ML20050C857

Annual Financial Rept,1981

ML20050C857
Person / Time
Site:	Peach Bottom, Salem, 05000000
Issue date:	02/05/1982
From:	Curtis N, Weimer R DELMARVA POWER & LIGHT CO.
To:
Shared Package
ML20042C647	List: ML20042C646 ML20042C648 ML20042C649 ML20050C839 ML20050C857
References
NUDOCS 8204090415
Download: ML20050C857 (37)

Text

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1 It:ms of SpecialInterest Earnings per share increased 11.3% to $1.78 Dividends increased 6e to an indicated annual rate of $1.58 Internally generated funds increased 91% to $72.3 million Salem 2 placed in commercial operation New banking law adopted in Delaware l Full PJM membership attained Oil-fired generation reduced 37.5% since 1979 Construction Expenditures and Not Income and AFUDC Internally Gene'.ated Funds Generation Fuel Mix (M.::e.ru or !uu::4 Noons of Dc!!xs) me:cenu .,_,_..-....___..-._7 1984 ' 1984 9-c 1973 1981 " "" 1981 i; s 1977 7 1980 h 1979 [1 0 10 20 30 40 50 60 0 30 60 90 120 150 0 25 50 75 100 u Net in.rar C I:itet:u' y Genera ~d Cm! J Ruids J A"aw chv for Funds the bntintn>n Exrentttan s N"hMI IV a Con nncen g g.tngggpy If?-M4 P;mxtd 1901T4 Propxvd

i !*imara Pewer & Lv;ht contrainy The Year in Revisw Percent Increase 1981 1980 (Decrease) Financialliighlights Revenues S 608.5 million S 520.5 million 16.9 Not Income S 58.7 million S 49 0 million 19.9 Earnings Per Share S 1 78 S 1.60 11.3 Dividends Declared S 1.535 S 1.49 3.0 Common Stock Outstanding (Average Shares) 25,747.441 24.681,768 4.3 Common Stock Book Value S 15.66 5 15.87 (13) Construction Expenditures S 84.2 million S 110.7 million (24 0) Intemally Generated Funds S 72.3 milhon S 37.9 n.illion 90 8 Electric Sales 7.40 billion kwh 7.46 billion kwh (0.9) Electnc Customers (Average) 280,769 211.934 2.1 Average Residential Usage 7,967 kwh 8.337 kwh (44) Gas Salec 16.52 million mcf 15 69 million mcf 5.3 Gas Customers (Average) 73.299 72,363 1.3 Average Residential Usage 89.4 mcf 92.3 mcf (3.1) Earnings and Dividends Per Share Operating and Fuel Revenues ' cents) (M.!1:ons of Do!!rsi ( 0 50 100 150 200 0 125 250 375 500 625 m omtenda Dw:mni m Fud La Err;nga Fevenue i i

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l D bra n Tw : & I.;qM Ccermy 1 Contents To Our Stockholders 2 Financial Review 4 Electnc Operations 6 Gas Operations 8 Customer Activities 9 Ernployee Relations 10 'Ibward The Future 11 Financial Secticn Contents 12 About the Cover Swans and oyster boats fmd safe harbor at sunset m St. Michaels. Maryland. In 1981. Delmarva Power began serymg customers directly in St. Michaels and Centreville. Maryland. They had previously been served by their municipal govern-ments which bought electricity at wholasale rates from Delmarva Power. To the people who hve and work in those two towns. Delmarva Power extends the same commitment it ruves to all our cuctomers. energy for business and indus-try, energy for homes and communities as rehably and as economically as we can produce it. i

2 'Ib Our Stockholders Financial progress was made m 1981. The start of the Salem 2 nuclear unit Eamings per share were S178 as was another positive event in 1981 and companxi to S160 for 1980, an 11.3% represents one further step in the plan inc ease even though electnc sales to reduce the amount of oil bumed for dochned slightly. We view 1981 as a generating electricity. The target is to positive year and look!arward to redace the amount of oilburned from contmued improvement. 53% in 1979 to 12% in 1984. The two major factors producing It is encouraging that 1981 showed these resultsin 1981 were timely and earnings growth even though electnc significant rate action and conunuing sales decimed, largely due to a reflec-aggressive cost conti01 of og;ating tion of sluggish nationaleconomic expenses. Rates hled in 1980 were canditions as well as to continued effective in 1981 m all jurisdictions. In and significant reduction m use addition, all junsdictions authonzed by many residential customers. Gas new base rates to cover capital and sales did improve substantially with operating expenses of the company's the increased sales mostly to non-82 megawatt share of the Salem 2 firm customers. nuc! ear power plant when it became commercial on October 13.1981. These We look to continued fmancialgrowth ac tions plus reasonably prompt review in the years ahead Our optimism is of fuel and gas adjustment clauses tempeted with ihe knowledge and made 1981 prices more nearly reflect experience that major economic and 1981 costs. social forces may substantially affect eamings. We must make every effort to The second factor was etfective control anticipate such forces and be flexible in of operatmg and mamtenance costs res;xmdmg to them through increased productivit'/ and defenal of some maintenance and From today's perspectwe, those major constructicn projects We recognize forces which willaffect usine!ude that deferral is a short run action and reduced usage of energy by many the plans for 1982 and 1983 reDect the existing residential customers; con-need to complete defened projects. tinued environmental concems and costs which may reduce management The quahty of the company's eamings options: continued economic uncer-imptoved substantially in 1981 because tainty due to the underlying structural of lugher internally generated funds. changes occurnng in the economy; The nnprovement was accomphshed and contmued imrusion of government through more timely collection of f uel costs. a cash retum on power plante placed into service in late 1980 and 1981. and a modest construc-tion program. l l l l r I

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.q g..c t %. J '.g.y g. f./ .[p L -WdbF%M , f;- y.sen: ,:;~ # g = y y. v c;. t y,... i f ' { z. } ]l 4.{ - fl_- d ~ . > p,.p . 4 %, v 4 ' 3 'c I and consumer yroups mto our busi-a,. ,A. 7 i.:;; W 3 5J ..J ; ' 4 - ~5 t ^ 4 ^ ;.y [. 2 ' 'r D, f V g '.5 tvu We thmk it unkkely that there [j ' 'g ' N-will be a major tecimolo<pcal break- ' '., ~ ki (F .i ' f. - s V'" - ;..f ' - %"^d .,'">"h; % J through m the goneration of electncity ~ U m the foreseeable future nor do we 2 ["\\?'. g..4J 2' s ~i e' ~ ~ - forosoe n duction of fmancial costs to Y. ' J.D ' the low leveh of a d<cHe ago On the 'J ~ ' ; ' ; n "#. ..~ p ". '] ; ]. '1 , ".C L ^ E~ - other hand, we see an increasinq awan runa in our service m:'a of the 4, y - 4.. .. - so j.;.: '9 g.y \\.- neod for oconorme development as 4 *g ' M 4/ the cornerstone for morolobs a '..? . y t% m - 1 reduwd govemm"ntal bmden. and -f M " 'x J.. % "... - .l... 1 .- ' t. s 1e. dn oX p ult hryJ n Sit h!ntlal elect.((G ',,, h... /. [

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.. ' _ "' ;p y....'. ' f2 N.[.- ; f.. spico hoaung market Willun tlus hamewolk, our strateg r i plan dunny the bahuice of the eighties I is to make electnc rates more compf t-itive regionally and at the samo time. Tluid, operatmg, mamtenance, and Delmarva Energy and Delmarva adnumstrative expenses represent 25% Industries. Although both of tNse unprove the retum on your invest. ment our focus is three-pronged of totalcost The strategicapproach offortc have value m terms of poten-l Fit t. IT.V materW t-presents M towani unp!Ovement in this area tially lugher retums on cap;tal. It is of total cost We wul continue to con. focuses on er@loyee produ"Jvity quite clear that for Delmarva the maul vert f rom burnmq oil to coal llowever. HUd CII'cufnt use of facihtica and effort will remain m the aeneration. l We shall ret.un some oil fired capacity eqmpment Ttus mvolves aUocatmq production and distnbution of elec. so that th" company u; not overly addiuovil resources to operational tacity and in the distnbution of gas depende nt oti coal Whilo ohr gen. and safety trmnmy, upgrathng data The intent of the subsidianes is to emung muts have a botter than. processing f acihties to asmst managers improve camings through divermf t-avoraqe operatmq record, we will in better Inorntonny and controlhng catnn efforts, but for the foreseeable work to further unpmvo then reha expenws and pmvidmq a challenguig future, then contnbution will be rela-bihty and othnoney and undmg work environment i!vely minor. for employees in the final analyms, a very large Soeond. capdal costs,ue 32% of ]tal co::t Evory diort willbe made to utthze Mne of these stratapos a really new measure of the success of your llowever, we testate them so that you company m depondent upon the hard lowest cost fmancmq. to nunutuze capital psycts. and to utih/.e assets can understand the basa ef our opu-work of au those people who work at fully Thm, adchtional ma;or facihtles nuum in behevmg the years ahead will Delmarva to accomphsh corporate will not be undertaken unulit m show contmued pomtive f mancial otowth goals. We wish to thank them for their offorts reasonably as ;ured that.i full return [ wIU 5e cannd on those capital dothus There has boon much c hucusmon about / %e }a r #- We wiu cont'nue aggre: mvHy to rek divenahrahon for the utihty mdusuy m n m u n e vand o m on. m ttne Damarva nas iwo 8unmdmnes then cunent cost of pn;vahnq th"se i Rolrrt D Wenner pn < hrts. to promote then safe ni a Chairman of the Boant way to un; rove unl. 700n of f ac1htm and to : upport ef fot13 to attract new mdmuv and.ud the expqu.lon N ew;tmo mlustiy winun ou-m r m .v Nevlus M Clittis I Premdent and t Ch of Executive O!hrer ( F. e, n > <. n

4 Financial Review Eanungs per shareincreased 11? 3 Natural gas sales totaled 16.520 mcf. a in 1981 to St.78 pnmanly because 5 3% increase. A new all-time wmter of timely rate dccisions and tight bud-send out record was set on January 12. get control. With this improved finan-1931. Residential space heatmg sales cial position. the board of duectors decreased by 1.9% The overall sales increased dividends to an indicated increase was made possible because of annual rate of St 58. continuing its additional gas supphes available for pohcyof reguler moderatedividend sales to industnal customers. Ir1 Creases. Rate Matters Sales and Revenues The company pursued needed Eiuctnc saler a 1981 were 7.395 mil-mterehef m alljunsdictions The livu illowatt nours. a 0.9% decrease table behw presents the status comp ced to 1980. Decreascd electnc of this act.vity. sales reflect primanly conservation in response to price use of altemative Apphcanons filed with FERC in 1978 fuels by residenualcustomers and a and 1980 are still pending. although sluggish national economy. A shght settlements have been reached with increase in industnal, commercial. eleven resale customersin the 1978 and residential space heatmg sales was case and twelve resale customers more than offset by dechnes in the res-in the 1980 case. 2 !ential and resale meaa The 1981 (- <ctnc peak of 1.575 megawatts was Rate redesigns filed with the Maryland less than in 1980, a,though summer PubhcService Commission and the weather was considered normal. Vaginia State Corpontion Commission in 1980 are stJ1 beb e those agencies. Status of 1981 Rate Cases iD4cs m Mains) Requested Grantal Junsdiction Amount Date Amount Date. t Delaware l Electuc S58.9 3<80 S46.0 2/ 1/81 Electnc 49 9 5/ 8/81 37.6 12/15/81 I Gas 5.3 5/ 8/81 36 12/15/81 l Maryland l Electne 18.5 6/19/81 10 2 1/19/82 l Vuguna Electnc 3.4 4/30/80 2.7 3/20/81 Ekrtnc 0.4 7/21/81 0.1 10/13/81 FERC 08 5/29/81 08' 12/29/81 am toia,a

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"xp, " +y j, - t u; <., d.<- u; 1 : ,.1 l' r e s i A q Operating Expenses Operation and m:caten;mee expens '; im:reced dunnq 1981 by $12 9 nulhon 1 ta ll O Taye:< however. incremed i 76 9 m to $% 8 milhon ' IR s ~ ,e I N. g Construction Program 4 Con::truction experuhtures for 1981 nem Sul ? nulhon, of whrh $30 7 rni! hon W8'!f' us'M} for major prf x}uCflorl p!oj" cts to l' duco the cornpany f, d"p ndene"on oil With 1982 and l 1% constmetion inducts est mated at SDi h m:! hon ar 1S% 9 milhon n sp"ctivd, co' "nued m.provenient / ni hn dF?bli r"M;lti; 13 f 2poctivl d l.t o !!! the y( ar. tin't'on4 hilly.in!!OnnO'd f a reto year postponem"nt ni the con Financing and Capitalization Economic Recovery Tax Act of 1981 Mrucnon sche M f tw 90 nm rt/att A sa!" of ? 2 nu! hon shams of common Th:s now tax law c!!ers Delmarva coai !:rrd VD nn i 9 utut due to a pro stock, onqinally ;cheduled for June. Power additional tax savmys which

wte 1 decream m io Ut orowth Tho took p! ace on Novernher 17 The sa!e may uicrease mternally g"nerated eempany now prop et, an avuaqo p"ak was postponed bomuse of concern cash. /sh;o the law encourages the h h v} q!r1Wth (.! 2 0 s 3 0 antiu.i!!y ah')

lt t he (bipresseri pris' of company n-lavestinont tif divub>nds by deferling t

f,1 !he itens Th" phnt i; nov < ched-stock :1nd uncemunty m the capital tricon' > taxes on re-invested dividend.; ub 4! !er conun"rcul oporatr>n in 19uu market When tho m!e was hehl. the up to S/bu for irchviduals and SI.500 pne" o! stock had inen a;.ed 13 h1 for p unt returns 'lir e in:mos.md cash thw unprove nV"r the Juno value j nmnt donnq 1 mil has b :, ned th" Organization Changes company s tehance on capital m:nk, ts in July Sbo milhon of ix exempt Novo. : M Curtis was promoted to I5y ul th!!H1 llDM ' f urids aval! dA' f rom t' VlHD' !0 rids W!e ;old Io proVi(b' p!eb;de nt al;fi rhief ext >CutJve of ficer int"!Ilal Fouh es Tlus unpmvement funds for prdiuunn contml facthtu > at un November 1.1941 He had served a i in the b ve!and quahty of e.crunus Edr Mor. and hs han Ihver and for as prest lent and ch!"! operatmq of ti h1; n :,ultri tmm tho st:nt up and oth"r consuuction pm!"et.; in Auqust ner Hob.-rt D Wenner will conunuo subs"qu"nt ra'" men ases lor Imh m S12 nu' hon of shott tonn tax "xempt to m:ve as ch:mm:In of t he board Hivt.t tunt 4 and Shm tant J With rates notes v.cn sol.1 at an.tvMage mtetest on a tuu-une br s j m ethu t ta n !!, et the opeutmq and th el 7. thmuch a loan aqroement j rn.unten.ince Uc cts of those unit % tho tilth the lh ~ aware I/ con'mlH' John H (:oop r and Wil!!am G Slmeral IDlb b'Il ('t C.l!!yl:81 Ch.ilq+' i fi >r c t;Mtiil I)' T!' idIH nt [VIIhdltk .

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j i inve: tment without tat"s t> > cover th. me.tmo hehi Apn! 28. IM1, to n place i investmet:t ! eluninah d hJn-du Pont an i Earl C Jackson Jr. I Nho h.tve retired i l t l

6 Electric Operations Progress was made dunng 1981 to more than offset increases in base further control costs, to reduce rates associated with the capital dependence on foreign oil, and to and opemtmg costs of the plant. This develop electnc heating markets. resulted in a net decrease in customer bills. The start of Salem unit 2 marked PJM the compleuon of a key step in Del-In June, Delmarva Power became marva Power's plan to reduce the use a full member of the Pennsylvania-of expensive, foreign oil as a malor New Jersey-Maryland Interconnection generating fuel (PJM), the oldest power pool m the United States In 1979,53% of the electricity Delmarva Power generated came from oil. The full membership allows the making the company and its customers company and its customas greater vulnerable to world oil ptices. benefit from its operations This advantage is expected to save By 1984, oil fired generation is ex-up to S2 milhon annually in addition pected to be reduced to 12% through to the benefits of lower cost and the operation of Salem nuclear unit 2 rehability previously reahzed as an and Indian Rivc coal unit 4, which assocate member. began commercialoperation mlate D80. and the conversion to coal of two Delmarva is also reahzing additional c J-fired units underway at Edge Moor. savmgs by buying coal fued power from a neighbonng power gnd. These The first-year performance of the purchases saved approximately SG.7 Indian River unit 4 exceeded industry nulhon in 1981 in avoided fuel costs. standards considered acceptable for w!nch directly reduced customers bills. a nev coal unit in spite of typical problems associatod with star:-up Reducing Dependence on Oil Fo!Iowing a two year delay m ti=e The conversion of Edge Moor ur.:t 4 hxleral Incensing process as a result of is expected to be completed bv late the Three Mile Island nuclear incident. 1982 and unit 3. by sprmg 1983 Two Salem nuclear urut 2 was declared in long-term contracts for 1% sulfur coal comrnercial operatic r. oa October 13 have txon signed in preparation for the Custoniers receivm1 the unmediat conversion, and dehvenes will begm tenefit of decrea" d fuel costs wn!ch "i early 1982 When coal conversio1. ic v Tipletal. Delmarva Powcr's fuel mix m 1984 will be 66% coal.12% 0.1. and 22% nuclear

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4 m _a x' N .N }s Agreements !^ Smooth transitions marked the purchase of the Centrevi le. Maryland ~ ~~ electnc hght, heat, and power system on June 1.1431. and the ease of the l St Mictne!s. Marytand, electnc system on October Ib,1981. These agreements brought 5.178 now retail customers to Dehnarva Power and sneamhned o o [ operattons m that part c' the ser y 3 vice temtory The Centreville and y St Michaels customem had been mved previously by their mumcipal goveminents which had purchased v electncity f rcm Dehnarva Power at wholesale rates for resale to them M 7 Productivity A maior offort m the operations area has been a program to provide manyjets with tools to improve then abihty to n cognize changes needed sets ngorous energy cost-savmg stan-allow greater flexibthty in planning m work force, work methcx!s, and dards for new homes The energy and implementing necessmy major equipmont fly analyzing and adjustmq standards we.a developed by the maintenance at substations. wor k methtxis and procedurer. the company working with realtors, company can take advantage of oppor-builders. and architects Reductions in the capital budget of tumties m a changun busmess chmate about SS million over the next ten years Continuity of Service aheady have been realized, and more Growth of Electric With the design and purchase of a can be expected. The transMmer wi'i SpaceIIcating Market 25 MVA mobile distnbution substation cost approximately S760.000. More than Ws. I new residential transformer, the company is improvulg construction used electnc heat in 1931 Its abihty to maintain an acceptable Getty Expansion wth the heat pump accounting for levelof service rehabihty whih A major project to provide additional u Electne Feating systems were controlhng" capital costs capabihty to serve the Getty oil refmery chosen for all malor new othee build-complex from Delaware City Power mas m Wenungton Market growth The versatile, trailer-mounted Plant and Reybold Substation is far 1W2 is golected at 7b% tot electnc transformer. to be placed in service anderway by Substation Design heat.19 % of Ihat for heat pumps m 1932. will ehmmate the need and Substation Construction and for back up transformers at many Mamtenancegtoups With the 'lo cununue the premotton of substations, thereby avoidmg the need addition of a 50 MVA uansformer and heat sour ce and design etticiency for capitalinvestment for spare umts associatod switch gear. Delmarva planrung en the Dohn uva Peninsula. The unit can be transported and will be able to supp^rt a 30 MVA Delm uva s m uketing department has installed at any needed location in the load increase when the Getty plant devekped the Super E + 1' rot; tam It service terntory in twelve hours or less completes a mmm expansmn ut and Wlillx' cennally loCaled nea! earlyI M Delmar. Delaw.ce The umt also will

e Gas Operations Inaased availabihty of nnbual As the federal deregulation of natural gas-through reduced usage by gas puces contmues, supp!;es are existmg customers and increased expected to remam stable or to supply through the pipehne in 1901-urg. rove shghtly with a conservation tng:;ered a retum to relative normalcy response from customers Delmarva in the gas business The Delaware Power reduced a May 1981 gas pnce Pubhc Service Commission approved increase request after the U S Supreme the com;3any's request to again add Court vmded a I,outstana natural gas residential and small commercut tax. resultmg in a refund from our natural gas customers usmg 1000 mcf suppher. Transco. Inc., and because or les 1 annually on exis; ng transmis-Transco's rates to De marva were lower l sion and distnbution systems More than anucipated However, a substan-I than 900 c;as res:dential space heatmg tial pnce merease from Transco is customers were adcMi m 1981 expected in 1982 as deregulation procpess - Moderate growth by firm industial i customers is expected to contmue, Colder than normal temperatures m requ;<mg no rualor investment to January created a supply emergency the system while gaining maximum for Philade!Pr n Gas Works and use of it Delmarva Pow ' 'vas able to provide the equivalent ( ! 80.181 mcf from The increaseu availaNhty of natural January through Mant pas enabled the company to continue burnmg some of it at the Edge Moor power station. pumanly in units 3 and 1, to displace 627.000 banels of oil Fuel savmgs of approximately S5 2 nu! hon were passed on to gas and e ectric s / C j(- lM%% '/ customers tl. tough the cas p<oduction cost adjustnient and the electne fuel adlustalent Charge 3 i I ,r,- 11, fl.5 ' I e ,L s - d L 1 w l 9 I r s. I

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i I /* e n t s / Customer Activities Dr!marva Power employees work ha:d M to provide the safest most te!iable 4 servre at the lowest reason 3b!e cost 7 They also go beyond the basic service husmo 9 to help customers recoqmze the V. Ele o!(deCl!! City and natu!al gas so they c.m use them wisely. Whe:e the company has the specia! capabihta v to do so, it w:11 promote the he st ure of its products and contnbute r i to the solution of energy prohhirns I Helping Customers Handle Change Summer of 1931 ma:ked the li:s Vuil! cI op+1ath >n unde T !!Lindato!V

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,I e tin:e of-uso ratos fer more than 482 4 "A m - Ihir.v.ne general servico customers. The acceptmce h> Vel 13 h:qh for those .vho are able to sh !t load f:cm on-peak to of f-peak hours De!m ava Power marketmg engmeets Special Efforts and leprefWntarlVeS IlaVO pIOVided b >CauS*_' De!'~narVa Po'vVer leCOGn!ZeS d::oct mput to the enameennq deci-that coH weather o!!ers potential slons of industnes and busmesses on dam;er to people and property and the De!marv i Penmsu!a. resulung u1 that disconnocuanS and reconnect:ons the smooth accornphshment of a major are inefhc:ent bus: ness pmetices ! ate IeSit uct u:m9 the company m ikes spec ali fforts to p!aVide aSSISta!.ce IOr thoSO Cll3tOmeIS fled dent!.tl CustonR4 retic!!cn to h:gher who have dif hculty paymg their tvils ene!GV pnCeS h iS biought a health', Company repM 'ientallVES meet as rsponse Io De!m 1rVa PoVs IS Home needed Vath :epesentailVP3 of Vanous Efief gy SaVUI plUmam Mom than 4.100 state and social anencrs servmo the au1ts. m acco:d mco '.ath the federal counneS m our service terntory to Re: :dentia! Cons::vation Service 0: ovide mformat:on drout Delmatva's I?qul!ementS. We:e comph t(tlIn 19'il speela} progrdmS SuCh aS the Co}d weather pohcy thmi p uty nouf: cation. Com:',ents offetod by custcmets mstalhnent piyment plan. budget bi!- whom homes recem d energy aud:ts . ;c and mt: mat:c ban ; payment plan domo';stiate th lt the Homo Energ, i i SaVe! f!Dy!am W nno of the inn! Obtuct dlV:Sinn,ilnd corporate De Ct VD rentacid Deima:V1P N ci p,4Sonnel StllVe to nLm tam a dalDQue Ilr W4th i!S CuS!O!IM lc W:t h the SoCM! > Pc.' Je agenCleS Who p!'. Ek::TIV ce IQ the i3.11Vanta'p:d. Th!: fa;'e>, t.tco enmmuincaMH h.6 hent:fited the Ccmpany dnd its casti nett um m r/ need help

1 10 l l Employee Relations Delmarva's recognition of employees The mueasing complexity of all as its most valuable asset is the cor-aspects of the busmess makes the norstone of a comprehensive training, comrmtment of Delmarva PowerN development, education, and safety management in providmg employees program. Programs that support the with the app:opnate tools. knowledge. achievement of corporate goals and and safety procedures easential to j help individuals expenence profes-the company's success Corporate [ sional growth are of fered to employees goals can be met by we!!-tramed and in alllevels and departments motivated people workmg efficiently and safely. Training and Developrnent The Customer Semce Unentation TRASOP Program is an example of a general Tntough the TRASOP federal tax traimng course that yields sohd program,42 8 shares of Delmarva j benefits for emplo'/ees, the company, Power common stock were placed in and customers It is a twelve-week a trust account for each of 2.383 ehgi-prornam in which customer infor-ble employees Under federallaw, a mation speciahsts-those employees company is allowed to reduce its taxes who respond to customer mquines-by 1% of its investment in a year if the receive an ovenauw of Delmarva and amount of savings is passed on to its corporate goals, a backgroun'i in the employees in common stock important issues facmg the company and the industry, and traming and Also the TFASOP program allows the expenence m lob situations. This company to match employee contn-program includes presentanons from bution with stock up to a specified 22 departments amount More than 90% of eligib'e Delmarva Power employees signed up Safety to participate in this program in 1982. Safety procpams have been on-gamg for many years at Delmarva Power However, a special 1981 corporate-wide safety incentive program mmal at reducing all per-sonal injunes and fleet accidents and recogmzmg good perto:mance by employees was implemented in 1981 ys Additionally m 1981, mom than i 1.200 employees received traimng in cardio-pulmonary resuscitation and first md. Such trainmg has been on-gomg and will contmue in 1982 + Progtess has bren made in measunny ( safety performance Greater mterest and pa!!icipatlon by etnploVeOS in the a!ea of sdfi'!y haS beert noted 3

o s

e f L .p g y a y;q a j 'Ibward the Future De!marva Power supports well-planned development activities by agencies and counctis In its serace temtory While the in'ional overall economic condittons remam sluggish there are F indicauons of come posittve develop-ments m the Dolmarva Penmsula nusiness commumty. Economic Developrnent The passmg of the Financial Center ~N Development Act by the Delaware wqislature h;u pmvided a strong ~ inantive for the movement of financial operation centers into the state 'Ibn banks. Includmg CittBank. Chase Manhattan. The Fust Nauonal Bank of Maryland. and Morg in Guaranty and in !Airyland. the Chesapeake Country two mvestment compames have Economic Development Corporaticn announced plans to come to Delaware. has been formed to provide economic This is expected to create jobs for at development impetus for the nine least 1.100 people mitn!!y counties of Maryland's Eastem Shore an 1 three counties of Southern In Wilmmgton a redevelopment Maryland pro;ect encompassing tt'e area from the Brandywme River to the Chnstma investment at a terntd rate contmoed River m iniderway. The Brandywine in condommtum second home. ind Gateway will consist of shops. restau-motel markets The Southem Division rants. condonuniums, a new home added some 2.600 new remdential othce complex for the Hercules customers in 1981. most of them m Corporation and the new Wilmington the Ocean City area Of these new ' Dust (.Lmpany building Plans for customers,83 t chose electne heat the CJ istma Gateway inelude office i condomuuums f v the expected growth Deltnarva Industries,Inc. of banktag and :.surance compantes The De!mna Pcwer Boani of Duectors and the renovation of the histone approved in October the formauon of Wilmmqton train station which ux;u-De!marva Inductnes. Inc a subsidary larly serves the Northeast Comdor corporation which wt!! evaluate appro - Th" Amencan Life Insurance Company pnate busmess oppo:tumties d has announced plans to bin!d m the Chnstma Ga'eway The Department of Economi Develop-ment in the State of Ddaw.re has been morgan! red under a cabmet-level secretary who reports directly to tho State's tinve!nor The departrnent's JiurJ Me IS 10 hung inductiv to the State and prormt" growth New Cas'lo Ccunty 1 m also torrned an economic doveiepment corp Trauon _., _ _ _ _ _ _...__._ ~ _ _ ___

.. ~. l tH:: crva Power & Iagra CornH:iy 12 FinancialS ction I Contents Management's Discussion and Analysis 13 Celected Financia! Data 15 Reportof Management 16 Report ofindependent Certified Public Accountai.ts and Quarterly Common Stock Dividends and Pnce Ranges 17 l Conschdated Statements ofIncome 18 I Consolidated Statements of Sources of Funds for Construction Expenditures 19 Consoli-tated Balance Sheets 20 Conscadated Statements of Capitahzation 22 Consolidated Statements of Changes in Common Stockholders' Equity 23 1Jotes To Conschdated Financial Statements 24 Consohdated Statistics 31 s _m.,_____._. ...- m

l Ddmarn Fmer P2 Light Company 13 Manag : ment's Discussion and Analysis R:sults of Operations Eamings per share of common stock were S1.78 in 1981 as compared to S160 in 1980 and $1.91 in 1979 The retum on average common equity in 1981 increased to 11.2% from 10.0% in 1980, which is still below the rate of retum authorized by the company's regulatory authorities. The reasons for the 1981 eamings rise can be attributable primarily to (1) higher base rates being in effect to cover the capital and operating expenses of the Indian River unit 4 and Salem unit 2 plants placed in service in October 1980 and September 19% 1, respectively, and (2) contmuing aggressive cost control of operating expenses. Rate mcreases which became effective in late 1981 and early 1982 should provide additional revenues needed to continue the camings growth in 1982. Electric revenues net of fuel costs increased S71.7 million in 1981 and S17.1 million in 1980. The principal factor affecting these net revenues was rate relief in all jurisdictions (see Status of Rate Cases, page 4). Sales have shghtly decreased in 1981 and 1980 by 0.9% and 0.4%, respectively, due to customer conservation, price elasticity and a recessionary economy. Future electric sales will continue to be affected by the overall economic sit-uation and level of busmess activity in the company's service territory, as well as by weather conditions, use of alternate fuels for hoatmg and customer conservation efforts. Electric sales have been forecasted to increase approximately 3% annually through 1986. Gas sales volumes increased 5 3% in 1981 compared to a 12.4% increase in 1980. Th9 increase in sales is due to greater usage by the industrial firm and interruptible customers resultmg from improved availabdity of gas from the company's pipehne supplier. Partially offsetting the increases is lower residential-space heating usage resulting principally from conservation. Future sales will be affected by the availabihty of gas and the scheduled deregulation of g as prices, in addition to the ongoing impact of such factors as weather conditions, gas conversions and conservation efforts by our customers. Other operation, maintenance and depreciation expenses have mcreased since 1979 primanly as a result of higher payroll and related costs, generalinflation and ir. creased production expenses associated with the commercial operation of two major generatmg facihties. Indian River unit 4 and Salem unit 2 which were placed in service in October 1980 and Septeraber 1981, respectively. Increases in operating taxes are largely due to higher property taxes retultmg from the addition of new plant and increased property tax rates, as well as higher state and ocal gross receipts and franchise taxes on increased revenues Impact ofInflation Inflation continues to have an adve$ impact on the company because rates are generally set on a histoncal basis The company is addressmg inflation in the ratemaking process by utilmng a forecast " test year" and attntion allowances in its rate filmgs, so tb it rates will reflect costs anticipated for the period that they are in effect. For a further discussion of the effects of inflation on the company, see Note 12 of the Financial Statements. l

Deltmm Power a b1.t Comrer.y 14 Management's Discussion and Analysis (Continued) Liquidity and For the period 1979-1981, the company had total capital requuements of S402.9 million. Ccpital Resources inciudmg S307.0 mt1 hon for construction (excluding AFUDC). Dunng the same penod S163 6 million was generated internally which represents 41% of the capital requirements and 53% of the construction requnements. Capital requuements for the period 1982-1984 are estimated to be S422 7 milhon. Including S290.4 million for construction (excluding AFUDC). Assuming timely and adequate rate relief and continued improvements in the level and qu.:J.ity of eamings, tne company presently anticipates that, for the penod 1982-1984. intemaf; generated funds will be S303 8 milhon which equals 72% of the total capital requaements and 105% of its construction requuements The remaming capital requue-ments will be financed through the issuance of fust mortgage bonds, common stock from dividend reinvestrnent and deposits from pollution control obhgations issued in 1981. The company continually reviews its cap;tal requuements conditions in the fmancial markets and its capitalization goals to determine the amounts. timing and types of extemal financings At December 31.1981, the company's capitalization goals were 48-50% long-term debt.10-12% preferred stock and 38-40% co imon equity. The construction program and related expenditures may vary from the estimates set forth above as a result of, among other factors, higher than anticipated inflation regulation and legislation. rates of load growth, licensing and construction delays, results of rate pro-ceedings, as well as the cost and availability of capital. Working capital decreased by $45 6 million in 1981, and increased S5 3 milhon in 1980 and S47.3 million in 1979. See page 19. Statement of Sources of Funds for Construction Expenditures for the components of and the changes in working capital. The company issues commercial paper supported by adequate bank hnes of credit to meet seasonal fluctuations in working mpital requirements as well as the intenm financing necessary for construction projects Additional working capital requirements will result from the payment of the Summit tax liabthty (See Note 2 of Financial Statements). Despite the increase in interest rates in 1981, the company has maintained its Bond and Preferred Stock ratings of "A" by both major rating agencies. In addition the company's Commercial Paper rating was maintained at A-1/P-1. l l l l

Delmarva Power & L.ight Compre,y 15 Selected Financial D ta (Dollars in Thousands) For the Years Er&d Demter 31 1981 1980 1979 1978 1977 Oper: ting Operating Revenues S 608,504 S 520,470 S 424 699 S 378,702 S 337,818 Operatmg Income 107,325 80,716 74,859 71,563 62,027 Net Income 58,711 48,957 53,376 47,448 39,328 E rnings and Dividends Earnmgs Per Share 1.78 1.60 1 91 1.85 1.65 Dividends Declared on Common Stock 1.53 % 1.49 1.40 % 1.30 % 1.22 Average Shares Outstanding (000) 25,747 24,682 23,215 21,582 19,403 Total Assets 1,445,694 1,380.922 1,249,606 1,120,305 1.033,378 Construction Expenditures'" 8'. 206 110,739 112.061 130,272 130,371 Intemal Generation of Funds 73,346 37,866 53,435 41,900 33,384 C; pit lization Long Term Debt'2' 596,219 569,724 536,779 478,955 428,905 Preferred Stock without mandatory redemption 105,000 105,000 105,000 105,000 105,000 erred Stock with .andate" redemption 50,000 50,000 20,000 20,000 nmen 437,080 395,546 385,616 343,257 326,439 Total S 1,188,299 S 1,120,270 S 1,047,395 S 947.212 S 860,344 C pit:112ation Ratios Long J;rm Debt 50 % 51% 51% 51% 50 % Prefored Stock without mandatory redemption 9% 9% 10% 11% 12% Preferred Stock with mandatory redemption 4% 5% 2% 2% Common Equity 37 % 35% 37% 36% 38% Tc'al 100% 100 % 100% 100 % 100 % Electric / Gas Sales Electnc Sales (Kwh 000) 7.395.324 7.460,380 7,491.800 7,248,249 6,906.090 Gas Sales (Mcf 000) 16,520 15.693 13,962 13,172 12,099 " Excludes A'lewance fat Funds Usui Dunng ConstructKn Incl Ws lana te m debt due witten one year V

lb DP!!WifV1 POWe! d 12;ht COM.[WT/ E Report of Management on the Financial Statements Report of Management The conschdated fu.ancial statements of Delmarva Power & Light Company have been prepared by Company personnel in conformity with generally accepted accounting pnncip!es, based upon cunently available facts and circumstances and management's best estimates and judgements of the expected effects of eve.its and transactons. It is the resrx]nsibihty of management to assure the integnty and objectivity of such financial statements and to asswe that these statements fauly report the financial position of the s Company and the results of its operations Delmarva Power & Light Company mamtains a system of internal controls designed to provide reasonable, but not absolute, assurance of the reliabihty of the financial records and the protection of ascets The internal control system is supported by wntten admmistrative pohcies, a program of internal audits, and procedures to assure the selection and trammg of qualified personnel. These financial statements have been exammed by Coopers & Lybrand, independent certified pubhc accountants. Their examination was conducted in accordance with generally accepted auditmg standards which include a review of internal accounting controls to determine the nature, timing an't extent of auditing procedures, as well as such other procedures they deem necessary to produce reasonable Nsurance as to the fauness of the Company's fmancial statements and to enable them to express an opinion thereon The audit committee of the Board of Duectors. composed of outside Daectors only, meets with management, mtemal auditors and the independent accountants to review accountmg. auditmg and financial reportmg matters. The independent accountants are appmnted by the Board en recommendation of the audit committee, subject to shareholder approval i VG Nevius M. Curtis President and Clue! Executive Officer t-Howard E Cosgrove Vice Prec: dent and Chiet Financial Officer

r 17

>e.en Pown Let compmy Report of Independent Certified Public Accountants and Quarterly Common Stock Dividends and Price Ranges

'Ib the Board of Directors % have examined the sonschdated balance sheets and statements of capitahzation 0f and Stockholders Delmarva Power & Light Company and subsidiary compames as of December 31.1981 Wilmington, Delaware and 1980, and the related conschdated statements of income, changes in common stockhokfors' eqmty and sources of funds for construction exponditures for each of the three years m the renad ended December 31.1981. Our examinations were made in acc ;rdance with ganerally accepted auditmg standards and, accordmgly, mcluded such tests of the accounting records and such other auditmg procedures as we < onsidored necessary in the cucumstances in our opmion the financal statements refened to above present fauly the conschdated Imancial position of Delmarva Power & Light Company and subsidiary companics at December 31,1981 and 1980. and the conso:1 dated results of their operations and sources of funds for construct:on expenditures for each of the tnrc years in the penod ended December 31 1981. m conformity with generally acceptes 1ccountaq punciples apphed on a consistent basis COOPERS & LYBRAND D00 Three Guard Plaza Phi;adelphia. Pennsylvania Febniary S.1982 bmmon Stock The company's common stock is hated on the New Ymk and Philadelphia Stock Exchanges and has unlisted trading pnvikses on the Cincinnati. Midwest and Pacific Stock Exchanges The company had 69.980 holders of common stock as of December 31.1981 The company's Certincate of Incorporation and 'he Mortgage and Deed of Trust se amng the company's outstandmg bonds contain restnct tons on the payment of dividonds on common stock which would become apphcable if its capital and retained eammqs f all below certam specifimllevels or if prefened stock dividends bocome m anears The retamed earnmos av.nlable for dividends on common stock as of Dec ti,1981 were a;1proxunately SGO.000.000 under the most restnctive of those provt 1981 1980 Dividond Price Pnce Dividend Pnce Price Declared High Low Declanxi High Low Fust Guarre: S 38 12 % '1% S 37 12'. 10 % Second Quarter 38 12va 10 % 37 14 r. 10'<. Thud ouarter 38 120 11 37 14 % 12Ve Fourth Ou: uter 395 12 % liv. 38 12 % 10 %

Mr ira her & tm. cwpany 18 Consolidated Statements of Income J (Idrs m Thousan19 For the Yovbed Ihr v.rer 31 1981 1980 1979 Operating Revenues Electnc S 504.119 S 413.927 S 363,666 5 Gas 83.070 69,040 49.322 Steam 21.315 17.503 11.711 608.504 520.470 424 699 Operating Expenses Opmation. Fuel for electric generation 284.646 236.139 199.797 Net interchange and purchased power (97,950) (24.178) (35,701) Purchased gas 56.662 42.252 28.078 Deferral of energy costs 18.679 I 3,173) (12.250) Other operation 89.172 79.569 66.623 Maintenance 37,316 33 986 28.475 Deprecianon 46,833 37.955 33.866 Thxes on income 39.903 14.483 23.304 Taxes other than income 25,918 22.721 17.648 501.179 G.754 349.840 Operating income 107.325 80,716 74,859 Other Income Allowance fer other funds used during construction 4.090 12.540 12.576 Other. net 1.250 569 94 5.340 13.109 12.670 Income Before Interest Charges 112.665 93.825 87.529 Interest Charges Long-term debt 51.622 46.997 36.399 Shcrt-term debt and other 5.355 3.862 2,166 Allowance for borrowed funas used dunny construction t 3.023) ( 5.991) ( 4.412) 53.953 44.868 34.153 I Earnings Net income 58.711 48.957 53.376 Dividends on P:uferred Stock 12.818 9.427 9,050 Eammgs Apphcable to Common Stock S 45.893 S 39.530 $ 44.326 Common Stock Average shares outstandmg (thousands) 25.747 24.682 23.215 Eammgs per average share S 1.78 S 1 60 S 1 91 Dividends dec:ared per Aue S 1 53 % S 1 49 S 140% s.,n=ra, ng N es to ccrs; urd Fr.and Sn ments

I-IMmara 1%wm & Ir;r.t Cornrany U Consolidated Statements of Sources of Funds for Construction Enpenditures < Dees in musaryu For ur Yous fan [*< mler 31 1981 1980 1979 Sources of Funds Provided from operations. Net mcome S 58.711 S 48.957 S 53.376 Less-Preferred dividends declared 12.818 9.427 9.050 -Common dividends declared 39.857 36.805 33.124 Eamings reinvested dunng the year 6.036 2.725 11.202 Items not requinng (providing) funds-Depreciation 46.833 37.955 33.866 Amortization of nuclear fuel 3.187 1.549 596 Allowance for funds used dunng construction ( 7.113) (18.531) (16.988) Investment tax cnxht adjustments, net 17.198 1.795 10.155 s Defened income taxes, net 6.205 12.373 14.604 Funds provided Irom operations 72.346 37.866 53.435 External f mancmg. Long term debt-First mortgage txands 50.000 45.000 18.200 Wrm loan (23.450) 50.000 Common stock 35.521 7.730 31.436 Prefened stock 30.000 Change m short-term debt (28.475) 11.525 16.950 lledemption of long-term debt (12.000) (10.000) Externally financed funds 33.596 82.255 106.586 Other sources (uses) Decrease (increase) in workmg capital

• 48.604

( 5.266) (47.290) Net (increase) in pollution control !unds heki by trustee (35.422) ( 3.463) ( 1.794) Credit ansmq from sale of contracts (36.088) 99 ( 634) Other. net 1,170 ( 752) 1.758 Other (uses) (21.736) ( 9.382) (47.960) Construction Expenditures (excluding allowance for funds used dunny construction) S 84.206 S 110.739 S 112.061 Decrease (increase) in working capital' Accounts receinble S (15.06@ S ( 9.064) S ( 5.6d5) Deferud fuel costs, net 18.781 ( 3.173) (13.266) Inventones 11.482 (20.603) (19.356) Accounts payable ( 7.896) 19.634 2.724 Exes accrued 34.3S6 5.347 (17.858) Interest accmai 15.082 3.322 (137) Other. net ( 8.167) ( 729i 6.288 Rtal S 49.601 S ( 5.266) S (47.290) oe:c: tnan s!.cc in ; J-t.! 11rq tr m d.ct d.m we :n co,mr a:.d m:re i daem d.rme twe n ht. a !O d* IPi!td t'Je! 0FIS See accompanyi:y Etes ta con"*1dattd F;:ancal Stirment.

Deinwin Power & IJaht Company 20 Consolidated Batanew Sheets (Dollars in Thousands) 1 ASSETS As of December 31 1981 1980 't Utility Plant-at original cost Electric S 1,364,113 S 1,252,330 Gas 66,031 63,720 Steam 24,008 23,880 Common 46,194 46,302 ) 1,500,346 1,386,232 Less: Accumulated depreciation 362.270 322,340 Net utility plant in service 1,138,076 1,063.892 Construction work in progress 64,915 107,467 Nuclear fuel, at amortized cost 15,252 14,303 j 1,218,243 1.185.662 i N:nutility Property and Net nonutthty property-at cost 3,324 3,058 i OthIr Investments Pollution control funds held by trustee 42,111 6,689 Other 25 371 45,460 10,118 Current Assets Cash 15,474 12,763 Accounts Receivable: Customers 43,001 40,278 Other 20,449 8,108 Deferred fuel costs, net (4,632) 14.149 3 l Inventories, at average cost: Fuel (coal, oil and gas) 50,164 65.449 Materials and supplies 20,973 17,170 i Prepayments 3,683 3,629 149,112 161,546 1 Def rred Charges and Refundable taxes and interest 25,877 Oth:r Assets Deferred income taxes relating to the credit ansing from sale of contracts 18.123 Unamortized debt expense 5,415 4,050 Other 1,587 1.423 l 32,879 23,596 'Ibtal S 1,445,694 S 1,380,92?, Sm accompany:nq Notes to Consobdated Financal Statements I l i i i

21 (Dc!!ars in Thousands) LIABILITIES As of IMcerrier 31 1981 1980 Capitalization Common stock S 94,191 S 84,142 (see Statements Additional paid-tn capital 203.534 178.085 of Capitalization) Retained earnings 139,355 133.319 'Ibtal common stockholders' equity 437,080 395.546 Preferred stock-without mandatory redemption 105.000 105,000 Preferred stock-with mandatory redemption 50,000 50,000 Long-term debt 596.219 569,724 1,188.293 1,120.270 Current Liabilities Short-term debt 28,475 Accounts payable 27,723 35,619 'Ihxes. l Accrued 40,159 5,773 Deferred (10.203) 6.955 Interest accrued 29.570 14.488 Dividends declared 11,024 9,474 Other 4.454 3,600 102.737 104.384 Deferred Credits Credit ansmg from sale of cor, tracts 40.'760 76.848 Accumulated deferred income taxes. net 49,799 34.242 Accumulated deferred investment tax credits 53.920 36.722 Other 10.189 8.456 154.668 156.268 Other Comnutments (Note 7) and Contingencies (Note 9) 'Ibtal S 1.445.694 S 1.380,922 See accompannng Notes to Censchdated Fmancal Statements I

D.wrva Pom r a uxt cmauny 22 Consolidated Statements of Capitalizction (Do!Les in Thousanch) As of Demm!rr 31 1981 1980 Common Stockholders' Common stock par value S3 375 per share Equity authonzed 35,000.000 shares outstandmg 27,908.345 and 24,931.006 shares S 94.191 S 84,142 Additional paid-in capital 2w 534 178,085 Retained eamings 139.355 133.319 Total Common Stockholders' Equity 437.080 37 % 395.546 35% Cumulative Preferred Par value S25 per share,3.000.000 shares authc ;q c. none outstandmg Stock Par value S100 per snare.1.8uu,uut shares authonzed Without Mandatory Outstanung Redemption: 4 00% Senes 40.000 shares 4.000 4.000 3 70% Senes 50.000 shares 5n00 5,000 4 28% Senes 50.000 shares 5,tOO 5.000 4 56% Senes 50.000 shares 5.000 5.000 4 20% Senes 50.000 sh.ues 5.000 5.000 5 00% Senes 80.000 shares 8.000 8.000 7 84% Senes 100.000 shares 10.000 10.000 8 9a Senes 130.000 shares 13.000 13.000 7 52 6 Senes 150.000 shares 15.000 15.000 7 88% Sones 200.000 shares 20.000 20.000 8 00% Senes 150.000 shares 15.000 15.000 105.000 9m 105.000 9% With Mandatory 9 00% Sones 200.000 sNues 20.000-20.000 Redemptlon:* 12 56 i Senes 300.000 shares _ 30.000 30.000 50.000 4% 50.000 5% Long-Terrn Debt First Mortgage and Collateral Tiust Bonds: 9 n% Senes-issued 1/14/75 due 1/1/83 30.000 30.000 3Wt Senes-issued 5/11/M due 5/1/84 10.000 10.000 97 % Senes-isstwd 7/10/81 due 8/1/84 10.000 3'A% Senes-tssued 12/20ib5 due 12/1/85 10.000 10.000 3 n Senes-issued 6/17/58 due 6/1/88 25.000 25,000 4 A % Senes-issued 9/22/64 due 10/1/N 25.000 25.000 6AN Senes-tssued 9/13 67 due 9/1/97 25.000 25.000 7 a Senes-msuN 10/28 68 due 11/1/98 25.000 25.000 8% Senes-msuoi 1/12n0 due 1/1/00 30.000 30.000 8a % Senes-issued 11/30/70 due 12/1/00 30.000 30.000 114% Senes-issued 7/16'81 due 8/1/01 8.100 7%% Senes-issueo 11/30/71 due 12/1/01 35.000 35.000 le 2 Senes-issued Bi 362 due 8/1/02 30.000 30.000 8 % Senes-tssued 6/27N3 due 7/1/03 25.000 25.000 10 % Senes-issued 6/13n4 dt.e 6/1/01 33.950 33.950 6 6% Senes-tssued 7/ 1C9 due 7/1/01 18.200 18.200 10M Senes-msued 4/17iB0 due 4/1/05 15.000 15.000 11 % Senes-tssued 7/ 2Gb due 7/1/05 29.100 29.100 99 b Senes-ssutd 6/2298 due 7/1/03 501X)0 50.000 11%% Senes-1ssunt 7/ 2/80 due 7/1/10 30.000 30.000 { % Senes-issued 7/16/81 due 8/1/11 31.900 526.250 476.250 Pollution Control Notes: Senes 1973,5 9% effective rate, due 1983-1998 8.000 8.000 Senes 1976. 7.3% effective rate. due 1992-2006 34.500 34.500 42.500 42.500 Term Loan. due 1987 interest at pnme rate 26.550 50.000 Unamortimi premium and discount. net 919 974 Tbtal Lono '1brm Debt 596.219 50 % b69.724 51 % Tbtal Cap:tahzation S 1.188.299 100 % S 1.120.270 100 % %!"mrtan rnees a Decem!w 31.171 a e sm m sene aat s:u n: e senem sm accomnmnng !aes ta Conddated Fmancul S:atements

t>:mw Power & test compmy 23 Consolidated Statements of Changes in Common Stockholders' Equity (Dolkes m Thous.mds) Additional For tr." Thrw Yems Erxhj Common Pat Paid-in Retained Dm mner 31. !w! Shares Value Capital Eamings Total Balance as of January 1,1979 21,750.139 S 73,407 S 150.458 S 119,392 S 343.257 Net income 53.376 53.376 Cash dividends declared-Common stock (33,124) (33,124) Prefened stock ( 9.050) ( 9.050) Issuance of common stock: Pubhc offenng 2.000.000 6.750 18,500 25.250 TRASOP 74.557 252 757 1.009 Dividend Remvestment Plan 476.062 1.606 4,531 6,137 Capital stock expense: Common (1,174) ( 1,174) Prefened ( 65) ( 65) Balance as of December 31,1979 24.300.758 82,015 173.007 130.594 385.616 Net income 48,957 48.957 Cash dividends declared: Common stock (36.805) (36.805) Prefened stock ( 9.427) ( 9.427) Issuance of common stock: Dividend Remvestment Plan 630.248 2,127 5.603 7.730 Capital stock expense: Common ( 127) ( 127) Prefened ( 398) ( 398) Balance as of December 31,1980 24.931.006 84,142 178,085 133.319 395.546 Net mcome 58.711 58,711 Cash dividends declared Common stock (39.857) (39,857) Ptefened stock (12.818) (12.818) Issuance of common stock: Pubhc oftenng 2.200.0(X) 7.425 20.350 27.775 TRASOP 101 947 344 882 1.226 Dnadend Reinvestment Plan 675.392 2.280 5.460 7.740 Capital stock expense. Common (1,220) ( 1.220) Prefened ( 23) ( 23) Balance as of December 31,1981 27.908.345 S 94.191 S 203.534 S 139.355 S 437.080 s.v xcomncvmg N 3tes to conmhu.d Fmanom st:emer. s

r;elmam hwer & Ist comany 24 Notes to Consolidated Financial Statements

1. Significant FmancialStatements Accounting Policies The consohdated fmancial statements include the accounts of the company and its totally-held subsidiaries, Delmarva Energy Company and Delmarva Indusines Inc. (formed in 1981). Accounting pohcies are in accordance with those prescnbed by the regulatory commissions havmg junsdiction with respect to accounting matters.

Certam minor reclassifications have been made to amounts reported in 1980 and 1979 to conform to the presentations used m 1981. Revenues Revenues are recorded at the time bilhngs are rendered to customers on a monthly cycle basis and include rate increases permitted to be 0111ed subject to refuno pendmg final approval At the end of each month, there ls an amount of unbilled electnc and gas service which has been rendered from the last meter reading to the month-end. Fuel Costs Fuel costs (electnc and gas) are defcned and charged to operations on the basis of fuel coste included m customer bilhngs under the company's tanffs, which are sub;ect to pe".Alc regulatory review and approval. The company's share of nuclear fuel costs relating to jointly-owned nuclear generatmg stations (includmg estimated costs of stonng spent fuel) 1s charged to fuel expense on a umt of production basis. Depreclation and Maintenance The annual provision for depreciation is computed on the straight-hne basis t: sing composite rates by classes of depreciable property. Provision for decommissioning costs relating to jomtly-owned nuclear generating units is made to the extent of the net cost of removal allowed for rate purposes (approximately 20% of the plant cost). The relationship of the annual proviswn for depreciation for fmancial accounting purposes to average depreciable property was 3 5% for 1981,3.2% for 1980 and 3 3% for 1979. The cost of mamtenance and repairs includmg renewals of minor items of property. is charged to operating expenses. A replacement of a umt of property 1s accounted for as an addition to and a retirement from utlhty plant The onginal cost of the property retired is charged to accurnulated depreciation together with the net cost of removal For mcome tax purposes, the cost of removing retired property is deducted as an expense. Income'Ihxes Deferred mcome taxes result from timing ddferences in the recogmtion of certam expenses for tax and financial accountmg purposes. The pnncipal ltems accounting for detened income taxes are: (1) use of accelerated depreciation methods for income tax purposes. (2) unbilled fuel and gas purchased costs deducted currently for income tax purposes, and (3) other timing ddferences involvmg spent nuclear fuel storage costs and the capitahzation of certam taxes and overhead costs

1 r6s to consow.emnanaa: staments (contmu m 25 Investment tax credits utthzed to reduce federal income taxes are deferred and generally amortized over the useful hves of the related utility p;ont. An additional investment tax credit of 1% % (1% in 1980 and 1979) related to the Tax Credit Employees Stock Ownership Plan (a "TRASOP" plan) does not affect rmt income and is recorded as a habihty until the contnbution is made to the TRASOP Plan. Allowance for Funds Used During Construction Allowance for funds used dunng construction (AFUDC) is a noncash item and is defined in the regulatory system of accounts as "the net cost for the penod of construction of bonowe<l 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 ("allowanx for bonowed funds used dunng construction"), which is net of taxes and classified as a medit to mterest charges, and (2) the common stock equity and preferred dividend com; cnent (" allowance for other funda used dunng construction"), which is classified as an item of other income. AFUDC is considered a cost of utihty plant with a concurrent credit to income. It is excluded from taxable income for tax purposes. The rate used in determinmg AFUDC, which includes semi-annual compounding, was 8.7% in 1981,8 0% in 1980 and 7.7% in 1979.

2. Taxes on Incorne Income tax expense for 1981,1980 and 1979 is as hilows:

mollars m Thousands) 1981 1980 1979 Operations Federal Cunent S 10.234 S (1,35i) S (4,4 57) Defened 5.301 10,439 12.674 State. Cunent 4.936 441 1.E59 Defened 1.048 1,934 1,930 Investment tax credit adjustments, net 18,384 3.021 11,298 Other income-Cunent 1,654 693 346 Defermd (144) Total S 41.413 S 15.177 S 23.650 Investment tax credits utthzed to reduce federal income taxes payable amou.ted to $20.917.000 in 1981. S5.516.000 m 1980 and S14.000.000 in 1979 The amounts for 1981 (includmg a canyforward from 1980) and 1979 include TRASOP credits of S3.281.000, and St.060,000 respectively. The folawmg is a reconcihation of the difference between income tax expense and the amount computed by multiplying income before tax by the federal statutory rate: ? mdlus e Thousands) 1981 1980 1979 Amount Rate Amount Rate Amount Rate Statutory mcome tax expense S 46.057 46% $ 29.502 46% S 35,432 46% Reduction in taxes resulting from-Exclusion of AFUDC for income tax purposes (3.272) (3) (8.524) (13) (7.815) (10) Excess of tax depreciation over book depreciation not normahzed (1.349) (1) (3.324) ( 5) (2.931) ( 4) Investment tax credits amottized to income (2.533) (3) (2.495) (4) (2. FAG) ( 3) Stateincometaxes net of hx!eral tax benetit 3.365 3 1.295 2 2.064 3 Other, net ( 855) (1) (1.277) ( 2) ( 454) ( 1) Income tax expense S 41.413 41% S 15 177 24 % S 23.650 31%

tbtes to consedated nnanaal s:awnents (cont:nued) 26 The components of deferred income taxes relate to the followmg tax effects of timmg differences between book and tax income: (notiars in Thousands) 1981 1980 1979 Depreciation S 14,951 S 10.097 S 6,907 Deferred fuel costs (9.352) 1,656 6.081 Capitahzed overhead costs 992 1,176 1.103 Nuclear fuelstorage costs (1,332) (997) (1,007) Pennsylvania gross receipts tax 1,284 Other, net 946 441 236 Total S 6,205 S 12,373 S 14.604 In connection with an audit of Delmarva's tax retums for the years 1974 through 1976, the Intemal Revenue Service issued, m 1981, a revised notice of deficiency assessmg the company S32.3 million m additional taxes and $15 5 milhon in apphcable interest. The assessment and interest results predominantly ftom the taxabihty, on an ordmary mcome basis, of the net proceeds from the sale of contracts for a nuclear steam supply system in 1975. The impact of additional state income taxes and mterest resulting from the IRS audit would be SS 6 and S4.0 million, respectively. Management is appealing the ordmary income treatment of the net proceeds, and in the opinion of management and outside tax counsel It appears probable that this issue will ultimately be resolved as taxable on a capital gains basis. Accordmgly, the company has accrued federal taxes on a capital gams basis and state taxes aggregating $26.7 milhon and related interest of $14.1 nulhon (See Note 8). Smce 1975, the corcmny has treated the sale of these contracts as non taxable contnbutions of capital, and accordmgly reduced the tax basis of the depreciable property in 1976 by approximately S77 million. Taxation of the net proceeds would result in a reversal of the basis reduction, a reduction of taxable mcome for 1976 through 1980 and a refund of taxes onginally paid dunng that penod. Accordingly, refundable federal and state taxes and interest income of S16 3 and S4.4 milhon. respectively, resulting from the overpayments have been recorded, and defened taxes of approx'mately S18.0 milhon related to the basis adjustinent were reversed (See Note 8) Thuemaming issues in the revised notice of deficiency would not have a matenal offect on the com.,any's fmancial position or results of operations. (Dollars in Thousands)

3. Tues Other ThanIncome 1981 1980 1979 Delaware utthty S 11.437 S 9.873 S 8,090 l

Pennsylvania gross receipts tax (2,445)* Property 5.811 5.550 5,860 Other gross receipts 3.444 3.068 2,560 Payroll 3,216 2.598 2,332 Franchise and other 2,010 1.632 1.251 Total S 25.918 S 22,721 S 17.648

• The company had accrued, but not paid, the Pennsylvania gross receipts tax on energy generated witlun the state but sold outside for the years 1977-1979 In December 1979, the tax was repealed begmnmg m 1980 and accordingly, the company reversed pnor years' accruals m the fourth quarter of 1979. The effect of the reversalincreased eammgs apphcable to common stock for the twelve months ended December 31,1979 by S1.161,000 (50 per share)

4. P;nsion Plan The company has a trusteed noncontnbutory pension plan covermg all regular employees.

Pension contnbutions for 1981.1980 and 1979 were S4.371.000. SG,421.000 and S6.839.000 includmg S717,000. St.253.000 and $1.236,000 charged to construction, respectively. The contnbutions provide for normal cost and amortization of pnot service costs over penods of ten to twenty five years Net mcome for 1981 and 1980 was increased by approximately S938,000 (4: per share) and S603.000 (22 per share), respectively, pnncipall/ as a result of changed actuanalassumptions.

ras to cedeneem strommts 'conunwt 27 The actuanal present value of accumulated plan benefits. determined as of January 1. 1981 using an assumed rate of retum of 8% was S51.175.000 for vested benefits and S8.915.000 for accrued nonvested benefits. The net assets. at market value. available for plan benefits were S12).957.000. The actuanal present value of accumulated plan benefits. determined as of January 1.1980 usmg an assumed rate of ietum of 7.0L was S50.749.000 for vested benefits and S7,919.000 for accrued nonvested benefits. The net assets, at market value, avatlable for 1980 plan benehts were S96.741.000. As a result of current plan expenence, the assumed rate of retum was mcreased from 7% to 8% for the January 1. 1981 valuation

5. Capitalization Common Stock At December 31,1931 there were 3.455.863 shares of common stock reserved for issuance under the Dwidend Remvestment Plan and the TRASOP.

Retained Eamings The current first mortgage bond indenture restncts the amount of consohdated retamed eamings av:ulable for cash dividend payments on common stock to S35.000.000 plus accumulations af ter June 30.1978. which avalleble amount at December 31.1981 was apptoximately $60.000.000. Prefened Stock The ar.nual prefened dividend requaements on all outstandmg prefened stock at December 31.1981 are 512.818.000 If piefened dividends are m auears the company may not declare common stock dwidends or acquae its common stock Without Mandatory Redemption These senes may be redeemed at the option of the company at any time, in whole or m part. at the vanous redemption puces fixed for each senes (rangmg from S103 to S107 at December 31. MS1) With Mandatory Redemption (1) The 9 % senes, issued in 1978 has a smkmg f und requirement. commencmg in December,1984. to redeem 8.000 shares annually at S100 per share plus accrued and unpaid dwidends At the option of the company, an additicna18.000 shares may be redeemed on any smking f und date, without premium. (2) The 12.56% senes, issued m 1980. has a smkmq fund requnement, commencmg m December.1986, to redeem 9.000 shams annually at S100 per share plus accrued and unpaid dwidends At the option of the company, an additional 9.000 shares may be redeemed on any smkmg fund date. without prenuum (3) Under cert'un conditions, these senes may also be redeemed at the option of the company (4) Aggregate mandatory smkmg fund redemptions dunng the next twe years are 3800.000 m both 1934 and 1985 and S1.700.000 m 1986. Capital Stock Expenses Capital stock expenses relating to the issuance of common and pretened stock have been reflected as a reduction of additionalpaid-m capital Irng-Tenn Debt (1) On July 16.1931. the company issued. m total. S50.000.000 of First Mortgage and Collateral Trust Bonds to collaterahze pollution control revenue bands issued by the Delaware Econonne Develcpment Authon:V The issue consisted of $31.900.00012% Senes Bonds due August 1. 2011. S9.100.000113 a Senes Bonds due August 1. 2001 and $10.000.000 9b ' Senes Bonds due August 1.1984 The proceeds cf the issue were deposited m a construction fund held by a Trustee and are disbursed to reimburse the l l

IPm to consed nr mcw staten,ents (cor.unas 28 company for the cost of constructmg certam pollution control facihties. (2) Sinking fund provisions with respect to substantially all issues of the First Mortgage and Collateral Trust Bonds require that there be deposited annually vnth the Trustee cash equal to one percent (1 %) of the greatest aggregate principal amount at any one time outstanding. There shall be credited agamst such cash requirements (a) an amount not exceedmg sixty percent (60%) of the bondable value of property additions which the company then elects to make the basis of this credit, and (b) the aggregate principal amount of bonds which might then be made the basis of the authentication and dehvery of bonds and which the company then elects to make the basis of this credit. For the years 1979-1981, the company elected to certify property additions to satis!y its smking iund requirements equal to 1 % of each series as permitted by the indenture. (3)Substantially all utihty plant of the company now or hereafter owned is sub ect to the hen of the related Mortgage and l Deed of Trust. (4) Pursuant to a bank loan agreement, which was Amended and Restated on November 1,1981, tt.e company has a $50,000,000 revolvmg credit commitment through December 31,1984, convertible mto a term loan due December 31,1987. Any loan may be prepaid at any time without penalty and would bear interest at the pnme rate through December 31,1983 and 105% of prime rate thereafter, and a commitment fee of %% on any unused portion of the revolvmg credit. From time to time, the company issues commercial paper to repay borrowings under the revolvmg credit commitment. In 1981, the company sold S12 milhon of short-term tax-exempt revenue notes at an average rate of 7% % In recocJnition of the long-term fmancing commitment, these bortowmgs and S14 5 milhon of commercial paper have been classified as long-term debt (5) Matunties of long term debt dunng the next five years are 1982-none,1983-S30.100,000, 1984-S20.100.000; 1985-S10.100,000; and 1986-S100.000. (6) The annual interest requirements on all borrowings classified as long-term debt, at December 31,1981 are S49,927,000. Unamortized Debt Discount, Premium and Expense These amounts are amortizr. on a straight-hne basis over the hves of the long-term debt issues to which they pertain

6. Short Term Debt and As of December 31,1981, the conipany had unused bank hnes of credit of S75,750,000 and Lines of Credit is required to pay commitment fees or mamtam compensating balances ranging from 7-10% for these hnes Such hnes of credit are penodically reviewed by the company, at which time they may be renewea or cancelled.

7. C:mmitments The company estimates that approximately S126,500.000, excludmg AFUDC, will be expended for construction purix)ses in 1982, m connection with which substantial commitments have been mcurred. The company also has commitments under long term fuelsupply contracts Mmimum commitments as of December 31,1981 under all non-cancellable lease agreements are as follows-1982 S 6.290.000 1983 6,125,000 1984 5,823,000 1985 5,690,000 1986 949.000 Remainder 5.686,000 Total S 30.563.000 The total mintmum rental commitments are appbcable to the following types of property.

compmy's share of Peach Bottom nuclear fuel, S17,820,000; railroad coal cars, S2.427.000; distribution facilities, SS,739.000; other, prmcipally computer equipment, S4,577,000. Rentals charged to operatmg expenses aggregated $9,986.000 in 1981 S9,463.000 m 1980 and S9.120.000 m 1979 includmg SS.282.000, SS,357,000 and S5,646,000 for nuclear fuelIespectively The aforementioned leases are pnncipally operatmg leases Leases that meet the entena of capitalleases are not accounted for as such m the ratemakmg process and. 11 capitahzed, would not have a significant effect on assets. habWties or expenses.

3 !bts ten:,amt Firecw ctorrera (contm<n in 1973, the company entered into an agreement providmg for the avaW.bihty of fuel storage and pipelme f acihties through 1999 Under the agreenent. the company must make speafied mimmum payments monthly, which totaled S2.591.000 m 1981 The amount of requmxl payments is S2.595.000 in 1982. S2.241.000 m 1983. S2.040.000 m 1984. 51.795.000 m 1985. S2.138.000 in 1986 and $16.872.000 between 1987 and 1999.

8. Sale of Contracts The proceeds rece.ved by the company for the sale in 1975 of the contracts for a nuclear for Nuclear Plant steam supply system and related fuel, net of related plant expenditures which are considered of no future value to the company, are classified as a deferred creut in the balance sheet. In 1931. the credit was reduced by income taxes of $26.7 million, related mterest of $141 milhon and defened taxes of S18 milhon, net of refundable taxes of S16 3 mdhon and related mterest of S4 4 milhon (see Note 2) in addition the credit was mcreased by approximately S6 0 milhon representmg the net tax benefits of the state taxes and net mterest payable The company has obtamed regulatory approval for this accountmg treatment. The recordmg of the above transactions did not affect net income.

It is the mtention of the company, subject to regulatory approval, to reduce the cost of subsequent replacement plant capacity by the amount of the net credit. or altematively amortize the balance to mcome. The company has determmed that certam additional expenditures for envuonmental and engmeenng studies totalhng $9 4 milhon. incuned m connection with the nuclear steam supply system project. are of no f uture value. Accordingly, m 1981. the company charged these costs, net of related mcome taxes. to the defened credit

9. Contingencies See Note 2 for possW!e payment of taxes.

The company is a defendant m two anti-trust suits filed m 1977 m the U S. Distuct Court for Delaware by four Delaware mumcipal elecinc wholesale customers who seek declaratory, injunctive and treble damage rehef under the Sherman and Clayton Acts These actions are m theu eathest stages and until plamtiffs have articulated a theory of damages for thea allegations, it is not possible to quantify the company's exposure to habsty, if any, or to comment on the vahdity, as a matter of law, of the damage claims. Th" company beheves the suits to be without ment and legal counsel beheves the company has matenal substantive defenses available to it Based upon settiements witn resale customers, revenues recorded pursuant to mtenm rate mereases of fective December 1,1978 and December 1.1980 are approximately $51 milhon and S3 6 milhon, respectively These mcreases are subject to refund pendmg FERC approval, and the company beheves that substantially all such revenues will be reahzed. 4 The cmmpany is mvolved m certain other legal and admmistrative proceedmgs before vanous courts and govemmental agtncies concemmg rates. envuonmental issues, taxes, nuclear and other heensmg. fuel contracts and other matters In the opmion of manage-ment, the ulumate disposition of these proceedmgs will not have a matenal effect on the fmancial position or results of operations of the company The company is a member of Nuclear Electnc insurance Lmuted (NEIL) which provides msurance coverage agamst the extra expense mcuned m obtammg replacement power dunna proloncp1 accidental outagos of nuclear power umis Aftet the deductW!e penod of 26 weeks. weekly mdemruty of up to S2 3 milhon is provided for 52 weeks and S11 milbon for an additional 52 weeks. for each insured umt Insured members are contmgently hable for piyment of a retrospective premium adjustment of up to five times the annual pre-mium if losses exceed accumulated funds ava;lable to NEIL The company's maximum share of retrospective prenuum adjustments ctmently approx mates $2 4 mdhon The Pnm Anderson Act places a hmit of habWty of $560 mdhon on each nuclear generatmg f acWty for pubhc habsty claims that anse from a nuclear inadent Pubhc habihty msurance on the nuclear generanng umts m which the company has an ownersh:p puticipanon is cturently provida! by a combmation of pnvate msurance and

um to consondM nn.maal sta nnents (cont:nune 30 mdemnity agreements with an agency of the federal govemment. Under the indemnity agreements. the company, to the extent of its ownership participation, could be assessed S5 milhon per mcident for each nuclear operating umt, subject to a maximum of S10 million per hcensed reactor in any one year. The company is currently a joint owner of 4 reactors and its maximum assessment would be $1.5 mEhon pet incident and 53 0 milhon m any one year. Fct property damage to the Peach Bottom nuclear plant facilities, the company and its co-owners have pavate insurance up to S450 milhon The company and the Salem nuclear fac1hty co-owners are members of Nuclear Mutual Limited (NML), which provides insurance coverages up to S450 milhon for property damage to nuclear plant facihties. In the event of losses at any plant covered by NML, the company would be subject to a maximum assessment of fourteen times its annual premium Such maximum assessment would cunently approximate S3.7 milhon. In eddition, each of the fac1hties are msured for S247 million by Nuclear Electne Insurance Limited (NEIL II) for losses in excess of S500 milhon. In the event of losses at any plant covered by NEIL II. the company would be subject to a maximum assessment of seven and a half times the annual premiums Such maximum assessment would currently approximate S.5 milhon for both plants. The company is a self-insurer, to the extent of its ownersbip interest, for any property loss in excess of the aforementioned amounts. The company has entered into a five-year contract, effective October 1.1980, with Atlantic City Electnc Con ytny to se!! cne-eighth of the electncity generated by Indian River unit 4 The major provisions of the contract allow for the company to receive, irrespective of the availabihty of electric generation, one-eighth of all operation and mamtenance expenses incurred and a f txed retum on the plant investment. Approval of this agreement was receit ed from the FERC and the Delaware Pubhc Service Commission (DPSC)in 1980 h: connection with the decision of the DPSC, it was determined that profits from the contract up to the company's projection of S8 6 milhon be passed on to the customers, any losses be absorbed by the stockholders and profits above S8 6 milhon be passed to the stockholders Because the dension could result in an adverse rate impact over the term of the agreement. the company has requested a reheanng of the dec:sion.

10. Jointly-Owned Plant Information with respect to the company's share of jointly owned plant. includmg nuclear fuel for the Salem plant, as of December 31,1981 is as follows-(Domus m Thouseds)

Construction Ownersh:p Plant in Accumulated Work m Share Service Depreciation Progress Nuclear-Peach Bottom 7 51 % S 65,957 S 16.300 S 4,318 Salem 7 41% 153,873 20.324 14.200 Coal-Fued: Keystone 3.70% 8.265 3.246 224 Conemaugh 3 72 % 12.538 3.900 128 'Iotal S 240.633 S 43.770 S 18.870 The company provides its own financmg dunng the construction penod for its share of lointly-owned plant In addition. the company is a Jc mt guarantor of loans (S1,193,000 proportionate share) advanced for operatmg of the coal mmes that supply the Keystone plant The company's share of operating and mamtenance expenses of the joindy-owned plant is included in the conespondmg expenses m the statements of income.

& tes to Cwhmd Finanm1 Sim.en'.s (Crmtmd) M 11.SegmentInformation Segment information with respect to electuc. gas and steam operations was as follows. me us in musane 1981 1980 1979 Operating Revenues. Electnc S 504.119 S 443.927 S 363.666 Gas 83.070 59.010 49.322 Steam 21.315 17,503 11.711 Total S 608.501 S 520.470 S 424.699 Operating Income. Electne S 100.836 S 74.461 S 69.503 Gas 5.291 5.155 4.425 Steam 1.195 1.100 931 Total S 107.325 S 30.716 74.859 Utihty Plant.""2' Eleetnc S 1 lfft376 S 1.132.992 S 1.045.133 Gas 45.608 45.711 44.087 Steam 6.259 6.959 7.264 1.218.243 1.185.662 1.096.484 Other Identifiable Assets. Electnc 120.914 93.000 71.958 Gas 13.160 10.005 3.927 Steam 420 343 332 134.494 103.408 76.217 Assets Not Allocated 92.957 91.852 76.905 Total Assets S 1.445.691 S 1.380.922 S 1.249.606 Depreciation Expense Electnc S 43,238 S 34.321 S 30.672 Gas 2.703 2,775 2 441 Steam 892 859 753 Total S 46.833 S 37.955 S 33.866 Construction Expenditures '3' Electnc S 81.651 S 107.063 S 108.938 Gas 2.531 3.500 2.629 Steam 24 176 494 Total S 84.206 S 110.739 S 112.061 +: m!ud. s coratnaan wornn rufenmuuan of commm ut tv permny ntm.d r...t of tbmew accumuled rmnsmns for denmt:on Excbdes a:!cwuce f at h.nds ur44 d=r.g cenau uct:cn Cperating income by segments is reported in accordance with generally accepted accountmg and ratemakmg practices within the utihty industry and, accordmgly. Includes each sogment's proportionate share of taxes on mcome and general corporate expenses

12. Supplementary Information The fotowmg supplementary f mancial tnformation. as presenbed by the Fmancial to Disc!ose the Effects of Acc7unting Standards Board m Statement No. 33, is supphed for the purpose of providing Changing Prices mformation about the effects of changmg pnces on the company's ope 1ations The (Unaudited) mformation should be viewed as an estimate of the appmximate etfect of inflation rather than as a precise measure Constant dollar amounts represent histoncal costs stated in terms of dollars of equal purchasmq power, as measured by the Consumer Pnce Index for All Urban Consumers Cunent cost amounts re!!ect the change ln specic pnces of plant from the date the plant was acquned to the present and differ from constant dollar amounts to the extent that specic pnces have mereased more or less rapidly than pnces in general The cunent cost of utthty plant represents the estimated cost of replacmg exis ing plant assets and was 7

I Notee to Conschdated Firiancial Statements (Continued) 32 i i determined by indexing existing plant by the Handy-Whitman Inden of Public Utlhty Construction Costs. Supplementary Financial Data Adjusted for the Effects of Changing Prices (DouarsinThousands) HistoricalCost Constant Dollar Current Cost For the Year Ended December 31 (Average 1981 Dollars) Operatmg Revenues S 608,504 S 608,504 S 608,504 Operating Expenses: Operation and Mamtenance 388,525 388,525 388,525 Depreciation 46,833 85.214 90,517 'lhxes 65,821 65,821 65,821 Other Income-Net (5,340) (5,340) (5,340) Interest Charges 53,954 53,954 53,954 549,793 588,174 593A77 Net income'" S 58,711 S 20.330 S 15.027 Earnings per common share (after preferred dividend requirements)'2' S1.7G S.29 S.09 Incteasein cunent cost of utthty plant held during the year 3' S 181,749 Reduction to net recoverable cost S (65,512) (54,168) Effect ofincreasein generalpricelevel (187,790) Excess ofincreasein generalpricelevel over increasein current costs after reduction to not recoverable cost (60,209) Purchasing power gain on net amountsowed 55,514 55,514 I Net S (9.998) S (64,904) "' Inchxtng the reduction to net recoverable cost, the loss on a constant doUar and current cost basis for 1981 would have bewn $15.182 and 539,141, respectively '8' Excludmg rexiuction to net recoverable cost. '2' At December 31.1981. current cost of net atihty plant was $22/7.874 while hetoncM cost was S1,221.567. As required by Statement No. 33, the current provisions for depreciation on the constant dollar and current cost amounts of utthty plant were determined by applying the com-pany's depreciation rates to the indexed plant amounts, even though depreciation is limited to recovery of histoncal costs as further discussed below. Other operating expenses were either not required to bo adjusted or were not adjusted due to rate-making considerations. l The company, by holding monetary assets such as cash and receivables, loses purchasing j power dunng penods of inflation because these items can purchase less at a future date. l Conversely, by holding monetary liabtht:es, pnmanly long-term debt, payments in the i future will be made with dollars having less purchasing power. For the years 1979-1981, the company's monetary liabihties exceeded monetary assets which resulted in a purchasing power gain on net amounts owed dunng the year. The rate regulatory process hmits the company to the recovery of the historical cost of plant Therefore, the excess of the cost of plant stated in terms of constant dollars or cunent cost over the historical cost of plant is not presently Iecoverable in rates as depreciation and is reflected as a reduction to net recoverable cost. Based on past practices, however, the company beheves it will be allowed to eam on the Increased cost of its facihties when replacement actually occurs.

notm m ccraM et Fmancu1 Swmnmcm.tmum!) P; Since the gam from the dechne m purchasmg power is attnbutable to long-term debt which has been used to finance utihty plant, the reduction of utthty plant to net recoverable amount is netted agamst the purchasmg power gam on net amounts owed dunng the year. Supplementaiv Five-Year Companson of Selected Fmancial Data Adjusted for the Effects of Changmg Pnces en n.w.mic of keerne m1 rxces) For the Yers Ende! Decende 31 1981 1980 1979 1978 1977 Operatmg revt.nues Hu.toncal cost dollars S 608.504 S 520,470 S 424.699 3 378,702 S 337.818 Constant dollars 608,501 574,457 532,144 527.935 507,006 Net income Constant dollars 20,330 17,683 36A68 Current costs 15.027 9.230 25.092 Earnmgs per common share Constant do!!ars .29 29 1 08 Cunent costs 09 ( 05) 59 Net assets at year end'2' Histonc? cost dollars 542,080 500.546 490.616 Constant dollars and cunent costs 524,556 527,665 581.313 Excoss of increase in general pncelevelover increase m cunent costs * (60.209) (103.282) (123.170) Purchasing power gam on net amounts owed 55,514 73,540 79,384 Cash dividends declared per common share Histoncal cost dollus S 1 53 % S 1 49 S 1 40 % S 1 30 % S 1.22 Constant dollars 1 53 % 1 Gl% 1.76 1.82 1.83 Market pnce per common sha:e at year-end Histoncal cost dollars 12 63 11 75 12.63 13.25 14 38 Constant do!!ars 12 22 12 39 14.96 17.79 21.05 Average Consumer Pnce Index 1967 = 100) 272.4 246 8 217.4 195 4 181.5 Exm r: stwe amounts e At net mwnb!e cwt +After nertwn :o ne t nremaw ccet

13. Quarterly Financial The quartntly data presented below reflect all adjustments necessary in the opinion of Information(Unaudited) the company for a fiur presentation of the mtenm results Quarterly data normally vary seasonably with temperature vanations, differences between summer and w' errates, the timmg of rate mcu ases and the scheduled dawntime and mamtenance 01 electnc generatmg umts Eamings Eammgs Apphcable Average per Quarter Operatmg Operatmg Net to Common Shares Average Ended Revenue Income Income Stock Outstandmq Share (Do;. u s m nas.mds1 1981 March 31 S 160.919 S 27.061 S 14.266 S 11,062 25.078 S.44 June 30 137.445 24.547 12.098 8.893 25.247

.35 September 30 1G1.359 31A61 19.772 16.568 25.514 65 December 31 145.781 24.253 12.575 9.370 27.150 3, S 608.504 S 107,325 S 58.711 S 45.893 25.747 S 1 78 1980 March 31 S 134.909 S 21.243 S 14.634 S 12.372 24ASO S 51 June 30 113.729 16.432 10.004 7.741 24.605 31 Se;?tember 30 138.290 22.686 16 391 14.129 24,748 .57 December 31 133.542 20.350 7.928 5.288 24.914 21 S 520.470 S 80.716 S 48.957 S 39.530 24.682 S 1 60

Deltrarva Power & '.;gh; Company 34 Consolidated Statistics D Ynns of Fevww 1981 1980 1979 1978 Electric Revenues mus,ces) Residential S 164,919 S 144.637 S 115.381 S 105,237 Commercial 123.099 112.166 91,798 82.796 industnal 129.601 116.401 98,023 83.972 Other utilities, etc. 73.602 63.698 53,782 40.840 Miscellaneous revenues 12,898 7.025 4.682 5,261 Tbtal electric revenues S 504.119 S 443.927 S 363.666 S 318,106 Electric Sales o rm Mow tt hours) Residential 1.996.647 2.046.546 1,968.452 1.979,624 Commercial 1.660,147 1.648.776 1,598.299 1,568.600 Industnal 2.454,685 2.429.842 2,624,438 2.418,527 Other utilities, etc 1.283.845 1.335,216 1,300.611 1.281.498 Total electric sales 7.395.324 7.460.380 7.491.800 7.248,249 Electric Custorners h micfn m o Residential 255.646 246.887 242,745 237,925 Commercial 29.450 28,162 27,998 28.421 Industnal 788 821 874 858 Other utthtins. etc. 434 440 478 480 7atal elecinc customet s 286.316 276.310 272,095 267.684 Gas Revenues (thousands) Residential S 34.123 S 26,525 S 25,719 S 28.370 Com nercial 14.344 10.342 8.954 10.154 Inuustnal 22.259 12.404 9.884 10.191 Interruptible 11,711 9.293 4.440 716 Other utihties, etc. 61 46 55 93 Miscelhneous revenues 572 430 270 116 Tbtal gas revenues S 83.070 S 59.040 S 49.322 S 49,640 Gas Sales ora' hon cuN: fwo Residential 6,193 6.321 6.423 6.941 Commercial 2.704 2.683 2.415 2.593 Industnal 4.809 3,937 3.388 3.290 Interruptible 2.802 2.738 1.720 319 Other utilities, etc. 12 14 16 29 Tbtal gas sales 16.520 15.693 13,962 13.172 Gas Customers mna er renar Residential 69.865 69.024 67,823 67.E50 Commercial 3.967 3.846 3.712 3,773 Industnal 167 155 131 163 l Interruptible 16 16 16 21 Other utilities. etc. I 1 1 1 Tbtal gas customers 74,016 73.042 71.683 71.508 Refinery Service Electncity delivered 343.063 328.420 262,159 270.006 0 000 kiwatt heu:s) Steam dehvered 7,673.420 7.570.944 6.378.705 6.016.095 0 000 pvmas)

3'; Average Arwal COf!.[00fid % 1977 1976 1975 1974 1973 1972 1971 Rate of Growth S 97.691 S 80.416 S 77.069 S 68.730 S 51.799 S 43.878 S 36.198 16 37 74.641 60,111 58.169 51,192 37.888 31.810 25.468 17.06 76.801 G1.458 64.141 66.381 41.284 35.962 28.903 16 19 38.974 34.896 35.606 32.976 21.518 16.833 12.964 18 96 3.4s 1 2.398 4.370 9.194 5.287 2.857 1.209 26 71 S 291.568 S 242.279 S 239.355 S 228.473 S 157.776 S 131.340 S 104.742 17 01 1,924.723 1.787.663 1.672.180 1.597.472 1.629.G11 1.463.d21 1.380.763 3 76 1.495.796 1.412.259 1.359.673 1.303.053 1.360.216 1.227.230 1.099.897 4.20 2.277,630 2.260.661 2.142.151 2.461.303 2.512.877 2.412.239 2.252.219 0 86 1.207.941 1.199.1.55 1.218.785 1.230.528 1.252.977 1.137.272 1.0'4.972 2 38 6.906.090 6.659.738 6.392.789 6.592.356 6.755.711 6,240.562 5.747.851 2 55 233.106 230 b79 221.780 215.516 208.073 200.595 193.282 2 84 29 M 8 28.345 27.345 27.132 26.708 25,856 25.139 1 60 921 1.002 923 891 867 869 810 (0 27) 561 550 545 501 506 496 460 (0.58) 264.236 260.476 250.593 244.040 236.154 227.816 219.691 2 68 S 21.829 S 18.826 S 15.365 S14.298 S 13.018 S 12.944 S 11.948 11.06 7.133 6.062 4.676 4.201 3.715 3.532 3.126 16 46 6.950 5.984 4.343 3.726 3.505 3.265 2,998 22 20 169 1.301 1.211 1.532 1.363 1.035 1.153 26.09 49 44 33 26 30 25 16 14.32 103 31 45 96 22 18 39 30 81 S 36.233 $ 32.248 $ 25.673 $ 23.879 S 21.653 5 20.819 S 19.280 15.73 6.751 6.956 6,540 6.863 7.134 7.737 7.583 (2 00) 2.439 2.586 2.429 2.526 2 614 2.696 2.534 0 65 2.811 3.264 2.849 3.215 3.653 3.875 3.797 2 39 81 953 1.073 2.257 2.346 2.134 2,708 0 34 17 20 18 16 23 20 13 (0 80) 12 099 13.779 12.909 14.8 15.770 16.462 16.635 (0 07) 67.400 68.978 69.418 69.525 69.833 69.891 69.604 0 04 3.738 4.154 4.189 4.356 4.418 4.407 4.426 (1 09) 163 198 198 195 197 195 204 (1.98) 21 21 21 21 21 21 21 (2 68) 1 1 1 1 1 1 1 71.323 73.352 73.827 74.093 74.470 74.515 74.256 (0 03) 289.049 318 389 297.282 350.021 341,700 295 236 272.649 2 32 G 4,888.366 5.301.421 5.517.000 5.921.000 5.926.000 7.261.000 7.5G1.000 0 14

tMmarva Power & Light Compmy 36 f) f Trustees First Mortgage and Collateral Trust Bonds. Chemical Bank. New York. New York. Pollution Control Revenue Bonds. Girard Bank Delaware (formerly Farmers Bank of the State of Delaware). Wdmington. Delaware. Bank of Delaware. Wdmington. Delaware, and Wilmmgton Trust Company. Wilmmgton Delaware. Transfer Agents Preferred Stock-Wtimmgton Trust Company. Wdmmgton, Delaware. Commen Stock-Wilmington Trust Company. Wilmmgton. Delaware, and Manufacturers Hanover Trust Company. New York, New York. Registrars Preferred Stock-Delaware Trust Company. Wdmington. Delaware Common Stoc x-Delaware Trust Company. Wdmmgton. Delaware, and Manufacturers Hanover Trust Company. New York New York. Stock Symbol Common Stock, DEW-listed on the New York and Phdadelphia Stock Exchanges. Regulatory Commissions Federal Energy Regulatory Commission,825 North Capitol Street. N E. Washington. D C 2(>i20 Delaware Public Service Commission 1560 S du Pont Highway. Dover. Delaware 19901 Ma:yland Public Senace Commission. Amencan Building. 231 East Baltimore Street. Baltimore. Maryland 21202 Virgmta State Corporate Commission. P.O. Box 1197. Richmond Virginia 23209 Corporate Address Delmarva Power. 800 Kmg Street. P.O Box 231. Wilmington. Delaware 19899. Telephone (302)429-3011 Annual Meeting Wi!! be held on Apnl 27 at 12:30 p m.. m the Grand Opera House,818 Market Street Mall, p Wilmington. Delaware To supplement information in this Annual Report. a Financial and Statistical Review (1971-1981) and the Form 10-K are available upon request. Please wnte to Stockholder Relations. Delmarva Power 800 King Street. P O. Box 231. Wilmington. Delaware 19399 l l s

fe ITarva Powr+1 & lyt.t Correr.y Officers Board of Directors i l ) Rotert D Weimer Werner C Brown Chauman of the Borud Duector and Retuod Chauman of the n }, Board of Hercules. Incorporated (chemical } Nevius M Curtis manufacturer)Wilmmgton Delaware Preradent and Chief Executrie Officer Mrs Henry P Cannon.11 Duector of 11. P. Cannon & Son. Inc. (food H. Ray L:ntdon processing f am) Budgevi!ie. Delaware Senior Vice Prese!ent Oscar L Carey Wilham G Pnce President and Duector of Larmar Cor-Senior Vice President potation (general real estate and home .T Frank A Cook Vice Prer ident John R Cooper Manager of Envuonmental Affans and l 7 i Howard E Conqrovo Occupational Health. Petrochemicals Vice Preradent and Department of E I. du Pont de Nemours Cluef Financial Officer & Company (chemical manufacturer) Wilnungton. Delawam H,uland M WWeheld.Jr. -] Vice Preradent Nevms M Curtis President and Chief Executive Othcer of Donald E Con the Compan'/ I Divunon Vice Premdent t g Northem Divuann Sally V Hawkms l (t-# j ( /, j Duector and Premdent of Delaware Wayne A Lyons Broadcasting Company and General I Divwlon Vice Premdent Manager of Station WILM (radio '1 Southern D:vmon broadcastmg). Wilmmqton. Delaware James A CI:nk. Jr Wilham G Pnce Vice Premdent Semor Vice President of the Company 4 Energy Surp!'/ Wilham G Simeral (. 1 Alfint C Thr.vle/. Jr Duector and Senior Vice President and Secretary :nid 'Ireasurer a memtx:r of the Executive Committee " "Y Ch'u l' " "' '" u chi't'h"' n (ct;emical manufacturer) Wilnungton. L Comptio!!e Delme Executive Cemnutte" Dr E Arthur Tiabant Rolwrt D Wenner Chauman. President of the University of Delaware i Womer C Brown. Oscat L Carey. Newark. Delaware Il Nevius M Curtis. James M Tunnell. Jr Janies M Tunnell. Jr Audit Comantte" Profersor of Law Delaware 1;r.v School J uner M Tunnell. Jr. Chauman. Wilmmgton. Delaware Wemer C Brown. Oscar L Ca:ey Robert D Weimer Normnanng Ccmmittce Chauman of the Board of the Company Dr F Arthur Trabant.Chaaman. Sally V Hawkm. Robe:t D Wet:r er Compe:. anen Comnuttee Wemer C Bnv.vn. Chauman. Osc u L Carey. Nevius M Curus. Wilham G Simeral s

E89_ =. c -D s a :2 sm o 'P2$ g.- k RO " en e s80 I

Dividend Reinvestment and Common Share Purchase Plan l The company's Dividend Reinvestment Plan Please send me additionalinfonnation about quahfies for the new tax incentives under the the Dividend Retnvestment Plan. Economic Recovery Thx Act of 1981 The new Act provides for the deferral of federal income taxes on a portion of dividends paid after IJame .lanuary L 1982 by pubhc utibtles and reinvested in their common stock through a quahfied dividend reinvestment plan The maximum deferral for all dividends remvested is S750 per year for Address individuals and S1.500 per year for a married couple fihng a joint return The Plan provides for cash dividends to be remvested and/or cash to be mvested monthly l in amounts from S25 up to $5,000 pc quarter City State Zip Code to purchasc additional shares of Common Stock without paying any brokerage or service charges You may want to consider the benefits of join-j ing the Plan, if you are not already participating. J ist complete and mail the attached form to the Campany and we will send you a Prospectus l ccntaining the details of the Plan r 0 _ _ _' - ~ ~ - - - - - - '-~ ' - ~ ~ ~ ' ~}}