financial Accounting Standards No. 109 tled "Accounting for Income Taxes." Statement No. 109 changes the recording methodology relating to deferred income taxes to an asset and liability approach.

The cipal impacts to the Company relate to recording, on a current basis, the effect of changes in enacted income tax rates on the amount of income taxes recorded and the recording of deferred tax liabilities not previously recorded by ACE. Upon adoption of Statement No. 109, ACE recorded an increase in def erred Federal income tax liabilities of approximately

$85 million after giving For the Years Ended December 31, 1993 1992 1991 $25,349 $22,441 $24,202 20,247 23,154 13,043 (12) (233) (500) 45,584 45,362 36,745 307 8,219 501 $45,277 $37,143 $36,244 35% 34% 34% $55,400 $50,791 $47,189 (5,171) 2,022 (4,477) (2,546) (2,767) (3,038) (2,071) (3,757) (2,641) (28)

(288) $45,584 $45,362 $36,745 29% 30% 26% 1993 1992 $295,445 $177,124 53,461 47,722 38,792 42,694 11,797 (813) 21,057 12,290 420,552 279,017 29,247 11, 741 8,743 40,988 8,743 $379,564 $270,274 effect for revenue requirements.

Due to the tax rate crease discussed below, net deferred Federal income tax liabilities of ACE increased by $13.8 million in 1993. The deferred tax costs associated with these additional ties are recorded on the Consolidated Balance Sheet as Recoverable Future Federal Income Taxes in recognition of the probable amount of revenue to be collected from ratepayers for these additional taxes to be paid in later years. The adoption of Statement No. 109 by the ity subsidiaries of the Company did not have a material effect on the consolidated financial statements.

Atlantic Energy On August 10, 1993, the Omnibus Budget iation Act of 1993 was signed into law. The most cant aspect of this law affecting the Company was an increase in the corporate Federal income tax rate to 35% from 34%, effective retroactively to January 1, 1993. The effect of this tax rate increase on the 1993 consolidated Federal income tax expense was not material.

At December 31, 1993, valuation allowances exist against deferred tax assets primarily for cumulative net operating losses (NO Ls) for state income tax purposes. RATE OF HE Energy Clause Proceedings Changes in Levelized Energy Clause Rates 1991-1993 Amount Amount Requested Granted Date Date Filed (millions) (millions)

Effective 3/91 $30.6 $21.3 6/91 2/92 (6.6) (8.5) 10/92 3/93 14.2 10.9 10/93 ACE's Levelized Energy Clauses (LECs) are subject to annual review by the BRC. In March 1991, ACE filed a petition requesting LEC revisions to reflect an increase of $30.6 million for the period June 1, 1991 through May 31, 1992. On June 11, 1991, the BRC ordered a net increase in annual LEC revenues of $21.3 million, effective on that date. In its order, the BRC denied ACE's request for retention of a portion of fuel and energy savings associated with a power purchase arrangement with PECO Energy pany (formerly Philadelphia Electric Company-PECO).

The BRC also continued to defer consideration of ously deferred costs associated with outages at the Salem Nuclear Generating Station in 1983. In January 1992, ACE filed a request with the BRC for rehearing and reconsideration of the issues above. On February 10, 1992, ACE withdrew its request for ing with respect to recovery of interest payments and retention of fuel and energy savings. In late May 1992, ACE and the Staff of the BRC (Staff) entered into a lation to settle the Salem deferred costs. By the terms of the stipulation, ACE would begin recovery, over a year period, of $10.4 million of Salem deferred costs. On September 2, 1992, the BRC adopted the stipulation Atlantic Energy The effects of the valuation allowances and state NO Ls are not material to consolidated results of operation and financial position.

The Company is subject to Federal Alternative mum Tax (AMT), which is attributable to nonutility operations.

At December 31,1993, there is an estimated cumulative AMT credit of $18 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. between ACE and Staff and authorized ACE to begin recovery of the Salem deferred costs concurrent with the BRC's approval and implementation of ACE's then pending February 28, 1992 LEC petition.

On February 28, 1992, ACE filed with the BRC a tion relating to its LEC rates for the period June 1, 1992 through May 31, 1993, requesting no change in its rent rates. On April 30, 1992, ACE filed revisions to its petition that would result in a decrease of $6.6 million, reflecting an allocation to customers of 25% of the net settlement reached in March 1992 in the lawsuit against PECO (See Note 10), and an update for the projected overrecovery of prior LEC costs and associated interest.

The parties entered into a stipulation dated August 14, 1992 regarding the February 28, 1992 petition and April 30, 1992 revisions thereto. In October 1992, the BRC issued its written order adopting the stipulation which resulted in a reduction in annual LEC revenues of $8.5 million that was implemented October 20, 1992, ing the recovery over a three-year period of the $10.4 million Salem deferred costs. The amount allocated to customers from the PECO settlement was subject to later review by the BRC in ACE's 1993 LEC proceeding.

On March 31, 1993, ACE filed a petition with the BRC requesting a $14.2 million increase in LEC revenues for the period June 1, 1993 through May 31, 1994. Included in the request were (1) an estimated payment of $569 thousand expected to be made in October 1993 for ACE's assessment of the Department of Energy (DOE) missioning and decontamination fund as required by the Energy Policy Act of 1992 and (2) a $48 thousand penalty for 1992 nuclear operations as required by the OTES TO CONSOLIDATED FINANCIAL STATEMENTS Nuclear Performance Standard (NPS). The filing also reflected the 25% ($3.8 million) allocation to ratepayers in 1992 of the settlement with PECO. On August 27, 1993, the parties to ACE's 1993 LEC petition entered into a stipulation of settlement which resulted in a $10.9 million increase in annual LEC enues. Provisions of the stipulation included (1) an additional 25% ($3.8 million) of the Peach Bottom tlement together with accrued interest at a rate of 6.5% to be returned to customers during the 1994-1995 LEC period; (2) recovery of $400 thousand for the assessment for the DOE decommissioning and decontamination fund, with any difference between the recovered amount and the actual assessment being included in the deferred fuel balance and recovered during the next LEC period; (3) full LEC recovery of all future assessments for the DOE decommissioning and decontamination fund and (4) recognition of the $48 thousand penalty for 1992 nuclear operations as required by the NPS. The tion was approved by the BRC on September 29, 1993. The LEC tariffs resulting from this stipulation of ment were ordered effective for service rendered on and after October 1, 1993. The additional 25% allocation of the Peach Bottom settlement has been provided for in the 1993 financial statements.

At the BRC's open public meeting on July 7, 1993, the BRC initiated a generic proceeding to address the ery of the capacity costs associated with purchases of power from nonutility generation projects.

This issue relates to Rate Counsel's contention that present BRC policy provides for a "double recovery" of cogeneration capacity costs. On August 17, 1993, Rate Counsel tified ACE as one of the electric utilities for which they considered the double recovery of capacity costs to be at issue. Various motions by both parties have been filed and are awaiting BRC decision.

ACE cannot predict the outcome of this matter at this time. On February 8,1994, ACE filed a petition with the BRC requesting an increase in LEC revenues of $63 lion for the period June 1, 1994 through May 31, 1995. The increase is primarily due to the added costs to be incurred from two additional independent power ducers (IPPs) scheduled to begin commercial operation in February 1994 and January 1995 from which ACE has contracted to purchase capacity and energy. The total projected.costs for fuel and capacity for the LEC period are $147 million. ACE has reduced the requested amount by $84 million as a result of the following:

the utilization of $56 million of current base rate revenue associated with a utility power purchase contract due to expire in May 1994 and an initiative by ACE of $28 lion to keep its rates competitive.

Included in ACE's request is the recovery over five years of $20 million paid by ACE in December 1993 in connection with tract renegotiations with an IPP. ACE has requested that the BRC approve the proposed LEC rates to be effective for service rendered on or after June 1, 1994. Base Rate Case Proceedings Changes in Base Rates 1991-1993 Amount Amount Overall Rate Date Requested Granted Date of Return Filed (millions) (millions)

Effective Granted% 9190 $113.0 $50.0 7/91 10.52 8/91 25.8 12.9 10/92 Authorized Return on Test Common Year Equity% Ending 12.50 5/91 In September 1990, ACE filed a petition with the BRC requesting an increase in annual base rate revenues of $113 million. ACE also requested that a $41.6 million provisional base rate increase, granted by the BRC tive June 1990, be confirmed and placed permanently in base rates. ACE also requested recovery of the first year costs of the PECO power purchase agreement not ered by the provisional increase, plus full recovery of the costs for the remaining three years of the agreement.

In its filing, ACE requested an allowed overall rate of return of 11.13% and an authorized return on common equity of 13.7%. At that time, ACE had an allowed all return of 11.42% and an authorized return on mon equity of 14.1 %. On June 24, 1991, the Administrative Law Judge (ALJ) issued an initial decision accepting a stipulation between ACE and the parties in the base rate ing. The stipulation provided, among other things, for an increase in annual base rate revenues of $50 million based upon a test year ending May 31, 1991, an allowed overall rate of return of 10.52% and an authorized turn on common equity of 12.5%. In addition, the ties 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 ized an increase in annual base rate revenues of $50 lion. During the course of the proceeding, the ALJ ruled that a Phase II proceeding was appropriate for the mination of the regulatory treatment of consolidated Federal income tax benefits derived from affiliated utility entities.

The stipulation also provided that ACE would not be prevented from requesting regulatory treatment in a Phase II proceeding of any obligations arising from changes in state law with respect to gross Atlantic Energy receipts and franchise taxes (state excise taxes) that were enacted on June 30, 1991. On August 30, 1991, ACE filed its Phase II request with the BRC for an increase in annual base rate enues of $25.8 million to recover the increased costs relating to the changes in the state excise tax law. The petition also addressed the regulatory treatment of solidated Federal income tax benefits derived from iated non utility entities.

In May 1992, the ALJ issued an initial decision in the proceeding.

The ALJ recommended, among other things, that a consolidated Federal income tax benefit adjustment be made to reduce ACE's rate base, that Rate Counsel's calculation of cash working capital be adopted and that ACE be provided a ten-year recovery of the additional state excise tax payments with interest on the unamortized balance calculated using the age prime rate. In October 1992, the BRC issued its written order in ACE's Phase II base rate proceeding, accepting the ommendations of the ALJ with certain modifications.

By its order, the BRC authorized a net increase in annual base rate revenues of $12.9 million effective October 20, 1992. The change in base rates included the recovery of $95.6 million in additional state excise tax payments over a ten-year period with interest imputed on the amortized balance at the rate of 7 .5 % . This amounted to an increase in annual base rate revenues of mately $13.5 million. The BRC also granted an increase in annual base rate revenues of $1.6 million to reflect the cash working capital impacts of the acceleration of RETIREMENT Pension ACE has a noncontributory defined benefit pension plan covering substantially all of its employees and those of its wholly-owned subsidiary.

Benefits are based on an employee's years of service and average final pay. The plan's policy is to fund pension costs within the lines of the minimum required by the Employee ment Income Security Act and the maximum allowable as a tax deduction.

Each company is allocated its pative share of plan costs and contributions.

Atlantic Energy state excise tax payments to the state. With respect to consolidated Federal income tax benefits, the BRC ordered that a rate base adjustment be made in the amount of $15.4 million. This represents one-half of the total tax benefits for 1990 and the total tax benefits for 1991 realized by affiliated nonutility entities in filing consolidated Federal income tax returns. This rate base adjustment resulted in a reduction in annual base rate revenues of $2.2 million. On December 23, 1992, Rate Counsel filed a Notice of Appeal with the Superior Court of New Jersey, Appellate Division relating to the BRC's order allowing ACE to increase its base rates with respect to changes in state excise tax. In its filing Rate Counsel asserted that the BRC's order was unreasonable, not supported by evidence and results in unjust rates. Briefs have been filed by ACE and Rate Counsel, and a decision is anticipated by the end of the second quarter of 1994. ACE cannot predict the outcome of this matter at this time. Other Rate Proceedings On November 30, 1993, ACE filed a petition requesting modifications to the Hotel Casino Tariff, which would allow those customers to be served by existing cial rate schedules.

The schedules provide lower rates than the specific rates currently charged to hotel/casino customers.

If all hotel/casino customers elect this option, it will result in a revenue reduction to ACE of up to $5 million a year. The BRC is expected to act on this matter during the first quarter of 1994. ACE cannot dict the outcome of this matter. Net periodic pension costs for 1993, 1992 and 1991 included the following components:

(000) 1993 1992 1991 Service cost-benefits earned during the period $ 7,196 $ 7,310 $ 6,662 Interest cost on projected benefit obligation 16,016 17,301 16,517 Actual return on plan assets (23,200) (13,283) (22,188) Amortization of deferred gain (loss) 5,637 (3,623) 7,211 Other-net (141) (172) (172) Net periodic pension costs $ 5,508 $ 7,533 $ 8,030 OTES TO CONSOLIDATED FINANCIAL STATEMENTS Approximately

$5.2 million, $4.8 million and $5.1 million of these costs were charged to operating expense in 1993, 1992 and 1991, respectively, and the remaining costs, which are associated with construction labor, were charged to the cost of new utility plant. A reconciliation of the funded status of the plan as of December 31, 1993 and 1992 is as follows: (000) 1993 1992 Fair value of plan assets $213,600 $218,800 Projected benefit obligation 207,246 213,459 Plan assets in excess of projected benefit obligation 6,354 5,341 Unrecognized net transition asset (1,894) . (2,066) Unrecognized prior service cost 329 Unrecognized net gain (638) (2,784) Prepaid pension cost $ 4,151 $ 491 Accumulated benefit obligation:

Vested benefits $165,872 $160,507 Nonvested benefits 1,216 646 Total $167,088 $161,153 At December 31, 1993, approximately 62% of plan assets were invested in equity securities, 21 % in fixed income securities and 17% in other investments.

The assumed rates used in determining the actuarial present value of the projected benefit obligation at end were as follows: Weighted average discount Anticipated increase in compensation 1993 7.5% 3.5% 1992 8.00% 4.50% The assumed long term rate of return on plan assets was 8.5% for 1993 and 8.00% for 1992 and 1991. Other Postretirement Benefits ACE and its subsidiary provide certain health care and life insurance benefits for retired employees and their eligible dependents.

Substantially all employees may come eligible for these benefits if they reach retirement age while working for the companies.

Benefits are vided through insurance companies and other plan viders whose premiums and related plan costs are based on the benefits paid during the year. ACE has a fied trust to fund these benefits.

Each company is ed its participative share of plan costs and contributions.

Effective January 1, 1993, ACE adopted Statement of Financial Accounting Standards No. 106 entitled "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires ers to record an obligation for unfunded accumulated other postretirement benefits earned to date and to cord on the accrual basis the net periodic benefits cost earned each year. Prior to 1993, the companies recorded only the annual cost of benefits, based on the amount of funding provided.

As permitted by the Statement, the companies elected to recognize the unfunded lated obligation existing at January 1, 1993 (transition obligation) of $77.9 million as a component of net odic benefits cost on a straight-line basis over 20 years. The cost of other postretirement benefits was $13.1 million, $6.0 million and $4.9 million in 1993, 1992 and 1991, respectively.

These costs were allocated as follows: (millions) 1993 1992 1991 Operating expense $3.3 $3.8 $3.0 New utility plant-associated with construction labor 1.7 2.2 1.9 Regulatory asset 8.1 The regulatory asset in 1993 represents the effects of the new accounting standard in excess of the amount of cost recognized under the* previous method and currently allowable in rates. This excess cost is deferred as ized by an accounting order of the BRC. The net periodic other postretirement benefits cost for 1993 calculated under the new accounting standard comprises the following components:

(000) Service cost-benefits attributed to service during the period Interest cost on accumulated postretirement benefits obligation Actual return on plan assets Amortization of unrecognized transition obligation Other-net Net periodic other postretirement benefits cost $ 3,045 7,133 (255) 3,893 (711) $13,105 A reconciliation of the funded status of the plan and the obligation for other postretirement benefits recognized Atlantic Energy in the Consolidated Balance Sheet as of December 31, 1993 is as follows: (000) Accumulated benefits obligation:

Retirees Fully eligible active plan participants Other active plan participants Total accumulated benefits obligation Less fair value of plan assets Accumulated benefits obligation in excess of plan assets Unrecognized net loss Unamortized unrecognized transition obligation Accrued other postretirement benefits cost obligation

$ 32,720 21,267 49,125 103,112 14,400 88,712 (6,639) (73,968) $ 8,105 J 0 INT LY-0 W NED GENER AT ING I 0 N ACE owns jointly with other utilities several electric production facilities.

ACE is responsible for its pro-rata share of the costs of construction, operation and main-tenance of each facility.

At December 31, 1993, approximately 82% of plan assets were invested in fixed income securities and 18% in other investments.

The assumed health care costs trend rate for 1993 is 11 % , and is assumed to evenly decline to an ultimate constant rate of 5% in the year 2000 and thereafter.

If the assumed health care costs trend rate was increased by 1 % in each future year, the aggregate service and interest costs of the 1993 net periodic benefits cost would increase by $1.6 million, and the accumulated postretirement benefits obligation at December 31, 1993 would increase by $14.5 million. The weighted average discount rate assumed in determining the accumulated benefits obligation was 7.5%. The assumed long term return rate on plan assets was 7%. The amounts shown represent AC E's share of each plant at, or for the year ending, December 31, including AFDC as appropriate.

Peach Hope Keystone Conemaugh Bottom Salem Creek Energy Source Coal Coal Nuclear Nuclear Nuclear Company's Share (%/MWs) 2.47/42.3 3.83/65.4 7.511157.0 7.41/164.0 5.00/52.0 Electric Plant in Service (000): 1993 $ 10,746 $ 18,055 $ 123,428 $ 203,858 $237,496 1992 10,422 16,718 121,494 195,201 235, 738 Accumulated Depreciation (000): 1993 $ 3,231 $ 5,971 $ 51,871 $ 78,383 $ 46,933 1992 3,068 5,861 48,958 71,511 40,492 Construction Work in Progress (000): 1993 $ 758 $ 9,956 $ 7,983 $ 10,799 $ 1,022 1992 249 4, 718 5,283 7,213 2,268 Operation and Maintenance Expenses (including fuel) (000): 1993 $ 5,323 $ 6,855 $ 31,479 $ 27,021 $ 9,764 1992 4,976 7,194 29,618 25,461 9,541 1991 5,398 10,061 28,651 23,720 9,640 Working Funds (000): 1993 $ 44 $ 69 $ 4,772 $ 5,249 $ 2,061 1992 44 69 5,148 5,780 2,506 Generation (MWH): 1993 293,876 416,263 1,043,485 840,043 440,118 1992 294,222 457, 771 958, 740 737,356 351,672 1991 285,506 463,113 758,637 1,068,307 368,900 ACE provides financing during the construction period for its share of the jointly-owned plants and includes its share of direct operations and maintenance expenses in the Consolidated Statement of Income. Additionally, ACE provides an amount of working funds to the tors of the stations to fund operational needs. Atlantic Energy OTES TO CONSOLIDATED FINANCIAL STATEMENTS NONUTILITY The Company (AEI) is the parent holding company of the consolidated group. Its primary activities are the management of investments in the subsidiary nies, issuance of common equity and performance of administrative functions on behalf of the consolidated group. Principal assets of each of the subsidiary nies are: AET-capital investment of approximately

$3.0 million in a geothermal heating and cooling technology subsidiary; AG I-capital investments of approximately

$24.5 million in cogeneration development projects and partnerships; ASP-commercial real estate site with a net book value of $13.2 million and ATE-leveraged lease investments of approximately

$77.3 million. Other financial information regarding the subsidiary companies and parent-only operations of the Company is as follows: Company Net Asset Results of Operations (000) 1993 1992 1993 1992 1991 AET $ 2,069 $(5,763) $ 524 $(4,793) $ (970) AGI 18,746 2,122 4,459 1,366 (4,015) ASP 5,131 5,478 (347) (263) (415) ATE 9,182 9,959 (777) 667 511 AEI (parent only) (183) (401) (493) AET's 1993 results are due to the receipt of insurance proceeds by its subsidiary company. In 1993 this sidiary discontinued its operating activities and now concentrates on licensing its patented proprietary knowledge.

AET's 1992 results reflect the provision for the restructuring of its subsidiary's activities.

AG I's 1993 and 1992 results reflect the operation of two cogeneration facilities that became operational ing 1992. AG I's results for 1991 primarily reflect its equity share of losses attributable to the reduction of carrying values of certain cogeneration projects that were subsequently sold at a Joss by one of its partnerships.

ASP's results in each year reflect the inability to rent vacant space in its commercial site due to generally poor market conditions in commercial real estate. ATE's 1993 results were reduced by increased deferred state income taxes. ATE's 1992 results benefitted from lower interest rates on amounts outstanding under its revolving credit agreement.

Results of operations of AEI above exclude its equity in the results of subsidiary companies and generally reflect administrative expenses.

Net assets of AEI (parent only) shown on the Consolidated Balance Sheet sent investments in and intercompany balances with the subsidiary companies and common stock issued on behalf of the consolidated group. Atlantic Energy

PREFERRED OF HE 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, No Par Value. Information relating to outstanding shares at December 31 is shown in the table below. 1993 1992 Current Optional Series Par Value Shares 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 $8.25 None 60,000 $8.53 None 600,000 $8.20 None 500,000 $7.80 None 700,000 Total Less portion due within one year Total Cumulative Preferred Stock Not Subject to Mandatory Redemption is redeemable solely at the option of ACE. In May 1993, ACE redeemed all of the outstanding shares of the Cumulative Preferred Stock, 9.96% Series at a price of $103.54 per share.On November 1 of each year, 2,500 shares of the $8.25 No Par Preferred Stock must be redeemed through the 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 5,000 shares in 1993 and 2,500 shares in each of the years 1992 and 1991. Beginning November 1, 1994 and until fully redeemed, 120,000 shares of the $8.53 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 120,000 shares may be redeemed on any sinking fund date without premium. Beginning 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. This series is not refundable prior to August 1, 2000. Atlantic Energy Amount (000) Shares Amount(OOO)

RedemptionPrice

$ 7,700 77,000 $ 7,700 $105.50 7,200 72,000. 7,200 101.00 1,500 15,000 1,500 101.00 3,600 36,000 3,600 101.00 5,000 50,000 5,000 101.00 5,000 50,000 5,000 100.00 10,000 100,000 10,000 101.88 $ 40,000 $ 40,000 $ 48,000 $ 4,800 $ -6,000 65,000 6,500 104.87 60,000 600,000 60,000 103.00 50,000 500,000 50,000 70,000 700,000 70,000 186,000 191,300 12,250 1,050 $173,750 $190,250 Beginning May 1, 2001 and annually through 2005, 115,000 shares of $7.80 No Par Preferred Stock must be redeemed through the operation of a sinking fund at a redemption price of $100 per share. On May 1, 2006, the remaining shares outstanding must be redeemed at $100 per share. ACE has the option to redeem up to an tional 115,000 shares without premium on each May 1 through 2005. This series is not refundable prior to May 1, 2006. For the next five years, the annual minimum sinking fund requirements of the Cumulative Preferred Stock Subject to Mandatory Redemption are $12.25 million in each of the years 1994 and 1995, and $22.25 million in each of the years 1996, 1997 and 1998. Cumulative Preferred Stock of ACE is not widely held and generally trades infrequently.

The estimated gate fair market value at December 31, 1993 of ACE's Cumulative Preferred Stock was approximately

$231 million. This fair market value determination is based on actual trades of certain series of ACE's Preferred Stock on or nearest to December 31, 1993 and on actual trades of preferred stock of other companies with lar credit quality; coupon rates and maturities.

OTES TO CONSOLIDATED FINANCIAL STATEMENTS TERM DEBT Series Maturity Date December31 1993 1992 Medium Term Notes-MTNs-have varying maturity dates and are shown with the weighted average interest rate of all the related issues within the year of maturity 4%% First Mortgage Bonds 5'1s% First Mortgage Bonds 8% First Mortgage Bonds Medium Term Notes Series B-(6.28%)

Medium Term Notes Series A-(7.52%)

8".ls% First Mortgage Bonds Medium Term Notes Series B-(6.83%)

8% First Mortgage Bonds 7V2% First Mortgage Bonds Medium Term Notes Series B-(7.18%)

7%% First Mortgage Bonds Medium Term Notes Series A-(7.98%)

Medium Term Notes Series B-(7.125%)

7%% Pollution Control Medium Term Notes Series B-(6.45%)

6%% Pollution Control Medium Term Notes Series B-(6.76%)

10V2% Pollution Control Series B 6%% First Mortgage Bonds 7%% Pollution Control Series A 10Y2% Pollution Control Series C 8".ls% First Mortgage Bonds 8lf.1% Pollution Control Series A 9Y.% First Mortgage Bonds 6.80% Pollution Control Series A 7% First Mortgage Bonds 5.60% Pollution Control Series A 7% First Mortgage Bonds Total Debentures:

SY.% 7Y.% Total Unamortized Premium and Discount-Net Total Long Term Debt of ACE Long Term Debt of ATE Long Term Debt of Other Subsidiaries Less portion due within one year Total Long Term Debt In 1993, ACE redeemed principal amounts of the ing series of First Mortgage Bonds: $95 million, 8% due November 1996; $19 million, 8Ys% due September 2000; $27 million, 8% due May 2001 and $125 million, 8Ys% due May 2016. ACE acquired and retired $69.233 million 3/1/1993 $ 2/1/1996 9,980 1111/1996 1998 56,000 1999 30,000 9/112000 2000 46,000 5/112001 4/112002 20,000 2003 20,000 5/112003 29,976 2004 30,000 2004 28,000 1/1/2005 6,500 2005 40,000 12/112006 2,500 2008 50,000 7/15/2012 850 8/112013 75,000 4/15/2014 18,200 7/15/2014 23,150 5/1/2016 7115/2017 4,400 10/1/2019 65,767 3/1/2021 38,865 9/112023 75,000 11/1/2025 4,000 8/1/2028 75,000 749,188 2/1/1996 2,267 5/111998 2,619 4,886 (2,973) 751,101 15,000 $766,101 $ 9,540 9,980 95,000 30,000 19,000 27,000 20,000 29,976 30,000 6,500 2,500 850 18,200 23,150 125,000 4,400 135,000 38,865 624,961 2,267 2,619 4,886 (4,039) 625,808 23,900 1,228 19,356 $631,580 principal amount of First Mortgage Bonds, 914% Series due October 2019. The aggregate cost of these tions and acquisitions was $13.1 million, net of related Federal income taxes. Atlantic Energy Sinking fund deposits are required for retirement of the 5'.1.1% Debentures annually on February 1 through 1995 and for the 77'4% Debentures annually on May 1 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, 1993, ACE acquired and cancelled

$433,000 and $281,000 principal amount of the 57'4% and 77'4% Debentures, respectively, which amounts are sufficient to satisfy its requirements for 1994 and subsequent years. Certain series of First gage Bonds contain provisions for deposits of cash or certification of bondable property currently amounting to $250,000, which ACE may elect to satisfy through property additions.

Additional sinking fund requirements are as follows: Series 6%% Pollution Control Series Due 2006 7%% Pollution Control Series Due 2005 Annual Beginning Date Sinking Fund December 1, 1997 $ 75,000 January 1, 2000 500,000 For the next five years, the annual amount of uled debt maturities and sinking fund requirements of ACE's long term debt are $12.247 million in 1996, $75 thousand in 1997 and $58.619 million in 1998. rnoRT TERM DEBT As of December 31, 1993, ACE had available for use bank lines of credit of $150 million. ACE is charged ment fees, which were not material, for these available credit lines. As of December 31, 1993, ACE had no pensating balance requirements.

(000) ACE's long term debt securities are not widely held and generally trade infrequently.

The estimated gate fair market value at December 31, 1993 of ACE's long term debt was approximately

$768 million, based on actual trades of ACE's long term debt that occurred on or nearest to December 31, 1993. Long term debt of ATE consists of $15 million of 7.44% Senior Notes due 1999. ATE has a revolving credit and term loan agreement which provides for borrowings of up to $35 million during successive revolving credit and term loan periods. There were no borrowings standing under this agreement at December 31, 1993, and commitment fees on the unused credit line were not significant.

In accordance with provisions of the ment, the expiration of the revolving credit period was extended from June 1, 1993 to June 1, 1994. Interest rates on borrowings when outstanding are determined by reference to periodic pricing options available under the facility.

The estimated aggregate fair market value at December 31, 1993 of ATE's senior notes was mately $15.8 million, based on the present value of the future cash flows to the date of maturity.

ACE had no short term debt outstanding as of December 31, 1993. As of December 31, 1992, ACE had $14.6 million in notes payable to banks outstanding, and as of December 31, 1991, had $20.6 million in mercial paper outstanding.

Additional information regarding short term debtof ACE is as follows: For the year ended: 1993 1992 1991 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 outstanding balances):

Commercial Paper Notes Payable to Banks Weighted daily average interest rates on short term debt: Commercial Paper Notes Payable to Banks Atlantic Energy $45,500 86,300 $ 8,790 29,269 3.2% 3.2% m $107,400 $82,700 14,600 $ 31,567 $26,802 2,785 4.0% 6.6% 3.4%

OTES TO CONSOLIDATED FINANCIAL STATEMENTS AND Construction Program ACE's cash construction expenditures for 1994 are mated to be approximately

$150 million. Current mitments for the construction of major production and transmission facilities approximate

$62.3 million, of which it is estimated that $45.3 million will be expended in 1994. These amounts exclude AFDC and customer contributions.

Insurance Programs ACE is a member of certain insurance programs that provide coverage for decontamination and property damage to members' nuclear generating plants. Facilities at the Peach Bottom, Salem and Hope Creek stations are insured against property damage losses up to $2.75 billion per site under these programs.

In addition, ACE is a member of an insurance program which provides coverage for the cost of replacement 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, 1993, the maximum amount of retrospective premiums ACE could be assessed for losses during the current policy year was $6.19 million under these programs.

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

All nuclear facilities could be assessed, after exhaustion of private insurance, up to $79.275 million each, payable at $10 million per year, per reactor and per incident.

Based on its ownership share of nuclear facilities, ACE could be assessed up to $27.6 million per incident.

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

Energy and Capacity Arrangements UTILITY ACE has an arrangement for the purchase of 125 MWs of capacity and related energy from PP&L through September 30, 2000. Capacity costs are charged to chased Capacity expense on the Consolidated Statement of Income and totaled $24.4 million, $25.1 million and $28. 7 million in 1993, 1992 and 1991, respectively.

Energy cost is charged to Energy expense on the Consolidated Statement of Income and totaled $11.2 million, $13.4 million and $8.6 million, respectively.

Commitments for capacity costs expected to be incurred over the next five years are $10.5 million, $10.9 million, $11.2 million, $11.6 million and $12.3 million in each of the years 1994-1998, respectively, and aggregate

$25.3 million thereafter.

ACE has an arrangement for the purchase of 200 MWs of capacity and related energy from PECO through May 31, 1994. Capacity costs charged to Purchased Capacity expense totaled $55.9 million, $52.5 million and $48.2 million in 1993, 1992 and 1991, respectively.

Energy cost charged to Energy expense amounted to $21.0 million, $19.2 million and $22.6 million, respectively.

ACE is committed to capacity charges of $23.5 million in 1994. These costs are subject to adjustment under certain ditions. ACE has another arrangement with PECO for the purchase of energy only. Energy cost charged to Energy expense amounted to $19.0 million, $17.5 million and $14.4 million, in 1993, 1992 and 1991, respectively.

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

Costs of capacity and energy under these arrangements totaled $1.4 million, $4.4 lion and $16.4 million in 1993, 1992 and 1991, respectively.

Atlantic Energy ACE is a member of the Pennsylvania-New Maryland Interconnection (PJM), an integrated power pool that is connected with other utilities for the change of energy on an as-needed and as-available basis. ACE is required to plan for reserve capacity based on aggregate PJM requirements allocated to member panies. 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 energy purchased through interchange agreements charged to Energy expense totaled $9.9 million, $9.4 million and $11.3 million in 1993, 1992 and 1991, respectively.

NONUTILITY ACE has contracted and received BRC approval for a total of 569 MWs of capacity and related energy from nonutility sources, primarily cogenerators.

Two projects totaling 181 MWs are currently operational.

One of these projects is owned 50% by wholly-owned subsidiaries of AGL Of the remaining two projects under construction, one project providing 188 MWs is expected to be in ation in the spring of 1994, and the other providing 200 MWs is expected to be operational in early 1995. utility capacity costs charged to Purchased Capacity expense totaled $30.2 million, $24.4 million and $1.0 million, and energy purchased charged to Energy expense totaled $36.0 million, $27.6 million and $.3.2 million, in 1993, 1992 and 1991, respectively.

Capacity and energy costs from nonutility sources are recovered through the LECs. ACE has concluded negotiations with one project sor of a facility under construction to amend its power chase agreement in an effort to make the cost of energy obtained from the facility more economical for ACE's tomers. The amendments, which have received BRC approval, will result in savings from increased dispatch of the unit, lower energy payments and lower capacity ments. As part of the contract amendments, in December 1993, ACE was required to pay $20 million to the project lenders for termination of interest rate swap agreements entered into by the project developer.

ACE has requested recovery of such payment in its 1994 LEC filing. ACE has signed a letter of intent with another tility project to amend its power purchase agreement.

Subsidiaries of AGI have a 50% ownership interest in this project. ACE expects that the contract tions with this facility will be concluded in 1994. Atlantic Energy In addition, discussions have commenced with a third nonutility project sponsor to amend its power purchase agreement.

Expected savings from changes to all three nonutility power purchase agreements are estimated to be between $15 million and $20 million annually in the early years of the agreements.

Environmental Matters The provisions of Title IV of the Clean Air Act ments of 1990 (CAAA) will require, among other things, phased reductions of sulfur dioxide (S02) emissions by 10 million tons per year, and a limit on S02 emissions nationwide by the year 2000, and reductions in sions of nitrogen oxides (NOx) by approximately 2 lion tons per year. ACE's wholly-owned B.L. England Units 1and2 and its jointly-owned Conemaugh Station are affected during Phase I (1995) and all of ACE's other fossil-fuel steam generating units are affected by Phase II (2000) of the CAAA. ACE is installing flue gas rization equipment (scrubber) on B.L. England Unit 2 costing approximately

$75 million to $80 million. By scrubbing B.L. England Unit 2, Phase I S02 emission requirements are met for both units. Construction is scheduled for completion in early 1995. The Conemaugh owners have elected to install scrubbers on Conemaugh Units 1 and 2, 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 S02 and NOx provisions of Title IV of the CAAA during Phase II, and the Keystone owners are ing various methods of compliance.

In addition, certain power purchase arrangements will be affected by the CAAA, in amounts that are not presently determinable.

Federal and state legislation authorize various governmental authorities to issue orders compelling responsible parties to take cleanup action at sites mined to present danger from releases of hazardous stances. The various statutes impose joint and several liability without regard to fault for certain investigative and cleanup costs for all potentially responsible parties.

OTES TO CONSOLIDATED FINANCIAL STATEMENTS ACE has received notification with respect to two sites within New Jersey as one of a number of alleged sible parties for cleanup and remedial actions. Both sites are contained within the National Priority Lists. As to one site, litigation has been instituted by the Federal government.

The second site is the subject of a Notice of Directive by the New Jersey Department of mental Protection and Energy (NJDEPE).

The total amount of cleanup and remedial measures associated with these sites as claimed by the authorities for all defendants is currently estimated to be $178 million. ACE believes that primary responsibility for the claims will be borne by other parties and its share, if any, of the claims would not be material.

ACE plans to defend these matters aggressively.

Public interest over the possibility of health effects due to electric and magnetic fields (EMF) exposure is an emerging national issue. Some states have adopted EMF limits. To date, there is no conclusive scientific evidence to support such concerns.

The New Jersey Commission on Radiation Protection is considering promulgation of regulations which would authorize the NJDEPE to review all new power line projects of 100 kilovolts (KV) or more. The promulgation of such regulations may affect the design and location of ACE's existing and future electric power lines and facilities and the cost thereof. ACE has a program of Prudent Field ment, implementing reasonable measures, at modest cost, to limit magnetic field levels in the design and location of new facilities.

Such amounts as may be essary to comply with any new EMF rules cannot be determined at this time and are not included in ACE's 1994-1998 estimated construction expenditures.

At the April 14, 1993 regular open public meeting of the BRC, a motion was approved which required all New Jersey electric utilities to sponsor a survey of EMF readings at schools located near 69 KV lines and above. A joint vey protocol was developed among the New Jersey ties and approved by the BRC. Fffteen schools in ACE's service territory fall within the criteria.

A report of vey results was presented to the BRC in December 1993. The survey results demonstrated that the EMF levels were within the expected range for transmission and distribution supply lines generally.

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 ity factor within a zone of reasonable performance fo 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 1993, the aggregate capacity factor of ACE's nuclear units is within the reasonable performance zone, which will result in no penalty or reward. In 1990, the NJDEPE issued to Public Service Electric & Gas (PS) a revised Draft Permit for surface water charges for Salem Station. PS is the operator of the tion, in which ACE has a 7.41 % ownership interest.

The Draft Permit contained stringent terms and conditions and, if adopted as proposed, could require the tion of cooling towers and the immediate shutdown of the two generating units for up to a four-year period pending this construction.

Public hearings on the Draft Permit have been held and PS has filed written ments and demonstrations, which PS believes establish its position that cooling towers are not required.

PS mates that if construction of cooling towers is sary, under the most adverse scenario, the costs of construction are currently estimated to be $555 million, of which AC E's share would be 7.41 % . Replacement power costs during such four-year outage would amount to approximately

$25 million per year for ACE. In tion, a permanent de-rating of 5% of the station capacity would also occur. ACE has been advised that on March 4, 1993 PS submitted a Supplement to its Application for Renewal of the Salem, New Jersey Pollutant Discharge Elimination System Permit. The Supplement proposes that Salem continue operation with a once-through cooling system, and includes provisions for plant ations and environmental enhancements to the Delaware River estuary in the vicinity of the Station. On June 24, 1993, the NJDEPE issued a draft permit which essentially incorporated as Special Conditions the proposal made by PS in its Application Supplement.

A final permit is expected to be issued by the NJDEPE subsequent to a public comment period. 1\vo public hearings and a round table discussion for interested parties have been held. The NJDEPE has indicated it expects to issue a final permit in the first quarter of 1994. While it is not ble to determine what action the NJDEPE will mately take with respect to the terms and conditions of Atlantic Energy

.. the final Permit, certain environmental interest groups have indicated their intent to challenge the NJDEPE's actions if, at the end of the public comment period, a final Permit is issued which contains the Special Conditions proposed in the 1993 Draft Permit instead of requiring that the Salem Station be retrofitted with cooling towers. In that event, PS would also participate in any such further proceedings.

ACE and the other nonoperating co-owners of the Peach Bottom Atomic Power Station reached a ment in 1992 with PECO, the operator of the station, in connection with litigation regarding the Nuclear tory Commission shutdown of the station from March 1987 through October 1989. According to the terms of the agreement, ACE received $18.5 million in October 1992 as its share of the settlement.

Of this amount, $3 million represented reimbursement for legal fees ously incurred and expensed during the litigation, and the remaining settlement proceeds of $15.5 million were allocated 75% to shareholders and 25% to customers.

This allocation was determined by ACE to be the amount of costs borne by each respective group during the tion's outage. The BRC had approved this allocation ject to later review. In 1992, ACE recorded $9.7 million, net of related Federal income taxes of $4.9 million, as Other Income, and $3.8 million as a liability to burse customers through the LECs. In August 1993, ACE agreed, in its then pending 1993 LEC filing, to allocate to customers an additional

$3.8 million of the litigation settlement received in 1992. In 1993, ACE recorded $2.6 million, net of related Federal income taxes of $1.3 lion, as Other Expenses, and $3.8 million as a liability to reimburse customers.

This reimbursement is to be made through the 1994 LEC which ACE has requested to become effective in June 1994. ACE delivers process steam, water and by-product electricity under a contract with a third-party facility.

Equipment at AC E's Deepwater Station provides these services.

In 1993, ACE received $4.3 million for the ply of steam and related services, and $8.3 million in enues electric services rendered to the third party. ACE received a notice of contract termination from this third party, effective August 31, 1994, at which time such steam and electric requirements are to be served by an independent power producer.

ACE is presently ing contract termination provisions, including the timing of service termination, equipment removal and nation payments.

ACE has contracted for the purchase Atlantic Energy of 188 MWs of capacity from the independent power ducer upon commercial operation of the facility, which is expected in the spring of 1994. In 1993, ACE restructured its organization to better position itself in an emerging competitive environment.

During the year, ACE offered severance and incentive programs to employees that were terminated or elected to retire. ACE recorded expenses of $5.4 million, net of Federal income taxes of $2. 7 million, in the dated Statement of Income for 1993 for these and tinuing reorganization activities.

At December 31, 1993, the remaining liability for the program payments was $6.8 million. AGI through its subsidiaries has partnership interests in common with affiliates of Columbia Gas System, Inc. (Columbia) in certain cogeneration projects.

Columbia is currently operating under Chapter 11 of the Federal Bankruptcy Code. Columbia has filed a plan of zation. AGI cannot predict what effect, if any, Columbia's situation may have on AG I's interests in these tion projects.

The Energy Policy Act of 1992 permits the Federal government to assess investor-owned electric utilities that have ownership interests in nuclear generating facilities an amount to fund the decontamination and decommissioning of three Federally operated nuclear enrichment facilities.

ACE currently estimates that, based on its ownership in five nuclear generating units, its remaining assessment to be paid over the next 14 years could amount to approximately

$8 million. ACE has vided a liability in this amount at December 31, 1993. ACE has a regulatory asset of $8.4 million at December 31, 1993 as a consequence of this liability.

Amounts are currently being recovered in rates for this liability and the regulatory asset is concurrently being amortized to expense based on the annual assessment billed by the Federal government.

The Financial Accounting Standards Board issued Statement No. 112 "Employers' Accounting for employment Benefits." This statement is effective for the Company in 1994 and concerns benefits provided to inactive and terminated but not yet retired employees.

It is expected that the annual costs calculated under the new standard will not be significantly different from those recorded under the current method of accounting and that any additional liabilities recorded will not be material to the financial statements.

OTES TO CONSOLIDATED FINANCIAL STATEMENTS ACE leases various types of property and equipment for use in its operations.

Certain of these lease ments are capital leases consisting of the following at December 31: (000) 1993 1992 Production plant $13,521 $13,521 Less accumulated amortization 8,846 8,048 Net 4,675 5,473 Nuclear fuel 40,593 43,831 Leased property-net

$45,268 $49,304 ACE has a contractual obligation to purchase nuclear fuel for the Salem, Hope Creek and Peach Bottom stations.

The asset and related obligation for the leased fuel are reduced as the fuel is burned and are ihcreased as tional fuel purchases are made. No commitments for future payments beyond satisfaction of the outstanding obligation exist. Operating expenses for 1993, 1992 and 1991 include leased nuclear fuel costs of $13.9 million, $13.5 million and $14.7 million, respectively, and rentals and lease payments for all other capital and operating leases of $4.8 million, $4.8 million and $4.5 million, respectively.

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

Rental charges of other subsidiary companies are not significant. (UNAUDITED)

Quarterly financial data, reflecting all adjustments necessary in the opinion of the Company for a fair presentation of such amounts, are as follows: Operating Operating Revenues Income Quarter (000) (000) 1993 1st $203,656 $ 35,445 2nd 192,538 27,381 3rd 268,883 68,580 4th 200,596 28,177 Annual $865,675 $159,584 1992 1st $ 197,833 $ 33,290 2nd 187,387 24,949 3rd 236,892 54,118 4th 194,713 24,811 Annual $ 816,825 $137,168 Individual quarters may not add to the total due to ing and the effect on earnings per share of increasing average number of common shares outstanding.

Net Income Earnings Dividends Paid (000) Per Share Per Share $19,995 $ .38 $ .38 11,093 .21 .38 52,329 .99 .385 11,880 .22 .385 $95,297 $1.80 $1.53 $27,937 $ .55 $ .375 10,908 .21 .375 39,570 . 76 .38 7,795 .15 .38 $ 86,210 $1.67 $1.51 The revenues of ACE are subject to seasonal fluctuations due to increased sales and higher residential rates during the summer months. Atlantic Energy ANAGEMENT'S ANALYSIS OF AND RESULTS DISCUSSION AND FINANCIAL CONDITION OF OPERATIONS Atlantic Energy, Inc. (the Company or parent) is the parent of a consolidated group consisting of the ing wholly-owned subsidiaries:

Atlantic City Electric Company (ACE), Atlantic Energy Technology, Inc. (AET), Atlantic Generation, Inc. (AGI), Atlantic Southern Properties, Inc. (ASP) and ATE Investment, Inc. (ATE). ACE, the primary subsidiary, is an electric utility lated by the New Jersey Board of Regulatory sioners (BRC). ACE has a wholly-owned subsidiary that operates certain generating facilities.

AET has a owned subsidiary that owns patented technology for thermal heating and cooling systems. AGI is engaged in the development and operation of cogeneration and alternate energy projects through various partnership arrangements.

ASP owns, develops and manages mercial real estate property.

ATE manages it.s portfolio of leveraged lease investments and provides financing and fund management to an affiliate.

The Company's business plan will continue to be centrated on the operations of ACE. The emergence of competition in the area of electric generation, relatively slow growth in energy sales, Federal deregulation of wholesale energy sales, prospective retail wheeling initiatives coupled with a public utility's obligation to serve, and the need to mitigate future rate increases, has caused ACE to reexamine its traditional approach to its business.

ACE's current business plan recognizes the increasingly competitive nature of the electric energy business and the need to encourage economic growth and stability in the service territory and surrounding region. ACE is reevaluating its revenue requirements and service pricing, the implementation of additional cost controls and the development of new sources of revenue. Nonutility business strategies are expected to pursue new investment opportunities closely related to the utility business.

Atlantic Energy Financial Results Consolidated operating revenues for the twelve months ended December 31, 1993, 1992 and 1991 were $865.7 million, $816.8 million and $808.4 million, respectively.

The increased revenues for 1993 and 1992 reflect the effect of net rate increases effective in those years. The revenue increase in 1993 is also due to increased sales of energy as a result of summer weather. Consolidated earnings per share for 1993 were $1.80 on net income of $95.3 million, compared with $1.67 on net income of $86.2 million in 1992 and $1.75 on net income of $85.6 million in 1991. In 1993, ACE tributed $1.73 to consolidated earnings, primarily as a result of increased kilowatt-hour sales from more normal summer weather. ACE's 1993 earnings were reduced by approximately

$.10 as a result of nonrecurring charges for reorganization activities.

In 1992, ACE contributed

$1. 7 4 to reported consolidated earnings.

ACE's 1992 earnings were increased by several nonrecurring items, including

$.15 from a settlement of a lawsuit with PECO Energy Company (formerly Philadelphia Electric Company -PECO) relating to the shutdown of the Peach Bottom Atomic Power Station several years ago and $.11 from certain other nonrecurring items. Earnings in 1992 were adversely affected by lower energy sales resulting from cooler than normal summer weather conditions and decreased sales to Industrial customers.

Nonutility operations resulted in net income for 1993 of $3.7 million and losses for 1992 and 1991 of $3.4 million and $5.4 million, respectively.

Nonutility net income for 1993 is primarily the result of higher earnings of AGI derived from the full year's commercial operation of two of its cogeneration projects.

The loss in 1992 is primarily due to provisions made by AET lating to restructuring of certain business activities.

That loss is offset, in part, by earnings of AGI resulting from the initial commercial operation during the year of two of its cogeneration projects and earnings of ATE resulting from lower interest expense. The loss nized in 1991 is attributable to AG I's equity share of writedowns of carrying values by one of its ships of certain cogeneration projects that were subsequently sold.

L ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In June 1993, the quarterly dividend on Common Stock was increased from $.38 to $.385 per share, or an annual rate of $1.54 per share. Information with respect to Common Stock for the period 1991-1993 is as follows: 1993 1992 1991 Dividends Paid Per Share $ 1.53 $ 1.51 $ 1.49 Book Value Per Share $15.62 $15.17 $14.84 Annualized Dividend Yield 7.0% 6.6% 7.3% Return on Average Common Equity 11.7% 11.1% 12.1%

Total Return (Dividends paid plus change in share price) 0.6% 20.2% 29.8% Market to Book Value 139% 152% 138% Price/Earnings Ratio 12 14 12 Closing Price-New York Stock Exchange $21.75 $23.13 $20.50 Liquidity and Capital Resources Overview The Company's cash flows are dependent on the cash flows of its subsidiaries, primarily ACE. Principal cash flows of the Company are dividends from ACE and funds provided by the issuance of Common Stock. Principal

• cash outflows of the Company are investments (capital contributions and advances) in its subsidiaries for their investing activities and dividends to common ers. Cash invested in ACE is utilized primarily for the construction of utility generating, transmission and tribution facilities, redemption and maturity of long and short term debt and redemption of preferred stock. rent investing activities of the nonutility subsidiaries are primarily for the development of nonutility power generation projects." To facilitate the activities and operations of the subsidiaries, separate credit support agreements exist between the Company and ATE and ASP. In addition, agreements between the Company and its subsidiaries provide for allocation of tax liabilities and benefits erated by the respective subsidiaries.

In 1993, 1992 and 1991, the Company recorded $81.3 million, $78.3 million and $74.1 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 Purchase Plan (DRP) and ACE's employee benefit plans, are shown as follows: Issuance of Common Stock 1993 1992 1991 Public Offerings Shares issued 4,000,000 Proceeds (000) $67,140 DRP Optional Cash Purchases Shares issued 690,466 719,324 301,272 Proceeds (000) $15,985 $16,034 $ 5,537 Employee Benefit Plans Shares issued 8,033 10,897 12,416 Proceeds (000) $ 258 $ 259 $ 249 Additional common equity is provided by reinvested dividends through the DRP. Common shares issued from such reinvested dividends in 1993, 1992 and 1991 were 609,663, 572,329 and 630,410, respectively.

The Company's current financing plans for 1994-1996 template the issuance of approximately

$14 million in additional common equity, to be obtained through the DRP. Major cash outflows of the Company were as follows: 1993 1992 1991 (Millions)

Dividends to Shareholders

$81.3 $78.3 $74.1 Advances and Capital Contributions' to Subsidiaries 29.8 24.1 83.8 *Net of repayments ACE Cash construction expenditures for the 1991-1993 period amounted to $441.2 million and included ditures for a new combustion turbine unit, upgrades to existing transmission and distribution facilities and compliance with provisions of the Clean Air Act ments of 1990 (CAAA). ACE's current estimate of cash construction expenditures for the 1994-1996 period is $377.3 million. These estimated expenditures reflect necessary improvements to transmission and tion facilities and compliance with provisions of the CAAA. ACE also utilizes cash for mandatory redemptions of Preferred Stock and maturities of long term debt. Optional redemptions of securities are reviewed on an ongoing basis with a view toward reducing the overall cost of funds. Atlantic Energy Redemptions of Preferred Stock (at par or stated value) and redemptions, reacquisitions and retirements, and maturities of First Mortgage Bonds for the period 1991-1993 are shown as follows: Preferred Stock (Series) 9.96% (Shares) $8.25 (Shares) Aggregate Amount (000) First Mortgage Bonds Principal Amount retired (000) 1993 48,000 5,000 $ 5,300 $344,773 1992 1991 8,000 8 , 000 2,500 2,500 $ 1,050 $ 1,050 $10,350 $49,000 First Mortgage Bonds redeemed or acquired and retired in 1993 were as follows: Dat e March 1993 March 1993 March 1993 March 1993 September 1993 September 1993 *average price Series 8% due 1996 8 %% due 2000 8% due 2001 4 31.% due 1993 9 Y.% due 2019 8 %% due 2016 Principal Amount (000) Price(%) $ 95,000 100.91 19,000 102.41 27,000 102.53 9,540 100.00 69,233 110.95 125,000 104.80 Scheduled debt maturities and mandatory Preferred Stock sinking fund requirements aggregate

$59 million for the years 1994-1996.

On or before April 1 of each year, ACE and other New Jersey utilities are required to pay state excise taxes to the State of New Jersey. In March 1993, ACE paid $139.2 million. Included in this amount was $45 million senting one-half of an additional year's tax payment, as required by state law. This payment was funded by ACE through the issuance of short term debt. ACE expects to pay state excise taxes of approximately

$140 million in March 1994, which will include the final installment of one-half the required additional year's tax payment. ACE expects to fund this payment with short term debt. In December 1993, ACE paid $20 million in connection with renegotiation of a nonutility purchased power tract. ACE has deferred such amount on its Consolidated Balance Sheet, pending recovery through its LEC. ACE's cash flows from operating activities after dends on Preferred Stock and Common Stock (internal generation) amounted to $75.9 million, or 54.9% of 1993 construction expenditures.

In 1992 and 1991, ACE's internal generation was $116.8 million and $85.2 million, and represented 89.3% and 49.4%, respectively, of construction expenditures.

For the three-year period 1994-1996, ACE's internal generation is expected to average 75% of currently estimated construction ditures. However, actual levels may vary within the period based upon specific amounts of construction Atlantic Energy expenditures and internally generated funds in the vidual years. 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 $14 million, $15 million and $16 million in cash flows in 1994, 1995 and 1996, respectively.

On an interim basis, ACE finances that portion of its construction costs and other capital requirements in excess of internally generated funds through the issuance of unsecured 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 parent company. ACE's nuclear fuel requirements associated with its jointly-owned units have been financed through arrangements with a third party. In 1993, ACE issued and sold $469 million of long term debt consisting of $240 million of Series B Medium Term Notes, $225 million of First Mortgage Bonds and $4 million of Pollution Control Bonds. The proceeds from the 1993 financings were used for refunding higher cost debt, as detailed above, and construction purposes.

In 1992, ACE issued and sold $60 million of Series A Medium Term Notes, the proceeds of which were used for ACE's construction program. In 1991, ACE issued and sold 700,000 shares of $7.80 No Par Preferred Stock and issued $38.865 million of Pollution Control Bonds. The proceeds from the 1991 financings were used for construction and refunding AC E's 11 %% Pollution Control Bonds due 2011. During the year period 1994-1996, ACE expects to issue $160 lion in new long term debt, and in such period ACE expects to receive $14 million in capital contributions from the Company. ACE's debt securities are rated "A-/A3" by the major rating agencies and its Preferred Stock is rated "BBB+/Baal." In October 1993, ACE was advised that a major rating agency lowered its rating on AC E's standing securities as follows: senior secured debt to "A-" from "A," senior unsecured debt and preferred stock to "BBB+" from "A-," and commercial paper to "A-2" from "A-1." In November 1993, ACE was advised that a second major rating agency lowered its ratings of ACE's standing securities as follows: first mortgage bonds, secured pollution control revenue bonds and secured medium term notes to "A3" from "A2," debentures to "Baal" from "A3," preferred stock to "Baal" from "A3," and commercial paper to "P2" from "Pl." In taking such action, both agencies cited increasing business risks from competition, significant purchased power r:J" llJ ,)

ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS commitments, anticipated modest sales growth and high electric rates relative to the Mid-Atlantic region as tors contributing to their respective decisions.

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 December 31, 1993, ACE estimates additional funding capacities of $293 million of First Mortgage Bonds, or $463 million of Preferred Stock, or $345 million of secured debt. These amounts are not necessarily additive.

AET AET invests in and manages investments in companies with energy-related products and technologies.

AET's only investment at December 31, 1993 is a capital ment of $3 million in a wholly-owned subsidiary that owns a patented technology and has proprietary ledge relating to geothermal heating and cooling tems. AET obtained the funds for this investment through capital contributions from the parent company. The amount of this investment has been written down from $5.1 million at December 31, 1992 as a result of planned reorganization activities that had been provided for in 1992. The subsidiary discontinued its operations and will now concentrate on licensing its proprietary knowledge.

In 1993, AET received insurance proceeds of $500 thousand through its subsidiary.

Additional ments by AET will be under review in 1994 but are not expected to be significant.

AGI AGI's activities are represented by partnership interests in cogeneration projects.

At December 31, 1993, total investments amounted to $24.5 million. Cash outlays for investments (comprised of capital investment, advances and loans) by AGI for the period 1991-1993 totaled $15.l million. AGI obtained the funds for its investments through capital contributions from the parent company. During the period 1991-1993, AGI received distributions from the partnerships totaling $6.4 million from return of investment and repayment of outstanding advances and loans. A cogeneration ject is under construction and is expected to become operational in May 1994 requiring an equity payment of $2 million. This commitment will be funded by a ital contribution from the parent company. AGI expects to invest an additional

$8 million in domestic dent power projects in the years 1994-1996.

Operators of a nonutility power project in which AGI subsidiaries have a 50% ownership interest are presently ing amendments to its power purchase contract.

The outcome of these discussions cannot be determined at this time. ASP ASP's real estate investment at December 31, 1993 is a 280,000 square-foot office and warehouse facility in Atlantic County, New Jersey, with a net book value of $13.2 million. As of December 31, 1993, ASP's ment has been funded by capital contributions from the parent company and borrowings under a loan agreement with ATE. ASP's current agreement with ATE provides for the repayment of such borrowings on or before December 31, 1994. Extensions to repay these ings have been routinely granted in the past. ASP gener-Atlantic Energy a t es s u fficient cash flows from its rental income to sustain its operations.

Over half of the office space is presently leased to ACE. ASP and ACE are exp l oring options to modify ACE's current lease obligations. In the second half of 1993, another tenant leased all the able warehouse space. No real estate activity beyond the existing site is contemplated at this time by ASP. ATE ATE has invested $77.3 million in leveraged leases of three commercial a i rcraft and two containerships.

ATE has loans outstanding to ASP, including unpaid interest, which totaled $8.9 million at December 31, 1993. ATE Atlantic Energy obtained funds for its business activities and loans to ASP through capital contributions from the parent pany and external borrowings. ATE has outstanding

$15 million principal amount of 7.44% Senior Notes due 1999. A revolving credit and term loan facility for borrowings of up to $35 million is available to ATE. At December 31, 1993, there were no borrowings outstanding under this facility. ATE's positive cash flows are provided from lease rental receipts and realization of existing tax benefits generated by the leveraged leases sufficient to sustain operations. It is expected that these will continue to be the only sources of cash flows for the foreseeable future. RESULTS OF OPERA TI O N S 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 ment 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. During 1993, ACE undertook reorganization efforts to enable it to streamline its operations and become more competitive.

Provisions for severance and early retirement costs associated with the reorganization amounted to $5.4 million after taxes, or $.10 per share of Common Stock. Rev e nues Operating Revenues-Electric increased 6.0% and 1.0% in 1993 and 1992, respectively.

Components of the all changes are shown as follows: (millions) 1993 1992 Base Revenues $12.2 $ 11.0 Levelized Energy Clauses (5.0) 23.0 Kilowatt-hour Sales 42.6 (28.7) Unbilled Revenues (1.2) (2.0) Sales for Resale 0.7 5.5 Other (0.4) (0.3) Total $48.9 $ 8.5 Base Revenues i ncreased in 1993 as a result of a $12.9 million base rate increase effective in October 1992. Base Revenues increased in 1992 as a result of the October 1992 increase and a $50.0 million base rate increase tive in July 1991. Levelized Energy Clause (LEC) revenues decreased in 1993 as a result of the net effects of a $10.9 million increase effective in October 1993 and an $8.5 million decrease effective in October 1992. LEC revenues increased in 1 992 as a result of the October 1992 decrease an d a $21.3 million LEC increase effective in June 1991.

ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Changes in kilowatt-hour sales are discussed under "Billed Sales to Ultimate Utility Customers." Overall, the combined effects of changes in rates charged to customers and kilowatt-hour sales resulted in increases of 0.8% and 4.4% in revenues per kilowatt-hour in 1993 and 1992, respectively.

The changes in Unbilled Revenues are a result of the amount of kilowatt-hours consumed by mate customers at the end of the respective periods, which are affected by weather and economic conditions, and the corresponding price per kilowatt-hour.

The changes in Sales for Resale are a function of ACE's energy mix strategy, which in turn is dependent upon ACE's needs for energy, the energy needs of other utilities ing in the regional power pool of which ACE is a ber, and the sources and prices of energy available.

Billed Sales to Ultimate Utility Customers 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: 1993 1992 Avg Avg# Ai*g Ai*g # Customer Class Sa l es Use ofC u s t Sales l'se ofCust Residential 6.7% 5.9% 0.8% (2.8)% (3.7)% 0.9 % Commercial 5.1 3.2 1.9 (1.5) (3.2) 1.8 Industrial 2.6 4.6 (1.9) (10.2) (9.4) (0.8) Other 1.2 1.6 (.4) (0.3) (0.3) Total 5.4 4.4 0.9 (3.5) (4.5) 1.0 In 1993, total kilowatt-hour sales increased primarily due to the colder winter temperatures during the first quarter, and more normal temperatures during the third quarter in contrast to the cooler temperatures in the same period of 1992. Improved economic conditions also contributed to the increase in 1993 sales. In 1992, total kilowatt-hour sales declined primarily due to lower sales to Industrial customers because two large trial customers obtained primary service from dent nonutility sources. Sales also declined in 1992 due to cooler temperatures in the third quarter. ACE continues to experience the effects of tion in the electric utility business.

One large Industrial customer is expected to receive primary electric service from an independent power producer commencing in the spring of 1994. This customer accounted for 10.l % and 8.1%of1993 Industrial kilowatt-hour sales and enues, respectively.

Sales to this customer amounted to 1.6% of 1993 total kilowatt-hour sales and 1.0% of 1993 total energy revenues.

ACE will also lose additional enues from this customer for other services that amounted to $4.3 million in 1993. Costs and Expenses Total Operating Expenses increased 3.9% and 2.4% in 1993 and 1992, respectively.

Included in these expenses are the costs of energy, purchased capacity, operations, maintenance, depreciation and taxes. Energy expense reflects costs incurred to meet load requirements, energy supply mix used and operation of the LECs. Changes in costs reflect the varying ity of low-cost generation from ACE-owned and purchased energy sources, and the corresponding unit prices of the energy sources used, as well as changes in the needs of other utilities participating in the Pennsylvania-New Jersey-Maryland Interconnection.

The cost of energy is recovered from customers primarily through the tion of the LECs. Earnings are not affected by Energy expense because these costs are adjusted to match the associated LEC revenues.

In any period, the actual amount of LEC revenue recovered from customers will be greater or less than the actual amount of energy cost incurred in that period. Such respective overrecovery or underrecovery of energy costs is recorded on the idated Balance Sheet as a liability or an asset, as priate. Amounts in the balance sheet are recognized in the Consolidated Statement of Income within Energy expense during the period in which they are subsequently recovered through the LECs. ACE was underrecovered by $7.2 million and overrecovered by $8.l million at December 31, 1993 and 1992, respectively.

In 1993, Energy expense decreased 1.1 % primarily cause there was a larger amount of fuel costs ered in 1993 than in 1992. Production-related energy costs for 1993 increased by 6.7% largely due to increased generation of 4.8%. The average unit cost for energy in 1993 increased to 1.82 cents per kilowatt-hour ed to 1.80 cents per kilowatt-hour in 1992. The 1993 crease in the per unit cost is a result of increased amounts of higher-cost energy from nonutility sources and a decreased supply of lower cost energy from coal ,\tJant1c F

sources. Energy expense for 1992 decreased 11.9% marily due to an underrecovery of fuel costs in 1992 pared to an overrecovery in 1991. The decrease was partially offset by increased production-related energy costs associated with a 3.4% increase in net generation.

Purchased Capacity expense reflects entitlements to generating capacity owned by others. Purchased Capacity expense increased 7.4% in 1993 and 30.l % in 1992 marily due to capacity supplied by two nonutility power producers beginning in September 1991 and March 1992, respectively.

Operations expense increased 8.9% in 1993 due marily to corporate reorganization activities by ACE. Operations expense increased 2.8% in 1992 primarily due to nuclear decommissioning expenses previously classified as depreciation expense, in accordance with BRC requirements.

Maintenance expense decreased 9.0% and 4.1 % in 1993 and 1992, respectively, due to the timing of maintenance projects.

The method of computing state excise taxes was changed by legislation in 1992 to a unit tax that is based on kilowatt-hours sold during the year. In prior years, such taxes were based on revenues collected from tomers. State Excise Taxes expense increased in 1993 and 1992 by 6.4% and 10.2%, respectively.

The increase in 1993 is due to higher kilowatt-hour sales during the year and an additional amount of tax required under recently enacted state Jaw. The increase in 1992 reflects additional tax liabilities incurred as a result of changes in legislation.

Federal Income Taxes increased 21.9% and 2.5% in 1993 and 1992, respectively, due to an increased level of taxable income, and in part to the increase in the Federal income tax rate to 35% from 34% for 1993. Interest on Long Term Debt increased 11.4% in 1993 reflecting the net effects of issuance of $469 million of First Mortgage Bonds during the year, and the maturity, redemption and reacquisition of various series of First Mortgage Bonds totaling $344.8 million principal amount. Interest on Long Term Debt increased 3.3% in 1992 reflecting the net effects of issuance of $60 lion of Medium Term Notes in May 1992 with a weighted average interest rate of 7. 75% and the maturity of $10.35 million principal amount of First Mortgage Bonds, 4 Yz% Series due in July 1992. At December 31, 1993 , 1992 and 1991, ACE's embedded cost of long term debt was 7.8%, 8.8% and 8.9%, respectively.

Atlantic Energy Preferred Stock Dividend Requirements of ACE decreased 2.3% in 1993 and reflects the redemption of 48,000 shares of 9.96% No Par Preferred Stock in May 1993. Preferred Stock Dividend Requirements of ACE increased 8.5% in 1992 and reflects the issuance and sale of 700,000 shares of $7.80 No Par Preferred Stock in May 1991. Embedded cost of Preferred Stock as of December 31, 1993, 1992 and 1991 was 7.7%, 7.7% and 7.8%, respectively.

New accounting standards concerning the ing for postretirement benefits other than pensions and income taxes became effective for the Company in 1993. The effect of adopting these standards did not materially affect net income in 1993, primarily because the mental costs to ACE resulting from these standards have been deferred on the Consolidated Balance Sheet subject to future recovery in rates. 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, petition and the economic vitality of its service territory.

The financial performance of ACE will be affected in the future by the level of sales of energy and the impacts of regulation.

The amount earned on capital investments by the utility is subject to general business conditions and regulations.

Other issues which may impact the electric utility business include public health, safety, environmental legislation and competition.

Changes in operating revenues in the future will result from changes in customer rates, energy consumption and general economic conditions in the service area, as well as the impacts of load management and tion programs instituted by ACE. ACE's revenues could also be affected by the loss of sales through increasing competition in the generation of electricity by other utility and non utility sources. The emergence of competition among suppliers of electricity may require ACE to create new rate structures and offer discounts to its Commercial and Industrial customers.

ACE has petitioned the BRC to permit hotel/ casino customers to take electric service under existing commercial rate tariffs, which are lower than those rates currently charged to hotel/casinos.

If all hotel/casinos make such an election, AC E's annual revenues would be reduced by approximately

$5 million.

ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income of ACE can be affected by the operational performance of nuclear generating facilities.

ACE is ject to a BRC mandated nuclear unit performance dard. Under the standard , penalties or rewards are based on the aggregate capacity factor of ACE's five owned nuclear units. Any penalties incurred would not be permitted to be recovered from customers and would be charged against income. An accounting standard issued but not yet effective for the Company concerns benefits provided to inactive and terminated but not yet retired employees.

It is expected that the annual costs calculated under the new standard will not be significantly different from those recorded under the current method of accounting and that any additional liabilities recorded will not be material to the consolidated financial statements.

The Energy Policy Act, enacted in October 1992, vides, among other things, for increased competition between utility and nonutility electric generators and permits wholesale transmission access, or wheeling, with certain requirements.

Other competitive pressures such as increased customer demands for discounted rates, potential loss of municipal power sales, excess generating capacity, together with the emergence of nonutility energy sources, are expected to increase the amount of business risk for electric utilities in the future. In addition, the extent to which New Jersey lic utility regulation is modified to be reflective of these new competitive realities will be a key factor affecting the Company. Development of electric generating facilities by utilities has occurred in ACE's service territory.

Effects of nonutility generation could be offset to some extent by natural growth in the service territory and additional efforts by ACE to reduce the impact of the potential loss of kilowatt-hour sales and revenues.

As a result of nomic conditions in the service territory , ACE estimates that the rate of growth of overall sales of energy will be modest. The Clean Air Act Amendments (CAAA) enacted in 1990 relating to acid rain and limitations on emissions at electric generating plants will require modifications at certain of ACE's facilities.

Compliance with the CAAA will cause ACE to incur additional operating and/or capital costs. Presently, ACE's cash construction budget for 1994 through 1996 includes approximately

$47 lion related to the cost of compliance.

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

The New Jersey Department of Environmental tion and Energy (NJDEPE) has proposed modifications to certain environmental permits at Salem Station. The Salem owners have opposed these modifications that 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 construction of such ers. 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 ing towers at Salem would also result in a permanent capacity de-rating of up to 120 MWs, as well as increased operation and maintenance costs. As more fully detailed in Note 10 of the financial statements, Public Service Electric & Gas (PS), the operator, filed a Supplement to its Application which proposed that Salem continue operation with a once-through cooling system, and vided for plant modifications and environmental ments to the Delaware River in the vicinity of the Station. In June 1993, the NJDEPE issued a Draft Permit which essentially incorporated the provisions made by PS in its proposal.

Costs of this proposal would not be significant.

The NJDEPE indicates it expects to issue a final permit in the first quarter of 1994. The outcome of this matter cannot be predicted at this time. Federal and state legislation authorize various mental authorities to issue orders compelling ble parties to take cleanup action at sites determined to present danger from releases of hazardous substances.

The various statutes impose joint and several liability without regard to fault for certain investigative and cleanup costs for all potentially responsible parties. ACE has received notification with respect to certain sites as one of a number of alleged responsible parties for cleanup Atlantic tnergy and remedial actions.

The total amount of cleanup and medial measures associated with these sites as claimed by the authorities for all defendants is currently estimated to be $178 million. ACE believes that primary bility for the claims will be borne by other parties and its share, if any, of the claims would not be significant.

ACE plans to pursue these matters aggressively. Atlantic Energy Inflation Inflation affects the level of operating expenses and also the cost of new utility plant placed in service. Traditionally, the ratemaking 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 creased costs through rates, whether resulting from inflation or otherwise, depends upon the frequency, timing and results of rate case decisions.

UMMARY FINANCIAL AND STATISTICAL REVIEW 1993-1983 1993 1992 Atlantic Energy, Inc. Investor Info rmation Operating Revenues (000) $ 865,675 $ 816,825 Net Income (000) $ 95,297 $ 86,210 Average Number of Common Shares Outstanding (000) 52,888 51,592 Earnings per Average Common Share $ 1.80 $ 1.67 Total Assets (Year-end)

(000) $2,487,508

$2,219,338 Long Term Debt and Cumulative Preferred Stock Subject to Mandatory Redemption (Year-end)

(000) $ 952,101 $ 842,236 Capital Lease Obligations (Year-end)

(000) $ 45,268 $ 49,303 Dividends Declared on Common Stock $ 1.535 $ 1.515 Dividend Payout Ratio 85% 90% Book Value per Share (Year-end)

$ 15.62 $ 15.17 Price/Earnings Ratio (Year-end) 12 14 Times Fixed Charges Earned (pre-tax, Atlantic Electric) 3.54 3.76 Common Shareholders (Year-end) 47,832 46,524 Employees (Atlantic Electric) (Year-end) 1,835 2,023 A tlantic City E l e ctric C ompan y (Principal Subsidiary)

Faciliti es for S er v i ce Total Utility Plant (000) $2,402,415

$2,279, 1 07 Additions to Utility Plant (000) $ 141,927 $ 134,326 Generating Capacity (Kilowatts) (Year-end) (a)(b) 2,307,700 2,160,700 Maximum Utility System Demand (Kilowatts) 1,962,000 1,796,000 Capacity Reserve at Time of Peak (% of Installed Generation) 11.2% 16.9% Energy Supply (mwh): Net Generation 6,025,861 5,775,098 Purchased and Interchanged 3,753,433 3,553,247 Total System Load 9,779,294 9,328,345 El e ctr ic Sales to Ultimate Customers (mwh): Residential 3,495,722 3,276,330 Commercial 3,259,541 3,100,133 Industrial 1,261,069 1,229,211 All Others 50,080 49,464 Total (a)(c) 8,066,412 7,655,138 R es id e ntial E l e ctri c S e r v ic e (Average per Customer)

Amount of Electricity Used During the Year (kwh) 8,608 8,131 Revenue for a Year's Service $ 969.86 $ 903.91 Revenue per Kilowatt-hour 11.27¢ 11.12¢ Ul tima te Cu st om er Data (Average)

Residential With Electric Heating 82,385 82,206 Residential Without Electric Heating 323,722 320,744 Total Residential 406,107 402,950 Commercial 52,988 51,996 Industrial 971 990 All Others 522 524 Total Ultimate Customers (c) 460,588 456,460 Ope r ating R eve nue s (000) Electric Service: Residential

$ 393,866 $ 364,232 Commercial 315,089 299,866 Industrial 100,812 97,475 All Others 10,575 10,548 Total from Electric Service 820,342 772,121 Unbilled Revenues-Net 28 1,203 Sales for Resale 36 , 576 35,884 Other Electric Revenues 8 , 853 7,723 Total Operating Revenues (c) $ 865,799 $ 816,931 1991 $ 808,374 $ 85,635 49,008 $ 1.75 $2,151,416

$ 807,347 $ 53,093 $ 1.495 85% $ 14.84 12 3.68 43,802 2,032 $2,175,60 1 $ 177,298 2,090,700 1,911,000 5.2% 6,300,891 3,124,024 9,424,915 3,370,327 3,147,318 1,368,329 49,626 7,935,600 8,440 $ 906.66 10.74¢ 81,838 317,486 399,324 51,077 998 524 451,923 $ 362,050 292,349 102,202 10,136 766,737 3,229 30,404 8,112 $ 808,482 (a) Excludes capacity allocated to a large industrial customer. (b) Includes unit purchases and sales of capacity under contracts with certain other utilities and nonutilities. (c) Includes sales to an affiliate within the Atlantic Energy consolidated group. 1990 $ 740,894 $ 68,879 45,590 $ 1.51 $2,006,010

$ 747,877 $ 57,971 $ 1.47 97% $ 14.36 11 2.94 42,295 2,055 $2,027, 1 38 $ 170,772 1,959,700 1,74 1 ,000 10.9% 6,267,559 2,606,067 8,873,626 3,267,606 3,063,069 1,376,423 49,769 7,756,867 8,251 $ 844.37 10.23¢ 81,479 314,529 396,008 50,274 1,002 537 447,821 $ 334,375 271,688 96,766 9,668 712,497 (4,055) 24,115 8,448 $ 741,005 Atlantic Energy 4 -1989 1988 1987 1986 1985 1984 198 3 $ 723,216 $ 687,335 $ 635 , 657 $ 604,716 $ 612,035 $ 582 , 386 $ 526 , 681 $ 80,964 $ 72,171 $ 73 , 765 $ 54,946 $ 46,150 $ 56,433 $ 59 , 717 43,268 39 , 186 36 , 622 36 , 532 36,138 35 , 162 33,845 $ 1.87 $ 1.84 $ 2.01 $ 1.50 $ 1.28 $ 1.60 $ 1.76 $1,864,461

$1,660 , 286 $1,499 , 381 $1,401,064

$1 , 319,027 $1 , 253 , 083 $1 , 170 , 993 $ 725,329 $ 594,461 $ 522 , 815 $ 534 , 822 $ 521,612 $ 473,462 $ 459,366 $ 33,146 $ 32,880 $ 37 , 694 $ 37,603 $ 38 , 857 $ 41 , 722 $ 39,228 $ 1.425 $ 1.37 $ 1.3575 $ 1.305 $ 1.2775 $ 1.225 $ 1.16 75% 75% 66% 87% 99% 76% 65% $ 14.27 $ 13.58 $ 12.86 $ 12.18 $ 11.98 $ 11.95 $ 11.60 10 9 8 12 11 8 7 3.19 3.06 3.68 2.99 3.06 3.62 4.14 43,383 44,473 45,586 47 , 133 48 , 635 47,446 48 , 299 2,021 2,092 2 , 148 2,168 2,099 2 , 012 1,995 $1,846,122

$1,712,614

$1,602,801

$1,503,010

$1,438,643

$1 , 351,392 $1 , 265 , 393 $ 147,886 $ 130 , 281 $ 105,521 $ 109,303 $ 105 , 213 $ 95 , 388 $ 83 , 673 1 , 879,700 1,807 , 700 1 , 660,700 1 , 660, 700 1,605, 700 1 , 594 , 200 1 , 594 , 200 1,700,000 1,636,000 1 , 609,000 1,459 , 000 1,432 , 000 1,298 , 800 1 , 346 , 700 9.6% 9.5% 3.1% 12.1% 10.8% 18.5% 15.5% 6,260,942 5,863,119 6,157,938 5,966,600 5 , 817,254 6 , 237 , 724 5 , 913,196 2,597,623 2,567,871 1,773,837 1,454,491 1 , 333,174 940 , 987 1 , 065 , 704 8,858,565 8,430,990 7,931,775 7,421,091 7 , 150,428 7 , 178 , 711 6,978 , 900 3,265,918 3,213,010 3,040,410 2,839,114 2 , 638,121 2,646 , 813 2,545,351 2,917,162 2,741,976 2,592,232 2,401 , 199 2 , 298,895 2 , 150,464 2 , 019,468 1,380,832 1,339,005 1,323,567 1,222 , 981 1 , 204,971 1,197 , 392 1,225 , 637 53,872 56,289 58,191 58 , 120 57,685 59 , 122 60,978 7,617,784 7,350,280 7,014,400 6 , 521,414 6 , 199,672 6 , 053 , 791 5 , 851,434 8 , 382 8,460 8 , 281 7 , 982 7 , 643 7 , 866 7 , 715 $ 840.34 $ 838.70 $ 808.14 $ 791.09 $ 799.29 $ 783.47 $ 713.79 10.03¢ 9.91¢ 9.76¢ 9.91¢ 10.46¢ 9.96¢ 9.25¢ 80,409 78,805 75,900 72,640 68,871 65,261 62,272 309,245 300,974 291,253 283,062 276 , 305 271 , 207 267,642 389,654 379,779 367,153 355 , 702 345,176 336,468 329,914 49,509 48,398 46,775 45 , 359 44,256 43,615 43 , 152 1,008 1,014 1 , 015 1 , 022 1 , 020 1 , 015 1,021 549 552 554 554 554 544 549 440,720 429,743 415,497 402 , 637 391 , 006 381,642 374 , 636 $ 327,443 $ 318,520 $ 296, 712 $ 281 , 393 $ 275,897 $ 263 , 612 $ 235 , 488 256 , 199 240,890 222,129 214,230 216 , 052 190,435 169 , 795 94,634 91,661 84,476 80 , 037 83,628 79 , 123 72,633 9 , 901 9,935 10,199 10,230 10,470 10,405 9 , 960 688,177 661,006 613,516 585,890 586,047 543,575 487 , 876 7,215 6,716 385 (1,813) 3,076 (1 , 340) 5,671 18 , 196 11,476 12 , 840 13,045 15 , 656 32,855 26 , 130 9 , 765 8,137 8 , 916 7,594 7 , 256 7,296 7 , 004 * $ 723 , 353 $ 687,335 $ 635,657 $ 604,716 $ 612,035 $ 582,386 $ 526 , 681 Atlantic Energy NVESTOR INFORMATION (as of December 31, 1993) Where should I send inquiries concerning my investment in Atlantic Energy or Atlantic Electric?

The Company serves as recordkeeping agent, dividend disbursing agent and also as Transfer Agent for Common Stock and Atlantic Electric's Preferred Stock.

dence concerning such matters as the replacement of dividend checks or stock certificates, address changes, transfer of certificates, Dividend Reinvestment and Stock Purchase Plan inquiries or any general information about the Company should be addressed to: Atlantic Energy, Inc. Investor Records 6801 Black Horse Pike P.O. Box 1334 Pleasantville, New Jersey 08232 Telephone (609) 645-4506 or (609) 645-4507 When are dividends paid? The proposed record dates and payable dates are as follows: Record Dates March 21, 1994 June 20, 1994 September 19, 1994 December 19, 1994 Payable Dates April 15, 1994 July 15, 1994 October 17, 1994 January 16, 1995 The following table indicates dividends paid per share in 1993 and 1992 on Common Stock: 1993 1992 First Quarter $ .38 $ .375 Second Quarter .38 .375 Third Quarter .385 .38 Fourth Quarter .385 .38 Annual Total $1.53 $1.51 Dividend checks are mailed to reach shareholders imately on the payment date. If a dividend check is not received within 10 days of the payment date, or if one is lost or stolen, contact Investor Records. Dividend checks may be automatically deposited into a checking, savings, money market or credit union account at any financial institution that accepts electronic direct deposit. Contact Investor Records for an authorization form. Dividends paid on Common Stock in 1993 and 1992 were fully taxable. Some state and local governments may impose 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's 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. Does the Company have a Dividend Reinvestment and Stock Purchase Plan? Yes. The Plan allows shareholders of record and ested investors to automatically invest their cash dends and/or optional cash payments in shares of the Company's Common Stock. Other services available to DRP participants include certificate safekeeping and automatic investment.

Holders of record of Common Stock or interested investors desiring to enroll 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 or Investor Records for more information. Where is the Company's stock listed? 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, paper listings generally use At!Enrg 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 cated were as follows: 1993 1992 High Low High Low First Quarter $25.000 $21.875 $21.000 $18.000 Second Quarter 23.875 21.625 23.500 20.813 Third Quarter 25.375 22.625 24.625 22.500 Fourth Quarter 23.875 20.375 23.500 21.750 Is additional information about the Company available?

The annual report to the Securities and Exchange Commission on Form 10-K and other reports containing financial data are available to shareholders.

Specific requests should be addressed to: Atlantic Electric Financial Services Department 6801 Black Horse Pike Pleasantville, New Jersey 08232 Telephone (609) 645-4655 or (609) 645-4888 FAX (609) 645-4132 FFICERS (age/years of service as of December 31, 1993) JERROLD L. JACOBS (54 1 32) President and Chief Executive Officer of Atlantic Energy Director of Atlantic Energy and all subsidiaries C h airman, President and Chief Executive Officer of Atlantic Electric Mr. Jacobs was elected President and Chief Executive Officer of Atlantic Energy and Atlantic Electric in 1993. Since 1990, he served as President of Atlantic Energy and President and Chief Operating Officer of Atlantic Electric.

Prior to that, he was Executive Vice President of Atlantic Electric.

Mr. Jacobs joined Atlantic Electric in 1961 as an engineer.

MEREDITH I. HARLACHER, JR. (51128) Vice President of Atlantic Energy Director of Atlantic Energy Technology, Atlantic Southern Properties and ATE I nvestment Senior Vice President-Energy Supply of Atlantic Electric Mr. Harlacher has serve d as Vice President of Atlantic Energy since 1987 and was named Senior Vice President-Energy Supply of Atlantic Electric in 1993. Prior to that, he was Senior Vice President-Utility Operations and Senior Vice President-Corporate Planning and Services of Atlantic Electric. He joined Atlantic Electric in 1965 as an engineer.

HENRY K. LEVARI, JR. (45 1 22) Vice President of Atlantic Energy Director of all subsidiaries Senior Vice President-Marketing

& Customer Operations of Atlantic Electric Mr. Levari has served as Vice President of Atlantic Energy since 1991 and was named Senior Vice President-Marketing

& Customer Operations of Atlantic Electric in 1993. Prior to that, he was Senior Vice President-Corporate Planning and Services and Vice President-Power Delivery of Atlantic Electric.

He joined Atlantic Electric in 1971 as an engineer.

J. G. (JERRY) SALOMONE (53 1 17) Vice President and Treasurer of Atlantic Energy Director of all subsidiaries Senior Vice President-Finance

& Administration of Atlantic Electric Certified Public Accountant Mr. Salomone has served as Vice President of Atlantic Energy since 1987. He was named Senior Vice President-Finance

& Administration of Atlantic Electric in 1993. Prior to that, he was Senior Vice President-Finance

& Accounting and Treasurer.

He has served as Chief Financial and Accounting Officer of Atlantic Electric since 1984. He joined Atlantic Electric as Assistant Controller in 1976. SCOTT B. UNGERER (35 1 13) Vice President of Atlantic Energy President and Director of Atlantic Southern Properties, Atlantic Generation, Atlantic Energy Technology and ATE Investment Mr. Ungerer was elected to the above positions in January 1994. Prior to that he served as Manager-Production Economics, Manager-Joint Generation Projects and most recently Manager-Business Planning Services.

He joined Atlantic Electric in 1980 as an engineer.

SABRINA D. McMILLIAN (38 1 8) Secretary of Atlantic Energy Vice President-Legal and Secretary of Atlantic Electric Acting Secretary of At l antic Southern Properties, Atlantic Generation, Atlantic Energy Technology and ATE Investment

• It/antic Energy, Inc. and 'iubsidiaries Ms. McMillian has served as Secretary of Atlantic Energy and Atlantic Electric since 1986. She was elected Vice Legal and Secretary of Atlantic Electric in 1993. She joined Atlantic Electric in 1985 as Assistant to the Corporate Secretary.

Ms. McMillian is an attorney.

JOHN M. CARDEN (55 1 26) Vice President-Ocean Region of Atlantic Electric Mr. Carden was named Vice President-Ocean Region of Atlantic Electric in 1993. Prior to that , he was Vice PresidentCustomer Service and Vice President-Administrative Services of Atlantic Electric. He joined Atlantic Electric in 1967 as an engineer. (retired effective 1/3/94) FRANK F. FRANKOWSKI (43 1 10) Vice President-Controller and Assistant Treasurer of Atlantic Electric Certified Public Accountant Mr. Frankowski was named Vice President-Controller and Assistant Treasurer of Atlantic Electric in 1993. He was previously Controller-Corporate Services.

Prior to that, he held management positions in accounting and taxes. He joined Atlantic Electric in 1983 as Manager of Internal Auditing Services.

JAMES J. L EES (49 1 23) Vice President-Marketing of Atlantic Electric Mr. Lees was named Vice President-Marketing of Atlantic Electric in 1993. He was previously Vice President-Marketing and Rates and Vice President-Rates of Atlantic Electric.

He joined Atlantic Electric in 1970 as an engineer.

ERNEST L. JOLLY (4111 3) Vice President-External Affairs of Atlantic Electric Mr. Jolly was named Vice President-External Affairs of Atlantic Electric in 1992. Prior to that , he held station manager tions at Deepwater Generating Station from 1987 to 1992. He joined Atlantic Electric in 1980 as an engineer. J. DAVID McCANN (42 1 21) Vice President-Engineering

& Construction Services of Atlantic Electric Mr. McCann was named Vice President-Engineering

& Construction Services of Atlantic Electric in 1993. Prior to that he was Vice President-Power Delivery and Vice President, and Assistant Secretary of Atlantic Electric.

He joined Atlantic Electric in 1972 as an engineer.

HENRY C. SCHWEM M, JR. (52 1 24) Vice President-Power Generation

& Fuels Management of Atlantic Electric Mr. Schwemm was named Vice President-Power Generation

& Fuels Management of Atlantic Electric in 1993. Prior to that , he served as Vice President-Production of Atlantic Electric since 1980. He joined Atlantic Electric in 1969 as an engineer.

LOUIS M. WALTERS (41 1 15) Vice President-Treasurer and Assistant Secretary of Atlantic Electric Treasurer of Atlantic Southern Properties , Atlantic Generation, Atlantic Energy Technology and ATE Investment Certified Public Accountant Mr. Walters was elected Vice President-Treasurer and Assistant Secretary of Atlantic Electric in 1993. Since 1991, he had served as General Manager-Treasury and Finance of Atlantic Electric.

Prior to that, he held management positions in ury , taxes and accounting.

He joined Atlantic Electric in 1978 as an accountant.

R" l!J ,)

OARD OF DIRECTORS (as ofDeceinber31, 1993) JOS. MICHAEL GALVIN, JR. Mr. Galvin, a Director since 1978, is president and chief executive officer of the South Jersey Heal th Corporation-The Memorial Hospital of Salem County. He is a d i rector of Woodstown National Bank and the Center for Hea l th Affairs. He is a graduate of the University of Scranton and ho l ds a Master of Business Administration from Xavier University. Age: 48. Professional Experience:

personnel, health care management.

Committee Chairman:

Personnel.

Committee Membership:

Audit; Energy, Operations

& Research; Pension & Insurance.

GERALD A. HALE Mr. Hale, a Director since 1983, is president of Hale Resources, Inc., a health care. industrial/natural resource company. He is a director of New Jersey Manufacturers Insurance Company, New Jersey Business and Industry Association and Hoke, I nc. He is a graduate of Western Michigan University.

Age: 66. Professional Experience:

industrial m i nerals, chemicals and fabricated O.E.M. products.

Committee Chairman:

Corporate Development.

Committee Membership:

Audit; Energy, Operations

& Research; Personnel.

MATTHEW HOLDEN, 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 a former commissioner of the Federal Energy Regulatory Commiss i on and the Wisconsin Public Service Commission. He holds a Doctorate of Political Science from Northwestern University. Age: 62. Professional Experience:

regulatory affairs, energy consultation, arbitration.

Committee Chairman:

Audit. Committee Membership:

Corporate Development; Pension & Insurance; Personnel.

CYRUS H. HOLLEY Mr. Holley, a Director since 1990, is president of Management Consulting Services.

He was formerly chief operating officer, executive vice president and a director of Engelhard tion. He is a graduate of Texas A & M University.

Age: 57. sional Experience:

industrial minerals, chemicals and precious metals. Committee Chairman:

Energy, Operations

& Research.

Committee Membership:

Corporate Development; Finance & Investor Relations; Personnel.

E. DOU G LAS HUGGARD Mr. Huggard, a Director since 1984, is Chairman of the Board of the Company. He served as Chairman and Chief Execut i ve Officer of the Company and Atlantic City Electr i c Company from 1989 until 1993, when he retired after completing 38 years of service. Prior to that, he was Director, President and Chief Executive Officer of the Company and Atlantic City Electric Company. He holds a Master of Mechanical Engineering from the University of Delaware.

Age: 60. Professiona l Experience:

utility operations.

Committee Membership:

Ex-officio member of all committees except Audit and Personnel.

Atlantic Energy, Inc. and Subsidiaries JERROLD L. JACOBS Mr. Jacobs is President and Chief Executive Officer of the pany and of Atlantic City Electric Company. He is a Director of all of the Company's subsidiaries and has been with the pany for 32 years. He is a graduate of the Newark College of Engineering (New Jersey Institute of Technology).

Age: 54. Professional Experience:

utility operations.

Committee Membership:

Ex-officio member of all committees except Audit and Personnel.

KATHLEEN MacDONNELL Ms. MacDonnell was elected as a Director in 1993. She is vice president of Campbell Soup Company and president of its Frozen Foods Group. She is a member of the board of trustees of the West Jersey Hospital System, a member of the board of directors of the Camden County Girl Scouts and a trustee of the Campbell Foundation.

She is a graduate of the University of Massachusetts and holds a Master of International ment from the American Graduate School of International Management.

Age: 45. Professional Experience:

consumer products, marketing and international management.

Committee Membersh i p: Audit; Energy, Operations

& Research; Finance & Investor Relations; Pension & Insurance.

RICHARD B. McGLYNN Mr. McGlynn, a partner in the law firm of LeBoeuf, Lamb, Leiby & MacRae, has been a Director since 1986. He is a former commissioner of the New Jersey Board of Public Utilities and a former judge in Essex County, New Jersey. He is a graduate of Rutgers Law School and Princeton University. Age: 55. Professional Experience

law, utility regulation.

Committee Chairman:

Pension & Insurance.

Committee Membership:

Corporate Deve l opment; Energy, Operations

& Research; Finance & Investor Relations.

BERNARD J. MORGAN Mr. Morgan, a banking industry executive, was elected as a Director in 1988. He is a director of St. Joseph's University and a member of the Business Advisory Board of the Girl Scouts of Greater Philadelphia.

He holds a Master of Business tration from the Wharton School of the University of sylvania.

Age: 57. Professional Experience:

banking, finance. Committee Chairman:

Finance & Investor Relations.

Committee Membership:

Corporate Development; Pension & Insurance; Personnel.

HAROLD J. RAVECHE Dr. Raveche, who became a Director in 1990, is president of the Stevens Institute of Technology. He was formerly the dean of science of the Rennsselaer Polytechnic Institute.

He is a tor of National Westminster Bancorp, Inc. and National minster Bank NJ, a commissioner of the New Jersey Commission on Science and Technology and a member of the Newark national Airport Advisory Committee.

He holds a Doctorate of Physical Chemistry from the University of California.

Age: 50. Professional Experience:

higher education, science and no l ogy policy. Committee Membership:

Audit; Corporate Development; Energy, Operations

& Research; Finance & Investor Relations. t One hundrea percent of this annual report is printea on recycled paper containing post-co nsumer waste.

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