ML18093A739

Delmarva 1987 Annual Rept.

ML18093A739
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Site:	Salem, Hope Creek, 05000000
Issue date:	12/31/1987
From:	Curtis N DELMARVA POWER & LIGHT CO.
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ML18093A737	List: ML18093A736 ML18093A738 ML18093A739 ML18093A740 ML18093A741
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DELMARVA P 0 W E R Annual

• Report

8(1:3210505 PDR ADOCK I

• r~

A MAJOR CHALLENGE FACING DELMARVA POWER IS TO PROVIDE ENERGY FOR THE FUTURE AT THE LOWEST REASONABLE COST.

PART OF OUR REPORT THIS YEAR DISCUSSES HOW WE INTEND TO MEET THIS CHALLENGE SO OUR CHILDREN, SUCH AS THE ONES ON THE COVER OF OUR ANNUAL REPORT, CAN CONTINUE TO GROW AND RELY ON ENERGY TODAY AND TOMORROW.

Percent Increase FINANCIAL HIGHLIGHTS 1987 1986 (Decrease)

Revenues $ 712.5 million $ 714.9 million (0.3)

Net Income $ 79.8 million $ 96.1 million (17.0)

Earnings Per Share $ 1.60 $ 1.94 (17.S)

Dividends Declared $ l.42Vz $ 1.36113 4.S Common Stock Outstanding Average Shares 45,717,450 45,717,450 Common Stock Book Value $ 13.01 $ 12.85 1.2 Construction Expendituresc1i $ 142.2 million $ 102.6 million 38.6 Internally Generated Funds< 2i $ 123.2 million $ 159.0 million (22.S)

Electric Sales 9.57 billionkwh 9.21 billionkwh 3.9 Electric Customers (year end) 341,308 329,911 3.5 Average Annual Residential Usage ., 9,\52 kwh 8,605 kwh 6.4 Gas Sales I 15.41 millionmcf 15.95 million mcf (3.4)

Gas Customers (year end) 79,002 77,551 1.9 Average Annual Residential Usage 86.9 mcf 86.3 mcf 0.7

<1J Excludes Allowancefor Funds Used During Construction. I

<2J Net cash flow from operating activities less prefeiTed and commoi:i dividends.

2 CENTRALLY LOCATED WITHIN THE MAJOR EAST COAST MARKETS, THE DELMARVA PENINSULA HAS A UNIQUE BLEND OF COMMERCIAL, AGRICULTURAL, INDUSTRIAL, AND RECREATIONAL ACTIVITIES.

DELMARVA POWER SERVES 341,000 ELECTRIC CUSTOMERS THROUGHOUT MOST OF THE 5, 700 SQUARE MILE PENINSULA AND 79,000 NATURAL GAS CUSTOMERS IN A 275 SQUARE MILE AREA IN NORTHERN DELAWARE. THE COMPANY EMPLOYS 2,625 PEOPLE.

THE CHAIRMAN'S PERSPECTIVE Though earnings decreased this year, key financial indicators show Delmarva Power is still 1987 was an extraordinary year financially strong. AFUDC is at Delmarva Power. The most low. External financing in 1987 significant events were: was minimal. Coverage ratios

• Earnings decreased for the first While the text of this report remain good.

time in seven years, primarily discusses the events and accom- During the past five years, we because ofrate reductions in all plishments of this unusual have used cash available during the electric regulatory jurisdictions. year, the remainder of this letter period between major power

• The summer peak grew beyond discusses how we will meet the plant construction programs to expectations because of the challenges ahead. position ourselves for the future strong economy on the Delmarva Restoring Earnings Although by augmenting earnings through Peninsula. sales increased, earnings in 1987 investments and catching up These events brought two were $1.60 per share compared on bringing support facilities to 3

challenges ahead into crisp focus: to $1.94 per share in 1986, pri- efficient levels.

• Restore earnings to at least the marily because of rate reductions Though subsidiaries contrib-1986 level despite lower allowed ordered by the four commissions uted only 1 cent to 1987 earnings, rates ofreturn. regulating the company's elec- we expect subsidiary earnings

• Provide reliable, competitively tric rates. The regulators were to grow modestly over the next priced new capacity in a rapidly responding to the decline in few years. Also, as the com-growing and changing world. capital costs nationally. Also con- pany enters a period of building As the accomplishments tributing was the write off of new power plants, most of our discussed in this report demon- replacement power costs related support facilities will be in good strate, Delmarva Power has the to the shutdown of the Peach shape and will not require peoplewith the skills, participative Bottom nuclear power plant additional investments.

style, and drive to meet these ordered by the Nuclear Regulatory However, without higher challenges. Commission (NRC). authorized returns on equity, Nev Curtis

earnings growth will be slow. In addition to rate relief, the major factors for improving earnings are continued tight cost control and tric load growth appears to be growth. The Delmarva Peninsula coming much more rapidly than is strong economically. In Dela- expected. The key element of ware, employment grew by 4% our strategy is flexibility. needs. Base load plants are be-and the unemployment rate aver- coming increasingly expensive aged 3.1 %, the second lowest The major factors for and, on a national level, increas-in the nation. New businesses, ingly difficult to include in rate improving earnings, in spurred by a favorable business base. We also see volatility in the climate, continue to locate and addition to rate relief, economy, energy costs, energy expand in northern Delaware, are continued tight cost supplies, and governmental regu-and the shore and bay areas con- lations. Thus, the company is control and growth. The tinue to develop. Delmarva working to minimize capital Power has more customers Delmarva Peninsula is investment and match capacity using more electricity than ever strong economically. expansion to load growth as much before. In 1987, the company as possible.

connected 11,397 new electric In 1987, peak summer demand Delmarva Power's plan to meet customers. Residential sales in- grew 13.3%. At the summer future energy needs is called creased 9.5% and use per peak, reserve levels were one- Challenge 2000 and is described customer increased 6.4%. Com- half their normal levels, indicating in more detail on pages 16 and 17.

mercial sales increased 7% and use that expected reserve margins in It is a combination of options per customer increased 2.6%. 1988, 1989, and 1990 are likely to designed to provide as much flexi-Growth is expected to continue be below normal. bility as possible in responding at a moderate rate. Historically, electric companies to changing conditions.

Providing CapacUy The other satisfied such needs by building In response to the rapid growth major challenge facing us is more power plants. However, in peak demand in 1987, the to supply adequate amounts of today we see no single source for company has moved ahead with energy in a future where elec- supplying additional energy the purchase of two, 100 megawatt Oscar L Carey john R Cooper Howard E Cosgrove Sally V. Hawkins Donald W. Mabe

the March shutdown that there were problems at the plant.

combustion turbines which we However, as a minority owner, expect to run between 500 and we were not privileged to infor-3000 hours per year, depending on mation indicating the gravity of circumstances. Assuming timely the problems until February, 1988, Other alternatives for recovery permitting, one would be installed of these costs are being con-by mid 1989, and the other, a In response to rapid sidered.

few months later. This project will While 1987 served to shape the growth, the company has cost about $44 million. The $220 challenges ahead, it also demon-per kilowatt cost of this project moved ahead with the strated that we have people with is extremely low compared to the abilities to meet those purchase of two, 100 alternatives. The company also challenges. The rest of this report megawatt combustion accelerated the development of discusses their achievements.

several programs designed to turbines ... There are reasons to be confident.

reduce customers' use at peak Flexible strategies are in place and periods such as special peak man- when a report from the Institute are working. A participative work agement rates for industrial of Nuclear Power Operations style has been developed and is 5

customers and appliance control (INPO) was made public. yielding creativity and efficiencies.

devices for residential customers. As a result of the seriousness The people are talented. Success On another matter, the directors of the charges in the INPO report will come from this combination.

and managers of the company and considering alternatives Management appreciates the have wrestled for some time with facing the company, the board of efforts of all our employees the serious ramifications of the directors, on management's for they are truly the creative shutdown of the Peach Bottom recommendation, decided not and effective force moving the Nuclear Generating Station to seek recovery from customers company.

ordered by the NRC. of replacement power costs Sincerely, Delmarva Power owns 7.51 % of related to the NRC-ordered shut-Peach Bottom which is operated down ofabout $1 million a month.

by Philadelphia Electric Co. (PE). For 1987, the effect on earnings NEV CURTIS We were generally aware before was 11 cents per share. FebrualJ' 11, 1988

• • • ~~..

• ~**

~......

fames T. McKinstry fames 0. Pippin,]r. William G. Simeral David D. Wakefield r5 HarlandM Wakefield,fr.

6 SEVERAL HOT SUMMER DAYS, ALONG WITH THE STRONG ECONOMY OF THE DELMARVA PENINSULA, HAD A SIGNIFICANT IMPACT ON THE COMPANY IN 1987. THE PEAK DEMAND FOR ELECTRICI1Y GREW BY AN UNEXPECTEDLY HIGH 13.3%. WHILE MANY PEOPLE FOUND COMFORT THROUGH AIR CONDITIONING, AN ICE CREAM CONE AT THE BEACH COULD WORK TOO.

THE STOCKHOLDERS' PERSPECTIVE The price of common stock decreased to $18 from $22, mainly because of the rate actions. of the AFUDC ratio, a key indicator for commissions and the decline in financial analysis, remained low financial markets. The company's at 5.8% of net income.

Please note that the numbers in bond rating also declined, in the Facilities Since there had this report reflect the 3 for 2 differing terms of the different been little significant upgrading common stock split that was effec- agencies, from a strong "AA:.' to of support facilities in the past 30 tive April 29, 1987. Historical the combination of a lower "AA:.' years, the company has used the numbers usedfor comparisons and a strong "A", again primarily period since the completion of its have been restated to reflect because of the rate actions of last major power plant in 1981 this split. the commissions. to modernize several of its sup-Financial Position Delmarva Electric sales increased 3.9% port facilities. Projects completed Power increased quarterly divi- over 1986 levels, despite the shut- in 1987 included a new data dends for the 11th consecutive down of a large steel mill, because processing building and new year. of a strong economy on the office and locker room facilities Quarterly dividends increased Delmarva Peninsula, favorable at the Edge Moor power plant.

by 3.3% to 36.5 cents per share for weather, and a 3.5% increase in Projects underway include up-an indicated annual rate of $1.46. customers. Residential electric grading of general offices of 7

Earnings decreased to $1.60 per sales increased 9.5%, and com- the company's corporate head-share from $1.94 per share a year mercial electric sales increased quarters in Wilmington and ago. The decline in earnings 7%. Gas sales decreased 3.4%, divisional headquarters in resulted primarily from rate mainly because of the shutdown Salisbury, Maryland.

reductions ordered by the four of the steel mill. However, adjusted Peach Bottom On March 31, commissions regulating the com- for the loss of the mill, gas sales 1987, the Nuclear Regulatory pany's rates and the write off of increased 6.2%. This increase Commission (NRC) ordered the the Peach Bottom replacement reflects growth in the residential plant shut down for a variety of power costs. and commercial sectors and the problems including operator The factors for improving rise in the price of oil. inattention. Delmarva Power earnings to at least the 1986 level The company paid for 87% of owns 7.51 % of Peach Bottom are discussed in the chairman's its construction expenses with which is operated by Philadelphia letter in the front of this report. internally-generated cash. The Electric Co. (PE).

2200 1200 Summer and winter peaks 0 grew in 1987 compared to 1986.

JFMAMJJASOND Monthly Peak in Megawatts

On February 2, 1988, PE made public a report from the Institute PE officials have informed of Nuclear Power Operations Delmarva Power that they expect board is recommending the elec-(INPO) that was critical of the plant to resume operations tion ofH. R. Landon, executive Philadelphia Electric's operation later in 1988. However, this vice president of the company, of Peach Bottom during the last depends on permission from the Lida W. Wells, director and presi-several years. NRC which Delmarva Power dent of Wells Agency, Inc., and Dr.

As a result of the seriousness of can not predict. Elwood P. Blanchard, a director the INPO report and in con- Rate Matters As a result of and executive vice president of sideration of alternatives facing declining capital costs nationally the Du Pont Company.

Delmarva Power, the company and the revisions of the federal Simeral, who will retire effective decided not to seek recovery of tax laws, regulators reduced April 26, 1988, was elected to the approximately $1 million a Delmarva Power's rates. From the Board of Directors in 1981.

month in replacement power costs August, 1986, throughJanuary, His extensive experience and from customers. For 1987, this 1988, the reductions have been knowledge as a businessman and decision reduced earnings by 11 $34.3 million in Delaware, $12.6 community leader have benefitted cents per share. million in Maryland, $805,000 the company immeasurably.

The company will continue to in Virginia, and $6.4 million for Carey, who will resign effective consider other alternatives for wholesale customers regulated April 26, 1988, has served on 8 recovery of these costs. by the Federal Energy Regulatory the Board for 17 years. His good The company believes that the Commission (FERC). judgement and keen wisdom safe and expeditious startup of The company filed a $3.4 million have been valuable assets.

the units at Peach Bottom is rate increase request with the Wakefield will retire as senior important to both stockholders FERC to recover higher expenses vice president and director effec-and customers. The NRC has and earn a reasonable return on tive April 1, 1988. He worked reacted favorably to some of PE's its investment. The company also 3 7 years for the company. He was startup plans, and PE has stated sought $5.0 million over two elected a director in 1984. His that it is committing the resources years as part of the settlement of extensive operating knowledge to correct the problems and their the Summit Nuclear Power Plant. and utility perspective have helped root causes. It is clearly PE's Director Changes WilliamG. the company greatly.

responsibility to implement a Simeral, Harland M. Wakefield, Jr., These people will be missed.

recovery plan to return Peach and Oscar L. Carey will leave the Other management changes Bottom to service. board of directors in 1988. The are detailed on page 48.

Harley Wakefield ifrom left) inspects the Data Center's new ice-storage cooling system with the company's Duane Taylor and Charlie Frampton.

9 THE ARTIST'S SKETCH SHOWS THE WOOD-BURNING POWER PLANT BEING DEVELOPED IN THE HILLS OF BURNEY, CALIFORNIA, BY DELMARVA CAPITAL TECHNOLOGY CO.,

ONE OF DELMARVA POWER'S SUBSIDIARY COMPANIES. THE PHILOSOPHY OF THE SUBSIDIARY EFFORTS IS TO SEEK RETURNS WHICH EXCEED THOSE OF THE REGULATED BUSINESS AND NOT DETRACT FROM THE CORE OPERATION OF THE PARENT ENERGY COMPANY.

IO A NEW AUTOMATED DISPATCH SYSTEM WILL BE INSTALLED IN MANY COMPANY SERVICE VEHICLES IN 1988 TO PROVIDE CUSTOMERS WITH BETTER INFORMATION ABOUT WHEN SERVICE PERSONNEL WILL ARRIVE.

OTHER EXAMPLES OF WHERE THE USE OF NEW TECHNOLOGY HAS BEEN USED TO IMPROVE EFFICIENCY INCLUDE RECORDING OF METER READINGS, INJECTING FUEL INTO POWER PLANT BOILERS, AND DISPENSING FUEL INTO COMPANY VEHICLES.

THE CUSTOMERS' PERSPECTIVE The price ofenergv continues to be a major concern ofmost customers and the company.

Delmarva Power's prices are among the lowest in the region. in the service territory; and Electric comparisons (in cents/ reduced rates caused by lower kwh) are: New York, il.53; allowed rates of return due to Boston, 9.36; Philadelphia, 8.98; reduced capital costs nationally.

Meter reader Sharon Broum records a customer's Newark, N ]., 8.49; Delmarva As the price of electricity energy use with a new computerized device.

Peninsula, 6.34; Baltimore, 6.15. declines, customers use more of For natural gas (in cents/ccf): it. Average residential customer Baltimore, 61.80; New York, use increased 6.4% in 1987 and installment payments, load limi-60.05; Newark, NJ., 56.68; average commercial customer use ters, and community sources Philadelphia, 53.91; Wilmington, increased 2.6%. of funds. The individualized 50.22; Boston, 50.04. Customer Information The approach has enabled the com-Throughout the service territory, company provides general infor- pany to achieve both reduced rates have declined. In Delaware, mation to customers through the cut offs and reduced write offs. II for example, the price of elec- monthly residential newsletter, Customer Opinions The com-tricity for a residential customer "Energy News You Can Use," pany's customer approval rating using 750 kilowatt hours of the quarterly commercial news- increased for the fifth consecutive electricity per month is 11 % less letter, "Energy Exchange," and year. In the 1987 survey, 78% of than it was in 1983. the quarterly senior citizens news- residential customers gave the The reasons include the letter, "Silver Bulletin." company a favorable rating company's conversion from Marketing representatives and compared with 74% in 1986; 71 %

primarily an oil-burning utility to customer representatives offer in 1985; 66% in 1984; 59% in primarily a coal-burning utility; one-to-one help to customers. For 1983; and 46% in 1982.

aggressive internal cost-control those customers having diffi- Reliable service and stable utility and team-effectiveness programs; culty paying their bills, customer rates were the characteristics the renegotiation of several representatives can provide mentioned most frequently fuel contracts; the strong economy information about budget billing, in the survey.

As the sun sets, the lights come on at a home near Rehoboth Beach, Delaware.

I2 MARINE LIFE THRIVES NEAR AN UNDERWATER ARTIFICIAL REEF BUILT IN THE ATLANTIC OCEAN USING BLOCKS OF COAL ASH FROM THE COMPANY'S POWER PLANTS. DEVELOPED IN CONJUNCTION WITH THE UNIVERSITY OF DELAWARE, THE REEF PROJECT EARNED AN "OUTSTANDING CONSERVATION AWARD" FROM THE INSTITUTE OF URBAN WILDLIFE.

MAJOR OPERATING EVENTS natural gas; and 11 % nuclear through nuclear power plants partially owned by Delmarva System Reliability The people Power but run by other com- in and associated with the system New Peak - On July 21 at 5 p.m., panies. Generating reserves at the operations groups put forth a customers demanded 2,084 mega- unusually high 1987 summer special effort in 1987 to prepare watts of electricity, 13.3% more peak were 9.3%. for any problem which could than they have at any one time Environment - The company, have been caused by the loss of before. This year's growth in the Delaware Citizens for Clean the line across the Delaware River summer peak was dramatic. Air, and federal and state envi- and the unplanned shutdown During this summer, the previous ronmental officials are working of the Peach Bottom Nuclear peak of 1,840 megawatts was together to develop a cost-effective Generating Station.

exceeded 14 times including one plan to solve an infrequent As the summer progressed, Saturday. "downwash" air pollution prob- there were several tense moments.

Much of the increased growth lem at the Indian River power However, employees who had was caused by the strong econ- plant. Since the federal Environ- anticipated problems used con-omy of the Delmarva Peninsula. mental Protection Agency has tingencies and coped well. On In 1987, the company connected issued an order requiring a solu- the day of the 13.3% increase in 13 11,397 new electric customers. tion by 1992, a decision on the peak demand, customers did Power Plant Operations technology to be used will be not experience major interrup-Delmarva Power's wholly-owned made in 1988. tions or voltage reductions.

and operated coal and oil-fired Also, most of the waste water Natural Gas Delmarva Power power plants ran well. The average streams at the Edge Moor plant completed its connection to a availability rate for these plants were connected to the Wilmington major interstate pipeline be-was 84.4% compared to the most sewage treatment plant, reducing longing to the Columbia Gas recent industry average of 83 .1 % . discharges into the Delaware Transmission Corporation. The This record placed the company River. More than 11,000 baby rock- connection gives the company two among the top companies of the fish reared by employees at the suppliers of natural gas, thereby P]M interconnection. Vienna power plant with company increasing the reliability, flexi-The company's fuel mix is facilities were released into bility, and economy of the balanced: 67% coal; 22% oil and the Nanticoke River. company's gas supply.

Employeesfinished.first again in a contestforfewest fleet accidents.

River Crossing At 4:19 p.m.

on Sunday, March 1, 1987, a rain of steel and wire poured into the Delaware River as a tanker Also, the training for Delmarva rammed a 43-story tower carrying Power's participative skills a 500,000 volt transmission line program was expanded to include from Delaware to New Jersey.

all employees. A gain-sharing Within hours, a massive cleanup, program, called the Corporate planning, and $25 million res-Performance Incentive Plan, toration project was underway.

A unique.floating crane was used was begun to reward team Nine months later, the line was to help rebuild the damaged towers.

accomplishments. back in service. Senior managers There continues to be a high and joint owners praised the The gas division also began to degree of cooperation between project team for setting and install gas distribution facilities union leadership and company achieving an ambitious restora-along U.S. Route 40 to take management to improve tion goal.

advantage of an area of growth productivity, wellness, and The line is a major link in the southwest of the city of Wilming- working environments. regional power grid.

ton. Progress was also made on Community Activities Through The forces unleashed at the the company's multi-year plan to the contributions of stockholders moment of the accident required 14 replace deteriorating, uncoated, and customers, the Good Neigh- the total replacement of the two steel gas main. In 1987, the com- bor Energy Fund contributed towers in the center of the river, pany connected 1,451 new gas more than $208,000 to the com- the replacement of one foun-customers. munity for customers having dation, the replacement of parts Employees A new job review trouble paying utility bills. The of two other towers, and the system was developed by em- highly successful Radio Watch reconstruction of another tower.

ployees for non-bargaining unit program continued to summon A curtain of air bubbles was employees. The new system aid, through company vehicles created in the river to protect puts increased emphasis on how with radios, for people throughout marine life while damaged foun-jobs are done as well as on the peninsula. Employees sur- dations were removed.

bottom-line accomplishments. It passed their goal by 54% and Litigation is underway to allows larger rewards for higher contributed $241,000 to the recover damages from the ship's performance. United Way. owners.

A "wellness expo" was heldfor 60 Plus customers.

15 FROM ON TOP OF THE TOWER ABOUT 400 FEET ABOVE THE DELAWARE RlvER, THE PASSING TANKER LOOKS LIKE A TOY TO THE WORKMEN REBUILDING THE DAMAGED HIGH VOLTAGE TRANSMISSION LINE. THE MASSIVE RESTORATION PROJECT WAS COMPLETED ON BUDGET AND A MONTH EARLY, SAVING ABOUT $2.3 MILLION IN REPLACEMENT POWER COST FOR REGIONAL UTILITIES.

16 HOMES RISING OUTSIDE WIIMINGTON ILLUSTRATE THE SIGNIFICANT GROWTH OCCURRING ON THE DELMARVA PENINSULA.

MORE CUSTOMERS ARE USING MORE ELECTRICI1YTHAN EVER BEFORE. THE PLAN TO PROVIDE ELECTRICI1Y FOR THIS GROWTH IS CALLED CHALLENGE 2000. IT INCLUDES A COMBINATION OF ALTERNATIVES DESIGNED TO PROVIDE FLEXIBILI1Y AT TIMES OF RAPID CHANGES.

T H E F u T u R E as possible to allow emerging power plant technology to develop so that the most cost-effective plants could be built at a time of The key challenge for the future increasing competition. How-is to supply adequate amounts ever, at the unusually high peak of electricity at the lowest in 1987, reserve levels were one-reasonable cost throughout the half their normal levels, indicating mental regulations. Licensing seroice territory. that reserve margins in 1988, activities are underway. The com-Challenge 2000

• Delmarva 1989, and 1990 are likely to be pany is also talking with industrial Power's plan, calle,d Challenge below normal and some additional cogeneration developers about 2000, is a combination of options sources of electricity (called new projects that might provide designed to enable the company supply-side options) needed to base load generation beyond 1990.

to be as flexible as possible in be developed quickly. For the On the demand-side, the responding quickly to changing future, both supply and demand company has received approval demand for energy, emerging options will be needed, and the of rate structures designed to technologies, fluctuating fuel board of directors accelerated encourage industrial customers 17 costs, and changing governmental programs within each strategy. to use their own diesel generators regulations. To meet peak demands from the at peak times. It has also acceler-The company sees no single supply-side, the company ated its program to install devices solution to supplying future purchased rwo, 100-megawatt in customers' homes which energy needs. Rather, it foresees combustion turbines to run synchronize the normal cycling a blend of small power plants berween 500 and 3000 hours0.0347 days <br />0.833 hours <br />0.00496 weeks <br />0.00114 months <br /> a of air conditioners and water using the most advanced tech- year depending on circumstances. heaters to reduce peak usages.

nology and customer programs The first would be installed by Customers in New Castle County, to reduce use at peak periods. mid 1989 and the second, a few Delaware, can volunteer for the Previous annual reports discussed months later. They will be located program in early 1988. The com-the need to emphasize customer at the Edge Moor Power Station, pany is also encouraging small conservation alternatives (called use natural gas or oil, and comply power production and conserva-demand-side options) for as long with all applicable environ- tion by all customers.

3250 3000 1987 Capacity Requirement Forecast 2500 I~~Cfllect,,Sapacity 2250 2000 Programs to manage electricity used 1750 during peak periods can delay the need (Reserve Margin is 15%)

for new generating capacity.

1980 1982 1984 1986 1988 1990 1992 1994 Capacity Requirement Forecast in Megawatts

20 Financial Review and Analysis 25 Report ofManagement 25 Report ofIndependent Accountants 26 Consolidated Financial Statements 32 Notes to Consolidated Financial Statements 46 Consolidated Statistics 48 Officers 49 Directors 50 Stockholder Information

Delman:a Po1cer C- Lig/J1 Company SELECTED FINANCIAL DATA (Dollars in Thousands)

For t/Je Years Ended December 31 1987 1986 1985 1984 1983 OPERATING Operating Revenues $ 712,479 $ 714,863 $ 722,834 $ 702,593 $ 649,799 Operating Income I 129,138 124,967 134,738 135,515 133,209 Net Income 79,803 96,123 96,638 92,110 I 85,063 EARNINGS AND Earnings Per Share Dividends Declared on 1.60 J~ 1.84 I 1.75 I

1.63 DMD ENDS Common Stock Average Shares 1.42v, 1.361 i.292;,I 1.22 I 1.12 Outstanding (000) 45,717 45,717 45,717 45,372 44,312 Total Assets 1,799,822 1,742,827 I 1,681,256 1,591,630 1,533,263 Construction I Expenditures<ll 142,239 102,597 94,923 79,488 76,056 Internal Generation ofFunds<2J 123,198 158,951 I 148,880 I 100,493 I 98,517 I CAPITALIZATION Long-Term-Debt<3J 670,738 666,979 638,090 567,761 567,935 Preferred Stock without I mandatory redemption 103,306 103,306 105,000 105,000 105,000 Preferred Stock with I I mandatory redemption<4J 3,277 4,077 5,992 47,836 49,383 Common Equity 594,975 587,449 561,811 539,650 I . 503,513 Total $1,372,296 $1,361,811 $1,310,893 $1,260,247 I $1,225,831 CAPITALIZATION Long-Term Debt 49% 49% 49% 45% 46%

RATIOS Preferred Stock without I mandatory redemption 8% 8% 8% 8% 9%

Preferred Stock with mandatory redemption 0% 0% 0% 4% 4%

Common Equity 43% 43% 43% 43% 41%

Total 100% 100% I 100% 100% 100%

ELECTRIC/GAS Electric Sales (kwh 000) 9,565,276 9,205,795 8,530,520 8,308,233 7,878,476 I SALES Gas Sales (mcfOOO) 15,411 15,952 15,708 17,239 16,449  !

<1JExcludes Allowancefor Funds Used During Construction.

<2JNet cas/J flow from operating activities less preferred and common dividends.

C3J Includes long-term debt due within one year.

<4J Includes mandatory redemption due within one year.

19

Delmarva Power & Ligbt Company FINANCIAL REVIEW AND ANALYSIS RESULTS OF EARNINGS OPERATIONS Earnings per share of common stock decreased to $1.60 in 1987 from $1.94 in 1986. The 34¢ decrease was principally attributed to electric rate decreases and the write-off of the Peach Bottom replacement power expenses. Increased electric sales partially offset the impact of these unfavorable factors.

The Peach Bottom Nuclear Generating Stati9n, in which Delmarva Power has a 7.51 % ownership interest, remains shut down due to a March 31, 1987, Nuclear Regulatory Commission (NRC) order as discussed in Note 11 on page 41. For the plant to receive authorization to return to service, Philadelphia Electric Company (PE), operator and partial owner of Peach Bottom, must provide the NRC with an acceptable plan which will assure that Peach Bottom will operate safely and comply with all NRC regulations. Part one of a two part plan to restart Peach Bottom was submitted to the NRC in November 1987. PE plans to submit the second part of the restart plan in the first quarter of 1988.

On February 2, 1988, PE officials made public a report from the Institute of Nuclear Power Operations (INPO) that was very critical of PE's operation of Peach Bottom over the last several years. Due to the seriousness of the new information, not previously made available to Delmarva Power as a minority owner, the Company decided not to pursue recovery of replacement power costs from customers. Accordingly, the Company expensed $9.2 million (11 ¢ per share) of replacement power costs in the fourth quarter. Future replacement power costs resulting from the NRC mandated shutdown of Peach Bottom are estimated at about $1 million per month and Earnings and Dividends will be expensed as incurred. The Company shall continue to consider other alternatives for Declared recovery of these costs, as appropriate.

(cents)

The Company believes that the safe and expeditious startup of the units at Peach Bottom is 200 important to both our customers and our stockholders. The NRC has reacted favorably to some of PE's startup plans and PE has stated that it is committing the resources necessary to correct the problems and their root causes. It is clearly PE's responsibility to implement a recovery plan to return Peach Bottom to service. PE expects the plant to resume operations later this year.

However, this depends upon permission from the NRC, which Delmarva Power cannot predict.

Earnings per share of common stock for 1986 increased 10¢ from $1.84 in 1985, primarily due to higher electric sales, increased investment income and lower financing costs, partially offset by rate decreases and higher operation and maintenance expenses.

DMD ENDS On December 29, 1987, the Board of Directors raised the quarterly dividend on common stock to 36112¢ per share ($1.46 indicated annual rate) from 35113¢ per share. This 3.3% improvement marks eleven consecutive years of increasing dividends and reflects the Company's goal to moderately increase dividends annually, earnings permitting, in order to provide stockholders with a fair and competitive return on their investment.

• Earnings

• Dividends 20

Del111arl'a Power & Ligbt Company FINANCIAL REvlEW AND ANALYSIS RESULTS OF ELECTRIC REVENUES AND SALES OPERATIONS (continued)

Electric revenues, net of fuel costs, increased $4.4 million or 1.1%in1987. Excluding the effect of the $28.1 million December 1986 Delaware Summit credit payment (See Note 4, page 35), net electric revenues decreased $23.7 million or 5.3%. Major factors contributing to the decrease were a $34.4 million decrease in rates and $9.2 million of Peach Bottom replacement power expenses, which were partially offset by a $26.4 million increase from higher sales. Electric rates in all the Company's jurisdictions have been reduced from early 1986 levels, mainly due to the effects of the Tax Reform Act of 1986 and lower rates of return authorized by regulatory commissions. (See Note 10 on page 40 for a discussion of rate matters.) Electric sales continued to benefit from the strength and diversity of the service territory's economy. Residential sales increased 9.5% largely due to new residential construction and warmer summer weather. A commercial sales increase of7.0% resulted from customer growth in banking, business services and retail trade. Industrial sales recorded a 5.2% decline primarily due to the closing of a major customer, Phoenix Steel, in January 1987. Excluding the closing of Phoenix Steel, industrial sales increased 3.9% as a result of a broad-based increase in customer usage.

Net electric revenues for 1986 decreased $9.8 million or 2.3% from 1985. The 1986 decrease was primarily due to the $28.1 million Delaware Summit credit payment and a $13.5 million decrease in rates, offset by a $31.5 million sales increase. The Delaware Summit credit payment did not affect 1986 earnings due to a corresponding reduction in operating expenses related to the payment.

Generation Fuel Mix (percent)

GAS REVENUES AND SALES JOO Gas revenues, net of fuel costs, decreased $0.4 million or 1.1%in1987. The decrease was due to a 3.4% sales decrease that resulted from the closing of Phoenix Steel. Excluding the effect of Phoenix Steel, gas sales increased 6.2%. The largest factor contributing to the increase was a rise in oil prices, which caused customers with dual-fuel capability to use gas for most of the year.

Also, the continued trend of residential and commercial customer growth increased sales in both of these sales classes.

In 1986, netgas revenues increased $2.7 million or 9.4% over 1985. $1.1 million of the increase was attributed to a 1985 rate increase that was effective for only ten months of 1985, compared to a full year in 1986. The remainder of the net increase was primarily attributed to increased residential and commercial sales, partially offset by lower sales to dual-fuel customers, who used more oil due to its relatively lower cost in 1986.

40 FUEL MIX In 1987, generation from coal, nuclear, and oil and gas sources was 67%, 11 %, and 22%,

respectively. The average fuel cost, which includes fuel, interchange and purchased power costs, increased to 1.98¢/kwh in 1987 from 1.84¢ in 1986 and 1.94¢ in 1985. Nuclear generation, which 20 has the lowest fuel cost of all energy sources available to the Company, declined 37% in 1987, principally due to the NRC ordered shutdown of Peach Bottom. To replace the decrease in nuclear generation, increased generation from higher cost energy sources and increased power purchases were necessary. A rise in 1987 oil prices also increased the average fuel cost. The increase in the average fuel cost was mitigated by a $4.4 million reduction in coal costs, mostly due to renegotiation of various contracts for the purchase and transportation of coal.

• OilandGas

!ill Nuclear

• Coal 21

Del111m1*a Poll'er C:- Ligbt Co111pmzv FINANCIAL REvlEW AND ANALYSIS RESULTS OF OPERATING EXPENSES OPERATIONS (continued) In 1986, the Summit credit payment resulted in a $14.3 million tax benefit and $13.5 million of additional amortization of the Summit credit. Excluding the effects of this transaction, operating expenses, other than fuel costs, decreased $12.9 million or 3.5% in 1987. This decrease resulted from lower income taxes due to the lower 1987 federal tax rate and lower pre-tax earnings.

The income tax decrease was partial~y offset by increases in operation, maintenance, and depreciation expenses. Increased costs incurred at the Company's jointly owned nuclear generating units and higher payroll costs were the primary factors contributing to the increase in operation and maintenance expenses. Depreciation continued to increase due to capital additions.

Excluding the effects of the 1986 Summit credit payment, 1986 operating expenses, other than fuel costs, increased 5.9% from 1985. This increase was due to higher annual overhaul expenses for the Company's generating units, increased insurance costs and higher payroll costs.

OTHER INCOME (Net ofIncome Taxes)

Other income, excluding allowance for funds used during construction, decreased $6.4 million in 1987. During 1987, the market value of the Company's interest rate sensitive investments decreased due to an overall rise in interest rates. This effect combined with the October 1987 stock market decline resulted in a $1.6 million write-down of securities to current market value and $1.1 million ofrealized securities' losses. A $2.0 million decrease in interest on tax refunds and a $0.8 million increase in initial expenses of subsidiary research and development projects also contributed to the reduction in 1987 other income. A $0.7 million interest and dividend income increase partially offset these decreases.

Other income, excluding allowance for funds used during construction, increased $6.9 million in 1986 principally due to increased leveraged leasing income, higher interest and dividend income, interest on tax refunds, and investment tax credits on subsidiary investments.

FINANCING COSTS Financing costs for 1987 remained relatively unchanged from 1986. In 1986, interest on long-term debt increased $7.2 million primarily due to the refinancing of $41.9 million of preferred stock with long-term debt in December 1985. During 1986, $87.1 million of bonds and preferred stock were refinanced with lower cost securities. The refinancings resulted in a net of tax savings of

$2.3 million in 1986.

IMPACT OF As a regulated utility, the Company's utility revenues provide for recovery of operating costs INFLATION and a return on rate base. The Company's rates of return authorized by regulatory commissions are affected by the impacts of inflation. The overall decline in interest rates during the past several years combined with lower rates of inflation have resulted in lower rates of return authorized by regulatory commissions. Inflation can also affect tl1e Company's financial performance if rate relief is not granted on a timely basis for increased operating costs. However, inflation's impacts on operating costs has moderated in recent years due to lower inflation rates.

The cost of replacing utility plant will be significantly higher than the historical cost reflected in the financial statements. Based on past practices of regulatory commissions, the Company anticipates it will recover the increased cost of facilities when replacement actually occurs.

22

Delmarva Power & Ligbt Company FINANCIAL REVIEW AND ANALYSIS INCOME TAXES In December 1987, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 96, Accounting for Income Taxes, which is required to be implemented by 1989. This Statement establishes a new method of computing deferred taxes and other changes in accounting for income taxes. The Company has not yet determined the effects this new Statement may have on its results of operations and financial position, except for the impact on unprovided deferred taxes as discussed in Note 2 on page 35.

LIQUIDITY AND OVERVIEW CAPITAL RESOURCES The Company's liquidity is affected principally by its construction program and to a lesser degree, by other capital requirements such as maturing debt and sinking fund requirements. The capital resources available to meet these requirements are internally generated funds (cash from operations less common and preferred dividends) and external financing. The Company anticipates that internally generated funds will continue to be its primary capital resource.

Internally generated funds decreased $35.8 million in 1987 mainly due to electric rate reductions, a one-time $31.1million1986 refund of taxes and interest (related to taxation of the Summit credit), and the effects of the Tax Reform Act of 1986. Increased electric sales partially offset these decreases in internally generated funds. The Company's future levels of internally generated funds will depend significantly upon economic conditions and regulatory actions.

Ratio of Earnings to Fixed Interest Charges (SEC metbod)

FINANCING AND CAPITALIZATION 5.0 The Company's capital structure, which has maintained an appropriate balance between debt and equity, changed little from 1986. The Company's ratepayers continued to benefit from 1985 and 1986 refinancings which lowered the overall cost of capital. A variety of factors may have an impact on future capital costs. The Company's ratio of pre-tax earnings to fixed charges (computed according to SEC regulations) declined from 3.70 in 1986 to 3.16 in 1987, principally due to electric rate reductions. Despite this decline, the Company's ratio of pre-tax earnings to fixed charges continues to indicate a strong ability to make interest payments to bondholders.

A further decrease may occur in 1988 since pre-tax income will be adversely affected by electric rate reductions resulting from the lower 1988 federal tax rate. During 1987 various bond rating agencies lowered the Company's bond and preferred stock ratings. Moody's Investor Service and 3.0 Standard and Poors downgraded the Company's senior debt to Aa2 and A+ , respectively, and preferred stock to Aa3 and A, respectively. Although these ratings are lower than recent years, they are still strong and will enable the Company to raise capital in the future at a reasonable cost.

2.0 External financing requirements are estimated to be $56 million and $66 million in 1988 and 1989, respectively. The need for external financing in 1988 is partly due to the June 1988 maturity of $25 million in bonds carrying a 3'l's% interest rate. The financing requirements will be satisfied through a mix of debt and equity. An amendment to the shareholder's Dividend Reinvestment Plan, that provides for the issue of new shares as an alternative to buying existing shares on the I.O open market, has been approved by the Board of Directors as one of the possible methods of raising equity capital. A total of $30 million of tax exempt variable rate demand bonds are planned to be issued during 1988 and 1989. These bonds normally carry a very favorable interest rate in comparison to other types of debt.

0 83 84 85 86 87 23

De/111an;c1 Pon*er & Ligbt Company FINANCIAL REvlEW AND ANALYSIS FINANCING AND Other capital resources available to the Company include commercial paper and lines of credit.

CAPITALIZATION The Company can issue commercial paper, supported by adequate lines of credit, to meet (continued) fluctuations in working capital requirements and for interim financing of construction projects.

At December 31, 1987, the Company had $6 million of commercial paper outstanding. The Company has lines of credit with banks in the amount of $54.5 million. These lines are available for bank loans and to secure commercial paper borrowings as the need arises.

In October 1987, the Company issued, through the Delaware Economic Development Authority,

$8 million of Variable Rate Demand Exempt Facilities Revenue Bonds, which had an average interest rate of 5.1%in1987. The proceeds were used to finance additions to the Company's gas system. The Company's subsidiaries issued $11 million of 15 year 9.65% First Mortgage Notes in October 1987 to finance a new office building and, in December 1987, repaid $15 million of a $43 million bank loan.

CAPITAL AND CONSTRUCTION REQUIREMENTS For the period 1985-1987, the Company had total capital requirements of $470 million, including

$340 million for construction (excluding AFUDC). During the same period, $431 million was Construction generated internally (i.e., cash from operations less common and preferred dividends) which Expenditures and represents 92% of the capital requirements and 127% of the construction requirements. Capital Internally requirements for the period 1988-1990 are estimated to be $517 million, including $490 million Generated Funds for construction (excluding AFUDC). The Company presently anticipates that, for the period (millions of dollars) 1988-1990, internally generated funds will be $321 million which equals 62% of the total capital requirements and 66% of its construction requirements. Actual construction expenditures may 180 vary from the above estimates due to, among other factors, the rate of inflation, regulation and legislation, rates of load growth, licensing and construction delays, results of rate proceedings, and the cost and availability of capital.

The Company estimates that its annual energy and peak load growth for the next 10 years will 150 be at a rate of 2.25% and 2.0%, respectively. The Company's present generating capacity of 2,277 megawatts provides a reserve of 9% against the Company peak of 2,084 megawatts experienced in the summer of 1987. In 1986, the Company peak was 1,840 megawatts.

The Company's approach to supplying adequate amounts of electricity in the future is to match capacity expansion and load growth as closely as possible. The Company plans to delay its next base load unit until the mid-1990's due to the high cost of adding new capacity and possible future technological developments. The plan to achieve this delay includes various demand and supply side options. The accelerated load growth over the past several years has caused the Company to move ahead with the installation of two 100 megawatt combustion turbine generating units, costing an approximate total of $44 million. The first unit is scheduled to be operational by mid 1989, assuming timely permitting, followed a few months later by the second unit. Demand side options being implemented include voluntary residential load control devices and rate incentives for load management by industrial and commercial customers.

Additionally, the Company has various other options that could be employed if future load growth is significantly different than forecasted. The Company's strategy is designed to provide an adequate and reliable supply of electricity at the lowest reasonable cost.

• Internally Generated Funds

• Construction Expenditures (excluding AFUDC) 24

,j

Delmarua Pou*er & Ligbt Company REPORT OF Management is responsible for the information ~d representations contained in the Company's MANAGEMENT financial statements. Our financial statements have been prepared in conformity with generally accepted accounting principles, based upon currently available facts and circumstances and management's best estimates and judgments of the expected effects of events and transactions.

Delmarva Power & Light Company maintains a system of internal controls designed to provide reasonable, but not absolute, assurance of the reliability of the financial records and the protection of assets. The internal control system is supported by written administrative policies, a program of internal audits, and procedures to assure the selection and training of qualified personnel.

Coopers & Lybrand, independent certified public accountants, are engaged to examine the financial statements and express their opinion thereon. Their examination was conducted in accordance with generally accepted auditing standards which include a review of internal controls.

The audit committee of the Board of Directors, composed of outside Directors only, meets with management, internal auditors and independent accountants to review accounting, auditing and financial reporting matters. The independent accountants are appointed by the Board on recommendation of the audit committee, subject to shareholder approval.

~~~k Nevius M. Curtis Paul S. Gerritsen Chairman, President and Vice President and Chief Executive Officer Chief Financial Officer REPORT OF TO THE BOARD OF DIRECTORS AND STOCKHOLDERS INDEPENDENT DELMARVA POWER & LIGHT COMPANY CERTIFIED PUBLIC WILMINGTON, DELAWARE ACCOUNTANTS We have examined the consolidated balance sheets and statements of capitalization of Delmarva Power & Light Company as of December 31, 1987 and 1986, and the related consolidated statements of income, changes in common stockholders' equity and changes in financial position, for each of the three years in the period ended December 31, 1987. Our examinations were made in accordance with generally accepted auditing_ standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the financial statements referred to above present fairly the consolidated financial position of Delmarva Power & Light Company at December 31, 1987 and 1986 and the consolidated results of its operations and changes in its financial position for each of the three years in the period ended December 31, 1987 in conformity with generally accepted accounting principles applied on a consistent basis.

2400 Eleven Penn Center Philadelphia, Pennsylvania February 5, 1988 25

Delmarva Poil'er & Light Company CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands)

For tbe Years Ended December 31 1987 1986 1985 OPERATING REVENUES Electric $612,367 $602,240 $605,581 Gas 78,233 91,802 95,256 Steam 21,879 20,821 21,997 712,479 714,863 722,834 OPERATING EXPENSES Operation:

Fuel for electric generation 211,006 207,862 240,901 Net interchange and purchased power (10,162) (28,098) (63,962)

Purchased gas 45,208 57,012 69,847 Deferred energy costs (8,994) 7,767 (2,549)

Other operati~n 132,914 128,116 121,105 Maintenance 65,738 62,621 59,406 Depreciation 68,907 64,657 61,183 Amortization of Summit credit (907) (15,707) (7,202)

Taxes on income 53,450 65,208 77,836 Taxes other than income 30,352 30,687 30,754 587,512 580,125 587,319 OPERATING INCOME 1;24,967 134,738 135,515 I

OTHER INCOME Allowance for other funds used during construction 3,453 2,750 2,428 Other, net 6,889 13,267 6,382 10,342 16,017 8,810 INCOME BEFORE INTEREST CHARGES

• 135,309 150,755 144,325 INTEREST CHARGES Long-term debt 54,989 54,478 47,236 Other 1,667 922 1,059 Allowance for borrowed funds used during construction (1,150) (768) (608) I 55,506 54,632 47,687 I

EARNINGS Net income 79,803 96,123 96,638 Dividends on preferred stock 6,814 7,405 12,599 Earnings applicable to common stock $ 72,989 $ 88,718 $ 84,039 COMMON STOCK Average shares outstanding (Thousands) 45,717 45,717 45,717 Earnings per average share $ 1.60 $ 1.94 $ 1.84 Dividends declared per share $ 1.42 1/21 $ 1.361131 $ 1.292/3 See accompanying Notes to Consolidated Financial Statements.

Delmarva Power & Lig/Jt Company CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (Dollars in Thousands)

For the Years Ended December 31 1987 1986 1985 CASH FROM Net Income $ 79,803 $ 96,123 $ 96,638 OPERATIONS Items not requiring (providing) cash:

Depreciation 68,907 64,657 61,183 Amortization of Summit credit (907) (15,707) (7,202)

Amortization of nuclear fuel 6,027 5,405 6,594 Allowance for funds used during construction (AFUDC) (4,603) (3,518) (3,036)

Investment tax credits, net (3,132) (956) 21,878 Deferred income taxes, net 33,616 54,535 47,462 Other 3,378 206 (2,307)

Refundable taxes and interest 31,111 (:Z-,981)

Net change in:

Receivables, inventory & payables 16,012 17,228 20,915 Other current assets & liabilities* (4,471) (21,154) (19,140)

Net cash flow from operating activities 194,630 227,930 220,004 INVESTING ACTMTIES Construction expenditures (excluding AFUDC) (142,239) (102,597) (94,923)

Investment in leveraged leases (8,067) (28,682) (45,006)

Investment in partnerships (16,091) (5,372)

Decrease (increase) in marketable securities 33,497 (51,249) (32,308)

Construction funds held by trustee (180) 9,186 6,392 Other (1,137) (3,314) (8,313)

Net cash used by investing activities (134,217) (182,028) (174,158)

FINANCING ACTMTIES Dividends: Common (64,618) (61,574) C58,525) I Preferred (6,814) (7,405) (12,599)

Redemptions: Term loan (33,000)

Long-term debt (15,205) (114,250) (10,100)

Preferred stock (800) (31,635) (41,573)

Premium on redemption of securities (6,218) (2,814)

Issuances: First mortgage bonds 126,000 Variable rate demand bonds 8,000 33,500 Other _long-term debt 11,000 18,000 80,000 Preferred stock 28,000 Net change in short-term debt 6,000 Net cash used by financing activities (62,437) ( 49,082) (45,111)

Net increase (decrease) in cash $ (2,024) $ (3,180) $ 735 I

• Other than long-tenn debt due and preferred stock redeemable within one year and current deferred income taxes.

See accompanying Notes to Consolidated Financial Statements.

27

_J

Delmcm:a Power & Ligbt Company CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)

ASSETS As ofDecember 31 1987 1986 UTILITY PLANT- Electric $1,739,339 $1,689,767 AT ORIGINAL COST Gas 103,788 96,782 Steam 24,913 24,746 Common 103,011 97,624

-1,971,051 1,908,919 Less: Accumulated depreciation 647,728 596,747 Net utility plant in service 1,323,323 1,312,172 Plant held for future use 6,838 6,830 Construction work in progress 80,850 45,467 Nuclear fuel, at amortized cost 20,791 19,461 1,431,802 1,383,930 OTHER INVESTMENTS Investment in leveraged leases 70,071 60,716 Other 40,533 11,178 110,604 71,894 CURRENT ASSETS Cash 12,204 14,228 Marketable securities, at lower of cost or market 76,081 111,205 Accounts receivable:

Customers 44,492 46,844 Other 10,023 19,433 Inventories, at average cost:

Fuel (coal, oil and gas) 45,703 43,745 Materials and supplies 22,820 21,284 Prepayments 5,882 4,999 Deferred energy costs, net 2,471 (6,229)

Deferred income taxes, net 116 1,326 219,792 256,835 DEFERRED CHARGES Unamortized debt expense 6,307 6,233 AND OTHER ASSETS Deferred recoverable plant costs 9,120 8,145 Other 22,197 15,790 37,624 30,168 Total $1,799,822 $1,742,827 See accompanying Notes to Consolidated Financial Statements.

28

Delmarva Power & Ligbt Company CONSOLIDATED BALANCE SHEETS CAPITALIZATION (Dollars in Thousands)

AND LIABILITIES Asa/December 31 1987 1986 CAPITALIZATION Common stock $ 102,864 $ 102,876 (see Statements Additional paid-in capital 234,890 235,187 of Capitalization) Retained earnings 257,221 249,386 Total common stockholders' equity 594,975 587,449 Preferred stock:

Without mandatory redemption 103,306 103,306 With mandatory redemption 2,477 3,277 Long-term debt 645,270 666,829 1,346,028 1360,861 CURRENT LIABILITIES Short-term debt 6,000 Long-term debt due and preferred stock redeemable within one year 26,268 950 Accounts payable 39,691 31,947 Taxes accrued 6,394 1,961 Interest accrued 11,051 10,937 Dividends declared 16,687 16,155 Other 10,625 10,060 116,716 72,010 DEFERRED CREDITS Deferred income taxes, net 263,706 231,360 AND OTHER Deferred investment tax credits 66,328 69,460 LIABILITIES Other 7,044 9,136 337,078 309,956 OTHER Commitments and Contingencies (Notes 7and11)

Total $1,799,822 $1,742,827 See accompanying Notes to Consolidated Financial Statements.

29

_J

Delmarva Power & Light Company CONSOLIDATED STATEMENTS OF CAPITALIZATION (Dollars in Thousands)

Asa/December 31 1987 1986 COMMON Common stock, par value $2.25 per share, STOCKHOLDERS' authorized 90,000,000 shares, outstanding EQUI1Y 45,717,450 shares $ 102,864 $ 102,876 Additional paid-in capital 234,890 235,187 Retained earnings 257,221 249,386 Total Common Stockholders' Equity 594,975 43% 587,449 43%

CUMULATIVE Without Mandatory Redemption:

PREFERRED STOCK Par value $1 per share, 10,000,000 shares authorized, none outstanding Par value $25 per share, 3,000,000 shares authorized, none outstanding Par value $100 per share, 1,800,000 shares authorized:

Series Shares Issued (1987 and 1986) 3.70%-4.56% 240,000 and 240,000 24,000 24,000 5.00%-7.84% 330,000 and 330,000 33,000 33,000 7.88%-8.96% 200,000 and 200 1000 20,000 20,000 Adjustable-6.06%C1J 280,000 and 280,000 28,000 28,000 105,000 105,000 Less: Cost of shares (17,200) held in treasury 1,694 1,694 Preferred Stock without Mandatory Redemption 103,306 8% 103,306 8%

With Mandatory Redemption:

9.00% Seriesc2i 32,766 and 40,766 shares 3,277 0% 4,077 0%

Amount to be redeemed within one year (800) (800)

Preferred Stock with Mandatory Redemption 2,477 3,277 LONG-TERM DEBT First Mortgage and Collateral Trust Bonds:

Maturity Interest Rates Jun. 1, 1988 37;8% 25,000 25,000 1994-1997 4s/s%-63/s% 50,000 50,000 1998-2002 7%-113/4% 158,100 158,100 2003-2005 6.6%-10%% 92,150 92,150 2008-2016 9%%-12% 207,900 207,900 533,150 533,150 Pollution Control Notes:

Series, 1973 5.7% effective rate, due 1988-1998 7,400 7,550 Series, 1976 7.3% effective rate, due 1992-2006 34,500 34,500 41,900 42,050 Variable Rate Demand Series, due 2014-2017-4.73%Cll 57,000 49,000 First Mortgage Notes, 9.65%<3J 10,945 -

Other Long-Term Debt, 9.89%, due 1989 28,000 43,000 Unamortized premium and discount, net (257) (221) 670,738 49% 666,979 49%

Long-term debt due within one year (25,468) (150)

Total Long-Term Debt 645,270 666,829 Total Capitalization $1,346,028 100% $1,360,861 100%

<1lAverage rate during 1987.

2

< JRedemption price at December 31, 1987 is $107.

<3lRepaid through monthly payments ofprincipal and interest over 15 years ending November 2002.

30 See accompanying Notes to Consolidated Financial Statements.

Delmarua Power & Ligbt Compm~J' CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (Dollars in Thousands)

Additional For the Three Years Ended Common Par Paid-in Retained December 31, 1987 Shares* Value Capital Earnings Total BALANCE AS OF JANUARY 1, 1985 45,717,450 $102,876 $235,473 $201,301 $539,650 Net Income 96,638 96,638 Cash dividends declared:

Commonstock($1.29 213)* (59,287) I (59,287)

Preferred stock (12,599) (12,599)

Redemption of preferred stock 325 (2,916) (2,591)

BALANCE AS OF DECEMBER 31, 1985 Net Income 45.717.450 I 102,876 .1 235,798 223,137 561,811 96,123 96,123 Cash dividends declared: J Commonstock($1.36113)*_ (62,336) I (62,336)

Preferred stock (7,405) (7,405)

Issuance of preferred stock Redemption of (650) ~ (650) preferred stock 39 I c133) (94)

---

~

BALANCE AS OF DECEMBER 31, 1986 45,717,450 102,876 235,187 249,386 587,449 Net Income 79,803 79,803 Cash dividends declared:

Commonstock($1.42Y2)* (65,149) (65,149)

Preferred stock (6,814) I (6,814):

Three for two stock split:

Cash paid for fractional shares Other expenses Redemption of preferred stock (12)

(302)1 _J (12)1 (302)

_I 5 I (5)

~

BALANCE AS OF DECEMBER 31, 1987 _4_5,7_1_7,_45_o....... $102,864 I $234,890 I $594,975

• Restated retroactively for April 29, 1987 tbree for two stock split.

See accompanying Notes to Consolidated Financial Statements.

31

Delman*a Power & Lig/Jt Compan1

• NOTES To CONSOLIDATED FINANCIAL STATEMENTS I. SIGNIFICANT FINANCIAL STATEMENTS ACCOUNTING POLICIES The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Delmarva Energy Company, Delmarva Industries Inc., Delmarva Services Company, and Delmarva Capital Investments, Inc. and its subsidiaries. In conformity with generally accepted accounting principles, the accounting policies reflect the financial effects of rate decisions issued by regulatory commissions having jurisdiction over the Company's utility business.

Certain reclassifications, not affecting income, have been made to amounts reported in prior years to conform to the presentations used in 1987.

REVENUES Revenues are recorded at the time billings are rendered to customers on a monthly cycle basis.

At the end of each month, there is an amount of unbilled electric and gas service which has been rendered from the last meter reading to the month-end.

FUEL COSTS Fuel costs (electric and gas) are deferred and charged to operations on the basis of fuel costs included in customer billings under the Company's tariffs, which are subject to periodic regulatory review and approval.

DEPRECIATION AND MAINTENANCE The annual provision for depreciation of utility property is computed on the straight-line basis using composite rates by classes of depreciable property. Provision for the costs of decommissioning of nuclear plant is made to the extent of the net cost of removal allowed for rate purposes (approximately 20% of original plant cost). The relationship of the annual provision for depreciation for financial accounting purposes to average depreciable property was 3.7%

for 1987, 3.5% for 1986 and 3.6% for 1985.

The cost of maintenance and repairs, including renewals of minor items of property, is charged to operating expenses. A replacement of a unit of property is accounted for as an addition to and a retirement from utility plant. The original cost of the property retired is charged to accumulated depreciation together with the net cost of removal. For income tax purposes, the cost of removing retired property is deducted as an expense.

NUCLEAR FUEL The Company's share of nuclear fuel costs relating to jointly-owned nuclear generating stations is charged to fuel expense on a unit of production basis, which includes a factor for spent nuclear fuel disposal costs pursuant to the Nuclear Waste Policy Act of 1982. The Company is collecting future storage and disposal costs for spent fuel as authorized by the regulatory commissions in each jurisdiction and is paying such amounts quarterly to the United States Department of Energy.

32

Delmarva Power & Light Company NOTES To CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT LEVERAGED LEASES ACCOUNTING POLICIES The Company's net investment in leveraged leases includes the aggregate of rentals receivable (continued) (net of principal and interest on nonrecourse indebtedness) and estimated residual values of the leased equipment less unearned and deferred income (including investment tax credits). Unearned and deferred income is recognized at a level rate of return during the periods in which the net investment is positive.

INCOME TAXES The Company and its wholly-owned subsidiaries file a consolidated federal income tax return.

Income taxes are allocated to the Company's utility business and subsidiaries based upon their respective taxable incomes, tax credits, and the effects of the alternative minimum tax, if any.

Deferred income taxes are provided on timing differences between the tax and financial accounting recognition of certain income and expenses. The principle timing difference arises from accelerated depreciation methods used for income tax purposes. Investment tax credits from regulated operations utilized to reduce federal income taxes are deferred and generally amortized over the useful lives of the related utility plant. Investment tax credits of the Company's non-regulated operations (excluding leveraged leases) are accounted for by the flow-through method.

ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION Allowance for funds used during construction (AFUDC) is a non-cash item and is defined in the regulatory system of accounts as the "net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds so used." AFUDC is segregated into two components: (1) the interest on debt component ("allowance for borrowed funds used during construction"), which is net of taxes and classified as a credit to interest charges, and (2) the common stock equity and preferred dividend component ("allowance for other funds used during construction"), which is classified as an item of other income. AFUDC is considered a cost of utility plant with a concurrent credit to income. It is excluded from taxable income for tax purposes. The rates used in determining AFUDC, which includes semi-annual compounding, were 8.5% in 1987 and 9.2% in 1986 and 1985.

33

Def111rm:a Pou*er & Ligbt Company NOTES To CONSOLIDATED FINANCIAL STATEMENTS

2. INCOME TAXES (Dollars in Thousands) 1987 1986 1985 Operations:

Federal: Current $28,592 $29,278 $32,557 Deferred 18,635 26,779 28,638 State: Current 5,934 5,051 6,320 Deferred 3,543 4,596 4,978 Investment tax credit adjustments, net (3,254) (496) 5,343 Other income: Current (16,177) (27,223) (29,788)

Deferred 11,438 23,160 13,846 Investment tax credit adjustments, net 15,724 Total income tax expense $48,711 $61,145 $77,618 Investment tax credits utilized to reduce federal income taxes payable amounted to $1,835,000 in 1987, $5,450,000 in 1986 and $24,992,000 in 1985. The amounts for 1986 and 1985 include Employee Stock Ownership Plan credits of $464,000 and $535,000, respectively, which did not affect net income.

The following is a reconciliation of the difference between income tax expense and the amount computed by multiplying income before tax by the federal statutory rate:

(Dollars in Thousands) 1987 1986 1985 Amount Rate Amount Rate Amount Rate Statutory income tax expense $51,406 40% $72,343 46% $80,158 46%

Increase (decrease) in taxes resulting from:

Exclusion of AFUDC for income tax purposes (1,842) (1) (1,619) (1) (1,397) (1)

Depreciation not normalized 1,504 1 2,852 2 2,196 1 ITC amortization/flow-through (5,089) (4) (5,947) (4) (4,028) (2)

State income taxes, net of federal tax benefit 5,455 4 5,333 3 6,160 3 Amortization of credit arising from sale of contracts (354) (7,225) (5) (3,313) (2)

Other, net (2,369) (2) (4,592) (3) (2,158) (1)

Income tax expense $48,711 38% $61,145 38% $77,618 44%

In 1987, the Tax Reform Act of 1986 substantially modified the Alternative Minimum Tax (AMT).

The new AMT is based on 20% of alternative minimum taxable income as defined by the tax law. The AMT is paid only if it exceeds the regular corporate tax. Generally, the AMT is carried forward as a reduction of subsequent-year regular corporate tax in excess of the minimum tax.

In 1987, the Company incurred an AMT liability of $2.6 million which did not affect income.

The $2.6 million AMT in 1987 qualifies for carry forward treatment.

34

De/J1wn'a P011'er Ec Light Coli/pany NOTES To CONSOLIDATED FINANCIAL STATEMENTS

2. INCOME TAXES The components of deferred income taxes relate to the following tax effects of timing differences (continued) between book and tax income:

(Dollars in Thousands) 1987 1986 1985 Depreciation $30,013 $43,443 $33,394 Deferred energy costs 3,541 (2,082) 1,163 Capitalized overhead costs (1,296) 1,143 1,432 Deferred recoverable plant costs (254) 3,488 Pollution control amortization 2,717 3,076 3,629 ADR repair allowance 3,788 2,337 4,295 Unbilled revenues (2,331)

Alternative.minimum tax (2,600)

Other, net 38 I . 3,130 3,549 Total ~-~--~

$33,616 $54,535 $47,462 The Company has not provided deferred income taxes of approximately $88 million, based on current income tax rates, related to cumulative timing differences of $221 million arising before the adoption of full tax normalization for ratemaking purposes by regulatory authorities. The Company is collecting the unnormalized taxes in I.ts rate jurisdictions either on a levelized basis, over the life of the related plant facilities, or when actually paid to taxing authorities. Statement of Financial Accounting Standards No. 96, Accounting for Income Taxes, requires the Company to record a liability for the unrecorded deferred taxes beginning in 1989. However, since the Company expects to recover the taxes through rates, an asset for the same amount would also be recorded.

J. TAXES OTHER (Dollars in Thousands) 1987 1986 1985 THAN INCOME Delaware utility $10,212 $11,869 $12,168

• property 7,481 6,787 6,784 Other gross receipts 5,777' 5,881 5,799 Payroll, franchise and other 6,882 6,150 6,003 '

Total $30,352 $30,687 ~0,7541

4. SUMMIT CREDIT The net proceeds received by the Company for the sale in 1975 of the contracts for a nuclear steam supply system (Summit) were initially deferred as a credit on the balance sheet. Since 1982, the Company has amortized the credit to income, offsetting the related reduction in customer revenue. In December 1986, the Company paid $28.1 million to Delaware retail electric customers primarily for the $13.5 million Delaware unamortized Summit credit balance and the $14.3 million income tax benefit of the payment. The effects of this payment are reflected in the 1986 income statement as a $28.1 million electric revenue reduction, $13.5 million additional Summit amortization and a $14.3 reduction of income taxes.

35

Delmarm Pou*er & Lig/Jt Company NOTES To CONSOLIDATED FINANCIAL STATEMENTS

5. PENSION PLAN The Company has a trusteed noncontributory pension plan covering all regular employees.

ANDPOST- The benefits are based on years of service and the employee's compensation. The Company's RETIREMENT funding policy is to contribute each year the net periodic pension cost for that year. However, the contribution for any year will not be less than the minimum required contribution nor greater BENEFITS than the maximum tax deductible contribution. There were no pension contributions in 1987 and 1986; the 1985 contribution was $3,284,000.

During 1987, the Company adopted Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions". Under the new method, the Company uses the projected unit credit method; previously, the entry age actuarial cost method had been used.

The following table reconciles the plan assets and liabilities to the funded status of the plan as of December 31, 1987. Pension plari assets consist primarily of equity and public bond securities.

1987 ACTIJARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS (In Millions)

Accumulated benefit obligation Vested $136.5 Nonvested 21.1 Total 157.6 Projected benefit obligation 229.0 Plan assets at fair value 293.2 Excess of plan assets over projected benefit obligation 64.2 Unrecognized prior service cost 1.5 Unrecognized net (gain) (9.2)

Unrecognized net transition (asset) (56.4)

Prepaid pension cost $ 0.1 1987 COMPONENTS OF 1987 NET PENSION COST (In Millions)

Service cost-benefits earned during period $ 9.5 Interest cost on projected benefit obligation 16.2 Actual return on plan assets * (15.8)

Net amortization and deferral (10.0)

Net pension cost $. (0.1)

The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation and the expected long-term rate of return on plan assets were 7.75%

(7% at January 1, 1987) and 8%, respectively. The rate of increase in future compensation ranges from 5.5% to 7.1%, graded by age.

The January 1, 1986 actµarial present value of accumulated plan benefits, using a discount rate of 8%, was $l18.7 million ($102.8 million vested). The market value of assets available for plan benefits was $253.5 million.

The Company provides health care and life insurance benefits for retired employees. Substantially all of the Company's employees may become eligible for these benefits if they reach normal retirement age while still working for the Company. The Compapy recognizes the cost of providing these benefits by expensing the insurance claims as they are paid. These costs totalled $2,144,000,

$2,009,000, and $2,094,000for1987, 1986and1985, respectively.

36

Delmarm Pou*er & Lig/Jt Compm~r NOTES To CONSOLIDATED FINANCIAL STATEMENTS

6. CAPITALIZATION COMMON STOCK On April 28, 1987, the stockholders approved (1) an increase in the number of authorized shares from 35,000,000 to 90,000,000, (2) a decrease in the par value per share from $3.3 75 to $2.25, and (3) a 3 for 2 stock split, effective April 29, 1987. As a result of the split, the number of shares issued and outstanding increased from 30,481,925 to 45,717,450. Cash payments were made to stockholders in lieu of issuing fractional shares.

All per common share disclosures and the number of common shares stated in this report have been adjusted to reflect the stock split.

RETAINED EARNINGS The current first mortgage bond indenture restricts the amount of consolidated retained earnings available for cash dividend payments on common stock to $35,000,000 plus accumulations

• after June 30, 1978, of which the available amount at December 31, 1987 was approximately

$177,894,000.

PREFERRED STOCK The annual preferred dividend requirements on all outstanding preferred stock at December 31, 1987 are $7,004,000. If preferred dividends are in arrears, the Company may not declare common stock dividends or acquire its common stock On April 28, 1987, the stockholders authorized a new class ofl0,000,000 shares of preferred stock, $1.00 par value, which is junior to the existing classes of preferred stock with $25 and $100 par values per share. No shares of this new class of preferred stock have been issued.

WITHOUT MANDATORY REDEMPTION These series may be redeemed at the option of the Company at any time, in whole or in part at the various redemption prices fixed for each series (ranging from $103 to $106 at December 31, 1987).

WITH MANDATORY REDEMPTION The 9% series has a sinking fund requirement to redeem -8,000 shares annually at $100 per share.

At the option of the Company, art additional 8,000 shares may be redeemed on any sinking fund date, without premium. The Company redeemed 8,000 shares in December 1987 at $100 per share. Under certain conditions, the 9% series may also be redeemed at the option of the Company. Mandatory sinking fund redemptions are $800,000 per year during the next four years and $77,000 in 1992.

37

1Je/111a1n1 Power & Lig/Jt Compwzy NOTES To CONSOLIDATED FINANCIAL STATEMENTS

6. CAPITALIZATION LONG-TERM DEBT (continued)

1) Sinking fund requirements for the First Mortgage and Collateral Trust Bonds may be reduced by an amount not exceeding sixty percent ( 60%) of the bondable value of property additions.

For the years 1985-1987, property additions satisfied the sinking fund requirements. Substantially all utility plant of the Company now or hereafter owned is subject to the lien of the related Mortgage and Deed of Trust.

2) Pursuant to a bank loan agreement, the Company has a $33,000,000 revolving credit commitment through November 1, 1989, convertible into a term loan due November 1, 1992. The loan agreementrequires a commitment fee of 0.2% on any unused portion of the revolving credit commitment. Loans under the agreement may be prepaid at any ti.me without penalty and would bear interest at 100% of the prime rate.

3) On October 1, 1987, the Company issued, through the Delaware Economic Development Authority, $8 million ofVariable Rate Demand Exempt Facilities Revenue Bonds (the Bonds), due October 1, 2017. The proceeds were used to finance additions to the Company's gas system.

The Bonds are secured by $9 million of First Mortgage and Collateral Trust Bonds. The Bonds will bear interest, which is tax exempt to the Bond owner, at a variable or fixed rate as determined by the Company from time to time. The Bond owners may sell the Bonds to the Company each time the interest rate is res~t, and the remarketing agent can resell any Bonds purchased by the Company.

As of December 31, 1987, $57,000,000 ofVar~able Rate Demand Bonds were outstanding. The Company has sufficient long-term financing agreements available to redeem any bonds not remarketed.

In recognition of the long-term financing capability, these Variable Rate Demand Bonds have been classified as long-term debt.

4) On October 15, 1987, a subsidiary of the Company issued $11 million of 9.65% First Mortgage Notes to finance a new office building. The Notes will be repaid through fixed monthly payments of principal and interest over 15 years ending November 2002.

5) In December 1987, a subsidiary of the Company repaid $15.million of a $43 million bank loan, classified as other long-term debt on the Consolidated Statements of Capitalization.

6) Maturities oflong-term debt during the next five years are: 1988-$25.468,000; 1989-

$28,532,000; 1990-$570,000; 1991-$612,000; 1992-$1,959,000.

7) The annual interest requirements on all borrowings classified as long-term debt at December 31, 1987 are $54,504,000.

UNAMORTIZED DEBT DISCOUNT, PREMIUM AND EXPENSE These amounts are amortized on a straight-line basis over the lives of the long-term debt issues to which they pertain.

Delmarm Poil'er E- Light Company NOTES To CONSOLIDATED FINANCIAL STATEMENTS

7. COMMITMENTS The Company estimates that approximately $156,816,000 excluding AFUDC, will be expended for construction purposes in 1988. The Company also has commitments under long-term fuel supply contracts.

The Company leases certain distribution facilities, transportation equipment and various other facilities and equipment under long-term lease agreements. Rentals charged to operating expenses aggregated $9,191,000in1987, $7,439,000in1986 and $6,634,000in1985. During 1987, the Company retroactively recorded its capital leases, as required by SFAS No. 71. As a result of recording the capital leases, total assets and total liabilities increased $4,689,000 and $6,504,000 as of December 31, 1987 and 1986, respectively. Net income was not affected.

Minimum commitments as of December 31, 1987 under all non-cancellable lease agreements are as follows:

1988 $ 2,885,000 1989 2,597,000 1990 1,605,000 1991 676,000 1992 552,000 Remainder 3.660.000 Total $11,975,000 Nuclear fuel requirements for Peach Bottom Generating Station are being provided by the operating company through a fuel purchase contract. The Company is responsible for payment of its share of fuel consumed and related interest expense. Nuclear fuel expense for Peach Bottom totalled $3,190,000in1987, $8,372,000 in 1986 and $4,520,000in1985.

The Company has an agreement providing for the availability of fuel oil storage and oil pipeline facilities through 1999. Under the agreement, the Company must make specified minimum payments monthly, which totalled $2,165,000in1987, $2,766,000in1986 and $1,682,000in1985.

• The estimated amount of required payments is $1,701,000in1988, $1,489,000in1989, $1,145,000 in 1990, $1,916,000in1991, $1,828,000in1992 and $12,384,000between1993and1999.

In 1987, Columbia Gas System, Inc. constructed a natural gas pipeline, which connects to Delmarva's gas system, under an agreement that obligates Delmarva to purchase $6.7 million of sales or transportation services over a ten year period. If Delmarva's purchases are less than $6. 7 million over the ten year period, then Delmarva will make aid-in-construction payments to the extent of the shortfall.

Delmarva Capital Investments, Inc. (DCI), the Company's primary investment subsidiary, has various commitments to m'ake equity contributions and loan funds under certain conditions to partnerships in which DCI has invested. The maximum amounts that DCI could be required to provide as loans or equity commitments over the next five years are as follows: $8,593,000-1988;

$8,913,000-1989; $6,873,000-1990; $6,621,000-1991; $3,600,000-1992.

8. LINES OF CREDIT As of December 31, 1987, the Company had unused bank lines of credit of $54,500,000, with

$6 million supporting commercial paper borrowings. The Company is generally required to pay commitment fees for these lines. Such lines of credit are periodically reviewed by the Company, at which time they may be renewed or cancelled.

39

_J

- Delman*a Power & Ligbt Compcm_r NOTES To CONSOLIDATED FINANCIAL STATEMENTS

9. JOINTLY-OWNED Information with respect to the Company's share of jointly-owned plant, including nuclear fuel PLANT for the Salem plant, as of December 31, 1987, is as follows:

(Dollars in Thousands) Construction Ownership Plant in Accumulated Work in Share Service Depreciation Progress Nuclear:

Peach Bottom 7.51% $ 94,079 $ 33,372 $ 6,426 Salem 7.41% 208,351 76,234 10,488 Coal-Fired:

Keystone 3.70% 12,062 4,903 727 Conemaugh 3.72% 13,269 5,231 324 Merrill Creek Reservoir 11.91 % 24,635 Transmission Facilities Various 4,462 1,321 Total $332,223 $121,061 $42,600 The Company provides its own financing for its share of improvements to jointly-owned plant.

In addition, the Company is a joint guarantor of loans ($526,000 proportionate share) advanced for operation of the coal mines that supply the Keystone plant. The Company's share of operating and maintenance expenses of the jointly-owned plant is included in the corresponding expenses in the statements of income.

JO. RATE MATTERS The Company is subject to regulation with respect to its retail sales of electricity by the Delaware and Maryland Public Service Commissions and the Virginia State Corporation Commission, which have broad powers over rate matters, accounting and terms of service. The Federal Energy Regulatory Commission (FERC) exercises jurisdiction with respect to the Company's accounting systems and policies and the transmission and sale at wholesale (resale) of electric energy.

I) DELAWARE ELECTRIC RETAIL On April 14, 1987, the Delaware Public Service Commission (DPSC) issued a final order regarding its investigation into the level of the Company's earnings. The order further reduced electric rates by $7.3 million effective April 15, 1987. The Company's rates had been reduced on a temporary basis on August 20, 1986, by $22.8 million. The order reflected a reduction in the interim authorized return on equity from 13.0% to 12.5%, lower tax rates due to the Tax Reform Act of 1986 and resolution of certain accounting issues. An additional reduction in rates of approximately

$4.2 million became effective on January 1, 1988, primarily to reflect the lower 1988 federal income tax rate.

A Power Plant Performance Program is in effect through 1988. The program measures performance at the Company's twelve largest power units and can result in a financial reward or penalty.

The potential reward or penalty for 1987and1988 performance is limited to $1.5 million per year, which would be reflected in 1989 and 1990 electric rates, respectively. 1988 electric rates reflect a $605,000 reward under this program for 1986 performance.

2) MARYLAND RETAIL In accordance with a 1986 settlement agreement, Maryland retail electric rates were reduced

_ $3.3 million, effective January 1, 1987, to reflect the 1987 effects of the Tax Reform Act of1986.

Maryland retail electric rates were also reduced by $3.8 million, effective January 1, 1988, to reflect the lower 1988 federal income tax rate.

40

1Jel111a11*a Pozmr C- Ligbt Company NOTES To CONSOLIDATED FINANCIAL STATEMENTS-JO. RATE MATTERS

• 3) VIRGINIA RETAIL (continued) By order dated August 27, 1987, the Virginia State Corporation Commission (VSCC) approved a

$0.8 million rate decrease which became effective on an interim basis on May 1, 1987. The decrease reflects a lower return on equity (13.0%) and the 1987 effects of the Tax Reform Act of 1986. Effective January 1, 1988, the VSCC has ordered the Company to reserve the effects of the lower 1988 federal income tax rate pending qisposition of the regulatory treatment of this matter.

4) RESALE On September 15, 1987, the Federal Energy Regulatory Commission approved the $2.4 million annual rate reduction filed by the Company on July 21, 1987. The lower. rates reflect the effects of the Tax Reform Act of1986 and became effective as of April 15, 1987. ,

OnJuly 31, 1987, the Company filed for a $3.4 million rate increase based on a 13% return on equity, with a proposed effective date of October 1, 1987. Since December 1978, in the resale jurisdiction, the pre-tax proceeds from the sale of the Summit contracts (see Note 4) have been distributed to customers through lower rates. In the Company's]uly1987 resale filing, recovery of the income taxes paid on the Summit proceeds and related carrying charges on the income tax payments (a total of $5 million) was also requested via a surcharge over a two year period.

In September 1987, the FERC suspended implementation of the proposed rates and surcharge until March 1, 1988.

11. CONTINGENCIES 1) SHUTDOWN OF PEACH BOTTOM NUCLEAR GENERATING STATION On March 31, 1987, the Nuclear Regulatory Commission (NRC) ordered the shutdown of the Peach Bottom Nuclear Generating Station citing inattention by control room staff The Company has a 7.51 % ownership interest in the plant which is operated by Philadelphia Electric (PE).

The NRC order stated that PE must provide a detailed and comprehensive plan and s_chedule to assure that the plant will operate safely and comply with all requirements prior to resuming operation of the plant. In August 1987, PE submitted a plan for the restart of Peach Bottom in response to the NRC order. The NRC criticized the plan primarily due to the NRC's disagreement with the plan's emphasis on solutions to problems related to the plant and its personnel without adequate emphasis on corporate management responsibility. .

• In October 1987, PE announced a major corporate reorganization of its entire nuclear operations and support services, intended to strengthen both corporate and nuclear plant site management.

In November 1987, PE submitted part one of a two part plan that will replace the plan submitted in August. Part one of the plan detailed the reorganization of nuclear operations announced in October. PE plans to submit the second part of its restart plan in the first quarter of 1988.

On February 2, 1988, PE officials made public a report from the Institute of Nuclear Power Operations (INPO) that was very critical of PE's operatfon of Peach Bottom over the last several years. The report was highly critical of PE's senior management with respect to its effectiveness in preventing and resolving Peach Bottom problems and the lack of adequate corporate accountability. Due to the seriousness of the new information, not previously made available to Delmarva Power as a minority owner, the Company decided not to pursue recovery of replacement power costs from customers. Accordingly, the Company expensed $9.2 million (11¢ per share) ofreplacement power costs in the fourth quarter of1987. Future replacement power costs resulting from the NRC mandated shutdown of Peach Bottom will be expensed as incurred. The Company shall continue to consider other alternatives for recovery of these costs.

The Company believes that the safe and expeditious startup of the units at Peach Bottom is important to both our customers and our stockholders. The NRC has reacted favorably to some of PE's startup plans and PE has stated that it is committing the resources necessary to correct the problems and their root causes. It is clearly PE's responsibility to implement a recovery plan to return Peach Bottom to service. PE expects the plant to resume operations later this year.

However, this depends upon permission from the NRC, which Delmarva Power cannot predict.

41

!Je/111wn1 l'ou*er f'. Ugbt Compn11y NOTES To CONSOLIDATED FINANCIAL STATEMENTS

11. CONTINGENCIES 2) PLANT HELD FOR FUTURE USE (continued) In 1982, the Company delayed the construction schedule for the coal-fired Nanticoke #1 generating unit. During 1986, the Company downsized the planned unit and reclassified costs associated with the previously planned larger unit as a deferred asset ($7.6 million balance at December 31, 1987).

Cost recovery has been approved in the Delaware and Virginia jurisdictions. The Company has applied for recovery of $1.3 million applicable to the resale jurisdiction and anticipates recovery of the $1.9 million Maryland jurisdiction portion. $6.2 million of costs associated with the smaller Nanticoke #1 unit remain classified as plant held for future use. Recovery of these costs is anticipated through the ratemaking process.

3) NUCLEARINSURANCE The insurance coverages applicable to the nuclear power units are as follows:

Aggregate (Millions ofDollars) Maximum Maximum Retrospective Type and Source of Coverage Coverage Assessment for a Single Incident 0' Public Liabilit:y< 1J Private Price Anderson AssessmentC2l $1,5C3)

Property Damage:'5J Peach Bottom<6l $620 Salem<7l $620 $2.9 I All units<sJ $775 Replacement Power:

Nuclear Electric Insurance Limited (NEIL)< 9l $3.3-$3.5

- - $ 2 . _ 1_

$1.9

_J*

1) Tbe Price-Anderson liability provisions of tbe Atomic Energy Act of1954 (in notes 2, 3 and 4 below) expired on August 1, 1987. Howeve1; the limitation of liability and contribution provisions continue in effect for presently licensed plants, wbicb includes Peacb Bottom and Salem. Onjuly30, 1987, tbe U.S. House ofRepresentatives approved a bill to amend tbe Price*Anderson Act. Tbe bill would raise the limit for pz 1blic liability claims that could arise from a nuclear incident from the current $715 million to approximate~)' $7 billion for each licensed nuclearfacility. Under tbe House bill, tbe maximum retrospective premium assessmentfor tbe Company would risefrom

$1.5 million to $18.9 million for one incident and $3.0 million to $37.8 million for more than one incident in a yeai: The Senate is expected to vote in the nearfuture on similar bills, wbicb would also establisb a liability limit of approximately $7 billion. .

2) Retrospective premium program under the Price-Anderson liability provisions of the Atomic Energy Act of1954 as amended. Subject to retrospective assessment with respect to loss from an incident at any licensed nuclear reactor in tbe United States.

3) Maximum assessment would be $3,000,000 in tbe event of more than one incident in any yeai:

4) Limit of liability under tbe Price-Anderson Act for each nuclear incident.

5) Tbe Company is a self insure1; to the extent of its ownership interest.for any prope11)1 loss in excess of tbe stated amounts.

6) For prope11)i damage to tbe Peacb Bottom nuclear plant facilities, tbe Company and its co-owners have private insurance up to $620 million.

7) Forprope11)1 damage to tbe Salem nuclearfacilities, tbe Company and its co-owners /Jave $500 million of insurance witb Nuclear Mutual Limited (NML), a utility-owned mutual insurance company, and $120 million witb private insurers. NML bas a maximum retrospective assessment of ten times anm zal premium.

8) All units are insured by Nuclear Electric Insurance Limited (NEIL II) for losses in excess of $500 million. Ma.-.:imum retrospective assessment is seven and a balf times tbe annual premiums.

9) Utility owned mutual insurance company provides coverage against extra expense incwred in obtaining replacement power during prolonged accidental outages of nuclear power units. Maximum weekzv indemnity for 52 weeks wbicb commences after tbe first 26 weeks of an outage. Also provides for an additional 52 weeks indemnity at one-balfmaximum level. Jl!laximum retrospective assessment is five times annual premiums.

1O) Tbe Company's sbare of tbe maximum relrospective assessment for a single incident based on the Compm~v*s ownersbip sbare of tbe nuclear power units.

4) OTHER The Company is involved in certain other legal and administrative proceedings before various courts and governmental agencies concerning rates, environmental issues, fuel contracts, ta,'{ filings and other matters. In the opinion of management, the ultimate disposition of these proceedings will not have a material effect onthe Company's financial position or results of operations.

42

Deh11a11*a Po1l'er E- Ligbt Compwzr NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. SEGMENT Segment information with respect to electric, gas and steam operations is as follows:

INFORMATION (Dollars in Thousands) 1987 1986 1985 Operating Revenues:

Electric $ 612,367 $ 602,240 $ 605,581 Gas 78,233 91,802 95,256 Steam 21,879 20,821 21,997 Total $ 712,479 $ 714,863 $ 722,834 Operating Income:

Electric $ 115,964 $ 126,007 $ 127,148 Gas 7,347 6,985 6,604 Steam 1,656 1,746 1,763 Total $ 124,967 $ 134,738 $ 135,515 Net Utility Plant:o&z)

Electric $1,355,168 $1,312,517 $1,292,487 Gas 67,469 Steam 74,759 1,875 3,944 - 65,271 4,142

$1,431,802 $1,383,930 $1,361,900 Other Identifiable Assets:

Electric 121,654 105,575 144,544 Gas 11,760 18,341 32,890 Steam 1,405 409 418 134,819 I 124,325 177,852

~

Assets Not Allocated 234,572 141,504 Total Assets $1,799,822 I $1,742,827 $1,681,256 Depreciation Expense:

Electric $ 63,978 $ 59,725 $ 56,577 I Gas 4,004 4,016 I 3,699 I Steam 925 916 II 907

---

j

$ 68,907 i $ 64,657 I $ 61,183 I Total I Construction Expenditures:m Electric $ 131,970 $ 94,337 I $ 86,073 Gas 9,944 7,751 8,382 Steam 325 509 468 Total $ 142,239 $ 102,597 $ 94,923 m1ncludes plant heldfor ji1ture use, construction work in progress and allocation of common utility property.

mstated net ofthe respective accumulatedprovisions for depreciation.

r3'Excludes allowance for jimds used during construction.

Operating income by segments is reported in accordance with generally accepted accounting and ratemaking principles within the utility industry and, accordingly, includes each segment's proportionate share of taxes on income and general corporate expenses.

43

Delman.*a Power E- Ligb! Company NOTES To CONSOLIDATED FINANCIAL STATEMENTS

. I

13. CONDENSED The following is condensed financial information of the Company's wholly-owned subsidiaries, FINANCIAL Delmarva Energy Company, Delmarva Industries Jnc. and Delmarva Capital Investments, Inc.

STATEMENTS OF Delmarva Services, a subsidiary which leases real estate to the Company's utility business, is excluded from these statements since its income is derived from intercompany transactions CONSOLIDATED which are eliminated in consolidation.

SUBSIDIARIES CONSOLIDATED CONDENSED SUBSIDIARY STATEMENTS OF INCOME (Dollars In Thousands) 1987 1986 1985 Revenues and investment income $1,620 $3,261 $6,022 Operating expenses 2,453 1,698 1,368 Operating income (833) 1,563 4,654 Interest expense 3,955 3,164 1,276 Income (loss) before income taxes ( 4,788) (1,601) 3,378 Income tax expense (benefit) (5,448) I (6,426) (133) '

Net income $660 $4,825 $3,511 I

~

Contribution to Delmarva Power & Light's earnings per share of common stock $ 0.01 I $ 0.11 CONSOLIDATED CONDENSED SUBSIDIARY BALANCE SHEETS (Dollars In Thousands) At December 31, Liabilities and At December 31, Assets 1987 1986 Stockholder's Equity 1987 1986 I

1 Current liabilities $ 258 $ 157 Current assets $ 68,722 ~71,350 Noncurrent liabilities 80,948 82,132 Noncurrent assets 92,705 70,229 Stockholder's equity 80,221 59,290 Total $161,427 $141,579 1 Total $161,427 $141,579 The 10¢ decrease in subsidiary earnings per share in 1987 was the result of two major factors.

An overall rise in interest rates during 1987 caused a decrease in the market value of interest rate sensitive investments (mainly preferred stocks). This effect combined with the October 1987 stock market decline resulted in a write-down of securities to current market value and losses on the sale of securities, which decreased earnings per share by 6.1¢. Expenses for research and .

development projects and administrative and general functions increased primarily because several subsidiary projects are currently in the start-up phase. These start-up cost increases lowered earnings per share by 3.2¢.

44

Delmarl'a Power & Ligbt Company NOTES To CONSOLIDATED FINANCIAL STATEMENTS

14. QUARTERLY The quarterly data presented below reflect all adjustments necessary in the opinion of the Company FINANCIAL for a fair presentation of the interim results. Quarterly data normally vary seasonally with INFORMATION temperature variations, differences between summer and winter rates, the timing of rate orders (Unaudited) and the scheduled downtime and maintenance of electric generating units.

Earnings Earnings Applicable Average per Quarter Operating Operating Net to Common Shares Average Ended Revenue Income Income Stock Outstanding Share (Dollars in Thousands) (In Thousands) 1987 March31 $185,935 $ 35,689 $25,058 $23,394 45,717 $0.51 June 30 160,936 27,277 16,763 15,099 45,717 0.33 Sept. 30 200,482 44,279 32,880 31,164 45,717 0.68 Dec. 31 165,126 17,722 5,102 3,332 45,717 0.08

$712,479 $124,967 $79,803 $72,989 45,717 $1.60 1986 March31 $208,703 $ 38,235 $27,345 $25,405 45,717 $0.56 June30 171,341 29,966 19,183 17,125 45,717 0.37 Sept. 30 201,082 45,766 35,212 33,505 45,717 0.73 Dec. 31 133,737 20,771 14,383 12,683 45,717 0.28

$714,863. $134,738 $96,123 $88,718 45,717 $1.94 Electric rate decreases in the Company's jurisdictions, primarily due to lower authorized rates of return, decreased 1987 net income as follows: first quarter-$4,857,000 (10.6¢ per share);

second quarter-$4,587,000 (10.0¢ per share); third quarter-$3,9l6,000 (8.6¢ per share); fourth quarter-$442,000 (1.0¢ per share); or a total of $13,802,000 (30.2¢ per share).

In the fourth quarter of1987, losses were realized on the sale of marketable securities, certain marketable securities were written down to their market value and 1987 replacement power costs attributable to the Nuclear Regulatory Commission ordered shutdown of Peach Bottom were expensed. The effect of these transactions decreased net income $7,813,000 (17¢ per share).

Electric rate decreases in the Company's jurisdictions, primarily due to lower authorized rates of return, reduced net income during 1986 as follows: first quarter-$528,000 (1.2¢ per share);

second quarter-$468,000 (1.0¢ per share); third quarter-$1,578,000 (3.5¢ per share); fourth quarter-$4,179,000 (9.1¢ per share); or a total of $6,753,000 (14.8¢ per share).

In the fourth quarter of1986, the Company recorded the Delaware Summit credit payment, interest on tax refunds, ta.'{ accrual adjustments, and the impact of the Tax Reform Act of 1986 on its

• leveraged lease investments. The effect of these adjustments increased net income $1,119,000 (2.4¢ per share).

45

Defmmi'a Power & Lig/Jt Compan1

• CONSOLIDATED STATISTICS 10 YEARS OF REvlEW 1987 1986 1985 1984 ELECTRIC REVENUES Residential $ 231,439 $ 217,393 $ 212,254 $ 205,910 (thousands): Commercial 176,355 169,157 168,957 156,507 Industrial 119,109 127,900 135,141 128,833 Other utilities, etc. 79,180 80,291 79,399 79,235 Miscellaneous revenues. 6,284 7,499 9,830 13,678 I Total electric revenues $ 612,367 $ 602,240 $ 605,581 $ 584,163 ELECTRIC SALES Residential 2,732,018 2,496,099 2,256,922 2,249,270 (J,000 kilowatt-hours): Commercial 2,536,399 2,370,775 2,165,685 2,073,457 Industrial 2,611,218 2,753,902 2,606,466 2,569,572 Other utilities, etc. 1,685,641 1,585,019 1,501,447 1,415,934 Total electric sales 9,565,276 9,205,795 8,530,520 8,308,233 ELECTRIC CUSTOMERS Residential 303,158 293,452 283,911 275,175 (end ofperiod): Commercial 36,783 35,089 33,189 31,548 Industrial 842 853 893 929 Other utilities, etc. 525 517 492 502 Total electric customers 341,308 329,911 318,485 308,154 GAS REVENUES Residential $ 39,614 $ 43,145 $ 39,224 $ 40,933 (thousands): Commercial 15,491 18,523 17,901 18,663 Industrial 10,941 16,995 19,762 22,940 Interruptible 11,136 11,464 17,419 18,098 Other utilities, etc. 160 142 130 160 Miscellaneous revenues 891 1,533 820 784 Total gas revenues $ 78,233 $ 91,802 $ 95,256 $ 101,578 GAS SALES Residential 6,364 6,201 5,622 6,213 (million cubic feet) Commercial 2,992 2,906 2,742 2,971 Industrial 2,693 3,338 3,579 4,245 Interruptible . 3,320 3,471 3,734 3,769 Other utilities, etc. 42 36 31 41 Total gas sales 15,411 15,952 15,708 17,239 GAS CUSTOMERS Residential 73,803 72,685 70,804 70,183 (end ofperiod): Commercial 5,027 4,693 4,417 4,233 Industrial 156 158 160 165 Interruptible 15 14 15 19 Other utilities, etc. 1 1 1 1 Total gas customers 79,002 77,551 75,397 74,601 STEAM SERVICE Electricity delivered 354,842 370,802 335,308 298,203 (1,000 kilowatt-hours)

Steam delivered (1,000 pounds) 6,134,946 6,627,130 6,794,105 6,922,416

Average Annual Compound%

1983 1982 1981 1980 1979 1978 1977 Rate of Growth

$ 193,021 $ 183,258 $ 164,919 $ 144,637 $ 115,381 $ 105,237 $ 97,691 9.01  %

140,809 137,434 123,099 112,166 91,798 82,796 74,641 8.98  %

126,703 127,441 129,601 116,401 98,023 83,972 76,801 4.49  %

68,991 73,469 73,602 63,698 53,782 40,840 38,974 7.35  %

12,728 13,168 12,898 7,025 4,682 5,261 3,461 6.15  %

$ 542,252 $ 534,770 $ 504,119 $ 443,927 $ 363,666 $ 318,106 $ 291,568 7.70 %

2,136,265 2,026,398 1,996,647 2,046,546 1,968,452 1,979,624 1,924,723 3.56  %

1,844,324 f,729,863 1,660,147 1,648,776 1,598,299 1,568,600 1,495,796 5.42  %

2,600,492 2,255,673 2,454,685 2,429,842 2,624,438 2,418,527 2,277,630 1.38  %

1,297,395 1,237,508 1,283,845 1,335,216 1,300,611 1,281,498 1,207,941 3.39  %

7,878,476 7,249,442 7,395,324 7,460,380 7,491,800 7,248,249 6,906,090 3.31 %

267,357 260,371 255,646 246,887 242,745 237,925 233,106 2.66 %

30,525 29,966 29,450 28,162 27,998 28,421 29,648 2.18 %

949 741 788 821 874 858 921 (0.89)%

434 434 434 440 478 480 561 (0.66)%

299,265 291,512 286,318 276,310 272,095 267,684 264,236 2.59 %

$ 36,694 $ 36,505 $ 34,123 $ 26,525 $ 25,719 $ 28,370 $ 21,829 6.14  %

16,527 15,792 14,344 10,342 8,954 10,154 7,133 8.06  %

23,232 20,112 22,259 12,404 9,884 10,191 6,950 4.64  %

17,026 11,733 11,711 9,293 4,440 716 169 52.01  %

'115 53 61 46 55 93 49 12.56  %

764 552 572 430 270 116 103 24.08  %

$ 94,358 $ 84,747 $ 83,070 $ 59,040 $ 49,322 $ 49,640 $ 36,233 8.00 %

5,640 6,062 6,193 6,321 6,423 6,941 6,751 (0.59)%

2,677 2,768 2,704 2,683 2,415 2,593 2,439 2.07 %

4,378 4,108 4,809 3,937 3,388 3,290 2,811 (0.43)%

3,723 2,656 2,802 2,738 1,720 319 81 44.97 %

31 10 12 14 16 29 17 9.47 %

16,449 15,604 16,520 15,693 13,962 13,172 12,099 2.45 %

69,608 69,092 68,608 67,784 66,631 66,364 66,231 1.09 %

4,075 4,057 3,967 3,846 3,712 3,773 3,738 3.01 %

160 166 167 155 131 163 163 (0.44)%

19 18 16 16 16 21 21 (3.31)%

1 1 1 1 1 1 1 0.00 %

73,863 73,334 72,759 71,802 70,491 70,322 70,154 1.19 %

309,943 322,804 343,063 328,420 262,159 270,006 289,049 2.07 %

6,965,904 7,778,929 7,673,420 7,570,944 6;378,705 6,016,095 4,888,366 2.30 %

47

De!marua Power & lig/Jt Co111pa11y OFFICERS Asofjanuary11, 1988 NEVIUS M. CURTIS DONALD P. CONNELLY Chairman of the Board, President Secretary and Chief Executive Officer RICHARD H. EVANS HOWARD E. COSGROVE Vice President, Corporate Communications Executive Vice President BARBARA S. GRAHAM H. RAY LANDON Treasurer Executive Vice President KENNETH KJONES ROGER D. CAMPBELL Vice President, Planning Senior Vice President and President, Delmarva RALPH E. KLESIUS Capital Investments, Inc. Vice President, Engineering HARLAND M. WAKEFIELD, JR. CHARLES MARCHYSHYN Senior Vice President Comptroller DONALD E. CAIN FRANK). PERRY, JR.

Vice President Vice President, Gas Division PAULS. GERRITSEN DUANE C. TAYLOR Vice President and Vice President, Information Systems Chief Financial Officer D. WAYNE YERKES WAYNE A. LYONS Division Vice President, Vice President Southern Division THOMAS S. SHAW, JR.

Vice President Several management changes became effective January 1, 1988. H.R. Landon, formerly senior vice president, became executive vice president; Donald E. Cain, formerly northern division vice president became vice president with responsibility for human resources, information systems, and administration services; and Ralph E. Klesius, formerly general manager, engineering, became vice president, engineering. Thomas S. Shaw Jr., vice president, joined the Company's senior management team, and Wayne A Lyons, vice president, assumed responsibility for division operations. On October 1, 1987, Paul S. Gerritsen, formerly vice president regulatory, practice and maFketing became vice president and chief financial officer.

• In the Company's subsidiary businesses, Roger D. Campbell, formerly chief financial officer of the parent company, was named President of Delmarva Capital Investments, Inc. Campbell remains a senior vice president of the Company. Hudson P. Hoen, formerly a general manager with Delmarva Capital Investments, Inc., was named vice president.

• Delmarm l'oll'er {- Lig/Jt Compani*

DIRECTORS OSCAR L. CAREY WILLIAM G. SIMERAL President and Director of Larmar Director, Executive Vice Corporation (general real estate and President and member of the home builders) Salisbury, Maryland Executive Committee ofE. I.

du Pont de Nemours & Company JOHNR. COQPER (a dtversified chemical, energy and Director of Environmental Affairs of specialty products company)

E. I. du Pont de Nemours & Company Wilmington, Delaware (a diversified chemical, energy and specialty products company) DAVIDD. WAKEFIELD Wilmington, Delaware Senior Vice President of Morgan Guaranty Trust Company of HOWARD E. COSGROVE New York, New York; Executive Vice President of the Director of Continental American Company Life Insurance Company, Wilmington, Delaware NEVIUS M. CURTIS Chairman of the Board, President HARLAND M. WAKEFIELD, JR.

and Chief Executive Officer of the Senior Vice President of the Company Company SALLY V. HAWKINS EXECUTIVE COMMITTEE Director, President and Chief Nevius M. Curtis, Chairperson; Oscar Executive Officer of Delaware L. Carey; William G. Simeral; David D.

Broadcasting Company and President Wakefield; Harland M. Wakefield.Jr.

and General Manager of Station WIIM (radio broadcasting) AUDIT COMMITTEE Wilmington, Delaware John R. Cooper, Chairperson; James T. McKinstry;James 0. Pippin, Jr.

DONALD W. MABE President and Vice Chairman of NOMINATING COMMITTEE Perdue Farms Incorporated SallyV. Hawkins, Chairperson; Nevius (integrated poultry company) M. Curtis;James 0. Pippin.Jr.

Salisbury, Maryland COMPENSATION COMMITTEE JAMES T. McKINSTRY William G. Simeral, Chairperson; Partner, Law Firm of Oscar L. Carey; David D. Wakefield Richards, Layton & Finger Wilmington, Delaware INVESTMENT COMMITTEE David D. Wakefield, Chairperson; JAMES 0. PIPPIN, JR. Nevius M. Curtis; Donald W. Mabe; Director, President and James 0. Pippin, Jr.

Chief Executive Officer of the Centreville National Bank of SPECIAL DIRECTOR'S COMMITTEE Marylan-d, Centreville, Maryland ON PEACH BOTTOM William G. Simeral, Chairperson; John R. Cooper;James T. McKinstry 49

De/111arm Poll'er & Lig/Jt Co111pany STOCKHOLDER INFORMATION QUARTERLY COMMON STOCK DIVIDENDS AND PRICE RANGES The Company's common stock is listed in the New York and Philadelphia Stock Exchanges and has unlisted trading privileges on the Cincinnati, Midwest and Pacific Stock Exchanges.

• i I

The Company had 53,465 holders of common stocks as of December 31, 1987.

1987 1986 Dividend Price($) Dividend Price($)

Declared High Low Declared High Low First Quarter $.35 1/3 233/s 21 $.33213 201/2 16Vs Second Quarter .35 1/3 2l1/s 183/s .33 213 231;8 19llz Third Quarter .35 1/3 203/4 18 1/4 .33 213 253/s 201/4 Fourth Quarter .36 1/2 193/4 161/4 .35 113 23 201/2 SHAREHOLDER SERVICES TRANSFER AGENTS AND REGISTRARS Carol C. Conrad, Assistant Secretary Preferred Stock Delmarva Power & Light Company Wilmington Trust Company, 800 King Street, P.O. Box 231 Corporate Trust Division Wilmington, Delaware 19899 Rodney Square North *)

Telephone (302) 429-3355. Wilmington, Delaware 19890.

STOCK SYMBOL Common Stock Common Stock, DEW-listed on Wilmington Trust Company, the New York and Philadelphia Stock Exchanges.

Corporate Trust Division Rodney Square North . '

Wilmington, Delaware 19890.

ANNUAL MEETING Manufacturers Hanover Trust Company The Annual Meeting will be held Stock Transfer Department on April 26 at 11 :00 a.m. in P.O. Box 24935 '

~.

the Clayton Hall, University of Church Street Station '

Delaware, Newark, Delaware. New York, New York 10249.

ADDITIONAL REPORTS REGULATORY COMMISSIONS To supplement information in this Federal Energy Regulatory Commission, :I Annual Report, a Financial and 825 North Capitol Street, N.E.,

Statistical Review (1977-1987) and Washington, D.C. 20426.

the Form 10-K are available upon request. Please write to Shareholder Delaware Public Service Commission, Services, Delmarva Power, 1560 S. du Pont Highway, 800 King Street, P.O. Box 231, Dover, Delaware 19901.

Wilmington, Delaware 19899. Maryland Public Service Commission, American Building, TRUSTEES 231 East Baltimore Street, First Mortgage and Collateral Trust Baltimore, Maryland21202.

Bonds-Chemical Bank, Virginia State Corporate Commission, New York, New York P.O. Box1197, Pollution Control Revenue Bonds- Richmond, Virginia 23209 Mellon Bank (DE) N.A.

Wilmington, Delaware Bank of Delaware, Wilmington, Delaware Wilmington Trust Company, Wilmington, Delaware Irving Trust Company New York, New York 50

Delmarva Power Bulk Rate 800 King Street U.S. Postage Paid P.O. Box 231 Pennit No. 68 Wilmington, Delaware 19899