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 0~000272 I PDR

FINAN~IAL HIGHLIGHT~

% Change  % Change  % Change 1993 1993-1992 1992 1992-1991 1991 1991-1990 Earnings Per Common Share $ 1.80 7.8 $ 1.67 (4.6) $ 1.75 15.9 Dividends Paid Per Common Share $ 1.53 1.3 $ 1.51 1.3 $ 1.49 2.1 Book Value Per Common Share $ 15.82 3.0 $ 15.17 2.2 $ 14.84 3.3 Number of Common Shares Outstanding -

Year-end (000) :

Average 52,888 2.5 51,592 5.3 49,008 7.5 Actual 53,507 2.5 52,199 2.6 50,896 10.8 Return on Average Common Equity 11.71 % 5.1 11.14% (7.9) 12.10% 14.5 Electric Operating Revenues (000) $ 885,875 6.0 $ 816,825 1.0 $ 808,374 9.1 Operating Expenses (000) $ 708,091 3.9 $ 679,657 2.4 $ 663,518 7.7 Net Income (000) $ 95,297 10.5 $ 86,210 0.7 $ 85,635 24.3 Utility Cash Construction Expenditures (000) $ 138, 111 5.7 $ 130,700 (24.2) $ 172,425 3.4 Total Assets (000) $2,487,508 12.l $2,219,338 3.2 $2,151,416 7.2 Sales of Electricity to Ultimate Customers (KWH) (000) 8,088,412 5.4 7,655,138 (3.5) 7,935,600 2.3 Price Paid Per Kilowatt-hour (Ultimate Customers) 10.318$ 0.6 10.257¢ 4.5 9.812¢ 5.6 Total Ultimate Electric Customer Accounts (Year-end) 483,073 1.0 458,549 1.2 453,100 0.8 Number of Shareholders- Common Stock (Year-end) 47,832 2.8 46,524 6.2 43,802 3.6 Number of Atlantic Electric Employees (Year-end) 1,835 (9.3) 2,023 (0.4) 2,032 (1.1 )

2 25 1.87 !3.13 21.71 20.50 20 19.25 1.5 19.94 15 10

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90 91 92 93 89 90 91 92 93 Atlantic Energy Atlantic Energy Earnings and Dividends Market Price Paid Per Share of Per Share of Common Stock Common Stock

. EARNINGS This is the closing price of

. DIVIDENDS Atlantic Energy's Common Stock on the last trading date Earnings per share of Common of each year, as reported by the Stock is net income divided by the New York Stock Exchange average number ofcommon shares Composite Transactions listing.

outstanding. Dividends paid per share is the sum of the quarterly dividend payments made in January, April, July and October.

cost savings over the life of home. The program provides the tree. As an added bene- extended hours for customers '

fit, the compatible trees are calls and greater coverage grown at Atlantic Electric 's for heavy calling periods.

Millville Holly Orchard. Computer terminals and phone lines set up in employ-Nuclear News ees ' homes work just like the The combined capacity fac- ones in the office, giving cus-tor of Atlantic Electric's five tomers the full range of ser-jointly-owned nuclear units vices. Data collected from the was 70.8% in 1993. This fig - pilot project will be used to ure is well within the range evaluate expanding the pro-of acceptable performance gram. Preliminary benefits title. The team identified as defined by New Jersey 's of the program include bet-improvements and signifi- nuclear performance stan- ter coverage during periods cant cost savings to the com- dard. As a result, Atlantic of heavy call volume and dur-pany 's prescription plan . Electric is not subject to any ing major storms.

Award Winning Team members pictured penalties for 1993.

Performance New Pe ak above are: (back row, l to r) The Financial Page Established The New Jersey Business and Eileen Cappellucci, Reily Throughout the year, Atlantic On July 10, 1993, Atlantic Industry Association '.5 Award Favinger, Cindy Hirsh (leader),

Electric issued and sold $240 Electric hit a new level of for Excellence was presented Liz Pullan, Jill Perna, JoAnn million of medium term notes peak demand of 1 , 962 to Atlantic Electric in recog- Fitzgerald, Mary Parrish, (MTNs). The MTNs have vary- megawatts (MWs). This nition of its products and ser- Liz Thomas, Jo-Ann Hurley ing maturity dates between record surpasses the 1991 vices as well as the work the and Riesa Levine (facilitator);

5 and 15 years. They have a record of 1,911 MWs by 2. 7%.

company does to improve the (front row, l tor) Andy Dias, weighted average interest rate (The mild summer of 1992 quality of life in southern Harry Phillips, Bob Pavlovski of 6. 7%. In addition, Atlantic didn 't break any records.)

New Jersey. and Ron Migliore.

Electric issued and sold three Reserve margin (additional The Edison Electric Previous Atlantic Electric series of First Mortgage Bonds available capacity) at the Institute (EE!) recognized winners were: the ACT team for a total of $225 million time of the peak was 11.2%.

Atlantic Electric with its 1993 from customer service who principal amount. The new Common Goals award for its streamlined and redesigned Teamwork series had interest rates of Triumphs work in partnership with the hazardous condition report-6%% (20 years), 7% (35 years),

Bayside Prison . Atlantic ing; and the Morale Boosters Special effort was required and 7% (30 years). Proceeds Electric provides supplies and team from Deepwater to meet the challenge of peak from the MTNs and First tools for inmates to build nest Generating Station who demand this summer.

Mortgage Bonds were used boxes for a variety of threat- greatly improved safety at Workers at Atlantic Electric'.s primarily to refund higher ened birds. EE! cited Atlantic the station. B.l. England Generating coupon debt. This refinanc-Electric's concern for the Station battled eel grass, a Money Does ing brings a savings of roughly environment and its com- Grow on Trees fine hair-like seaweed that

$5 million in interest expense munity involvement as rea- clogged intake screens and A group of Atlantic Electric annually.

sons for the award. reduced water pressure at the employees found a way to The Dividend Reinvestment For the third consecutive plant. To keep the water flow-save money and benefit the and Stock Purchase Plan had year, an Atlantic Electric ing, all hands took turns at environment: a tree replace- another banner year in 1993.

emp loyee involvement team cleaning the two-story tall ment program . Under this Shareholders invested over has won the Team Excellence screens. Working around the program , "compatible " or $30 million in new shares of Award for its region given by clock for six weeks, they lower-growing shade trees Common Stock through their the Association for Quality removed four 55-gallon drums are used to replace problem participation in the plan.

and Participation. The BEACH of seaweed every half hour.

Patrol team , made up of trees that grow up into power Home Based Through their extraordinary employees from human lines, causing outages and Business effort, employees kept the resource services, will go on injuries. Compatible trees In April, Atlantic Electric plant running and the to compete for the national retain their shape and appear-began a pilot program to power on .

ance without being trimmed, allow employees to work from representing a substantial Atlantic Energy

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you learn a lot from listening to your customers. You find out wh at your common interests are-interests like improving business profits, competing successfully and increasing safety. When you know what yo u share, you know wh at customers expect of you . Our job is m eeting and exceeding those expectations by providing quality service at competitive prices. Here 's how some of our custom ers think we 've done .

~chuller International, an insulation manufacturer, was looking for ways to cut energy costs, increase energy efficiency and improve some of its processes-a ll of wh ich can boost a business' bottom line. "A tlantic Electric worked with us to get a comprehensive energy audit done. They helped us find a consultant who would go through all areas of our business, looking for ways we could save money and be more efficient , " said Bob Mooney, in dustrial engineer. "The co nsultant 's suggestions were great. None of them cost money to imp lement. But they did require our operators to manually shut things down or switch things over," he added.

"We wanted to take the improvements one step further. Atlantic Electric really helped us deter-mine which processes could be automated. They put us in touch with all the right vendors and equip-ment we needed to make the improvements," Mooney said.

Tim Logsdon, plant engineer, summed it all up. "In this economy, businesses and utilities have to work together. Atlantic Electric lived up to that team spirit. They helped us uncover not only the small change, but the big dollar savings as well. When you're under pressure to keep your costs in line, every little bit 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 rtant for all sides to work together.

JmSlough, director ofpurchasing for Wheaton Glass Products finds that Atlantic Electric is m oving in a

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refreshing new direction. "They sponsored an important three-way meeting involving th e utility '

company, local industry and state regulators. The meeting included very frank discussions from all sides and was an important step in solving issues that affect everyone, " Slough said. "No other utility I've dealt with has displayed the courage to bring controversial issues out into the open so they can be mutually solved," he added.

"AJltlantic Electric knows that energy is 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.

~laugh 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 ving safety is also an interest we share with customers. So is staying on a budget. For a recent project with the Memoria l Hospital of Sa lem County, we were able to help them achieve 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.

~afety was 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."

Buirch 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 we 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 center, new and expanded hotels and a shopping and entertainment c complex to rival ones in Baltimore and New York.

> That amounts to over $1 billion in planned investment-the largest economic development venture in South Jersey.

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%* What 's more, it is the first cohesive effort put forth by city and c: I state government, business and industry to make Atlantic City a fi r st-class destination.

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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 prosper along with t he c ity.

One such organiz ation that Atlantic Electric has teamed up with is the c >

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Atlantic City Education Foundation, led by Arthur Lewis, foundation president and co rporate vice president of the Sands Hotel and Cas ino. He explained that "from the very beginning, Atlantic Electric supported the foundation with financial and human resources. The ir involvem 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-ing them to a variety of topics. Oth er programs enco urage g rowth and learning by allowing students to sample college courses or observe different professions.

"T he important thing to remember is that these programs and all of the others we support have one goal in mind-to help teachers teach and students learn,"

Lewis remarked. "If we can accomplish that, we've all got something to be proud of. "

"I 'm impressed with the leadership Atlantic Electric has shown to the foundat ion and th e educational community," said Lewis. "They believe as we do that providing quality education is in everyone's best i nterest. It builds a better train ed workforce, a stronger community and a more vital economy."

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providing safe, reliable electricity with envi- ",

ronmental sensitivity is a balancing act. It requires sound and prudent judgement-

- common sense-to meet both bus i-ness and environmental needs .

Technology g ives us t h e tools.

Common sense enables us to use those tools wisely for customers ' benefit.

New technology in solar energy filled the bill for th e Marine Ma m mal Stranding Center in Brigantine, New Jersey. This facil-ity is comm itted to the health and welfare of sea life in our area. Atlantic Electric is committed to research-ing the possibilities of solar energy and we needed a few test sites. Bringing the two together was a perfect fit.

une day I looked outside the window of the Center

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and noticed a wom an studying our

building," explained Bob Scho elkopf, director of the center. "We get visitors quite often so I walked outside to talk with her. She explained that she was from Atlantic 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 lar ene r gy site, I was thrilled. We 're in contact with Atlantic 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 ity. They know how I feel about the environment and that I'm a supporter of alternate energy, " he added.

"The solar panels were installed this summ er. They've worked out well. We 've saved about 25% in our electric bills. That money goes directly into caring fo r the animals. This year, we have near record numbers of an imals to care for, so the savings really help. "

"I n my dealings with the company, I've always found that the people were very down-to-earth, " Schoelkopf remarked. " A proj ect like this confirms m y fee ling that those same caring people are not only up-to-date with the latest technology but are also the ones making sound business decisions."

Business and the environment can work together another way: by promoting improvements in heat-ing and cooling technology. Geothermal energy systems offer state-of-the-art energy efficiency.

So, it makes sense to match these systems with a B.E.S. T. (Built for Energy Saving Tomorrows) Home.

The result is a super-efficient home that saves energy and money. One customer who's sold on the idea is builder Bob Gajewski.

"W hen I heard about Atlantic Electric's programs for builders, I signed up right away. I get a kick out of building a house that 's the most efficient thing on the market. In my opinion, you can 't get a better home th an one that 's a combination 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 fo 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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EPORT OF MANAGEMENT The management of Atlantic Energy, Inc. and its subsid- as they relate to the fairness of the financial statements.

iaries (the Company) is responsible for the preparation Their audits are based on procedures believed by them of the financial statements presented in this Annual to provide reasonable assurance that the financial state-Report. The financial statements have been prepared in ments are free of material misstatement.

conformity with generally accepted accounting princi-The Company's internal auditing function conducts ples. In preparing the financial statements, management made informed judgments and estimates, as necessary, audits and appraisals of the Company's operations. It evaluates the system of internal accounting, financial relating to events and transactions reported. Management and operational controls and compliance with estab-is also responsible for the preparation of other financial lished procedures. Both Deloitte & Touche and the information included elsewhere in this Annual Report.

internal auditors periodically make recommendations Management has established a system of internal account- concerning the Company's internal control structure ing and financial controls and procedures designed to to management and the Audit Committee of the Board provide reasonable assurance as to the integrity and of Directors. Management responds to such recommen-reliability of financial reporting. In any system of finan- dations as appropriate in the circumstances. None of the cial reporting controls, there are inherent limitations. recommendations made for the year ended December Management continually examines the effectiveness 31, 1993 represented significant deficiencies in the design and efficiency of this system, and actions are taken when or operation of the Company's internal control structure.

opportunities for improvement are identified. Manage-ment believes that, as of December 31, 1993, the system of internal accounting and financial controls over financial reporting is effective. Management also recog-nizes its responsibility for fostering a strong ethical J. L. Jacobs climate in which the Company's affairs are conducted President and Chief Executive Officer 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 J. G. Salomone

& Touche, Certified Public Accountants. Deloitte & Vice President and Treasurer Touche provides an objective, independent audit as to management's discharge of its responsibilities insofar January 31, 1994 Atlantic Energy

EPORT OF THE AUDIT COMMITTEE The Audit Committee of the Board of Directors is com- meets regularly with the internal auditors and Deloitte prised solely of independent directors. The members of & Touche, without management present, to discuss the the Committee are: Jos. Michael Galvin, Jr., Gerald A. results of their activities, the adequacy of the Company's Hale, Matthew Holden, Jr., Kathleen MacDonnell and system of accounting, financial and operational con-Harold J. Raveche. The Committee held three meetings trols and the overall quality of the Company's financial during 1993. reporting. The meetings are designed to facilitate any private communication with the Committee desired by The Committee oversees the Company's financial report-the internal auditors or Deloitte & Touche. No signifi-ing process on behalf of the Board of Directors. In ful-cant actions by the Committee were required during the filling its responsibility, the Committee recommended year ended December 31, 1993 as a result of any private to the Board of Directors, subject to shareholder ratifica-communications conducted.

tion, the selection of the Company's independent audi-tors, Deloitte & Touche. The Committee discussed with the Company's internal auditors and Deloitte & Touche the overall scope of and specific plans for their respec-tive activities concerning the Company. The Committee also discussed the Company's consolidated financial Matthew Holden, Jr.

statements with Deloitte & Touche. The Committee Chairman, Audit Committee January 31, 1994 NDEPENDENT AUDITORS' REPORT Deloitte& and significant estimates made by management, as well as evaluating the overall financial statement presenta-Touche Certified Public Accountants Two Hilton Court tion. We believe that our audits provide a reasonable basis for our opinion.

Parsippany, New Jersey 07054 In our opinion, such consolidated financial statements To the Shareholders and the Board of Directors present fairly, in all material respects, the financial of Atlantic Energy, Inc.:

position of Atlantic Energy, Inc. and its subsidiaries We have audited the accompanying consolidated balance at December 31, 1993 and 1992 and the results of their sheets of Atlantic Energy, Inc. and subsidiaries as of operations and their cash flows for each of the three December 31, 1993 and 1992 and the related consolidated years in the period ended December 31, 1993 in con-statements of income, changes in common sharehold- formity with generally accepted accounting principles.

ers' equity, and cash flows for each of the three years in As discussed in Note 2 to the consolidated financial the period ended December 31, 1993. These financial statements, in 1993 the Company changed its method statements are the responsibility of the Company's of accounting for income taxes to conform with State-management. Our responsibility is to express an opin-ment of Financial Accounting Standards No. 109. As ion on these financial statements based on our audits.

discussed in Note 4 to the consolidated financial state-We conducted our audits in accordance with generally ments, in 1993 the Company changed its method of accepted auditing standards. Those standards require accounting for the costs of postretirement benefits that we plan and perform the audit to obtain reasonable other than pensions to conform with Statement of assurance about whether the financial statements are Financial Accounting Standards No. 106.

free of material misstatement. An audit includes exam-ining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used January 31, 1994 Atlantic Energy

ONSOLIDATED STATEMENT OF INCOME Atlantic Energy, Inc. and Subsidiaries (Thousands of Dollars) For the Years Ended December 31, 1993 1992 1991 Operating Revenues-Electric $865,675 $816,825 $808,374 Operating Expenses:

Energy 159,438 161,134 182,972 Purchased Capacity 110,781 103,173 79,314 Operations 162,151 148,917 146,548 Maintenance 45,360 49,837 51 ,960 Depreciation and Amortization 67,950 69,371 66,023 State Excise Taxes 104,280 97,969 88,932 Federal Income Taxes 45,277 37,143 36,244 Other Taxes 10,854 12,113 11,525 Total Operating Expenses 706,091 679,657 663,518 Operating Income 159,584 137,168 144,856 Other Income:

Allowance for Equity Funds Used During Construction 2,368 2,212 1,814 Litigation Settlement, net of tax of:

1993-$(1,321); 1992-$4,982 (2,564) 9,671 Other-Net 12,884 9,519 7,043 Total Other Income 12,688 21,402 8,857 Income Before Interest Charges 172,272 158,570 153, 713 Interest Charges:

Interest on Long Term Debt 59,385 53,284 51,601 Interest on Short Term Debt 1,421 1,579 1,946 Other Interest Expense 212 1,099 1,179 Total Interest Charges 61,018 55,962 54,726 Allowance for Borrowed Funds Used During Construction (1,448) (1 ,414) (3 ,059)

Net Interest Charges 59,570 54,548 51 ,667 Less Preferred Stock Dividend Requirements of Subsidiary 17,405 17,812 16,411 Net Income $ 95,297 $ 86,210 $ 85,635 Average Number of Shares of Common Stock Outstanding (in thousands) 52,888 51,592 49,008 Per Common Share:

Earnings $ 1.80 $ 1.67 $ 1.75 Dividends Declared $ 1.535 $ 1.515 $ 1.495 Dividends Paid $ 1.53 $ 1.51 $ 1.49 The accompa nying Notes to Consolidated Financial Statements are an integra l part of these statements.

~() Atlantic Energy

ONSOLIDATED STATEMENT OF CASH FLOWS Atlantic Energy, Inc. and Subsidiaries (Thousands of Dollars) Fo r the Years Ended December 31, 1993 1992 1991 Cash Flows Of Operating Activities:

Net Income $ 95,297 $ 86, 21 0 $ 85,635 Deferred Purchased Power Costs (6,050) 13,4 10 (12,938)

Deferred Energy Costs (15,269) (6,143) 13, 180 Preferred Stock Dividend Requirements of Subsidiary 17,405 17,8 12 16,4 11 Depreciation and Amortization 67,950 69,371 66,023 Allowance for Funds Used During Construction (3,816) (3, 626) (4,873)

Nuclear Decommissioning Reserve 6,424 6,424 3,0 10 Deferred Income Taxes-Net 20,901 23,386 13,4 13 Prepaid State Excise Taxes (35,982) 540 (98)

Net Decrease (Increase) in Other Working Capital 32,364 7,685 (2, 723)

Other- Net (1,074) 2,852 7,498 Net Cash Provided by Operating Activities 178,150 217,92 1 184,538 Cash Flows Of Investing Activities:

Utility Cash Construction Expenditures (138,111) (130,700) (172,425)

Leased Property (9,946) (9,565 ) (8,793)

Nuclear Decommissioning Trust Fund Deposits (6,424) (6,424) (13,777)

Other- Net (9,832) (8, 524) (8,557)

Net Cash Used by Investing Activities (164,313) (155,2 13) (2 03,552)

Cash Flows Of Financing Activities:

Proceeds from Long Term Debt 464,633 74,65 5 38,779 Retirement and Maturity of Long Term Debt (370,541) (40, 599) (50,170)

Decrease in Short Term Debt (14,600) (6,000) (23,350)

Proceeds from Capital Lease Obligations 9,946 9, 565 8,793 Proceeds from Common Stock Issued 16,208 16, 11 0 72,698 Proceeds from Preferred Stock Issued 69,720 Dividends Declared on Preferred Stock (17,405) (17,812) (16,411)

Dividends Declared on Common Stock (67 ,259) (65, 644) (62,769)

Other-Net (6,831) (5,403) (9,170)

Net Cash Provided (Used) by Financing Activities 14,151 (35,128) 28,120 Net Increase in Cash and Temporary Investments 27,988 27,580 9,106 Cash and Temporary Investments, beginning of year 45,647 18,067 8,961 Cash and Temporary Investments, end of year $ 73,635 $ 45,647 $ 18,067 Supplemental Schedule of Payments:

Interest $ 52,765 $ 55,275 $ 57,221 Income taxes $ 19,565 $ 24,3 12 $ 23,721 Noncash Financing Activities:

Common Stock issued from dividends declared under dividend reinvestment plan $ 14,088 $ 12,692 $ 11,304 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Atlantic Energy ~I

ONSOLIDATED BALANCE SHEET Atlantic Energy, Inc. and Subsidiaries (Th ousands of Dollars) December 31, 1993 1992 Assets Electric Utility Plant:

In Service:

Production $1,054,217 $1 ,042,567 Transmission 338,584 312,374 Distribution 627,649 583,890 General 173,206 155,679 Total In Service 2,193,656 2,094,510 Less Accumulated Depreciation 668,832 607,198 Net 1,524,824 1,487,312 Construction Work in Progress 156,590 130,248 Land Held for Future Use 6,901 5,045 Leased Property-Net 45,268 49,304 Electric Utility Plant-Net 1,733,583 1,671 ,909 Nonutility Property and Investments:

Investment in Leveraged Leases 77,268 76,465 Nuclear Decommissioning Trust Fund 43,163 34,617 Nonutility Property and Equipment-Net 14,535 15,561 Other Investments and Funds 18,102 11 ,132 Total Nonutility Property and Investments 153,068 137,775 Current Assets:

Cash and Temporary Investments 73,635 45,647 Accounts Receivable:

Utility Service 51,502 47,928 Miscellaneous 11,420 12,533 Allowance for Doubtful Accounts (3,000) (3,000)

Unbilled Revenues 39,309 39,281 Fuel (at average cost) 14,635 20,874 Materials and Supplies (at average cost) 28,230 25,763 Working Funds 14,315 15,433 Prepaid State Excise Taxes 8,386 6,110 Other Prepayments 7,410 4,137 Deferred Energy Costs 7,180 Deferred Income Taxes 3,283 6,218 Total Current Assets 256,305 220,924 Deferred Debits:

Unrecovered Purchased Power Costs 130,458 124,408 Recoverable Future Federal Income Taxes 85,855 Unrecovered State Excise Taxes 33,706 Unamortized Debt Costs 39,306 20,693 Property Abandonment Costs-Net 10,325 10,297 Other Regulatory Assets 31,380 23,655 Other 13,522 9,677 Total Deferred Debits 344,552 188,730 Total Assets $2,487,508 $2,219,338 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Atlantic Energy

ONSOLIDATED BALANCE SHEET Atlantic Energy, Inc. and Subsidiaries (Th ousands ofDollars) December 31, 1993 1992 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 $ 579,443 $ 549,147 Retained Earnings 256,549 242, 768 Total Common Shareholders' Equity 835,992 79 i.q1 c; Preferred Stock of Atlantic City Electric Company:

Not Subject to Mandatory Redemption 40,000 40 ,000 Subject to Mandatory Redemption 173,750 190,250 Long Term Debt 766,101 631,580 Total Capitalization (excluding current portion) 1,815,843 1,653, 745 Current Liabilities:

Preferred Stock Redemption Requirement 12,250 1,050 Long Term Debt due within one year 19,356 Capital Lease Obligations due within one year 861 798 Short Term Debt 14,600 Accounts Payable 63,847 52, 028 Taxes Accrued 16,020 7,697 Interest Accrued 22,149 14,706 Dividends Declared 24,910 24,2 75 Customer Deposits 2,890 2,955 Deferred Energy Costs 8,089 Other 21,875 16,794 Total Current Liabilities 164,802 162,348 Deferred Credits and Other Liabilities:

Deferred Income Taxes 383,347 276,49 2 Deferred Investment Tax Credits 54,180 56,715 Capital Lease Obligations 44,407 48,505 Other 24,929 21 ,533 Total Deferred Credits and Other Liabilities 506,863 403 ,245 Commitments and Contingencies (Note 10)

Total Liabilities and Capitalization $2,487,508 $2,2 19,338 Atlantic Energy

ONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY Atlantic Energy, Inc. and Subsidiaries Common Retained (Thousands of Dollars) Shares Stock Earnings Balance, December 31, 1990 45,951,976 $ 436,343 $ 223,749 Common Stock issued:

Public offering 4,000,000 66,970 Other 944,098 17,032 Net income 85,635 Capital stock expense of subsidiary (417)

Common stock dividends (74,073)

Balance, December 31 , 1991 50,896,074 520,345 234,894 Common Stock issued 1,302,550 28,802 Net income 86,210 Common stock dividends (78,336)

Balance, December 31, 1992 52,198,624 549,147 242 , 768 Common Stock issued 1,308,162 30,296 Net income 95 ,297 Capital stock expense of subsidiary (169)

Common stock dividends (81,347)

Balance, December 31, 1993 53,506,786 $579,443 $256,549 The accompanying Notes to Consolidated Fi nancial Statements are an integral part of these statements.

Common Stock issued in 1993, 1992 and 1991 was July 1993, an additional 2,000,000 shares of Common through the Dividend Reinvestment and Stock Pur- Stock were registered for issuance under the DRP. At chase Plan (DRP) and Atlantic City Electric Company December 31, 1993, 1,423,468 and 135,992 shares (ACE) employee benefit plans. In 1991, Common were reserved for issuance under the DRP and ACE Stock was also issued through a public offering. In employee benefit plans, respectively.

Atlantic Energy

OTES TO CONSOLIDATED FINANCIAL STATEMENTS

~1 ~IGNIFHANT H~OUNTING POLI~IE~

Organization Regulation Atlantic Energy, Inc. (the Company or parent) is the The accounting policies and rates of ACE are subject parent of a consolidated group consisting of the follow- to the regulations of the BRC and in certain respects to ing wholly-owned subsidiaries: Atlantic City Electric the Federal Energy Regulatory Commission (FERC). All Company (ACE), Atlantic Energy Technology, Inc. significant accounting policies and practices used in (AET), Atlantic Generation, Inc. (AGI), Atlantic the determination of rates are also used. for financial Southern Properties, Inc. (ASP) and ATE Investment, reporting purposes.

Inc. (ATE). ACE is a public utility primarily engaged in Electric Operating Revenues the generation, transmission, distribution and sale of electric energy. Rates for service are regulated by the Revenues are recognized when electric energy services New Jersey Board of Regulatory Commissioners (BRC). are rendered, and include estimates for amounts ACE's service territory encompasses approximately unbilled at the end of the period for energy used subse-2, 700 square miles within the southern one-third of quent to the last billing cycle.

New Jersey. The majority of ACE's customers are resi- Nuclear Fuel dential and commercial. ACE, with its wholly-owned Fuel costs associated with ACE's participation in subsidiary that operates certain generating facilities, jointly-owned nuclear generating stations, including is the primary company within the consolidated group. spent nuclear fuel disposal costs, are charged to Energy AET invests in companies with energy-related products expense based on the units of thermal energy produced.

and technologies and has a wholly-owned subsidiary that owns patented technology for geothermal heating Electric Utility Plant and cooling systems. AGI and its wholly-owned subsid- Property is stated at original cost. Generally, the plant iaries are engaged in the development of cogeneration . is subject to a first mortgage lien. The cost of property power projects which are located in New Jersey and additions, including replacement of units of property New York through several partnership arrangements. and betterments, is capitalized. Included in certain ASP owns, develops and manages a commercial office property additions is an Allowance for Funds Used and warehouse facility located in southern New Jersey. During Construction (AFDC), which is defined in the ATE provides fund management and financing to applicable regulatory system of accounts as the cost affiliates and manages its portfolio of investments in during the period of construction of borrowed funds leveraged leases for equipment used in the airline and used for construction purposes and a reasonable rate shipping industries. on other funds when so used. AFDC has been calculated using a semi-annually compounded rate of 8.95%, as Principles of Consolidation approved by the BRC, for the years presented through The consolidated financial statements include the July 31, 1993. Effective August 1, 1993, ACE reduced, accounts of the Company and its subsidiaries. All the AFDC rate to 8.25%, as approved by the BRC on an significant inter-company accounts and transactions interim basis.

have been eliminated in consolidation. ACE, AET and AGI consolidate their respective subsidiaries. AGI Depreciation accounts for another investment using the equity ACE provides for straight-line depreciation based on method by recognizing its proportionate share of the the estimated remaining life of transmission and distri-results of operations of that investment. The results bution property, remaining life of the related nuclear of operations of the nonutility companies are not plant operating license for nuclear property, and esti-significant and are classified under Other Income in mated average service life for all other depreciable the Consolidated Statement of Income. 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 Atlantic Energy

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 representing energy costs incurred that are to be col-removal costs less salvage and other recoveries. lected from customers) or overrecovery (a liability Depreciable property of the nonutility companies representing previously collected energy costs to be is not significant. returned to customers) of costs is deferred on the Con-solidated Balance Sheet as Deferred Energy Costs. These Nuclear Decommissioning Trust deferrals are recognized in the Consolidated Statement ACE has a trust to fund the future costs of decommis- of Income as Energy expense during the period in which sioning each of the five nuclear units in which it has they are subsequently included in the LECs.

an ownership interest. The current annual funding amount, as authorized by the BRC, totals $6.4 million Income Taxes and is provided for in rates charged to customers. The Effective January 1,1993, deferred Federal and state funding amount is based on estimates of the future cost income taxes are provided on all significant temporary of decommissioning each of the units, dates that decom- differences between book bases and tax bases of assets missioning activities are expected to occur and return and liabilities, transactions that enter taxable income to be earned by the assets of the fund. The BRC has in an earlier or later year than for book income and tax established that the total estimated cost to decommis- carryforwards. Prior to 1993, deferred Federal and state sion ACE's share in nuclear units is $65.5 million in income taxes were provided on all significant current 1987 dollars. The BRC has further established that transactions for which the timing of recognition differs decommissioning activities are expected to begin in for book and tax purposes. Investment tax credits, which 2006 and continue through 2032. Actual costs and tim- are used to reduce current Federal income taxes, are de-ing of decommissioning activities may vary from the ferred on the Consolidated Balance Sheet and recognized current estimates. ACE will seek to adjust these esti-. in book income over the life of the related property. The mates and the level of rates collected from customers Company and its subsidiaries file a consolidated Federal in future BRC proceedings to reflect changes in decom- income tax return. Income taxes are allocated to each of missioning cost estimates and the expected levels of the companies within the consolidated group based on inflation and interest to be earned by the assets in the the separate return method.

trust. As of December 31, 1993, the trust had a market Unrecovered Purchased Power Costs value of $46.4 million. Of the $43.2 million in the trust,

$31.9 million has been qualified for Federal income tax ACE has an arrangement for 125 megawatts (MWs) of purposes. ACE had an associated accumulated liability capacity and related energy from Pennsylvania Power for decommissioning costs of $42.2 million at and Light Company (PP&L) which commenced in 1983 December 31, 1993. and continues through September 30, 2000. Levelized base rates were approved by the BRC to recover certain Deferred Energy Costs estimated costs to be incurred over the term of the As approved by the BRC, ACE has Levelized Energy arrangement. Through September 30, 1991, estimated Clauses (LECs) through which energy and energy- costs exceeded levelized revenues, and these excess costs related costs (energy) are charged to customers. LEC were deferred on the Consolidated Balance Sheet as rates are based on projected energy costs and prior Unrecovered Purchased Power Costs. The BRC granted a period underrecoveries or overrecoveries of energy return on these unrecovered amounts. Subsequent to costs. Energy costs are recovered through levelized September 30, 1991, levelized revenues are greater than rates over the period of projection, which is generally the estimated costs, permitting the previously deferred a 12-month period. In any period, the actual amount of costs to be charged to Purchased Capacity expense on LEC revenues recovered from customers will be greater the Consolidated Statement of Income over the remain-or less than the actual amount of energy costs incurred ing term of the arrangement. Differences between actual in that period. Energy expense is adjusted to match the costs incurred and the estimated costs being recovered associated LEC revenues. Any underrecovery (an asset are subject to the usual base rate consideration. Also included within Unrecovered Purchased Power Costs are amounts paid by ACE associated with contract renego-tiations with independent power producers, for which ACE expects recovery through rates (see Notes 3 and 10).

Atlantic Energy

Property Abandonment Costs is 15 years) _and asbestos removal of $9.9 million (re-Certain costs of property of ACE, for which the purpose of covery period is over the life of the related generating the property was subsequently terminated or cancelled, station). Recovery of regulatory assets for Unrecovered continue to be recorded as assets. This is because these Purchased Power Costs (Note 1), Recoverable Future costs have been permitted by the BRC to be recovered in Federal Income Taxes (Note 2) and Postretirement rates over more than one year, or because future recov- Benefits other than Pensions (Note 4) are separately ery in rates is probable. At December 31, 1993, costs discussed in the Notes to Consolidated Financial State-that are being recovered in rates with no return on the ments where indicated. Other regulatory assets for unamortized amount invested are as follows: which future recovery is probable amounted to $5.1 Net Remaining million at December 31, 1993.

Present Unamortized Recovery Investment Value (000) Cost (000) Period (years)

Financial Instruments Offshore Nuclear Generating Units $ 774 $1,119 6 A number of items within Current Assets and Current Nuclear Generating Liabilities on the Consolidated Balance Sheet are con-Unit 2,745 3,578 4 sidered to be financial instruments because they are Unrecovered Nuclear cash or are to be settled in cash. Due to their short term Fuel Advances 1,646 2,518 8 nature, the carrying values of these items approximate Proposed Plant Site 1,114 1,333 3 their fair market values. Accounts Receivable-Utility The excess of the costs of the assets listed in the above Service and Unbilled Revenues are subject to concentra-table over their discounted present values was recognized tion of credit risk because they pertain to utility service as a loss at the date of abandonment. The discount, which conducted within a confined geographic region. Invest-is not significant, is being restored to income by accre- ments in leveraged leases are subject to concentration tion over the amortization period of the abandoned costs of credit risk because they are exclusive to a small num-allowed for ratemaking. Costs being recovered are amor- ber of parties within two industries. The Company has tized to expense over the recovery period. Other aban- recourse to the affected assets under lease. These leased doned property for which future recovery is probable assets are of general use within the respective industries.

amounted to $4.0 million at December 31, 1993.

Other Regulatory Assets Debt premium, discount and expenses of ACE are amor-Costs incurred by ACE that have been permitted by the tized over the life of the related debt. Costs associated BRC to be deferred for recovery in rates in more than with debt reacquired by refundings are amortized over one year, or for which future recovery is probable, have the life of the newly issued debt as permitted by the BRC been recorded as regulatory assets. Regulatory assets in accordance with FERC guidelines. Temporary invest-are amortized to expense over the period of recovery. Un- ments considered as cash equivalents for Consolidated amortized costs currently being recovered in rates at Statement of Cash Flows purposes represent purchases December 31, 1993 are: Unrecovered State Excise Taxes of of highly liquid debt instruments maturing in three

$33.7 million (remaining recovery period is nine years); months or less.

decommissioning and decontaminating Federally-owned Certain prior year amounts have been reclassified to nuclear units of $8.4 million (remaining recovery period conforrri to the current year reporting of these items.

Atlantic Energy

OTES TO CONSOLIDATED FINANCIAL STATEMENTS

~2 IN~OME TAXE~

For the Years Ended December 31, (000) 1993 1992 1991 The components of Federal income tax expense are as follows:

Current $25,349 $22,441 $24,202 Deferred 20,247 23,154 13,043 Investment Tax Credits Recognized on Leveraged Leases (12) (233) (500)

Total Federal Income Tax Expense 45,584 45,362 36,745 Less Amounts Included in Other Income 307 8,219 501 Federal Income Taxes Included in Operating Expenses $45,277 $37,143 $36,244 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 35% 34% 34%

Income Tax Computed at the Statutory Rate $55,400 $50,791 $47,189 Plant Basis Differences (5,171) 2,022 (4,477)

Amortization of Investment Tax Credits (2,546) (2,767) (3,038)

Deferred Tax Adjustments (2,071) (3,757) (2,641)

Other-Net (28) (~27) (288)

Total Federal Income Tax Expense $45,584 $45,362 $36,745 Effective Federal Income Tax Rate 29% 30% 26%

State income tax expense is not significant.

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

1993 1992 Deferred Tax Liabilities:

Plant Basis Differences $295,445 $177,124 Leveraged Leases 53,461 47,722 Unrecovered Purchased Power Costs 38,792 42,694 State Excise Taxes 11,797 (813)

Other 21,057 12,290 Total Deferred Tax Liabilities 420,552 279,017 Deferred Tax Assets:

Deferred Investment Tax Credits 29,247 Other 11, 741 8,743 Total Deferred Tax Assets 40,988 8,743 Total Deferred Taxes-Net $379,564 $270,274 Effective January 1, 1993, the Company adopted State- effect for revenue requirements. Due to the tax rate in-ment of Financial Accounting Standards No. 109 enti- crease discussed below, net deferred Federal income tax tled "Accounting for Income Taxes." Statement No. 109 liabilities of ACE increased by $13.8 million in 1993. The changes the recording methodology relating to deferred deferred tax costs associated with these additional liabili-income taxes to an asset and liability approach. The prin- ties are recorded on the Consolidated Balance Sheet as cipal impacts to the Company relate to recording, on a Recoverable Future Federal Income Taxes in recognition current basis, the effect of changes in enacted income of the probable amount of revenue to be collected from tax rates on the amount of income taxes recorded and ratepayers for these additional taxes to be paid in later the recording of deferred tax liabilities not previously years. The adoption of Statement No. 109 by the nonutil-recorded by ACE. Upon adoption of Statement No. 109, ity subsidiaries of the Company did not have a material ACE recorded an increase in def erred Federal income effect on the consolidated financial statements.

tax liabilities of approximately $85 million after giving Atlantic Energy

On August 10, 1993, the Omnibus Budget Reconcil- The effects of the valuation allowances and state NO Ls iation Act of 1993 was signed into law. The most signifi- are not material to consolidated results of operation and cant aspect of this law affecting the Company was an financial position.

increase in the corporate Federal income tax rate to 35% The Company is subject to Federal Alternative Mini-from 34%, effective retroactively to January 1, 1993. The mum Tax (AMT), which is attributable to nonutility effect of this tax rate increase on the 1993 consolidated operations. At December 31,1993, there is an estimated Federal income tax expense was not material. cumulative AMT credit of $18 million. The AMT credit At December 31, 1993, valuation allowances exist is available for an indefinite carryforward period against against deferred tax assets primarily for cumulative net future Federal income tax payable, to the extent that operating losses (NO Ls) for state income tax purposes. the regular Federal income tax payable exceeds future AMT payable.

~3 RATE MATTER~ OF HE Energy Clause Proceedings between ACE and Staff and authorized ACE to begin recovery of the Salem deferred costs concurrent with Changes in Levelized Energy Clause Rates 1991-1993 the BRC's approval and implementation of ACE's then Amount Amount pending February 28, 1992 LEC petition.

Requested Granted Date Date Filed (millions) (millions) Effective On February 28, 1992, ACE filed with the BRC a peti-3/91 $30.6 $21.3 6/91 tion relating to its LEC rates for the period June 1, 1992 2/92 (6.6) (8.5) 10/92 through May 31, 1993, requesting no change in its cur-3/93 14.2 10.9 10/93 rent rates. On April 30, 1992, ACE filed revisions to its ACE's Levelized Energy Clauses (LECs) are subject to petition that would result in a decrease of $6.6 million, annual review by the BRC. reflecting an allocation to customers of 25% of the net In March 1991, ACE filed a petition requesting LEC settlement reached in March 1992 in the lawsuit against revisions to reflect an increase of $30.6 million for the PECO (See Note 10), and an update for the projected period June 1, 1991 through May 31, 1992. On June 11, overrecovery of prior LEC costs and associated interest.

1991, the BRC ordered a net increase in annual LEC The parties entered into a stipulation dated August 14, revenues of $21.3 million, effective on that date. In its 1992 regarding the February 28, 1992 petition and April order, the BRC denied ACE's request for retention of 30, 1992 revisions thereto. In October 1992, the BRC a portion of fuel and energy savings associated with a issued its written order adopting the stipulation which power purchase arrangement with PECO Energy Com- resulted in a reduction in annual LEC revenues of $8.5 pany (formerly Philadelphia Electric Company-PECO). million that was implemented October 20, 1992, includ-The BRC also continued to defer consideration of previ- ing the recovery over a three-year period of the $10.4 ously deferred costs associated with outages at the million Salem deferred costs. The amount allocated to Salem Nuclear Generating Station in 1983. customers from the PECO settlement was subject to In January 1992, ACE filed a request with the BRC for later review by the BRC in ACE's 1993 LEC proceeding.

rehearing and reconsideration of the issues above. On On March 31, 1993, ACE filed a petition with the BRC February 10, 1992, ACE withdrew its request for rehear- requesting a $14.2 million increase in LEC revenues for ing with respect to recovery of interest payments and the period June 1, 1993 through May 31, 1994. Included retention of fuel and energy savings. In late May 1992, in the request were (1) an estimated payment of $569 ACE and the Staff of the BRC (Staff) entered into a stipu- thousand expected to be made in October 1993 for ACE's lation to settle the Salem deferred costs. By the terms of assessment of the Department of Energy (DOE) decom-the stipulation, ACE would begin recovery, over a three- missioning and decontamination fund as required by year period, of $10.4 million of Salem deferred costs. the Energy Policy Act of 1992 and (2) a $48 thousand On September 2, 1992, the BRC adopted the stipulation penalty for 1992 nuclear operations as required by the Atlantic Energy

OTES TO CONSOLIDATED FINANCIAL STATEMENTS Nuclear Performance Standard (NPS). The filing also expire in May 1994 and an initiative by ACE of $28 mil-reflected the 25% ($3.8 million) allocation to ratepayers lion to keep its rates competitive. Included in ACE's in 1992 of the settlement with PECO. request is the recovery over five years of $20 million On August 27, 1993, the parties to ACE's 1993 LEC paid by ACE in December 1993 in connection with con-petition entered into a stipulation of settlement which tract renegotiations with an IPP. ACE has requested that resulted in a $10.9 million increase in annual LEC rev- the BRC approve the proposed LEC rates to be effective enues. Provisions of the stipulation included (1) an for service rendered on or after June 1, 1994.

additional 25% ($3.8 million) of the Peach Bottom set-Base Rate Case Proceedings tlement together with accrued interest at a rate of 6.5%

Changes in Base Rates 1991-1993 to be returned to customers during the 1994-1995 LEC Authorized period; (2) recovery of $400 thousand for the assessment Amount Amount Overall Rate Return on Test for the DOE decommissioning and decontamination Date Requested Granted Date ofReturn Common Year Filed (millions) (millions) Effective Granted% Equity% Ending fund, with any difference between the recovered amount 9190 $113.0 $50.0 7/91 10.52 12.50 5/91 and the actual assessment being included in the deferred 8/91 25.8 12.9 10/92 fuel balance and recovered during the next LEC period; (3) full LEC recovery of all future assessments for the In September 1990, ACE filed a petition with the BRC DOE decommissioning and decontamination fund and requesting an increase in annual base rate revenues of (4) recognition of the $48 thousand penalty for 1992 $113 million. ACE also requested that a $41.6 million nuclear operations as required by the NPS. The stipula- provisional base rate increase, granted by the BRC effec-tion was approved by the BRC on September 29, 1993. tive June 1990, be confirmed and placed permanently in The LEC tariffs resulting from this stipulation of settle- base rates. ACE also requested recovery of the first year ment were ordered effective for service rendered on and costs of the PECO power purchase agreement not cov-after October 1, 1993. The additional 25% allocation of ered by the provisional increase, plus full recovery of the the Peach Bottom settlement has been provided for in costs for the remaining three years of the agreement.

the 1993 financial statements. In its filing, ACE requested an allowed overall rate of At the BRC's open public meeting on July 7, 1993, the return of 11.13% and an authorized return on common BRC initiated a generic proceeding to address the recov- equity of 13.7%. At that time, ACE had an allowed over-ery of the capacity costs associated with purchases of all return of 11.42% and an authorized return on com-power from nonutility generation projects. This issue mon equity of 14.1 %.

relates to Rate Counsel's contention that present BRC On June 24, 1991, the Administrative Law Judge policy provides for a "double recovery" of cogeneration (ALJ) issued an initial decision accepting a stipulation capacity costs. On August 17, 1993, Rate Counsel iden- between ACE and the parties in the base rate proceed-tified ACE as one of the electric utilities for which they ing. The stipulation provided, among other things, for considered the double recovery of capacity costs to be at an increase in annual base rate revenues of $50 million issue. Various motions by both parties have been filed based upon a test year ending May 31, 1991, an allowed and are awaiting BRC decision. ACE cannot predict the overall rate of return of 10.52% and an authorized re-outcome of this matter at this time. turn on common equity of 12.5%. In addition, the par-On February 8,1994, ACE filed a petition with the ties agreed to confirm and make permanent in base BRC requesting an increase in LEC revenues of $63 mil- rates the $41.6 million provisional increase.

lion for the period June 1, 1994 through May 31, 1995. On July 3, 1991, the BRC adopted the initial decision The increase is primarily due to the added costs to be of the ALJ and the stipulation of the parties and author-incurred from two additional independent power pro- ized an increase in annual base rate revenues of $50 mil-ducers (IPPs) scheduled to begin commercial operation lion. During the course of the proceeding, the ALJ ruled in February 1994 and January 1995 from which ACE has that a Phase II proceeding was appropriate for the deter-contracted to purchase capacity and energy. The total mination of the regulatory treatment of consolidated projected.costs for fuel and capacity for the LEC period Federal income tax benefits derived from affiliated non-are $147 million. ACE has reduced the requested utility entities. The stipulation also provided that ACE amount by $84 million as a result of the following: the would not be prevented from requesting regulatory utilization of $56 million of current base rate revenue treatment in a Phase II proceeding of any obligations associated with a utility power purchase contract due to arising from changes in state law with respect to gross Atlantic Energy

receipts and franchise taxes (state excise taxes) that state excise tax payments to the state. With respect to were enacted on June 30, 1991. consolidated Federal income tax benefits, the BRC On August 30, 1991, ACE filed its Phase II request ordered that a rate base adjustment be made in the with the BRC for an increase in annual base rate rev- amount of $15.4 million. This represents one-half of the enues of $25.8 million to recover the increased costs total tax benefits for 1990 and the total tax benefits for relating to the changes in the state excise tax law. The 1991 realized by affiliated nonutility entities in filing petition also addressed the regulatory treatment of con- consolidated Federal income tax returns. This rate base solidated Federal income tax benefits derived from affil- adjustment resulted in a reduction in annual base rate iated non utility entities. In May 1992, the ALJ issued an revenues of $2.2 million. On December 23, 1992, Rate initial decision in the proceeding. The ALJ recommended, Counsel filed a Notice of Appeal with the Superior Court among other things, that a consolidated Federal income of New Jersey, Appellate Division relating to the BRC's tax benefit adjustment be made to reduce ACE's rate base, order allowing ACE to increase its base rates with that Rate Counsel's calculation of cash working capital respect to changes in state excise tax. In its filing Rate be adopted and that ACE be provided a ten-year recovery Counsel asserted that the BRC's order was unreasonable, of the additional state excise tax payments with interest not supported by evidence and results in unjust rates.

on the unamortized balance calculated using the aver- Briefs have been filed by ACE and Rate Counsel, and a age prime rate. decision is anticipated by the end of the second quarter In October 1992, the BRC issued its written order in of 1994. ACE cannot predict the outcome of this matter ACE's Phase II base rate proceeding, accepting the rec- at this time.

ommendations of the ALJ with certain modifications. By Other Rate Proceedings its order, the BRC authorized a net increase in annual On November 30, 1993, ACE filed a petition requesting base rate revenues of $12.9 million effective October 20, modifications to the Hotel Casino Tariff, which would 1992. The change in base rates included the recovery allow those customers to be served by existing commer-of $95.6 million in additional state excise tax payments cial rate schedules. The schedules provide lower rates over a ten-year period with interest imputed on the un- than the specific rates currently charged to hotel/casino amortized balance at the rate of 7 .5 %. This amounted customers. If all hotel/casino customers elect this to an increase in annual base rate revenues of approxi- option, it will result in a revenue reduction to ACE of up mately $13.5 million. The BRC also granted an increase to $5 million a year. The BRC is expected to act on this in annual base rate revenues of $1.6 million to reflect matter during the first quarter of 1994. ACE cannot pre-the cash working capital impacts of the acceleration of dict the outcome of this matter.

~4 RETIREMENT BENEFIT~

Pension Net periodic pension costs for 1993, 1992 and 1991 ACE has a noncontributory defined benefit pension plan included the following components:

covering substantially all of its employees and those of (000) 1993 1992 1991 its wholly-owned subsidiary. Benefits are based on an Service cost-employee's years of service and average final pay. The benefits earned plan's policy is to fund pension costs within the guide- during the period $ 7,196 $ 7,310 $ 6,662 Interest cost on projected lines of the minimum required by the Employee Retire-benefit obligation 16,016 17,301 16,517 ment Income Security Act and the maximum allowable Actual return on as a tax deduction. Each company is allocated its partici- plan assets (23,200) (13,283) (22,188) pative share of plan costs and contributions. 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 Atlantic Energy ~1

OTES TO CONSOLIDATED FINANCIAL STATEMENTS Approximately $5.2 million, $4.8 million and $5.1 million Effective January 1, 1993, ACE adopted Statement of these costs were charged to operating expense in of Financial Accounting Standards No. 106 entitled 1993, 1992 and 1991, respectively, and the remaining "Employers' Accounting for Postretirement Benefits costs, which are associated with construction labor, Other Than Pensions." This statement requires employ-were charged to the cost of new utility plant. ers to record an obligation for unfunded accumulated A reconciliation of the funded status of the plan as other postretirement benefits earned to date and to re-of December 31, 1993 and 1992 is as follows: cord on the accrual basis the net periodic benefits cost (000) 1993 1992 earned each year. Prior to 1993, the companies recorded Fair value of plan assets $213,600 $218,800 only the annual cost of benefits, based on the amount of Projected benefit obligation 207,246 213,459 funding provided. As permitted by the Statement, the Plan assets in excess of companies elected to recognize the unfunded accumu-projected benefit obligation 6,354 5,341 lated obligation existing at January 1, 1993 (transition Unrecognized net transition asset (1,894) . (2,066) obligation) of $77.9 million as a component of net peri-Unrecognized prior service cost 329 Unrecognized net gain (638) (2,784) odic benefits cost on a straight-line basis over 20 years.

Prepaid pension cost $ 4,151 $ 491 The cost of other postretirement benefits was $13.1 Accumulated benefit obligation: million, $6.0 million and $4.9 million in 1993, 1992 and Vested benefits $165,872 $160,507 1991, respectively. These costs were allocated as follows:

Nonvested benefits 1,216 646 (millions) 1993 1992 1991 Total $167,088 $161,153 Operating expense $3.3 $3.8 $3.0 At December 31, 1993, approximately 62% of plan assets New utility plant-associated were invested in equity securities, 21 % in fixed income with construction labor 1.7 2.2 1.9 Regulatory asset 8.1 securities and 17% in other investments.

The assumed rates used in determining the actuarial The regulatory asset in 1993 represents the effects of the present value of the projected benefit obligation at year- new accounting standard in excess of the amount of cost end were as follows: recognized under the* previous method and currently 1993 1992 allowable in rates. This excess cost is deferred as author-Weighted average discount 7.5% 8.00% ized by an accounting order of the BRC.

Anticipated increase in compensation 3.5% 4.50% The net periodic other postretirement benefits cost The assumed long term rate of return on plan assets was for 1993 calculated under the new accounting standard 8.5% for 1993 and 8.00% for 1992 and 1991. comprises the following components:

(000)

Other Postretirement Benefits Service cost-benefits attributed ACE and its subsidiary provide certain health care and to service during the period $ 3,045 life insurance benefits for retired employees and their Interest cost on accumulated eligible dependents. Substantially all employees may be- postretirement benefits obligation 7,133 Actual return on plan assets (255) come eligible for these benefits if they reach retirement Amortization of unrecognized age while working for the companies. Benefits are pro- transition obligation 3,893 vided through insurance companies and other plan pro- Other-net (711) viders whose premiums and related plan costs are based Net periodic other on the benefits paid during the year. ACE has a tax-quali- postretirement benefits cost $13,105 fied trust to fund these benefits. Each company is allocat- A reconciliation of the funded status of the plan and the ed its participative share of plan costs and contributions. obligation for other postretirement benefits recognized Atlantic Energy

in the Consolidated Balance Sheet as of December 31, At December 31, 1993, approximately 82% of plan assets 1993 is as follows: were invested in fixed income securities and 18% in (000) other investments.

Accumulated benefits obligation: The assumed health care costs trend rate for 1993 is Retirees $ 32,720 11 %, and is assumed to evenly decline to an ultimate Fully eligible active plan participants constant rate of 5% in the year 2000 and thereafter. If 21,267 Other active plan participants 49,125 the assumed health care costs trend rate was increased Total accumulated benefits by 1% in each future year, the aggregate service and obligation 103,112 interest costs of the 1993 net periodic benefits cost Less fair value of plan assets 14,400 would increase by $1.6 million, and the accumulated Accumulated benefits obligation in postretirement benefits obligation at December 31, 1993 excess of plan assets 88,712 Unrecognized net loss (6,639) would increase by $14.5 million. The weighted average Unamortized unrecognized discount rate assumed in determining the accumulated transition obligation (73,968) benefits obligation was 7.5%. The assumed long term Accrued other postretirement return rate on plan assets was 7%.

benefits cost obligation $ 8,105

~5 J0INT LY- 0WNED GENER AT ING ~TAT I0N~

ACE owns jointly with other utilities several electric The amounts shown represent AC E's share of each production facilities. ACE is responsible for its pro-rata plant at, or for the year ending, December 31, including share of the costs of construction, operation and main- AFDC as appropriate.

tenance of each facility.

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 the Consolidated Statement of Income. Additionally, for its share of the jointly-owned plants and includes its ACE provides an amount of working funds to the opera-share of direct operations and maintenance expenses in tors of the stations to fund operational needs.

Atlantic Energy

OTES TO CONSOLIDATED FINANCIAL STATEMENTS

~6 NONUTILITY ~OMPANIE~

The Company (AEI) is the parent holding company of AET's 1993 results are due to the receipt of insurance the consolidated group. Its primary activities are the proceeds by its subsidiary company. In 1993 this sub-management of investments in the subsidiary compa- sidiary discontinued its operating activities and now nies, issuance of common equity and performance of concentrates on licensing its patented proprietary administrative functions on behalf of the consolidated knowledge. AET's 1992 results reflect the provision for group. Principal assets of each of the subsidiary compa- the restructuring of its subsidiary's activities.

nies are: AET-capital investment of approximately $3.0 AG I's 1993 and 1992 results reflect the operation of million in a geothermal heating and cooling technology two cogeneration facilities that became operational dur-subsidiary; AG I-capital investments of approximately ing 1992. AG I's results for 1991 primarily reflect its

$24.5 million in cogeneration development projects and equity share of losses attributable to the reduction of partnerships; ASP-commercial real estate site with a carrying values of certain cogeneration projects that net book value of $13.2 million and ATE-leveraged were subsequently sold at a Joss by one of its partnerships.

lease investments of approximately $77.3 million. ASP's results in each year reflect the inability to rent Other financial information regarding the subsidiary vacant space in its commercial site due to generally poor companies and parent-only operations of the Company market conditions in commercial real estate.

is as follows: ATE's 1993 results were reduced by increased deferred Company Net Asset Results of Operations state income taxes. ATE's 1992 results benefitted from (000) 1993 1992 1993 1992 1991 lower interest rates on amounts outstanding under its AET $ 2,069 $(5,763) $ 524 $(4,793) $ (970)

AGI 18,746 2,122 4,459 1,366 (4,015) revolving credit agreement.

ASP 5,131 5,478 (347) (263) (415) Results of operations of AEI above exclude its equity ATE 9,182 9,959 (777) 667 511 in the results of subsidiary companies and generally AEI reflect administrative expenses. Net assets of AEI (parent (parent only) (183) (401) (493) only) shown on the Consolidated Balance Sheet repre-sent investments in and intercompany balances with the subsidiary companies and common stock issued on behalf of the consolidated group.

Atlantic Energy

~7 ~UMULATIVE PREFERRED ~TO~K OF HE ACE has authorized 799,979 shares of Cumulative Pre- Stock, No Par Value. Information relating to outstanding ferred Stock, $100 Par Value, two million shares of No Par shares at December 31 is shown in the table below.

Preferred Stock and three million shares of Preference 1993 1992 Current Optional Series Par Value Shares Amount (000) Shares Amount(OOO) RedemptionPrice Not Subject to Mandatory Redemption:

4% $100 77,000 $ 7,700 77,000 $ 7,700 $105.50 4.10% 100 72,000 7,200 72,000. 7,200 101.00 4.35% 100 15,000 1,500 15,000 1,500 101.00 4.35% 100 36,000 3,600 36,000 3,600 101.00 4.75% 100 50,000 5,000 50,000 5,000 101.00 5% 100 50,000 5,000 50,000 5,000 100.00 7.52% 100 100,000 10,000 100,000 10,000 101.88 Total $ 40,000 $ 40,000 Subject to Mandatory Redemption:

9.96% $100 $ 48,000 $ 4,800 $ -

$8.25 None 60,000 6,000 65,000 6,500 104.87

$8.53 None 600,000 60,000 600,000 60,000 103.00

$8.20 None 500,000 50,000 500,000 50,000

$7.80 None 700,000 70,000 700,000 70,000 Total 186,000 191,300 Less portion due within one year 12,250 1,050 Total $173,750 $190,250 Cumulative Preferred Stock Not Subject to Mandatory Beginning May 1, 2001 and annually through 2005, Redemption is redeemable solely at the option of ACE. 115,000 shares of $7.80 No Par Preferred Stock must be In May 1993, ACE redeemed all of the outstanding redeemed through the operation of a sinking fund at a shares of the Cumulative Preferred Stock, 9.96% Series redemption price of $100 per share. On May 1, 2006, the at a price of $103.54 per share.On November 1 of each remaining shares outstanding must be redeemed at $100 year, 2,500 shares of the $8.25 No Par Preferred Stock per share. ACE has the option to redeem up to an addi-must be redeemed through the operation of a sinking tional 115,000 shares without premium on each May 1 fund at a redemption price of $100 per share. ACE may through 2005. This series is not refundable prior to redeem not more than an additional 2,500 shares on any May 1, 2006.

sinking fund date without premium. ACE redeemed For the next five years, the annual minimum sinking 5,000 shares in 1993 and 2,500 shares in each of the fund requirements of the Cumulative Preferred Stock years 1992 and 1991. Subject to Mandatory Redemption are $12.25 million in Beginning November 1, 1994 and until fully redeemed, each of the years 1994 and 1995, and $22.25 million in 120,000 shares of the $8.53 No Par Preferred Stock must each of the years 1996, 1997 and 1998.

be redeemed through the operation of a sinking fund at Cumulative Preferred Stock of ACE is not widely held a redemption price of $100 per share. At the option of and generally trades infrequently. The estimated aggre-ACE, not more than an additional 120,000 shares may be gate fair market value at December 31, 1993 of ACE's redeemed on any sinking fund date without premium. Cumulative Preferred Stock was approximately $231 Beginning August 1, 1996 and annually thereafter, million. This fair market value determination is based 100,000 shares of the $8.20 No Par Preferred Stock must on actual trades of certain series of ACE's Preferred be redeemed through the operation of a sinking fund at Stock on or nearest to December 31, 1993 and on actual a redemption price of $100 per share. At the option of trades of preferred stock of other companies with simi-ACE, not more than an additional 100,000 shares may be lar credit quality; coupon rates and maturities.

redeemed on any sinking fund date without premium.

This series is not refundable prior to August 1, 2000.

Atlantic Energy

OTES TO CONSOLIDATED FINANCIAL STATEMENTS

~8 L~NG TERM DEBT December31 Series Maturity Date 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 3/1/1993 $ $ 9,540 5'1s% First Mortgage Bonds 2/1/1996 9,980 9,980 8% First Mortgage Bonds 1111/1996 95,000 Medium Term Notes Series B-(6.28%) 1998 56,000 Medium Term Notes Series A-(7.52%) 1999 30,000 30,000 8".ls% First Mortgage Bonds 9/112000 19,000 Medium Term Notes Series B-(6.83%) 2000 46,000 8% First Mortgage Bonds 5/112001 27,000 7V2% First Mortgage Bonds 4/112002 20,000 20,000 Medium Term Notes Series B-(7.18%) 2003 20,000 7%% First Mortgage Bonds 5/112003 29,976 29,976 Medium Term Notes Series A-(7.98%) 2004 30,000 30,000 Medium Term Notes Series B-(7.125%) 2004 28,000 7%% Pollution Control 1/1/2005 6,500 6,500 Medium Term Notes Series B-(6.45%) 2005 40,000 6%% Pollution Control 12/112006 2,500 2,500 Medium Term Notes Series B-(6.76%) 2008 50,000 10V2% Pollution Control Series B 7/15/2012 850 850 6%% First Mortgage Bonds 8/112013 75,000 7%% Pollution Control Series A 4/15/2014 18,200 18,200 10Y2% Pollution Control Series C 7/15/2014 23,150 23,150 8".ls% First Mortgage Bonds 5/1/2016 125,000 8lf.1% Pollution Control Series A 7115/2017 4,400 4,400 9Y.% First Mortgage Bonds 10/1/2019 65,767 135,000 6.80% Pollution Control Series A 3/1/2021 38,865 38,865 7% First Mortgage Bonds 9/112023 75,000 5.60% Pollution Control Series A 11/1/2025 4,000 7% First Mortgage Bonds 8/1/2028 75,000 Total 749,188 624,961 Debentures:

SY.% 2/1/1996 2,267 2,267 7Y.% 5/111998 2,619 2,619 Total 4,886 4,886 Unamortized Premium and Discount-Net (2,973) (4,039)

Total Long Term Debt of ACE 751,101 625,808 Long Term Debt of ATE 15,000 23,900 Long Term Debt of Other Subsidiaries 1,228 Less portion due within one year 19,356 Total Long Term Debt $766,101 $631,580 In 1993, ACE redeemed principal amounts of the follow- principal amount of First Mortgage Bonds, 914% Series ing series of First Mortgage Bonds: $95 million, 8% due due October 2019. The aggregate cost of these redemp-November 1996; $19 million, 8Ys% due September 2000; tions and acquisitions was $13.1 million, net of related

$27 million, 8% due May 2001 and $125 million, 8Ys% Federal income taxes.

due May 2016. ACE acquired and retired $69.233 million Atlantic Energy

Sinking fund deposits are required for retirement of ACE's long term debt securities are not widely held the 5'.1.1% Debentures annually on February 1 through and generally trade infrequently. The estimated aggre-1995 and for the 77'4% Debentures annually on May 1 gate fair market value at December 31, 1993 of ACE's through 1997 in amounts in each case sufficient to long term debt was approximately $768 million, based redeem $100,000 principal amount. ACE may, at its on actual trades of ACE's long term debt that occurred option, redeem an additional $100,000 annually in each on or nearest to December 31, 1993.

case. Through December 31, 1993, ACE acquired and Long term debt of ATE consists of $15 million of cancelled $433,000 and $281,000 principal amount of 7.44% Senior Notes due 1999. ATE has a revolving credit the 57'4% and 77'4% Debentures, respectively, which and term loan agreement which provides for borrowings amounts are sufficient to satisfy its requirements for of up to $35 million during successive revolving credit 1994 and subsequent years. Certain series of First Mort- and term loan periods. There were no borrowings out-gage Bonds contain provisions for deposits of cash or standing under this agreement at December 31, 1993, certification of bondable property currently amounting and commitment fees on the unused credit line were not to $250,000, which ACE may elect to satisfy through significant. In accordance with provisions of the agree-property additions. Additional sinking fund requirements ment, the expiration of the revolving credit period was are as follows: extended from June 1, 1993 to June 1, 1994. Interest Annual rates on borrowings when outstanding are determined Series Beginning Date Sinking Fund by reference to periodic pricing options available under 6%% Pollution Control Series Due 2006 December 1, 1997 $ 75,000 the facility. The estimated aggregate fair market value at 7%% Pollution Control December 31, 1993 of ATE's senior notes was approxi-Series Due 2005 January 1, 2000 500,000 mately $15.8 million, based on the present value of the future cash flows to the date of maturity.

For the next five years, the annual amount of sched-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.

~9 rnoRT TERM DEBT As of December 31, 1993, ACE had available for use bank ACE had no short term debt outstanding as of lines of credit of $150 million. ACE is charged commit- December 31, 1993. As of December 31, 1992, ACE had ment fees, which were not material, for these available $14.6 million in notes payable to banks outstanding, credit lines. As of December 31, 1993, ACE had no com- and as of December 31, 1991, had $20.6 million in com-pensating balance requirements. mercial paper outstanding. Additional information regarding short term debtof ACE is as follows:

(000)

For the year ended: 1993 1992 1991 Maximum amount of total short term debt at any month end:

Commercial Paper $45,500 $107,400 $82,700 Notes Payable to Banks 86,300 14,600 Average amounts of short term debt (based on daily outstanding balances):

Commercial Paper $ 8,790 $ 31,567 $26,802 Notes Payable to Banks 29,269 2,785 Weighted daily average interest rates on short term debt:

Commercial Paper 3.2% 4.0% 6.6%

Notes Payable to Banks 3.2% 3.4%

Atlantic Energy m

OTES TO CONSOLIDATED FINANCIAL STATEMENTS

~10 ~OMMITMENT~ AND ~ONTINGEN~IE~

Construction Program Energy and Capacity Arrangements ACE's cash construction expenditures for 1994 are esti- UTILITY mated to be approximately $150 million. Current com- ACE has an arrangement for the purchase of 125 MWs mitments for the construction of major production and of capacity and related energy from PP&L through transmission facilities approximate $62.3 million, of September 30, 2000. Capacity costs are charged to Pur-which it is estimated that $45.3 million will be expended chased Capacity expense on the Consolidated Statement in 1994. These amounts exclude AFDC and customer of Income and totaled $24.4 million, $25.1 million and contributions. $28. 7 million in 1993, 1992 and 1991, respectively. Energy Insurance Programs cost is charged to Energy expense on the Consolidated Statement of Income and totaled $11.2 million, $13.4 ACE is a member of certain insurance programs that million and $8.6 million, respectively. Commitments for provide coverage for decontamination and property capacity costs expected to be incurred over the next five damage to members' nuclear generating plants.

years are $10.5 million, $10.9 million, $11.2 million, $11.6 Facilities at the Peach Bottom, Salem and Hope Creek million and $12.3 million in each of the years 1994-1998, stations are insured against property damage losses up respectively, and aggregate $25.3 million thereafter.

to $2.75 billion per site under these programs.

ACE has an arrangement for the purchase of 200 MWs In addition, ACE is a member of an insurance program of capacity and related energy from PECO through May which provides coverage for the cost of replacement 31, 1994. Capacity costs charged to Purchased Capacity power during prolonged outages of nuclear units caused expense totaled $55.9 million, $52.5 million and $48.2 by certain specific conditions. Under the property and re-million in 1993, 1992 and 1991, respectively. Energy cost placement power insurance programs, ACE could be as-charged to Energy expense amounted to $21.0 million, sessed retrospective premiums in the event the insurers'

$19.2 million and $22.6 million, respectively. ACE is losses exceed their reserves. As of December 31, 1993, committed to capacity charges of $23.5 million in 1994.

the maximum amount of retrospective premiums ACE These costs are subject to adjustment under certain con-could be assessed for losses during the current policy ditions. ACE has another arrangement with PECO for year was $6.19 million under these programs.

the purchase of energy only. Energy cost charged to The Price-Anderson provisions of the Atomic Energy Energy expense amounted to $19.0 million, $17.5 million Act of 1954, as amended by the Price-Anderson Amend- and $14.4 million, in 1993, 1992 and 1991, respectively.

ments Act of 1988, govern liability and indemnification ACE periodically enters into arrangements with cer-for nuclear incidents. All nuclear facilities could be tain other electric utilities for short term generating and assessed, after exhaustion of private insurance, up to transmission capacity and the purchase of energy on an

$79.275 million each, payable at $10 million per year, as-needed basis, which are utilized to the extent they are per reactor and per incident. Based on its ownership economic and available. Costs of capacity and energy share of nuclear facilities, ACE could be assessed up to under these arrangements totaled $1.4 million, $4.4 mil-

$27.6 million per incident. This amount would be pay-lion and $16.4 million in 1993, 1992 and 1991, respectively.

able at $3.48 million per year, per incident.

Atlantic Energy

ACE is a member of the Pennsylvania-New Jersey- In addition, discussions have commenced with a third Maryland Interconnection (PJM), an integrated power nonutility project sponsor to amend its power purchase pool that is connected with other utilities for the inter- agreement. Expected savings from changes to all three change of energy on an as-needed and as-available basis. nonutility power purchase agreements are estimated to ACE is required to plan for reserve capacity based on be between $15 million and $20 million annually in the aggregate PJM requirements allocated to member com- early years of the agreements.

panies. ACE has satisfied its current reserve requirements.

Environmental Matters ACE also has an interchange agreement with the City of Vineland, New Jersey, which operates a municipal utility The provisions of Title IV of the Clean Air Act Amend-located in ACE's service territory. The cost of energy ments of 1990 (CAAA) will require, among other things, purchased through interchange agreements charged to phased reductions of sulfur dioxide (S02) emissions by Energy expense totaled $9.9 million, $9.4 million and 10 million tons per year, and a limit on S02 emissions

$11.3 million in 1993, 1992 and 1991, respectively. nationwide by the year 2000, and reductions in emis-sions of nitrogen oxides (NOx) by approximately 2 mil-NONUTILITY lion tons per year. ACE's wholly-owned B.L. England ACE has contracted and received BRC approval for a Units 1and2 and its jointly-owned Conemaugh Station total of 569 MWs of capacity and related energy from are affected during Phase I (1995) and all of ACE's other nonutility sources, primarily cogenerators. Two projects fossil-fuel steam generating units are affected by Phase totaling 181 MWs are currently operational. One of these II (2000) of the CAAA. ACE is installing flue gas desulfu-projects is owned 50% by wholly-owned subsidiaries of rization equipment (scrubber) on B.L. England Unit 2 AGL Of the remaining two projects under construction, costing approximately $75 million to $80 million. By one project providing 188 MWs is expected to be in oper- scrubbing B.L. England Unit 2, Phase I S02 emission ation in the spring of 1994, and the other providing 200 requirements are met for both units. Construction is MWs is expected to be operational in early 1995. Non- scheduled for completion in early 1995. The Conemaugh utility capacity costs charged to Purchased Capacity owners have elected to install scrubbers on Conemaugh expense totaled $30.2 million, $24.4 million and $1.0 Units 1 and 2, with ACE's 3.83% share of the total cost million, and energy purchased charged to Energy estimated to be $14 million. Construction for Conemaugh expense totaled $36.0 million, $27.6 million and $.3.2 Unit 1 is to be completed in 1994, and for Conemaugh million, in 1993, 1992 and 1991, respectively. Capacity Unit 2 in 1995. The jointly-owned Keystone -Station is and energy costs from nonutility sources are recovered impacted by the S02 and NOx provisions of Title IV of the through the LECs. CAAA during Phase II, and the Keystone owners are study-ACE has concluded negotiations with one project spon- ing various methods of compliance. In addition, certain sor of a facility under construction to amend its power pur- power purchase arrangements will be affected by the chase agreement in an effort to make the cost of energy CAAA, in amounts that are not presently determinable.

obtained from the facility more economical for ACE's cus- Federal and state legislation authorize various tomers. The amendments, which have received BRC governmental authorities to issue orders compelling approval, will result in savings from increased dispatch of responsible parties to take cleanup action at sites deter-the unit, lower energy payments and lower capacity pay- mined to present danger from releases of hazardous sub-ments. As part of the contract amendments, in December stances. The various statutes impose joint and several 1993, ACE was required to pay $20 million to the project liability without regard to fault for certain investigative lenders for termination of interest rate swap agreements and cleanup costs for all potentially responsible parties.

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 nonu-tility project to amend its power purchase agreement.

Subsidiaries of AGI have a 50% ownership interest in this project. ACE expects that the contract renegotia-tions with this facility will be concluded in 1994.

Atlantic Energy

OTES TO CONSOLIDATED FINANCIAL STATEMENTS ACE has received notification with respect to two sites Other within New Jersey as one of a number of alleged respon- ACE is subject to a performance standard for all of its sible parties for cleanup and remedial actions. Both sites jointly-owned nuclear units. This standard is used by are contained within the National Priority Lists. As to the BRC in determining recovery of replacement energy one site, litigation has been instituted by the Federal costs. The standard establishes a target aggregate capac-government. The second site is the subject of a Notice ity factor within a zone of reasonable performance fo be of Directive by the New Jersey Department of Environ- achieved by the units. Performance outside of the zone mental Protection and Energy (NJDEPE). The total results in penalties or rewards. Any penalties incurred amount of cleanup and remedial measures associated would not be permitted to be recovered from customers with these sites as claimed by the authorities for all and would be charged against income. For 1993, the defendants is currently estimated to be $178 million. aggregate capacity factor of ACE's nuclear units is ACE believes that primary responsibility for the claims within the reasonable performance zone, which will will be borne by other parties and its share, if any, of the result in no penalty or reward.

claims would not be material. ACE plans to defend these In 1990, the NJDEPE issued to Public Service Electric matters aggressively. & Gas (PS) a revised Draft Permit for surface water dis-Public interest over the possibility of health effects charges for Salem Station. PS is the operator of the sta-due to electric and magnetic fields (EMF) exposure is an tion, in which ACE has a 7.41 % ownership interest. The emerging national issue. Some states have adopted EMF Draft Permit contained stringent terms and conditions limits. To date, there is no conclusive scientific evidence and, if adopted as proposed, could require the construc-to support such concerns. The New Jersey Commission tion of cooling towers and the immediate shutdown of on Radiation Protection is considering promulgation the two generating units for up to a four-year period of regulations which would authorize the NJDEPE to pending this construction. Public hearings on the Draft review all new power line projects of 100 kilovolts (KV) Permit have been held and PS has filed written com-or more. The promulgation of such regulations may ments and demonstrations, which PS believes establish affect the design and location of ACE's existing and its position that cooling towers are not required. PS esti-future electric power lines and facilities and the cost mates that if construction of cooling towers is neces-thereof. ACE has a program of Prudent Field Manage- sary, under the most adverse scenario, the costs of ment, implementing reasonable measures, at modest construction are currently estimated to be $555 million, cost, to limit magnetic field levels in the design and of which AC E's share would be 7.41 %. Replacement location of new facilities. Such amounts as may be nec- power costs during such four-year outage would amount essary to comply with any new EMF rules cannot be to approximately $25 million per year for ACE. In addi-determined at this time and are not included in ACE's tion, a permanent de-rating of 5% of the station capacity 1994-1998 estimated construction expenditures. At the would also occur. ACE has been advised that on March 4, April 14, 1993 regular open public meeting of the BRC, 1993 PS submitted a Supplement to its Application for a motion was approved which required all New Jersey Renewal of the Salem, New Jersey Pollutant Discharge electric utilities to sponsor a survey of EMF readings at Elimination System Permit. The Supplement proposes schools located near 69 KV lines and above. A joint sur- that Salem continue operation with a once-through vey protocol was developed among the New Jersey utili- cooling system, and includes provisions for plant modific-ties and approved by the BRC. Fffteen schools in ACE's ations and environmental enhancements to the Delaware service territory fall within the criteria. A report of sur- River estuary in the vicinity of the Station. On June 24, vey results was presented to the BRC in December 1993. 1993, the NJDEPE issued a draft permit which essentially The survey results demonstrated that the EMF levels incorporated as Special Conditions the proposal made by were within the expected range for transmission and PS in its Application Supplement. A final permit is distribution supply lines generally. 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 possi-ble to determine what action the NJDEPE will ulti-mately take with respect to the terms and conditions of Atlantic Energy

the final Permit, certain environmental interest groups of 188 MWs of capacity from the independent power pro-have indicated their intent to challenge the NJDEPE's ducer upon commercial operation of the facility, which actions if, at the end of the public comment period, a is expected in the spring of 1994.

final Permit is issued which contains the Special In 1993, ACE restructured its organization to better Conditions proposed in the 1993 Draft Permit instead of position itself in an emerging competitive environment.

requiring that the Salem Station be retrofitted with During the year, ACE offered severance and incentive cooling towers. In that event, PS would also participate programs to employees that were terminated or elected in any such further proceedings. to retire. ACE recorded expenses of $5.4 million, net ACE and the other nonoperating co-owners of the of Federal income taxes of $2. 7 million, in the Consoli-Peach Bottom Atomic Power Station reached a settle- dated Statement of Income for 1993 for these and con-ment in 1992 with PECO, the operator of the station, in tinuing reorganization activities. At December 31, 1993, connection with litigation regarding the Nuclear Regula- the remaining liability for the program payments was tory Commission shutdown of the station from March $6.8 million.

1987 through October 1989. According to the terms of AGI through its subsidiaries has partnership interests the agreement, ACE received $18.5 million in October in common with affiliates of Columbia Gas System, Inc.

1992 as its share of the settlement. Of this amount, $3 (Columbia) in certain cogeneration projects. Columbia million represented reimbursement for legal fees previ- is currently operating under Chapter 11 of the Federal ously incurred and expensed during the litigation, and Bankruptcy Code. Columbia has filed a plan of reorgani-the remaining settlement proceeds of $15.5 million were zation. AGI cannot predict what effect, if any, Columbia's allocated 75% to shareholders and 25% to customers. situation may have on AG I's interests in these cogenera-This allocation was determined by ACE to be the amount tion projects.

of costs borne by each respective group during the sta- The Energy Policy Act of 1992 permits the Federal tion's outage. The BRC had approved this allocation sub- government to assess investor-owned electric utilities ject to later review. In 1992, ACE recorded $9.7 million, that have ownership interests in nuclear generating net of related Federal income taxes of $4.9 million, as facilities an amount to fund the decontamination and Other Income, and $3.8 million as a liability to reim- decommissioning of three Federally operated nuclear burse customers through the LECs. In August 1993, ACE enrichment facilities. ACE currently estimates that, agreed, in its then pending 1993 LEC filing, to allocate based on its ownership in five nuclear generating units, to customers an additional $3.8 million of the litigation its remaining assessment to be paid over the next 14 years settlement received in 1992. In 1993, ACE recorded $2.6 could amount to approximately $8 million. ACE has pro-million, net of related Federal income taxes of $1.3 mil- vided a liability in this amount at December 31, 1993.

lion, as Other Expenses, and $3.8 million as a liability to ACE has a regulatory asset of $8.4 million at December reimburse customers. This reimbursement is to be made 31, 1993 as a consequence of this liability. Amounts are through the 1994 LEC which ACE has requested to currently being recovered in rates for this liability and become effective in June 1994. the regulatory asset is concurrently being amortized to ACE delivers process steam, water and by-product expense based on the annual assessment billed by the electricity under a contract with a third-party facility. Federal government.

Equipment at AC E's Deepwater Station provides these The Financial Accounting Standards Board issued services. In 1993, ACE received $4.3 million for the sup- Statement No. 112 "Employers' Accounting for Post-ply of steam and related services, and $8.3 million in rev- employment Benefits." This statement is effective for enues f~r electric services rendered to the third party. the Company in 1994 and concerns benefits provided to ACE received a notice of contract termination from this inactive and terminated but not yet retired employees.

third party, effective August 31, 1994, at which time such It is expected that the annual costs calculated under steam and electric requirements are to be served by an the new standard will not be significantly different from independent power producer. ACE is presently negotiat- those recorded under the current method of accounting ing contract termination provisions, including the timing and that any additional liabilities recorded will not be of service termination, equipment removal and termi- material to the financial statements.

nation payments. ACE has contracted for the purchase Atlantic Energy

OTES TO CONSOLIDATED FINANCIAL STATEMENTS

~11 LEA~E~

ACE leases various types of property and equipment reduced as the fuel is burned and are ihcreased as addi-for use in its operations. Certain of these lease agree- tional fuel purchases are made. No commitments for ments are capital leases consisting of the following at future payments beyond satisfaction of the outstanding December 31: obligation exist. Operating expenses for 1993, 1992 and (000) 1993 1992 1991 include leased nuclear fuel costs of $13.9 million, Production plant $13,521 $13,521 $13.5 million and $14.7 million, respectively, and rentals Less accumulated amortization 8,846 8,048 and lease payments for all other capital and operating Net 4,675 5,473 leases of $4.8 million, $4.8 million and $4.5 million, Nuclear fuel 40,593 43,831 respectively. Future minimum rental payments for all Leased property-net $45,268 $49,304 noncancellable lease agreements are not significant to ACE has a contractual obligation to purchase nuclear ACE's operations. Rental charges of other subsidiary fuel for the Salem, Hope Creek and Peach Bottom stations. companies are not significant.

The asset and related obligation for the leased fuel are

~12 ~UARTERLY FINAN~IAL RErnLT~ (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 Net Revenues Income Income Earnings Dividends Paid Quarter (000) (000) (000) Per Share Per Share 1993 1st $203,656 $ 35,445 $19,995 $ .38 $ .38 2nd 192,538 27,381 11,093 .21 .38 3rd 268,883 68,580 52,329 .99 .385 4th 200,596 28,177 11,880 .22 .385 Annual $865,675 $159,584 $95,297 $1.80 $1.53 1992 1st $ 197,833 $ 33,290 $27,937 $ .55 $ .375 2nd 187,387 24,949 10,908 .21 .375 3rd 236,892 54,118 39,570 . 76 .38 4th 194,713 24,811 7,795 .15 .38 Annual $ 816,825 $137,168 $ 86,210 $1.67 $1.51 Individual quarters may not add to the total due to round- The revenues of ACE are subject to seasonal fluctuations ing and the effect on earnings per share of increasing due to increased sales and higher residential rates during average number of common shares outstanding. the summer months.

Atlantic Energy

ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Atlantic Energy, Inc. (the Company or parent) is the Financial Results parent of a consolidated group consisting of the follow- Consolidated operating revenues for the twelve months ing wholly-owned subsidiaries: Atlantic City Electric ended December 31, 1993, 1992 and 1991 were $865.7 Company (ACE), Atlantic Energy Technology, Inc. (AET), million, $816.8 million and $808.4 million, respectively.

Atlantic Generation, Inc. (AGI), Atlantic Southern The increased revenues for 1993 and 1992 reflect the Properties, Inc. (ASP) and ATE Investment, Inc. (ATE). effect of net rate increases effective in those years. The ACE, the primary subsidiary, is an electric utility regu- revenue increase in 1993 is also due to increased sales lated by the New Jersey Board of Regulatory Commis- of energy as a result of summer weather.

sioners (BRC). ACE has a wholly-owned subsidiary that Consolidated earnings per share for 1993 were $1.80 operates certain generating facilities. AET has a wholly- on net income of $95.3 million, compared with $1.67 owned subsidiary that owns patented technology for geo- on net income of $86.2 million in 1992 and $1.75 on thermal heating and cooling systems. AGI is engaged in net income of $85.6 million in 1991. In 1993, ACE con-the development and operation of cogeneration and tributed $1.73 to consolidated earnings, primarily as a alternate energy projects through various partnership result of increased kilowatt-hour sales from more normal arrangements. ASP owns, develops and manages com- summer weather. ACE's 1993 earnings were reduced by mercial real estate property. ATE manages it.s portfolio approximately $.10 as a result of nonrecurring charges for of leveraged lease investments and provides financing reorganization activities. In 1992, ACE contributed $1. 74 and fund management to an affiliate. to reported consolidated earnings. ACE's 1992 earnings The Company's business plan will continue to be con- were increased by several nonrecurring items, including centrated on the operations of ACE. The emergence of $.15 from a settlement of a lawsuit with PECO Energy competition in the area of electric generation, relatively Company (formerly Philadelphia Electric Company slow growth in energy sales, Federal deregulation of -PECO) relating to the shutdown of the Peach Bottom wholesale energy sales, prospective retail wheeling Atomic Power Station several years ago and $.11 from initiatives coupled with a public utility's obligation to certain other nonrecurring items. Earnings in 1992 serve, and the need to mitigate future rate increases, has were adversely affected by lower energy sales resulting caused ACE to reexamine its traditional approach to its from cooler than normal summer weather conditions business. ACE's current business plan recognizes the and decreased sales to Industrial customers.

increasingly competitive nature of the electric energy Nonutility operations resulted in net income for business and the need to encourage economic growth 1993 of $3.7 million and losses for 1992 and 1991 of and stability in the service territory and surrounding $3.4 million and $5.4 million, respectively. Nonutility region. ACE is reevaluating its revenue requirements net income for 1993 is primarily the result of higher and service pricing, the implementation of additional earnings of AGI derived from the full year's commercial cost controls and the development of new sources of operation of two of its cogeneration projects. The loss revenue. Nonutility business strategies are expected to in 1992 is primarily due to provisions made by AET re-pursue new investment opportunities closely related to lating to restructuring of certain business activities.

the utility business. 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 recog-nized in 1991 is attributable to AG I's equity share of writedowns of carrying values by one of its partner-ships of certain cogeneration projects that were subsequently sold.

Atlantic Energy

ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In June 1993, the quarterly dividend on Common equity through public offerings, optional cash purchases Stock was increased from $.38 to $.385 per share, or an under the Dividend Reinvestment and Stock Purchase annual rate of $1.54 per share. Information with respect Plan (DRP) and ACE's employee benefit plans, are shown to Common Stock for the period 1991-1993 is as follows: as follows:

1993 1992 1991 Issuance of Common Stock 1993 1992 1991 Dividends Paid Per Share $ 1.53 $ 1.51 $ 1.49 Public Offerings Book Value Per Share $15.62 $15.17 $14.84 Shares issued 4,000,000 Annualized Dividend Proceeds (000) $67,140 Yield 7.0% 6.6% 7.3% DRP Optional Cash Purchases Return on Average Shares issued 690,466 719,324 301,272 Common Equity 11.7% 11.1% 12.1% Proceeds (000) $15,985 $16,034 $ 5,537 Total Return (Dividends Employee Benefit Plans paid plus change in Shares issued 8,033 10,897 12,416 share price) 0.6% 20.2% 29.8% Proceeds (000) $ 258 $ 259 $ 249 Market to Book Value 139% 152% 138%

Price/Earnings Ratio 12 14 12 Additional common equity is provided by reinvested Closing Price-New York Stock Exchange $21.75 $23.13 $20.50 dividends through the DRP. Common shares issued from such reinvested dividends in 1993, 1992 and 1991 Liquidity and Capital Resources were 609,663, 572,329 and 630,410, respectively. The Overview Company's current financing plans for 1994-1996 con-The Company's cash flows are dependent on the cash template the issuance of approximately $14 million in flows of its subsidiaries, primarily ACE. Principal cash in- additional common equity, to be obtained through flows of the Company are dividends from ACE and funds the DRP.

provided by the issuance of Common Stock. Principal

• Major cash outflows of the Company were as follows:

cash outflows of the Company are investments (capital 1993 1992 1991 (Millions) contributions and advances) in its subsidiaries for their Dividends to Shareholders $81.3 $78.3 $74.1 investing activities and dividends to common sharehold- Advances and Capital ers. Cash invested in ACE is utilized primarily for the Contributions' construction of utility generating, transmission and dis- to Subsidiaries 29.8 24.1 83.8 tribution facilities, redemption and maturity of long and *Net of repayments short term debt and redemption of preferred stock. Cur-ACE rent investing activities of the nonutility subsidiaries are primarily for the development of nonutility power Cash construction expenditures for the 1991-1993 generation projects." period amounted to $441.2 million and included expen-ditures for a new combustion turbine unit, upgrades To facilitate the activities and operations of the to existing transmission and distribution facilities and subsidiaries, separate credit support agreements exist compliance with provisions of the Clean Air Act Amend-between the Company and ATE and ASP. In addition, ments of 1990 (CAAA). ACE's current estimate of cash agreements between the Company and its subsidiaries construction expenditures for the 1994-1996 period provide for allocation of tax liabilities and benefits gen-is $377.3 million. These estimated expenditures reflect erated by the respective subsidiaries.

necessary improvements to transmission and distribu-In 1993, 1992 and 1991, the Company recorded $81.3 tion facilities and compliance with provisions of million, $78.3 million and $74.1 million, respectively, in the CAAA.

dividends from ACE. Other sources of funds available to ACE also utilizes cash for mandatory redemptions the Company, which include the issuance of common 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 expenditures and internally generated funds in the indi-value) and redemptions, reacquisitions and retirements, vidual years. Through 2000, ACE's cash flows will be and maturities of First Mortgage Bonds for the period positively affected by the recovery of its Unrecovered 1991-1993 are shown as follows: Purchased Power Costs. ACE expects that such recovery 1993 1992 1991 will provide $14 million, $15 million and $16 million in Preferred Stock cash flows in 1994, 1995 and 1996, respectively.

(Series)

On an interim basis, ACE finances that portion of its 9.96 % (Shares) 48,000 8,000 8,000

$8.25 (Shares) 5,000 2,500 2,500 construction costs and other capital requirements in Aggregate Amount (000) $ 5,300 $ 1,050 $ 1,050 excess of internally generated funds through the issuance First Mortgage Bonds of unsecured short term debt consisting of commercial Principal Amount retired (000) $344,773 $10,350 $49,000 paper and borrowings from banks . Permanent financing by ACE is undertaken by the issuance of its long term First Mortgage Bonds redeemed or acquired and debt and Preferred Stock and from capital contributions retired in 1993 were as follows: by the parent company. ACE's nuclear fuel requirements Date Series Principal Amount (000) Price(%) associated with its jointly-owned units have been March 1993 8% due 1996 $ 95,000 100.91 financed through arrangements with a third party.

March 1993 8 %% due 2000 19,000 102.41 In 1993, ACE issued and sold $469 million of long March 1993 8% due 2001 27,000 102.53 March 1993 4 31.% due 1993 9,540 100.00 term debt consisting of $240 million of Series B Medium September 1993 9 Y.% due 2019 69,233 110.95 Term Notes, $225 million of First Mortgage Bonds and September 1993 8 %% due 2016 125,000 104.80 $4 million of Pollution Control Bonds. The proceeds

• average price from the 1993 financings were used for refunding Scheduled debt maturities and mandatory Preferred higher cost debt, as detailed above, and construction Stock sinking fund requirements aggregate $59 million purposes. In 1992, ACE issued and sold $60 million of for the years 1994-1996. Series A Medium Term Notes, the proceeds of which On or before April 1 of each year, ACE and other New were used for ACE's construction program. In 1991, ACE Jersey utilities are required to pay state excise taxes to issued and sold 700,000 shares of $7.80 No Par Preferred the State of New Jersey. In March 1993, ACE paid $139.2 Stock and issued $38.865 million of Pollution Control million. Included in this amount was $45 million repre- Bonds. The proceeds from the 1991 financings were senting one-half of an additional year's tax payment, as used for construction and refunding AC E's 11 %%

required by state law. This payment was funded by ACE Pollution Control Bonds due 2011. During the three-through the issuance of short term debt. ACE expects to year period 1994-1996, ACE expects to issue $160 mil-pay state excise taxes of approximately $140 million in lion in new long term debt, and in such period ACE March 1994, which will include the final installment of expects to receive $14 million in capital contributions one-half the required additional year's tax payment. ACE from the Company.

expects to fund this payment with short term debt. In ACE's debt securities are rated "A-/A3" by the December 1993, ACE paid $20 million in connection major rating agencies and its Preferred Stock is rated with renegotiation of a nonutility purchased power con- "BBB+/Baal." In October 1993, ACE was advised that a tract. ACE has deferred such amount on its Consolidated major rating agency lowered its rating on AC E's out-Balance Sheet, pending recovery through its LEC. standing securities as follows: senior secured debt to "A-"

ACE's cash flows from operating activities after divi- from "A," senior unsecured debt and preferred stock to dends on Preferred Stock and Common Stock (internal "BBB+" from "A-," and commercial paper to "A-2" from generation) amounted to $75.9 million, or 54.9% of "A-1." In November 1993, ACE was advised that a second 1993 construction expenditures. In 1992 and 1991, major rating agency lowered its ratings of ACE's out-ACE's internal generation was $116 .8 million and $85.2 standing securities as follows: first mortgage bonds, million, and represented 89.3% and 49.4%, respectively, secured pollution control revenue bonds and secured of construction expenditures. For the three-year period medium term notes to "A3" from "A2," debentures to 1994-1996, ACE's internal generation is expected to "Baal" from "A3," preferred stock to "Baal" from "A3,"

average 75% of currently estimated construction expen- and commercial paper to "P2" from "Pl." In taking ditures. However, actual levels may vary within the such action, both agencies cited increasing business period based upon specific amounts of construction risks from competition, significant purchased power r:J" Atlantic Energy 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 fac-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 un-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 invest-ment of $3 million in a wholly-owned subsidiary that owns a patented technology and has proprietary know-ledge relating to geothermal heating and cooling sys-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 invest-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 outcome of these discussions cannot be determined at received distributions from the partnerships totaling this time.

$6.4 million from return of investment and repayment ASP of outstanding advances and loans. A cogeneration pro- ASP's real estate investment at December 31, 1993 is ject is under construction and is expected to become a 280,000 square-foot office and warehouse facility in operational in May 1994 requiring an equity payment Atlantic County, New Jersey, with a net book value of of $2 million. This commitment will be funded by a cap- $13.2 million. As of December 31, 1993, ASP's invest-ital contribution from the parent company. AGI expects ment has been funded by capital contributions from the to invest an additional $8 million in domestic indepen- parent company and borrowings under a loan agreement dent power projects in the years 1994-1996. Operators with ATE. ASP's current agreement with ATE provides of a nonutility power project in which AGI subsidiaries for the repayment of such borrowings on or before have a 50% ownership interest are presently negotiat- December 31, 1994. Extensions to repay these borrow-ing amendments to its power purchase contract. The ings have been routinely granted in the past. ASP gener-Atlantic Energy

obtained funds for its business activities and loans to ASP through capital contributions from the parent com-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 OPERATIONS 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 State-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.

Reve nues Operating Revenues-Electric increased 6.0% and 1.0%

in 1993 and 1992, respectively. Components of the over-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 ates sufficient cash flows from its rental income to sus- Other (0.4) (0.3) tain its operations. Over half of the office space is Total $48.9 $ 8.5 presently leased to ACE. ASP and ACE are exp loring Base Revenues increased in 1993 as a result of a $12.9 options to modify ACE's current lease obligations . In the million base rate increase effective in October 1992. Base second half of 1993, another tenant leased all the avail-Revenues increased in 1992 as a result of the October able warehouse space. No real estate activity beyond the 1992 increase and a $50.0 million base rate increase effec-existing site is contemplated at this time by ASP.

tive in July 1991. Levelized Energy Clause (LEC) revenues ATE decreased in 1993 as a result of the net effects of a $10.9 ATE has invested $77.3 million in leveraged leases of million increase effective in October 1993 and an $8.5 three commercial aircraft and two containerships. ATE million decrease effective in October 1992. LEC revenues has loans outstanding to ASP, including unpaid interest, increased in 1992 as a result of the October 1992 decrease which totaled $8.9 million at December 31, 1993. ATE and a $21.3 million LEC increase effective in June 1991.

Atlantic Energy

ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Changes in kilowatt-hour sales are discussed under and 8.1%of1993 Industrial kilowatt-hour sales and rev-

"Billed Sales to Ultimate Utility Customers." Overall, the enues, respectively. Sales to this customer amounted to combined effects of changes in rates charged to customers 1.6% of 1993 total kilowatt-hour sales and 1.0% of 1993 and kilowatt-hour sales resulted in increases of 0.8% and total energy revenues. ACE will also lose additional rev-4.4% in revenues per kilowatt-hour in 1993 and 1992, enues from this customer for other services that respectively. The changes in Unbilled Revenues are a amounted to $4.3 million in 1993.

result of the amount of kilowatt-hours consumed by ulti-Costs and Expenses mate customers at the end of the respective periods, which are affected by weather and economic conditions, and Total Operating Expenses increased 3.9% and 2.4% in the corresponding price per kilowatt-hour. The changes 1993 and 1992, respectively. Included in these expenses in Sales for Resale are a function of ACE's energy mix are the costs of energy, purchased capacity, operations, strategy, which in turn is dependent upon ACE's needs maintenance, depreciation and taxes.

for energy, the energy needs of other utilities participat- Energy expense reflects costs incurred to meet load ing in the regional power pool of which ACE is a mem- requirements, energy supply mix used and operation of ber, and the sources and prices of energy available. the LECs. Changes in costs reflect the varying availabil-ity of low-cost generation from ACE-owned and purchased Billed Sales to Ultimate Utility Customers energy sources, and the corresponding unit prices of the Changes in kilowatt-hour sales are generally due to energy sources used, as well as changes in the needs of changes in the average number of customers and average other utilities participating in the Pennsylvania-New customer use, which is affected by economic and weather Jersey-Maryland Interconnection. The cost of energy is conditions. Energy sales statistics, stated as percentage recovered from customers primarily through the opera-changes from the previous year, are shown as follows: tion of the LECs. Earnings are not affected by Energy 1993 1992 expense because these costs are adjusted to match the Avg Avg# Ai*g Ai*g # associated LEC revenues. In any period, the actual Customer Class Sales Use ofCust Sales l'se ofCust amount of LEC revenue recovered from customers will Residential 6.7% 5.9% 0.8% (2.8)% (3.7)% 0.9 %

Commercial 5.1 3.2 1.9 (1.5) (3.2) be greater or less than the actual amount of energy cost 1.8 Industrial 2.6 4.6 (1.9) (10.2) (9.4) (0.8) incurred in that period. Such respective overrecovery or Other 1.2 1.6 (.4) (0.3) (0.3) underrecovery of energy costs is recorded on the Consol-Total 5.4 4.4 0.9 (3.5) (4.5) 1.0 idated Balance Sheet as a liability or an asset, as appro-In 1993, total kilowatt-hour sales increased primarily priate. Amounts in the balance sheet are recognized in due to the colder winter temperatures during the first the Consolidated Statement of Income within Energy quarter, and more normal temperatures during the third expense during the period in which they are subsequently quarter in contrast to the cooler temperatures in the recovered through the LECs. ACE was underrecovered same period of 1992. Improved economic conditions by $7.2 million and overrecovered by $8.l million at also contributed to the increase in 1993 sales. In 1992, December 31, 1993 and 1992, respectively.

total kilowatt-hour sales declined primarily due to lower In 1993, Energy expense decreased 1.1 % primarily be-sales to Industrial customers because two large Indus- cause there was a larger amount of fuel costs underrecov-trial customers obtained primary service from indepen- ered in 1993 than in 1992. Production-related energy dent nonutility sources. Sales also declined in 1992 due costs for 1993 increased by 6.7% largely due to increased to cooler temperatures in the third quarter. generation of 4.8%. The average unit cost for energy in ACE continues to experience the effects of competi- 1993 increased to 1.82 cents per kilowatt-hour compar-tion in the electric utility business. One large Industrial ed to 1.80 cents per kilowatt-hour in 1992. The 1993 in-customer is expected to receive primary electric service crease in the per unit cost is a result of increased amounts from an independent power producer commencing in of higher-cost energy from nonutility sources and a the spring of 1994. This customer accounted for 10.l % decreased supply of lower cost energy from coal

,\tJant1c F 1er~y

sources. Energy expense for 1992 decreased 11.9% pri- Preferred Stock Dividend Requirements of ACE marily due to an underrecovery of fuel costs in 1992 com- decreased 2.3 % in 1993 and reflects the redemption of pared to an overrecovery in 1991. The decrease was 48,000 shares of 9.96% No Par Preferred Stock in May partially offset by increased production-related energy 1993. Preferred Stock Dividend Requirements of ACE costs associated with a 3.4% increase in net generation. increased 8.5% in 1992 and reflects the issuance and Purchased Capacity expense reflects entitlements to sale of 700,000 shares of $7.80 No Par Preferred Stock in generating capacity owned by others. Purchased Capacity May 1991. Embedded cost of Preferred Stock as of expense increased 7.4% in 1993 and 30.l % in 1992 pri- December 31, 1993, 1992 and 1991 was 7.7%, 7.7% and marily due to capacity supplied by two nonutility power 7.8%, respectively.

producers beginning in September 1991 and March New accounting standards concerning the account-1992, respectively. ing for postretirement benefits other than pensions and Operations expense increased 8.9% in 1993 due pri- income taxes became effective for the Company in 1993.

marily to corporate reorganization activities by ACE. The effect of adopting these standards did not materially Operations expense increased 2.8% in 1992 primarily affect net income in 1993, primarily because the incre-due to nuclear decommissioning expenses previously mental costs to ACE resulting from these standards have classified as depreciation expense, in accordance with been deferred on the Consolidated Balance Sheet subject BRC requirements. Maintenance expense decreased to future recovery in rates.

9.0% and 4.1 % in 1993 and 1992, respectively, due to Outlook the timing of maintenance projects. The nature of the electric utility business is capital inten-The method of computing state excise taxes was sive. ACE's ability to generate cash flows from operating changed by legislation in 1992 to a unit tax that is based activities and its continued access to the capital markets on kilowatt-hours sold during the year. In prior years, is affected by the timing and adequacy of rate relief, com-such taxes were based on revenues collected from cus- petition and the economic vitality of its service territory.

tomers. State Excise Taxes expense increased in 1993 The financial performance of ACE will be affected in and 1992 by 6.4% and 10.2%, respectively. The increase the future by the level of sales of energy and the impacts in 1993 is due to higher kilowatt-hour sales during the of regulation. The amount earned on capital investments year and an additional amount of tax required under by the utility is subject to general business conditions recently enacted state Jaw. The increase in 1992 reflects and regulations. Other issues which may impact the additional tax liabilities incurred as a result of changes electric utility business include public health, safety, in legislation. environmental legislation and competition.

Federal Income Taxes increased 21.9% and 2.5 % in Changes in operating revenues in the future will result 1993 and 1992, respectively, due to an increased level of from changes in customer rates, energy consumption taxable income, and in part to the increase in the Federal and general economic conditions in the service area, as income tax rate to 35% from 34% for 1993. well as the impacts of load management and conserva-Interest on Long Term Debt increased 11.4% in 1993 tion programs instituted by ACE. ACE's revenues could reflecting the net effects of issuance of $469 million of also be affected by the loss of sales through increasing First Mortgage Bonds during the year, and the maturity, competition in the generation of electricity by other redemption and reacquisition of various series of First utility and non utility sources.

Mortgage Bonds totaling $344.8 million principal The emergence of competition among suppliers of amount. Interest on Long Term Debt increased 3.3% electricity may require ACE to create new rate structures in 1992 reflecting the net effects of issuance of $60 mil- and offer discounts to its Commercial and Industrial lion of Medium Term Notes in May 1992 with a weighted customers. ACE has petitioned the BRC to permit hotel/

average interest rate of 7. 75% and the maturity of $10.35 casino customers to take electric service under existing million principal amount of First Mortgage Bonds, 4Yz% commercial rate tariffs, which are lower than those rates Series due in July 1992. At December 31, 1993, 1992 and currently charged to hotel/casinos. If all hotel/casinos 1991, ACE's embedded cost of long term debt was 7.8%, make such an election, AC E's annual revenues would be 8.8% and 8.9%, respectively. reduced by approximately $5 million.

Atlantic Energy

ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income of ACE can be affected by the operational The Clean Air Act Amendments (CAAA) enacted in performance of nuclear generating facilities. ACE is sub- 1990 relating to acid rain and limitations on emissions ject to a BRC mandated nuclear unit performance stan- at electric generating plants will require modifications dard. Under the standard, penalties or rewards are based at certain of ACE's facilities. Compliance with the CAAA on the aggregate capacity factor of ACE's five jointly- will cause ACE to incur additional operating and/or owned nuclear units. Any penalties incurred would not capital costs. Presently, ACE 's cash construction budget be permitted to be recovered from customers and would for 1994 through 1996 includes approximately $47 mil-be charged against income. lion related to the cost of compliance. In addition, certain An accounting standard issued but not yet effective for power purchase arrangements will be affected by the the Company concerns benefits provided to inactive and CAAA, the effects of which are not presently determinable.

terminated but not yet retired employees. It is expected The New Jersey Department of Environmental Protec-that the annual costs calculated under the new standard tion and Energy (NJDEPE) has proposed modifications will not be significantly different from those recorded to certain environmental permits at Salem Station. The under the current method of accounting and that any Salem owners have opposed these modifications that additional liabilities recorded will not be material to the would require the immediate shutdown of both Salem consolidated financial statements. units, the construction of cooling towers at costs which The Energy Policy Act, enacted in October 1992, pro- are estimated to be substantial, and extended outages vides, among other things, for increased competition for the design, licensing and construction of such tow-between utility and nonutility electric generators and ers. In addition to the cost of construction, ACE would permits wholesale transmission access, or wheeling, be required to purchase replacement energy, the cost of with certain requirements. Other competitive pressures which could also be substantial. The retrofitting of cool-such as increased customer demands for discounted ing towers at Salem would also result in a permanent rates, potential loss of municipal power sales, excess capacity de-rating of up to 120 MWs, as well as increased generating capacity, together with the emergence of operation and maintenance costs. As more fully detailed nonutility energy sources, are expected to increase the in Note 10 of the financial statements, Public Service amount of business risk for electric utilities in the Electric & Gas (PS), the operator, filed a Supplement future. In addition, the extent to which New Jersey pub- to its Application which proposed that Salem continue lic utility regulation is modified to be reflective of these operation with a once-through cooling system, and pro-new competitive realities will be a key factor affecting vided for plant modifications and environmental enhance-the Company. ments to the Delaware River in the vicinity of the Station.

Development of electric generating facilities by non- In June 1993, the NJDEPE issued a Draft Permit which utilities has occurred in ACE's service territory. Effects essentially incorporated the provisions made by PS in its of nonutility generation could be offset to some extent proposal. Costs of this proposal would not be significant.

by natural growth in the service territory and additional The NJDEPE indicates it expects to issue a final permit efforts by ACE to reduce the impact of the potential loss in the first quarter of 1994. The outcome of this matter of kilowatt-hour sales and revenues. As a result of eco- cannot be predicted at this time.

nomic conditions in the service territory, ACE estimates Federal and state legislation authorize various govern-that the rate of growth of overall sales of energy will mental authorities to issue orders compelling responsi-be modest. 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 re- Inflation medial measures associated with these sites as claimed by Inflation affects the level of operating expenses and also the authorities for all defendants is currently estimated the cost of new utility plant placed in service. Traditionally, to be $178 million. ACE believes that primary responsi- the ratemaking practices that have applied to ACE have bility for the claims will be borne by other parties and its involved the use of historical test years and the actual share, if any, of the claims would not be significant. ACE cost of utility plant. However, the ability to recover in-plans to pursue these matters aggressively. creased costs through rates, whether resulting from inflation or otherwise, depends upon the frequency, timing and results of rate case decisions.

Atlantic Energy ~I

UMMARY FINANCIAL AND STATISTICAL REVIEW 1993-1983 1993 1992 1991 1990 Atlantic Energy, Inc.

Investor Information Operating Revenues (000) $ 865,675 $ 816,825 $ 808,374 $ 740,894 Net Income (000) $ 95,297 $ 86,210 $ 85,635 $ 68,879 Average Number of Common Shares Outstanding (000) 52,888 51,592 49,008 45,590 Earnings per Average Common Share $ 1.80 $ 1.67 $ 1.75 $ 1.51 Total Assets (Year-end) (000) $2,487,508 $2,219,338 $2,151,416 $2,006,010 Long Term Debt and Cumulative Preferred Stock Subject to Mandatory Redemption (Year-end) (000) $ 952,101 $ 842,236 $ 807,347 $ 747,877 Capital Lease Obligations (Year-end) (000) $ 45,268 $ 49,303 $ 53,093 $ 57,971 Dividends Declared on Common Stock $ 1.535 $ 1.515 $ 1.495 $ 1.47 Dividend Payout Ratio 85% 90% 85% 97%

Book Value per Share (Year-end) $ 15.62 $ 15.17 $ 14.84 $ 14.36 Price/Earnings Ratio (Year-end) 12 14 12 11 Times Fixed Charges Earned (pre-tax, Atlantic Electric) 3.54 3.76 3.68 2.94 Common Shareholders (Year-end) 47,832 46,524 43,802 42,295 Employees (Atlantic Electric) (Year-end) 1,835 2,023 2,032 2,055 Atlantic City Electric Company (Principal Subsidiary)

Facilities for Service Total Utility Plant (000) $2,402,415 $2,279, 107 $2,175,60 1 $2,027, 138 Additions to Utility Plant (000) $ 141,927 $ 134,326 $ 177,298 $ 170,772 Generating Capacity (Kilowatts) (Year-end) (a)(b) 2,307,700 2,160,700 2,090,700 1,959,700 Maximum Utility System Demand (Kilowatts) 1,962,000 1,796,000 1,911,000 1,741,000 Capacity Reserve at Time of Peak

(% of Installed Generation) 11.2% 16.9% 5.2% 10.9%

Energy Supply (mwh):

Net Generation 6,025,861 5,775,098 6,300,891 6,267,559 Purchased and Interchanged 3,753,433 3,553,247 3,124,024 2,606,067 Total System Load 9,779,294 9,328,345 9,424,915 8,873,626 Electric Sales to Ultimate Customers (mwh):

Residential 3,495,722 3,276,330 3,370,327 3,267,606 Commercial 3,259,541 3,100,133 3,147,318 3,063,069 Industrial 1,261,069 1,229,211 1,368,329 1,376,423 All Others 50,080 49,464 49,626 49,769 Total (a)(c) 8,066,412 7,655,138 7,935,600 7,756,867 Residential Electric Service (Average per Customer)

Amount of Electricity Used During the Year (kwh) 8,608 8,131 8,440 8,251 Revenue for a Year's Service $ 969.86 $ 903.91 $ 906 .66 $ 844.37 Revenue per Kilowatt-hour 11.27¢ 11.12¢ 10.74¢ 10.23¢ Ultimate Customer Data (Average)

Residential With Electric Heating 82,385 82,206 81,838 81,479 Residential Without Electric Heating 323,722 320,744 317,486 314,529 Total Residential 406,107 402,950 399,324 396,008 Commercial 52,988 51,996 51,077 50,274 Industrial 971 990 998 1,002 All Others 522 524 524 537 Total Ultimate Customers (c) 460,588 456,460 451,923 447,821 Operating Revenues (000)

Electric Service:

Residential $ 393,866 $ 364,232 $ 362,050 $ 334,375 Commercial 315,089 299,866 292,349 271,688 Industrial 100,812 97,475 102,202 96,766 All Others 10,575 10,548 10,136 9,668 Total from Electric Service 820,342 772,121 766,737 712,497 Unbilled Revenues-Net 28 1,203 3,229 (4,055)

Sales for Resale 36,576 35,884 30,404 24,115 Other Electric Revenues 8 ,853 7,723 8,112 8,448 Total Operating Revenues (c) $ 865,799 $ 816,931 $ 808,482 $ 741,005 (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.

~'! Atlantic Energy

4 1989 1988 1987 1986 1985 1984 1983

$ 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 Who is the trustee and interest paying agent for Atlantic investment in Atlantic Energy or Atlantic Electric? Electric's bonds and debentures?

The Company serves as recordkeeping agent, dividend First Mortgage Bond recordkeeping and interest disburs-disbursing agent and also as Transfer Agent for Common ing are performed by The Bank of New York, 101 Barclay Stock and Atlantic Electric's Preferred Stock. Correspon- Street, New York, New York 10286. Debenture record-dence concerning such matters as the replacement of keeping and interest disbursing are performed by First dividend checks or stock certificates, address changes, Fidelity Bank, N.A., 765 Broad Street, Newark, transfer of certificates, Dividend Reinvestment and Stock New Jersey 07102.

Purchase Plan inquiries or any general information about Does the Company have a Dividend Reinvestment and Stock the Company should be addressed to: Purchase Plan?

Atlantic Energy, Inc. Yes. The Plan allows shareholders of record and inter-Investor Records ested investors to automatically invest their cash divi-6801 Black Horse Pike dends and/or optional cash payments in shares of the P.O. Box 1334 Company's Common Stock. Other services available to Pleasantville, New Jersey 08232 DRP participants include certificate safekeeping and Telephone (609) 645-4506 or (609) 645-4507 automatic investment. Holders of record of Common When are dividends paid? Stock or interested investors desiring to enroll in the The proposed record dates and payable dates are Plan should contact Investor Records at the address as follows: listed. In addition, shareholders whose stock is held in a brokerage account may be able to participate in Record Dates Payable Dates March 21, 1994 April 15, 1994 the Plan. These shareholders should contact their June 20, 1994 July 15, 1994 broker or Investor Records for more information.

September 19, 1994 October 17, 1994 Where is the Company's stock listed?

December 19, 1994 January 16, 1995 Common Stock is listed on the New York, Pacific and The following table indicates dividends paid per share Philadelphia Stock Exchanges. The trading symbol of in 1993 and 1992 on Common Stock:

the Company's Common Stock is ATE; however, news-1993 1992 paper listings generally use At!Enrg or AtlanEngy.

First Quarter $ .38 $ .375 Second Quarter .38 .375 The high and low sale prices of the Common Stock Third Quarter .385 .38 reported in the Wall Street Journal as New York Stock Fourth Quarter .385 .38 Exchange-Composite Transactions for the periods indi-Annual Total $1.53 $1.51 cated were as follows:

Dividend checks are mailed to reach shareholders approx- 1993 1992 imately on the payment date. If a dividend check is not High Low High Low received within 10 days of the payment date, or if one is First Quarter $25.000 $21.875 $21.000 $18.000 Second Quarter 23.875 21.625 23.500 20.813 lost or stolen, contact Investor Records. Dividend checks Third Quarter 25.375 22.625 24.625 22 .500 may be automatically deposited into a checking, savings, Fourth Quarter 23.875 20.375 23.500 21.750 money market or credit union account at any financial Is additional information about the Company available?

institution that accepts electronic direct deposit. Contact Investor Records for an authorization form. The annual report to the Securities and Exchange Commission on Form 10-K and other reports containing Dividends paid on Common Stock in 1993 and 1992 financial data are available to shareholders. Specific were fully taxable. Some state and local governments requests should be addressed to:

may impose personal property taxes on shares held in certain corporations. Shareholders residing in those Atlantic Electric states should consult their tax advisors with regard to Financial Services Department personal property tax liability. 6801 Black Horse Pike Pleasantville, New Jersey 08232 Telephone (609) 645-4655 or (609) 645-4888 FAX (609) 645-4132

FFICERS

• It/antic Energy, Inc. and 'iubsidiaries (age /years of service as of December 31, 1993)

JERROLD L. JACOBS (54132) Ms. McMillian has served as Secretary of Atlantic Energy and President and Chief Executive Officer of Atlantic Energy Atlantic Electric since 1986. She was elected Vice President-Director of Atlantic Energy and all subsidiaries Legal and Secretary of Atlantic Electric in 1993. She joined Chairman, President and Chief Executive Officer of Atlantic Electric in 1985 as Assistant to the Corporate Atlantic Electric Secretary. Ms. McMillian is an attorney.

Mr. Jacobs was elected President and Chief Executive Officer of JOHN M . CARDEN (55126)

Atlantic Energy and Atlantic Electric in 1993. Since 1990, he Vice President-Ocean Region of Atlantic Electric served as President of Atlantic Energy and President and Chief Mr. Carden was named Vice President-Ocean Region of Operating Officer of Atlantic Electric. Prior to that, he was Atlantic Electric in 1993. Prior to that, he was Vice President-Executive Vice President of Atlantic Electric. Mr. Jacobs joined Customer Service and Vice President-Administrative Services Atlantic Electric in 1961 as an engineer.

of Atlantic Electric. He joined Atlantic Electric in 1967 as an MEREDITH I. HARLACHER, JR. (51128) engineer. (retired effective 1/3/94)

Vice President of Atlantic Energy FRANK F. FRANKOWSKI (43110)

Director of Atlantic Energy Technology, Atlantic Southern Vice President-Controller and Assistant Treasurer of Properties and ATE Investment Atlantic Electric Senior Vice President-Energy Supply of Atlantic Electric Certified Public Accountant Mr. Harlacher has served as Vice President of Atlantic Energy Mr. Frankowski was named Vice President-Controller and since 1987 and was named Senior Vice President-Energy Assistant Treasurer of Atlantic Electric in 1993. He was Supply of Atlantic Electric in 1993. Prior to that, he was previously Controller-Corporate Services. Prior to that, he Senior Vice President-Utility Operations and Senior Vice held management positions in accounting and taxes. He President-Corporate Planning and Services of Atlantic joined Atlantic Electric in 1983 as Manager of Internal Electric. He joined Atlantic Electric in 1965 as an engineer.

Auditing Services.

HENRY K. LEVARI, JR. (45122)

JAMES J. LEES (49123)

Vice President of Atlantic Energy Vice President-Marketing of Atlantic Electric Director of all subsidiaries Senior Vice President-Marketing & Customer Operations of Mr. Lees was named Vice President-Marketing of Atlantic Atlantic Electric Electric in 1993. He was previously Vice President-Marketing and Rates and Vice President-Rates of Atlantic Electric. He Mr. Levari has served as Vice President of Atlantic Energy joined Atlantic Electric in 1970 as an engineer.

since 1991 and was named Senior Vice President-Marketing

& Customer Operations of Atlantic Electric in 1993. Prior to ERNEST L. JOLLY (41113) that, he was Senior Vice President-Corporate Planning and Vice President-External Affairs of Atlantic Electric Services and Vice President-Power Delivery of Atlantic Mr. Jolly was named Vice President-External Affairs of Atlantic Electric. He joined Atlantic Electric in 1971 as an engineer. Electric in 1992. Prior to that, he held station manager posi-J. G. (JERRY) SALOMONE (53117) tions at Deepwater Generating Station from 1987 to 1992. He Vice President and Treasurer of Atlantic Energy joined Atlantic Electric in 1980 as an engineer.

Director of all subsidiaries J. DAVID McCANN (42121)

Senior Vice President-Finance & Administration of Vice President-Engineering & Construction Services of Atlantic Electric Atlantic Electric Certified Public Accountant Mr. McCann was named Vice President- Engineering &

Mr. Salomone has served as Vice President of Atlantic Energy Construction Services of Atlantic Electric in 1993. Prior to since 1987. He was named Senior Vice President-Finance & that he was Vice President-Power Delivery and Vice President, Administration of Atlantic Electric in 1993. Prior to that, he Trea~urer and Assistant Secretary of Atlantic Electric. He was Senior Vice President-Finance & Accounting and joined Atlantic Electric in 1972 as an engineer.

Treasurer. He has served as Chief Financial and Accounting Officer of Atlantic Electric since 1984. He joined Atlantic HENRY C. SCHWEM M, JR. (52124)

Electric as Assistant Controller in 1976. Vice President-Power Generation & Fuels Management of Atlantic Electric SCOTT B. UNGERER (35113)

Mr. Schwemm was named Vice President-Power Generation &

Vice President of Atlantic Energy Fuels Management of Atlantic Electric in 1993. Prior to that, President and Director of Atlantic Southern Properties, he served as Vice President-Production of Atlantic Electric Atlantic Generation, Atlantic Energy Technology and since 1980. He joined Atlantic Electric in 1969 as an engineer.

ATE Investment Mr. Ungerer was elected to the above positions in January LOUIS M . WALTERS (41 115) 1994. Prior to that he served as Manager-Production Vice President-Treasurer and Assistant Secretary of Economics, Manager-Joint Generation Projects and most Atlantic Electric recently Manager-Business Planning Services. He joined Treasurer of Atlantic Southern Properties , Atlantic Atlantic Electric in 1980 as an engineer. Generation, Atlantic Energy Technology and ATE Investment Certified Public Accountant SABRINA D. McMILLIAN (3818)

Mr. Walters was elected Vice President-Treasurer and Assistant Secretary of Atlantic Energy Secretary of Atlantic Electric in 1993. Since 1991, he had Vice President-Legal and Secretary of Atlantic Electric served as General Manager-Treasury and Finance of Atlantic Acting Secretary of Atlantic Southern Properties, Electric. Prior to that, he held management positions in treas-Atlantic Generation, Atlantic Energy Technology and ury, taxes and accounting. He joined Atlantic Electric in 1978 ATE Investment as an accountant.

R" l!J ,)

t OARD OF DIRECTORS Atlantic Energy, Inc. and Subsidiaries (as ofDeceinber31, 1993)

JOS. MICHAEL GALVIN, JR. JERROLD L. JACOBS Mr. Galvin, a Director since 1978, is president and chief Mr. Jacobs is President and Chief Executive Officer of the Com-executive officer of the South Jersey Heal th Corporation- pany and of Atlantic City Electric Company. He is a Director of The Memorial Hospital of Salem County. He is a director of all of the Company's subsidiaries and has been with the Com-Woodstown National Bank and the Center for Health Affairs . pany for 32 years . He is a graduate of the Newark College of He is a graduate of the University of Scranton and holds a Master Engineering (New Jersey Institute of Technology). Age: 54.

of Business Administration from Xavier University. Age: 48. Professional Experience: utility operations.

Professional Experience: personnel, health care management. Committee Membership: Ex-officio member of all committees Committee Chairman: Personnel. Committee Membership: except Audit and Personnel.

Audit; Energy, Operations & Research; Pension & Insurance.

KATHLEEN MacDONNELL GERALD A. HALE Ms. MacDonnell was elected as a Director in 1993. She is vice Mr. Hale, a Director since 1983, is president of Hale Resources, president of Campbell Soup Company and president of its Inc., a health care. industrial/natural resource company. He is Frozen Foods Group. She is a member of the board of trustees a director of New Jersey Manufacturers Insurance Company, of the West Jersey Hospital System, a member of the board of New Jersey Business and Industry Association and Hoke, Inc. directors of the Camden County Girl Scouts and a trustee of He is a graduate of Western Michigan University. Age: 66. the Campbell Foundation. She is a graduate of the University Professional Experience: industrial minerals, chemicals and of Massachusetts and holds a Master of International Manage-fabricated O.E.M. products. ment from the American Graduate School of International Committee Chairman: Corporate Development. Committee Management. Age: 45. Professional Experience: consumer Membership: Audit; Energy, Operations & Research; Personnel. products, marketing and international management.

MATTHEW HOLDEN, JR.

Committee Membersh ip: Audit; Energy, Operations &

Research; Finance & Investor Relations; Pension & Insurance.

Mr. Holden, a Director since 1981, is the Henry L. and Grace M. Doherty Professor of Government and Foreign Affairs RICHARD B. McGLYNN at the University of Virginia. He is a former commissioner of Mr. McGlynn, a partner in the law firm of LeBoeuf, Lamb, the Federal Energy Regulatory Commiss ion and the Wisconsin Leiby & MacRae, has been a Director since 1986. He is a former Public Service Commission . He holds a Doctorate of Political commissioner of the New Jersey Board of Public Utilities and Science from Northwestern University. Age: 62. Professional a former judge in Essex County, New Jersey. He is a graduate Experience: regulatory affairs, energy consultation, arbitration. of Rutgers Law School and Princeton University. Age: 55.

Committee Chairman: Audit. Committee Membership: Professional Experience: law, utility regulation.

Corporate Development; Pension & Insurance; Personnel. Committee Chairman: Pension & Insurance. Committee CYRUS H. HOLLEY Membership: Corporate Deve lopment; Energy, Operations

& Research; Finance & Investor Relations.

Mr. Holley, a Director since 1990, is president of Management Consulting Services. He was formerly chief operating officer, BERNARD J. MORGAN executive vice president and a director of Engelhard Corpora- Mr. Morgan, a banking industry executive, was elected as a tion. He is a graduate of Texas A & M University. Age: 57. Profes- Director in 1988. He is a director of St. Joseph's University and sional Experience: industrial minerals, chemicals and precious a member of the Business Advisory Board of the Girl Scouts of metals. Greater Philadelphia. He holds a Master of Business Adminis-Committee Chairman: Energy, Operations & Research. tration from the Wharton School of the University of Penn-Committee Membership: Corporate Development; Finance sylvania. Age: 57. Professional Experience: banking, finance.

& Investor Relations; Personnel. Committee Chairman: Finance & Investor Relations.

E. DOU GLAS HUGGARD Committee Membership: Corporate Development; Pension

& Insurance; Personnel.

Mr. Huggard, a Director since 1984, is Chairman of the Board of the Company. He served as Chairman and Chief Executive HAROLD J. RAVECHE Officer of the Company and Atlantic City Electric Company Dr. Raveche, who became a Director in 1990, is president of the from 1989 until 1993, when he retired after completing 38 years Stevens Institute of Technology. He was formerly the dean of of service. Prior to that, he was Director, President and Chief science of the Rennsselaer Polytechnic Institute. He is a direc-Executive Officer of the Company and Atlantic City Electric tor of National Westminster Bancorp, Inc. and National West-Company. He holds a Master of Mechanical Engineering from minster Bank NJ, a commissioner of the New Jersey Commission the University of Delaware. Age: 60. Professional Experience: on Science and Technology and a member of the Newark Inter-utility operations. national Airport Advisory Committee. He holds a Doctorate of Committee Membership: Ex-officio member of all committees Physical Chemistry from the University of California. Age: 50.

except Audit and Personnel. Professional Experience: higher education, science and tech-nology policy.

Committee Membership: Audit; Corporate Development; Energy, Operations & Research; Finance & Investor Relations .

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