ML18092A141

Annual Financial Rept 1983

ML18092A141
Person / Time
Site:	Salem, Hope Creek, 05000000
Issue date:	12/31/1983
From:	Feehan J ATLANTIC CITY ELECTRIC CO.
To:
Shared Package
ML18092A137	List: ML18092A136 ML18092A138 ML18092A139 ML18092A140 ML18092A141
References
HNLR-831231, NUDOCS 8404190338
Download: ML18092A141 (42)

Text

NOTICE -

TH E A TTAC HED FI LES ARE OFFICIAL RECORDS OF THE DIV ISION OF DOCUMENT CONTROL. THEY HAVE REEN CHAR GED TO YOU FOR A LIMITED TIME PERIOD AND MUST BE RETU RNED TO THE RECORDS FACILITY BRANCH 01 6. PLEASE DO NOT SEND DOCUMENTS CHAR GED OUT THROUGH THE MAIL. REMOVAL OF ANY PAG E(S) FROM DOCUMENT FOR REPRODUCTION MUST BE REFERRED TO FILE PERSONNEL .

w-2 1 tg/je)/11'{' o? I DEADLINE RETU RN DATE u~~'F#=~~_w_JCJJ~ .. e RECORDS FACILITY BRANCH

OUR BUSINESS:

D To provide safe and reliable electric energy to our customers.

D To deliver our product and services at the lowest, reasonable prices.

D To provide a fair return on invested capital.

OUR COMMITMENT:

D To work with our customers to promote the wise use of energy and to control costly growth in peak electrical demand.

D To provide employees with safe working conditions, to afford them equal opportunity for training and advancement, and to compensate them fairly on the basis of performance.

D To conduct our operations with regard for both the value of natural resources and the preservation of environmental quality.

D To work, directly and indirectly, toward the economic vitality of the Company's service area.

D To plan for the future in such fashion as to assure consistency of financial performance, and continuous access to additional capital at reasonable rates.

The Corporate Name and Trade Contents Name: Atlantic City Electric Com- Letter to Shareholders 2 pany is the official name of the The Atlantic Electric Service Area 4 Company as it appears in the Arti- Atlantic Electric's Sound cles of Incorporation. The Company Fundamentals 6 also uses the registered trade name Management's Discussion and Atlantic Electric in various publica- Analysis 14 tions to shareholders and custom- Financial Statements 17 ers, and in its daily operations. 1983-1973 Statistical Review 34 Corporate Address: Common Stock Price Range 36 Atlantic Electric Board of Directors and Officers 37 P. 0. Box 1264 1199 Black Horse Pike Pleasantville, New Jersey 08232 Notice of Annual Meeting:

The 1984 Annual Meeting of Share-holders will be held Tuesday, April 24, 1984, at Quail Hill Inn, Smith-ville, New Jersey. A Notice of Meeting will be mailed in March to those shareholders entitled to vote.

NOTICE -

THE ATTACHED FILES ARE OFFICIAL RECORDS OF THE DIVISION OF DOCUMENT CONTROL. THEY HAVE BEEN CHARGED TO YOU FOR A LIMITED TIME PERIOD AND MUST BE RETURNED TO THE RECORDS FACILITY BRANCH 016 . PLEASE DO NOT SEND DOCUMENTS CHARGED OUT THROUGH THE MAIL. REMOVAL OF ANY PAGE(S) FROM DOCUMENT FOR REPRODUCTION MUST BE REFERRED TO FILE PERSONNEL.

0 ~7Z-Crm. ,,1 .g,g/fCVl/7'o?I DEADLINE RETURN DATE C 8 REGULAT9RY DOCKET FILE RECORDS FACILITY BRANCH

OUR BUSINESS:

D To provide safe and reliable electric energy to our customers.

D To deliver our product and services at the lowest, reasonable prices.

D To provide a fair return on invested capital.

OUR COMMITMENT:

o To work with our customers to promote the wise use of energy and to control costly growth in peak electrical demand.

o To provide employees with safe working conditions, to afford them equal opportunity for training and advancement, and to compensate them fairly on the basis of performance.

D To conduct our operations with regard for both the value of natural resources and the preservation of environmental quality.

D To work, directly and indirectly, toward the economic vitality of the Company's service area.

D To plan for the future in such fashion as to assure consistency of financial performance, and continuous access to additional capital at reasonable rates.

The Corporate Name and Trade Contents Name: Atlantic City Electric Com- Letter to Shareholders 2 pany is the official name of t he The Atlantic Electric Service Area 4 Company as it appears in t he Arti- Atlantic Electric's Sound cles of Incor poration. The Company Fundamentals 6 also uses the registered trade name Management's Discussion and Atlantic Electric in various publica- Analysis 14 tions to shareholders and custom- Financial Statements 17 ers, and in its daily operations. 1983-1973 Statistical Review 34 Common Stock Price Range 36 Corporate Address : Board of Directors and Officers 37 Atlantic Electric P.0. Box 1264 1199 Black Horse Pike Pleasantville, New J ersey 08232 Notice of Annual Meeting:

The 1984 Annual Meeting of Share-holders will be held Tuesday, April 24, 1984, at Quail Hill Inn, Smith-ville, New J ersey. A Notice of Meeting will be mailed in March to those shareholders entitled to vote.

RESULTS OF OPERATIONS 1983-1981

% Change  % Change 1983 1983-1982 1982 1982-1981 1981 Electric Operating Revenues $ 517,142,000 16.4 $ 444, 178,000* (5.4) $ 469,683,000 Operating Expenses $ 424,040,000 11.2 $ 381,408,000 (3.7) $ 396, 172,000 Net Income $ 66,152,000 34.9 $ 49,055,000* 4.4 $ 46,988,000 Earnings Per Common Share $ 3.48 26.l $ 2.76* (8.9) $ 3.03 Dividends Paid Per Common Share $ 2.30 4.5 $ 2.20 7.8 $ 2.04 Total Assets $1,139,978,000 5.8 $1, 077, 969' 000 6.3 $1,013, 789,000 Cash Construction Expenditures $ 74,457,000 (37.1) $ 118,460,000 4.6 $ 113,221,000 Sales of Electricity (KWH) 5,851,434,000 4.6 5,592, 117,000 (1.5) 5,675,367,000 Price Paid Per KWH-(All Customers) 8.36¢ 3.3 8.09¢ (2.1) 8.26¢ Total Customer Service Installations (Year-end) 398,526 1. 7 391,989 1.5 386,046 Number of Shareholders-Common Stock (Year-end) 48,299 (1.0) 48,790 .8 48,424 Number of Employees (Year-end) 1,995 (1.3) 2,022 (.6) 2,035 Book Value $ 23.58 5.0 $ 22.45 .2 $ 22.40

• See Note 4 (Change in Accounting for Revenues) of Notes to Financial Statements.

EARNINGS AND DIVIDENDS MARKET PRICE PER SHARE OF PER SHARE OF COMMON STOCK COMMON STOCK (in dollars) (year-end in dollars)

• Earnings 25

• Dividends 20 3

15 2

10 1

5 74 75 76 77 78 79 80 81 82 83 0 74 75 76 77 78 79 80 81 82 83

TO OUR SHAREHOLDERS:

On the pages of our Annual Reports in past years, During the year, Duff & Phelps also upgraded its we have described developments affecting the ratings of our debentures, preferred stock and Company, the challenges set before it, and the commercial paper. The Company's commercial measures of our progress. In many instances, our paper, which is issued for short-term funding reporting has been set within the context of requirements, now has the highest possible credit fundamental corporate strategies relating to: ratings with all major rating agencies. Our excellent o diversity of power supply commercial paper ratings enable us to achieve o managed growth/manageable construction extremely favorable rates on short-term borrowings.

programs As you read of our progress in 1983, you'll also o flexible capacity planning recognize the "story" which transcends events of o financial strength and capability any single year: The Company's consistent direction Put another way, realization of our strategic results from the steady pursuit of our long-term objectives simply means "getting the basics right." goals. Whether it's with regard to power supply, We're proud to say that these corporate fundamen- construction, finance or operations, each of our goals tals are in place. As a result, we believe that we'll reflects a unified approach to develop fundamental continue to be able to report on the progress of strengths which will support the Company, its your Company. customers and its shareholders, in good times and in 1982 had been described as a year of transition, and bad. This decade since the Arab oil embargo has 1983 as the beginning of a period of improved finan - witnessed our ability to accommodate changes in cial and operational performance. The improvement fuel supply, electrical demand and capacity plan-which we expected is being realized, as indicated by ning, and has confirmed the prudence of our the increase in earnings per share from $2. 76 in 1982 diversity and flexibility.

to $3.48 in 1983. Contributing to this improvement For the future, we have established capacity plans were the effects of a December 1982 base rate which should prove beneficial to both our share-increase and higher-than-expected sales of energy. holders and our customers. Our only generating With the Company's improved financial perfor- capacity under construction is Hope Creek 1, which mance, the Board of Directors took action last is expected to be completed in 1986. Our 5% share of September to raise the quarterly dividend on that unit will provide 53,000 kilowatts of base load Common Stock from $.57 to $.59 per share. As a capacity. In addition, we now have arrangements result, the Company's record of consecutive in- for the purchase of 125,000 kilowatts of capacity creases in dividends paid has been extended to 31 years. and energy through the year 2000. These purchase Our financial forecasts have indicated that additional arrangements will accommodate additional electrical base rate relief will be required to sustain accept- energy needs by a combination of coal and nuclear able levels of performance. Accordingly, we filed a sources. Our power purchases have permitted us request with the New Jersey Board of Public the time to deploy effective conservation and load Utilities in October for a base rate increase of management practices, and to fine-tune our assess-

$25 million, asking that the BPU render a decision ment of future electricity needs before making any and grant increased rates by mid-1984. commitments to new major construction efforts.

The rating agencies noted our improved financial Our preparedness is attributable to the active performance, too. Standard & Poor's raised their interest and leadership of a very fine Board of Di-ratings of our long-term debt and preferred stock. rectors. At this year's Annual Meeting, three of With S & P raising our first mortgage bond rating our Directors will be retiring, and they deserve from A + to AA , we have achieved double-A status special mention:

with all major rating agencies. Our goal for the past 10 years has been to establish a solid double-A rating across-the-board, and this achievement in 1983 is an important milestone in that direction.

2

sustain our high calibre of leadership. Madeline McWhinney was elected a Director of the Company at the October Board Meeting. Her expertise as president of a management consulting firm, together with prior financial and economic experience at such institutions as the Federal Reserve Bank of New York and the American Stock Exchange are most appreciated by the Board. In January 1984, the Board of Directors nominated Doug Huggard, Exec-utive Vice President of the Company, for election to the Board at the coming Shareholders' Meeting.

Doug joined the Company in 1955 and has been an Officer since 1974. Hisresponsibilities have encom-passed such corporate functions as production, electric operations, accounting and ratemaking.

Since February 1983, Doug has served as Executive Vice President and has been responsible for all aspects of the Company's operations. We believe that his breadth of experience and knowledge of the Company will continue to be assets of great value to E.D. Huggard, (left) Executive Vice President with J.D . Feehan, corporate direction.

Chairman and President.

In 1983 we introduced a new commercial logo which aptly characterizes the Company's employees as Dick Wilson joined the Company in 1939 and served "People Meeting Your Energy Needs." At year-end, as an Officer from 1963 until 1981, when he retired as there were 1,995 people of Atlantic Electric sharing an employee. Since 1977 he has served as a Director this service orientation. They are to be commended of the Company, lending to the Board his compre- for their dedication, concern and diligence. The hensive experience and knowledge of the Company's success of the Company, now and in the future, operations. depends upon those charged \\:ith pursuing and Frank Wheaton will be completing over sixteen achieving the "basics." They have exerted great years as a Director this April. During that period he effort in earning for the Company a reputation for has contributed to the Board his perspective and consistency and excellence and, I trust you'll agree, practical knowledge as a multinational manufacturer their efforts are paying off.

and, since 1976, he has chaired the Corporate For the Board of Directors Development Committee.

Mack Jones has served on the Board of Directors since 1970. His background in engineering and electronics has been of great value to the Board, and he has served as Chairman of the Energy, Opera- J. D. Feehan tions and Research Committee since 1970. Chairman of the Board and President All of us have been beneficiaries of their time, their experience, and their concern for the prosperity of the Company. Their presence at the Board meetings will be missed, but their impression upon the shape and gTowth of the Company will long be felt.

Since the last Shareholders' Meeting, we have taken several steps as part of our continuing effort to

AT A GLANCE: THE ATLANTIC ELECTRIC SERVICE AREA Atlantic Electric serves over one million people in a 2, 700 square mile area in Southern New Jersey. It is a region diverse in economic activity within close proximity to Philadelphia, New York, Baltimore and Washington. Tourism plays a significant role in the economy of the coastal areas while the inland is agricultural and industrial.

Customer Base 1983 Electric Consumption Fifteen Year Outlook Residential In 1983, the Company served Residential customers repre- Residential customers are pro-329,914 customers in 125 munici- sented 48% of the annual peak jected to comprise 47% of the palities in eight counties. About demand. The residential sector total peak in 1998 and consume 19% of these dwellings have elec- consumed 2. 5 billion kilowatt- 3.3 billion kilowatt-hours, or 44%

tricity as their conventional hours last year or nearly 44% of of total projected sales. Average heating source, 50% have elec- total sales. The average residen- residential kilowatt-hour con-tric water heaters and 62% have tial customer used 7, 715 kilowatt- sumption is expected to increase air-conditioning. About 19% of hours. More than 5,400 new to 8, 100 in 1998. The residential all dwellings are occupied residential customers were added sector is estimated to have a on a seasonal basis. during the year and 54% of all new compound annual growth rate in residential "connects" during the peak demand of only 1.4% over year have electric heat. the next 15 years.

Commercial Atlantic Electric served 43, 152 Total commercial customers The commercial sector is esti-commercial customers in 1983. accounted for 37% of the annual mated to total about 39% of The highest concentrations of peak demand. This sector repre- the total peak expected in 1998, commercial activity are along sented 35% of total sales, con- and commercial sales are ex-the eastern seashore resort suming 2. 0 billion kilowatt- pected to increase to 2.6 bil-areas and in Camden, Gloucester hours. Casinos, which are part lion kilowatt-hours, or 37% of and Cumberland Counties. of the commercial group, projected total sales. The casino accounted for about 4% of the portion of the commercial sector At year-end, the Company Company's total peak demand will be 5.3% of the total peak served nine hotel-casinos in and 5% of its total sales. demand and 6.4% of total pro-Atlantic City. Two additional jected sales. The entire com-hotel-casinos were under con-mercial sector is expected to struction in 1983.

experience a 1. 9% compound About 1, 750 commercial custom- annual growth rate in peak ers were engaged in agricultural demand over the 15 year period.

activities.

Industrial The Company served 1,021 Industrial customers repre- The industrial class portion of industrial customers in 1983. sented 15% of the annual peak total peak demand is forecast as Principal manufacturing indus- demand. They consumed 1.2 bil- 14% in 1998. Industrial sales are tries included food, chemicals, lion kilowatt-hours, or 21 % of expected to grow to 1.4 billion rubber and plastic products, total sales. About 32% of all kilowatt-hours or 19% of the stone, clay, glass and electrical industrial sales were to the total projected sales. The com-and electronic equipment. stone, clay and glass industries. pound annual growth rate in peak demand for the industrial sector is expected to be 0. 9%.

The area outlined represents the Atlantic City Electric Company service area. 5

ATLANTIC ELECTRIC'S SOUND FUNDAMENTALS Power Supply and Operations constructor, the New Jersey As reported last year, the Com- Department of Energy and the pany had entered an Agreement New Jersey Public Advocate, with Pennsylvania Power & established a targeted in-service Light Company in 1979 for the date of December 1986, and pro-purchase through 1991of125,000 vided for earnings incentives or kilowatts of capacity and energy penalties for project costs below from PP&L's two Susquehanna or above a targeted range. The Units, the first of which began Hope Creek Unit is currently operation in June 1983. During more than 80% complete, and it 1983 the Company was able to will provide the Company with resolve a controversy between 53,000 kilowatts of base load state and federal regulators nuclear generating capability.

regarding the Susquehanna Agreement by negotiating a sec- The need for the purchase or construction of any additional ond purchase contract with capacity before the end of the PP&L to provide a like amount Constant upgrading of century will depend, in part, distribution lines helps ensure of coal-fired capacity and energy upon the effects of conservation reliable service to the Com- from 1991 through 2000. The pany's customers. and load management on the terms of the combined purchase growth in peak demand. Such a (Left) Mickleton Substation is a arrangements were designed to major point of interconnection need could be accommodated by between the Company and produce net overall savings for the construction of combustion neighboring utilities. the Company's customers. The New Jersey Board of Public Util- turbines, which would not require a protracted time frame.

ities approved the 17-year plan, and granted the Company a lev- Other sources of additional ca-pacity may also be available at elized rate increase designed to recover the costs associated with the time needed.

the first 62,500 kilowatts of the The results of operations for 1983 purchased capacity. In addition, demonstrate the continuing the participants in the rate case importance of power supply agreed that similar rate arrange- diversity and commitment to the ments for the second half of the service life extension program total 125,000 kilowatt purchase for our generating units.

COST OF GENE RATION should be authorized by the PER KILOWATT-HOUR Over the past three years, pro-BPU when Susquehanna Unit 2 (in cents) duction costs per kilowatthour 5 begins commercial operation late in 1984. have changed only moderately, and this has contributed to the In July 1983, the BPU approved stability of rates charged our the Hope Creek Cost Contain- customers. The changes in pro-ment Agreement. That Agree- duction cost are dependent upon ment, which had been signed in fuel prices and the relative mix late 1982 by the Company as 5% of the various fuels used.

3 owner, Public Service Electric &

Coal and nuclear generating Gas Company as 95% owner and units provided approximately 78% of our total energy require-2 ments in 1983, compared with our record 79% in 1982. The blend of the two sources was 1

74 75 76 77 78 79 80 81 82 83 0 7

ATLANTIC ELECTRIC'S SOUND FUNDAMENTALS different, however. In 1982, the Salem Unit 1 experienced a level of coal generation was delay in returning to service diminished due, in part, to from a scheduled outage in 1983, scheduled outages of the BL due to failures of certain control England coal-fired units, during systems to operate as required, which major rebuilding of the and also due to the subsequent boilers was undertaken. The investigation by the NRC of the increased levels of coal genera- causes of those failures. The sys-tion from those units after their tems' malfunctions did not result return to service contributed to in any damage to the unit or any an all-time record for power gen- release of radiation. In October eration at the BL England 1983, Salem 2 was removed from Station in 1983. service to repair leaks in its (non-nuclear) generator cooling In November 1983 the Company system.

received a five-year renewal of its authorization from the New The effects of the outages of Pictured is a new water Jersey Department of Environ- specific units upon our opera-purification system used by the mental Protection to burn coal in tions and the costs of supplying Company at its BL England Generating station. BL England Units 1 and 2. As needed energy have been moder-(Left) Coal was used to produce part of the renewal, the DEP ated by the fact that our total 62% of the electricity used has required the Company to capacity available for production by our customers in 1983. burn somewhat lower sulfur coal is distributed among many dif-and oil at the station. ferent units. The overall availability of our generating The use of purchased coal-fired generation in 1983 increased over capacity affects the amount of costly reserve capacity which we 1982 levels, primarily as the result of increased energy avail- are required to have as members able from Indian River Unit 4 of the Pennsylvania-New Jersey-Maryland Interconnection under our purchased power (PJM). The diversity of our gen-arrangement with Delmarva erating capacity, coupled with Power & Light Company. Addi-comprehensive maintenance tional power from coal-fired programs to enhance unit avail-sources was purchased from ability, has resulted in our con-Allegheny Power System and AVERAGE AS-FIRED sistently having one of the Cleveland Electric Illuminating COST OF FUEL lowest required reserve margins Company. We also began to take (in dollars per million btus) of all PJM companies.

delivery of nuclear capacity and

• Oil

• Gas energy under the 17-year We're especially proud of one

• Coal arrangement with PP&L when particular achievement with

• Nuclear Susquehanna Unit 1 began com- respect to fuel supply: We re-mercial operation. duced the use of oil-fired sources to satisfy our total energy re-Nuclear production in 1983 was quirements from more than 70%

at a lower level than in 1982 for in 1973, at the time of the Arab both the Peach Bottom and oil embargo, to approximately Salem Stations. At Peach Bot-20% by 1983.

tom, piping work had to be done 4

,.. 2 on both units, resulting in exten-sions of their scheduled outages.

It is currently estimated that, in 1984, coal and nuclear sources will provide 88% of the Com-pany's total energy require-ments.

i ,,/

74 75 76 77 78 79 80 81 82 83 0 9

ATLANTIC ELECTRIC'S SOUND FUNDAMENTALS Financial Developments year, and to accommodate esti-The Company's improved credit mated 1984 energy costs. The ratings, as highlighted in the BPU granted the Company's Chairman's Letter, reflect pro- request in January.

gress in achieving the financial The quality of earnings in 1983 goals which we have set for has improved over past years.

ourselves. We have improved our AFDC represented 14% of net common equity capitalization income in 1983, compared with and our ability to cover interest 17% in 1982. None of the divi-charges on debt. Controlled con-dends paid during the year struction expenditures in the represented a return of capital.

future, with strong levels of internal cash generation, will The increase of the dividend rate result in manageable financing payable on Common Stock in programs and modest needs for October to an annual rate of additional rate increases. $2.36 marks the 31st consecutive year of increases in the dividend An extensive inventory of Factors contributing to the im-materials and supplies must be paid, and the 65th consecutive proved financial performance of maintained in order to meet the the Company in 1983 are set out year of dividend payments.

needs of the Company's customers. in detail in Management's Discus- The Company's external financ-(Left) A Company engineer sion and Analysis. Among the ing for 1983 included the sale of checks the progress of work principal factors were higher $50 million of First Mortgage being performed to extend the service life of a generating unit weather-related energy consump- Bonds due 1993, and the issu-from Deepwater Station. tion and the effects of the De- ance of almost 652,000 shares of cember 1982 base rate increase. Common Stock for $14.3 million The October 1983 request for an through the Company's Dividend additional $25 million in base Reinvestment and Employee rate revenues was based primar- Stock Ownership Plans. Short-ily on increases in the amount term debt was used for interim of the Company's investment in financing during the year, and it utility property over the period was paid off by year-end.

from September 1982 to Decem- In 1984, we plan to issue approx-ber 1983. Timely recognition by imately $15-20 million of tax-the BPU of this revenue require- exempt Pollution Control Bonds AVERAGE ANNUAL PRICE ment will help sustain acceptable in connection with the refinanc-PER KILOWATT-HOUR levels of financial performance. ing of a series of Pollution Con-(in cents) A decision on the base rate re- trol Bonds maturing May 1, 1984.

10 quests is expected by midyear. With 1984 cash construction ex-In October 1983 the Company penditures estimated at $94 requested a net increase in million and a good level of inter-8 energy adjustment revenues of nal cash generation, we expect

$28 million to offset the under- external financing for "new recovery of energy costs which money" needs will be accommo-6 had been experienced during the dated by the sale of Common Stock through the Dividend Re-investment and Employee Stock Ownership Plans, as well as by 4 the use of short-term debt.

2 74 75 76 77 78 79 80 81 82 83 11

ATLANTIC ELECTRIC'S SOUND FUNDAMENTALS Customers and Service than 20 programs designed to Total kilowatthour sales to our inform and assist customers in customers in 1983 increased by measures designed to make

4. 6% over sales the previous more efficient use of electrical year. The peak load recorded for energy. One of the new pro-the period was 1,347,000 kilo- grams involves incentives to en-watts, which was an increase of courage residential -customers

6. 5% over the 1982 peak and to replace window and central represented a new record for air conditioners with units hav-the Company. Unusually warm ing higher energy efficiency weather conditions contributed ratings than standard equip-to this new peak, which exceeds ment. Under this program, the the maximum demand which had Company provides rebates to off-been forecast for 1987. Never- set the added initial costs theless, peak load is still forecast associated with the purchase of to grow at an annual rate of 1. 5% the more efficient equipment.

over the next fifteen years .

Employees of the Conservation Implementation of the various and Load Management One of the Company's major con-Department review data programs within the Plan is from a Residential Appliance cerns for the future is to manage expected to cost about $3 million Saturation Survey. the costly growth in peak de- per year. It is believed that these (Left) A new residential mand, while providing for the costs will be compensated for by development in t he Company's electricity needs of our custom- reducing the amount of invest-service area. 88% of the Com-pany's cu tomers are residential ers. Conservation and load ment required for additional and t hey account fo r 44% of management programs, which generating and transmission total sales. will serve to constrain the need capacity in the future.

for additional generating capac-ity, have been designed and are A Good Neighbor Fund was being implemented. The Com- established in 1983 to help low-pany's experience has been that income households meet their the residential class of customers

• energy expenses. Customers contributes most to the system may make contributions to the peak and, consequently, provides Fund through their bill pay-the greatest opportunity for con- ments. The Company matches servation and load management donations, and all of the pro-programs. Within the pattern of ceeds are administered by the residential energy use, air condi- Salvation Army.

ENERGY SALES (in bill ions of kilowatt-hours) tioners and water heaters are In November, Officers of the 6 the major contributors to the Company answered telephone peak demand. calls from customers during an l*

The Company has received Executive Phone-In, responding 5

approval of its Conservation, to comments about service, 1.:,

Li Cogeneration and Load Manage- answering questions about rates ment Plan. It encompasses more and providing information h

4 regarding conservation. Based I< on the success of this initial effort, additional Phone-Ins are

,., 3 planned for the future.

1.* 1~

2 1

I'.

~

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I' 74 75 76 77 78 79 80 81 82 83 13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION General Financing Program The Company has made an investment in property and A total of $260 million was obtained during 1981 through plant of over $1.2 billion, which is employed to provide 1983 via the capital markets from the sales of First electric energy service to our customers. The Company's Mortgage Bonds and Pollution Control Bonds, inter-ability to finance its construction program, maintain mediate-term borrowings, sale and leaseback of nuclear service reliability, meet its working capital requirements fuel and sales of Common Stock, including the issuance of and provide a fair rate of return on investment to its Common Stock through the Company's Dividend Reinvest-shareholders is dependent upon adequate rate relief. ment and Stock Purchase Plan and Employee Stock Ownership Plan. Interim financing of our construction Liquidity and Capital Resources program and working capital needs was provided by the Construction Program issuance of short-term debt.

During 1983, cash construction expenditures aggregated Approximately 40% of the cash requirements for

$74 million, which is a decrease from the $118 million construction, debt maturities and sinking fund require-expenditure level experienced in 1982. This lower level of ments during the period 1981-1983 were generated from construction expenditures in 1983 is an indication of the operations after deductions for dividends and working progress the Company has made in the reduction of its capital needs, but exclusive of changes in temporary cash construction program. The five year (1984-1988) cash investments. The Company estimates that, with adequate construction expenditures are currently projected to be rate relief, an average of 559C of its total cash construction

$425 million. This level of projected construction expendi-requirements, debt maturities and sinking fund require-tures reflects the Company's revised capacity plan. The ments will be generated internally during the five year current capacity plan includes a forecast of peak load period from 1984-1988. The balance of the Company's cash growth for the five year period 1984-1988of1.5% per year.

requirements would be satisfied by means of external This forecast also reflects the expected results of an financing. Capitalization ratios at December 31, 1983 were aggressive program for promoting conservation, imple-45% long-term debt, 45% common and 10% preferred menting effective load management techniques and stock. The Company will continue to use short-term debt promoting economic alternative energy sources. The financing on an interim basis and currently maintains construction program has been developed in response to aggregate lines of credit of $115 million (see Note 11 of the need to replace existing production plant, upgrade Notes to Financial Statements for additional details on our transmission and distribution system and provide for short-term financing).

projected growth.

1983 REVENUE DOLLAR WHERE IT CAME FROM

---

Industrial $.15 r--- - - - - - - - - Residential $.47

~---------Commercial $.34

~-----------Other $.04 WHERE ITWENT

- - - - - - - - - - -- --Taxes $.22

_ _ _ _ _ _ _ Fuel and Purchased Power $.32

, - - - - - - - - - - -- - - Labor $.08

,..------ - - - - - - Depreciation $.07

' - - - - Preferred and Common Stock Dividends $.09

~-----------Interest $.05

- -- - - - - - - - - R e i n v e s t e d $.04

- -- - - - - - Other Materials and Services $.13 14

During 1983, the Company's financial position was re- are included in base revenues. The effect of the above evaluated by rating agencies. The ratings of our first factors on 1983 and 1982 revenues is shown below:

mortgage bonds, debentures and preferred stock were (Thousands of Dollars) 1983 1982 raised by Standard & Poor's Corporation; the ratings of Base Revenues $ 92,643 20.8% $ 3,226 .7 %

our debentures, preferred stock and commercial paper LEC Rate Decreases (40,592) (9.0) (21,841) (4.6) were raised by Duff and Phelps, Inc. Kilowatthour Sales 20,913 4.6 (6,890) (1.5)

Results of Operations Increase (Decrease) $ 72,964 16.4% $(25,505) (5.4)%

The tabulation on page 33 includes key historical indica-tors which we believe are helpful in evaluating the Future changes in operating revenues will reflect the performance of the Company over the past five years. timeliness and adequacy of rate relief, general economic conditions in our service area and the results of load Earnings management and conservation programs.

Earnings per share of Common Stock, based on the weighted average number of shares outstanding, were Sales

$3.48 in 1983, compared to $2. 76 in 1982 and $3. 03 in 1981. Annual percentage increases (decreases) from the prior Earnings per share for 1982 included the cumulative year in kilowatt hour sales by customer class were as effect of a change in accounting method of$. 92 per share. follows:

The primary reasons for the increase in per share Increase (Decrease) from Prior Year earnings between 1982 and 1983 are the effect of a 4. 6% Customer Class 1983 1982 1981 increase in kilowatthour sales experienced during 1983, Residential 5.4% (2.6)% (1.4)%

and the $74 million base revenue rate increase granted in Commercial 6.6 2.4 4.6 December 1982. Industrial .6 (4.8) (.5)

Other (4.4) (2.7) 2.8 Revenues Total 4.6 (1.5) .7 Operating revenues increased by 10~ from $470 million in 1981 to $517 million in 1983. This increase reflects the net The increases in 1983 are attributed to higher weather-result of base revenue increases, reductions in Levelized related consumption levels and improving economic condi-Energy Clause (LEC) revenues, and changes in kilowatt- tions for the residential and commercial segments of the hour sales and in 1982 a change in accounting method to service area. The decreases in 1982 kilowatthour sales record unbilled revenues. Changes in unbilled revenues were primarily the result of weak economic conditions YEAR END CASH REQUIREMENTS PRE-TAX INTEREST AFDC AS A PERCENT CAPITALIZATION AND INTERNAL COVERAGE RATIO OF NET INCOME GENERATION OF FUNDS

• Short-term Debt

• Maturities, Retirements and

• Long-term Debt Sinking Funds

• Preferred Stock

• Construction cash requirements

• Common Equity

• Internal Cash Generation (in percent) (in millions of dollars) (times coverage) 100 150 5 50 80 120 4 40 60 90 3 30 40 60 2 20 20 30 I 10 74 75 76 77 78 79 80 81 82 83 0 798081 828384858687 88 0 74 75 76 77 78 79 80 81 82 83 0 74 75 76 77 78 79 80 81 82 83 0

-Projected-15

within certain segments of the Company's service area 1983 1982 1981 and increased customer conservation.  % ¢/kwh  % ¢/kwh  % ¢/kwh Sources:

Operating Expenses Coal 62 2.0 48 2.6 45 2.2 The costs of owning the Company's investment in prop- Nuclear 16 .7 31 .5 22 .4 erty and plant (depreciation, taxes and cost of invested Oil 21 5.0 20 5.1 20 5.7 funds) were 43% and 38% of operating revenues in 1983 Natural Gas 2 6.6 3 5.1 4 5.2 and 1982, respectively. During 1983, net energy and Interchange (1) (2) 9 purchased power costs decreased to a level of 32% of 100 2.5 100 2.5 100 3.1 operating revenues versus 40% experienced in 1982.

Labor, materials and other costs accounted for the 21% of During 1983, Net Energy Costs were reduced by Defer-1983 revenues versus 22% in 1982. red Energy Costs of $15,055,000 representing fuel costs not currently recovered under the energy clause. This The aggregate of fuel, interchange and purchased power deferral is in contrast to 1982, when all previously un-costs have decreased by 11% since 1981, reflecting a recovered LEC costs were recovered and the Company favorable shift in the Company's interchange power had overrecovered costs resulting in Deferred Energy position and favorable purchases of capacity from other Revenues of $15,869,000 at December 31, 1982. The utilities which have resulted in less use of more expensive amount of $15,055,000 shown on the Balance Sheet as generation facilities and sources. Deferred Energy Costs at December 31, 1983 represent-The following presents the results of the Company's ing this underrecovery, has been reflected in the 1984 efforts toward greater use of lower cost fuel sources and LEC billing rate (see Note 3 of Notes to Financial the contribution of various fuel sources. The lower con- Statements).

tribution by nuclear generation in 1983 is the result of Power production operation and maintenance costs have planned and forced outages of the jointly-owned nuclear increased, reflecting the higher cost of maintenance of units. both wholly and jointly-owned generating units. Other operation and maintenance costs have increased , reflect-ing increases in the price of materials, supplies and services, as well as increases in wages and employee SOURCES OF ENERGY benefits.

Net Interchange*

Increases in depreciation expense are consistent with the

• Gas increased amount of electric utility plant in service as

• Oil well as higher depreciation rates, authorized in December

• Nuclear

• Coal 1982, applicable to certain pollution control investments.

(in billions of kilowatt* hours) 7 Net interest expenses have decreased 11 % since 1981, reflecting a reduction in the use of short-term borrow-ings, as well as a decline in short-term interest rates 6

during that period. The Company has made every effort to maintain financing flexibility in support of our reduced construction program. Pollution control financing and the intermediate term variable rate debt have been used to dampen the effect of refinancing maturing debt at higher prevailing rates. The embedded cost of long-term debt has risen from 8.54% in 1981 to 9.19% in 1983.

3 Inflation Supplementary unaudited financial information showing 2 the estimated effects of inflation on the Company's operations is shown on pages 31 through 33. This data should be viewed as estimates of the approximate effects of inflation, rather than as precise measures. Trends demonstrated reflect the need to control costs and point U M W TI m ~ 00 fil ~ ~ 0 out the responsibility for regulatory agencies to provide

• 1974-1981Import, 1982-1983 Export timely and adequate rate relief.

16

REPORT OF MANAGEMENT AUDITORS' OPINION The management of Atlantic City Electric Company is Deloitte Haskins & Sells One World Trade Center responsible for the financial statements presented herein. Certified Public Accountants New York, New York 10048 These financial statements were prepared by manage-ment in conformity with generally accepted accounting To the Shareholders and the Board of Directors principles applicable to public utilities which are consis- of the Atlantic City Electric Company:

tent in all material respects with the accounting We have examined the balance sheets of Atlantic City prescribed by the State of New Jersey, Board of Public Electric Company as of December 31, 1983 and 1982 and Utilities and the Federal Energy Regulatory Commis-the related statements of income and retained earnings sion. In preparing the financial statements, management and of changes in financial position for each of the three made informed judgements and estimates relating to years in the period ended December 31, 1983. Our events and transactions being reported.

examinations were made in accordance with generally The Company has established a system of internal ac- accepted auditing standards and, accordingly, included counting and financial controls and procedures designed such tests of the accounting records and such other to insure that the financial records reflect the transac- auditing procedures as we considered necessary in the tions of the Company and that assets are safeguarded. circumstances.

This system is examined by management on a continuing In our opinion, the accompanying financial statements basis for effectiveness and efficiency and is reviewed present fairly the financial position of the Company at on a regular basis by an internal audit staff that reports December 31, 1983 and 1982 and the results of its directly to the Audit Committee of the Board of operations and the changes in its financial position for Directors.

each of the three years in the period ended December 31, The financial statements have been examined by Deloitte 1983, in conformity with generally accepted accounting Haskins & Sells, Certified Public Accountants. The principles applied on a consistent basis, except for the auditors provide an objective, independent review as to change in 1982, with which we concur, in the method of management's discharge of its responsibilities insofar as accounting for unbilled revenues, as described in Note 4 they relate to the fairness of reported operating results to the financial statements.

and financial condition. Their examination includes pro-cedures believed by them to provide reasonable assurance that the financial statements are not misleading and include a review of the Company's system of internal accounting and financial controls and a test of trans- January 31, 1984 actions.

The Board of Directors has oversight responsibility for determining that management has fulfilled its obligation in the preparation of financial statements and the on-going examination of the Company's system of internal accounting controls. The Audit Committee, which is composed solely of outside directors, meets regularly with management, Deloitte Haskins & Sells and the internal audit staff to discuss accounting, auditing and financial reporting matters. The Audit Committee reviews the program of audit work performed by the internal audit staff. To insure auditor independence, both Deloitte Haskins & Sells and the internal audit staff have complete and free access to the Audit Committee.

17

STATEMENT OF INCOME AND RETAINED EARNINGS For the Years Ended December 31 1983 1982 1981 (Thousands of Dollars Except Per Share Amounts)

Operating Revenues-Electric (Notes 1, 3 and 4) $517,142 $444,178 $469,683 Operating Expenses:

Energy:

Fuel 167,988 153,986 154,652 Interchan~e (1,697) (7,459) 39,312 Deferred osts (15,055) 23,273 14,043 Net Energy 151,236 169,800 208,007 Purchased Power-Exclusive of Fuel 12,435 7,482 7,238 Power Production-Operation and Maintenance 48,794 44,650 36,206 Other Operation and Maintenance 62,800 55,648 50,107 Depreciation and Amortization 38,383 30,216 25,420 Tuxes Other Than Federal Income Tuxes (Note 14) 61,664 60,548 44,200 Federal Income Tux Expense (Note 2) 48,728 13,064 24,994 Total Operating Expenses 424,040 381,408 396,172 Operating Income 93,102 62,770 73,511 Other Income:

Allowance for Equity Funds Used During Construction 4,320 3,354 6,045 Miscellaneous Income-Net 833 3,571 3,684 Total Other Income 5,153 6,925 9,729 Income Before Interest Charges 98,255 69,695 83,240 Interest Charges:

Interest on Long Term Debt 33,795 36,650 30,831 Interest on Short Term Debt 2,669 2,362 8,150 Other Interest Expense 535 633 1,323 Total Interest Charges 36,999 39,645 40,304 Allowance for Borrowed Funds Used During Construction (4,896) (5,079) (4,052)

Net Interest Charges 32,103 34,566 36,252 Income Before Cumulative Effect of Change in Accounting Method 66,152 35,129 46,988 Cumulative Effect of Change in Accounting Method (Note 4) 13,926 Net Income 66,152 49,055 46,988 Retained Earnings at Beginning of Year 128,825 121,078 108,977 194,977 170,133 155,965 Dividends Declared:

On Cumulative Preferred Stock 7,171 7,353 7,508 On Common Stock 39,352 33,955 27,379 Total Dividends Declared 46,523 41,308 34,887 Retained Earnings at End of Year $148,454 $128,825 $121,078 Earnings for Common Stock:

Net Income $ 66,152 $ 49,055 $ 46,988 Less Preferred Dividend Requirements 7,201 7,368 7,531 Balance Available for Common Stock $ 58,951 $ 41,687 $ 39,457 Average Number of Shares of Common Stock Outstanding (in thousands) 16,923 15,116 13,034 Per Common Share:

Earnings Before Cumulative Effect of Chan~ in Accounting Method $ 3.48 $ 1.84 $ 3.03 Cumulative Effect of Change in Accounting ethod .92 Total Earnings $ 3.48 $ 2.76 $ 3.03 Dividends Declared $ 2.32 $ 2.24 $ 2.08 Dividends Paid $ 2.30 $ 2.20 $ 2.04 The accompanying Notes to Financial Statements are an integral part of these statements.

18

STATEMENT OF CHANGES IN FINANCIAL POSITION For the Years Ended December 31 1983 1982 1981 (Thousands of Dollars)

Source of Funds:

Funds from Operations:

Income Before Cumulative Effect of Change in Accounting Method $ 66,152 $ 35,129 $ 46,988 Principal Non-Cash Charges (Credits) to Income:

Depreciation and Amortization 38,383 30,216 25,420 Amortization of Nuclear Fuel 4,863 2,951 Allowance for Funds Used During Construction (9,216) (8,433) (10,097)

Deferred Federal Income Taxes-Net 16,382 11,427 14,648 Investment Tux Credit Adjustments-Net 6,114 12,547 7,141 Other-Net 1,353 396 199 Total Funds from Operations 119,168 86,145 87,250 Cumulative Effect of Change in Accounting Method 13,926 Funds from Outside Sources:

Long Term Debt 50,000 45,000 60,000 Pollution Control Funds (Held) Released by Trustees 7,885 15,098 (27,874)

Subtotal 57,885 60,098 32,126 Sale of Common Stock 15,060 41,166 32,441 Sale of Nuclear Fuel 21,140 Increase (Decrease) in Short Term Debt (25,825) 10,525 Total Funds from Outside Sources 72,945 96,579 75,092 Other-Net (1,524) 3,287 (3,355)

Total Source of Funds $190,589 $199,937 $158,987 Application of Funds:

Gross Additions to Utility Plant $ 83,673 $126,893 $123,318 Property Abandonment Costs - - (15,956)

Allowance for Funds Used During Construction (9,216) (8,433) (10,097)

Net 74,457 118,460 97,265 Dividends on Preferred Stock 7,171 7,353 7,508 Dividends on Common Stock 39,352 33,955 27,379 Retirement and Maturity of Loefc Term Debt 50,300 28,996 5,682 U nrecovered Purchased Power osts 7,152 Property Abandonment Costs 15,956 Conversion of Preferred Stock 711 847 1,993 Redemption of Preferred Stock 2,100 800 800 Increase in Working Capital* 9,346 9,526 2,404 Total Application of Funds $190,589 $199,937 $158,987 Increase (Decrease) in Working Capital*

Cash and Cash Items $(11,616) $ 13,286 $ 3,845 Accounts Receivable 7,312 (7,275) 10,740 Unbilled Revenues 5,671 18,994 -

Fuel (5,146) (2,645) 5,890 Materials and Suptlies 974 (420) 2,365 Deferred Ener~ osts and Revenues 30,924 (39,046) (14,104)

Accounts Payab e (1,647) 3,923 2,959 Tuxes Accrued (3,831) 8,512 (5,285)

Deferred Tuxes (9,534) 7,508 3,894 Other (3,761) 6,689 (7,900)

Increase in Working Capital $ 9,346 $ 9,526 $ 2,404

• Excludes Short Turm Debt, Notes and Current Maturities of Long Turm Debt and Cumulative Preferred Stock Subject to Mandatory Redemption.

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

19

BALANCE SHEET December 31, 1983 1982 (Thousands of Dollars)

Assets Electric Utility Plant (Notes 1 and 6):

In Service:

Production $ 509,192 $ 492,415 Transmission 184,184 170,297 Distribution 308,352 300,079 General 44,243 37,632 Total 1,045,971 1,000,423 Less Accumulated Depreciation 274,362 247,008 Net 771,609 753,415 Construction Work in Progress 179,162 152,403 Nuclear Fuel 557 495 Electric Utility Plant-Net 951,328 906,313 Non Utility Property and Investments (Note 7) 7,981 6,432 Pollution Control Construction funds (Note 10) 4,891 12,776 Current Assets:

Cash and Working Funds (Note 11) 3,285 3,752 Temporary Cash Investments 7,100 18,249 Accounts Receivable:

Utility Service 33,950 25,967 Miscellaneous 7,666 8,037 Allowance for Doubtful Accounts (1,500) (1,200)

Unbilled Revenues (Note 4) 24,665 18,994 Fuel (at average cost) 21,785 26,931 Materials and Supplies (at average cost) 17,195 16,221 Prepayments 10,944 9,382 Deferred Energy Costs (Notes 1 and 3) 15,055 Total Current Assets 140,145 126,333 Deferred Debits:

Property Abandonment Costs (Note 1) 18,352 19,680 Unrecovered Purchased Power Costs (Notes 1 and 3) 7,152 Unrecovered Nuclear Fuel Disposal Costs (Note 6) 4,802 Unamortized Debt Expense 3,163 3,257 Other 2,164 3,178 Total Deferred Debits 35,633 26,115 Total Assets $1,139,978 $1,077,969 The accompanying Notes to Financial Statements are an integral part of these statements.

20

December 31, 1983 1982 (Thousands of Dollars)

Liabilities and Capitalization Capitalization:

Common Shareholders' Equity:

Common Stock (Note 8) $ 51,753 $ 49,722 Premium on Capital Stock 208,279 195,293 Capital Stock Purchase Plan 72 48 Capital Stock Expense (1,637) (1,738)

Retained Earnings 148,454 128,825 Total Common Shareholders' Equity 406,921 372,150 Cumulative Preferred Stock Not Subject to Mandatory Redemption (Note 9) 41,973 42,684 Cumulative Preferred Stock Subject to Mandatory Redemption (Note 9) 52,050 54,150 Long Term Debt (Note 10) 380,266 368,220 Total Capitalization 881,210 837,204 Current Liabilities:

Current Portion:

Cumulative Preferred Stock Subject to Mandatory Redemption (Note 9) 1,050 1,050 Long Term Debt (Note 10) 26,000 39,050 Accounts Payable 24,124 22,477 Taxes Accrued 8,299 4,468 Interest Accrued 10,658 5,800 Dividends Declared 11,940 11,278 Deferred Energy Revenues (Notes 1 and 3) 15,869 Customer Deposits 2,618 2,757 Deferred Taxes (Notes 1 and 2) 18,271 8,737 Other 4,079 4,137 Total Current Liabilities 107,039 115,623 Deferred Credits:

Deferred Investment Tax Credits (Notes 1 and 2) 55,386 49,272 Deferred Income Taxes (Notes 1 and 2) 81,318 64,936 Nuclear Fuel Disposal Costs (Note 6) 10,888 Other (Note 6) 4,137 10,934 Total Deferred Credits 151, 729 125,142 Commitments and Contingent Liabilities (Notes 12 and 13)

Total Liabilities and Capitalization $1,139,978 $1,077,969 21

NOTES TO FINANCIAL STATEMENTS Note 1. Significant Accounting Policies: depreciable property retired together with removal costs less salvage and other recoveries.

Regulation-The accounting policies and rates of the Company are subject to the regulations of the State of Nuclear Fuel-Fuel costs associated with the Company's New Jersey, Board of Public Utilities (BPU) and in participation in jointly-owned nuclear generating stations certain respects to the Federal Energy Regulatory (including a provision for estimated spent fuel disposal Commission (FERC). All significant accounting policies costs) are charged to Fuel Expense based on the units of and practices used in the determination of rates are also thermal energy produced. See also Notes 6 and 13.

used for financial reporting purposes. The financial Federal Income Taxes-For all property placed in statements are prepared on the basis of the Uniform service after December 31, 1980, the Company provides System of Accounts prescribed by FERC.

deferred Federal Income Taxes for the difference Operating Revenues-Prior to 1982, revenues were between tax depreciation computed using the Accelerated recognized when electric energy service bills were ren- Cost Recovery System (ACRS) and tax straight-line dered to our customers. As of January 1, 1982 the depreciation computed using book lives.

Company changed its method of accounting to recognize In addition, the Company provides deferred Federal revenues for services rendered subsequent to the last Income Taxes relating to the deferral of energy costs, billing cycle and prior to the end of the period. See Note accrual of unbilled revenues, as well as unrecovered 4 for additional information concerning this accounting purchased power and nuclear fuel disposal costs. Invest-change.

ment Tax Credits are deferred on the balance sheet and Electric Utility Plant-Property is stated at original are recognized in book income over the life of the related cost. Generally the plant is subject to a first mortgage property.

lien. The cost of property additions, including replace-Gains on reacquired debt are recognized currently for ment of units of property and betterments, is capitalized.

book purposes and as a reduction of property accounts for Included in certain additions is an Allowance for Funds tax purposes. Therefore, such gains result in reduced tax Used During Construction (AFDC) which is defined in depreciation expense over the lives of the property.

the applicable regulatory systems of accounts as the cost Accordingly, the Company provides related deferred during the period of construction of borrowed funds used Federal Income Taxes on its books.

for construction purposes and a reasonable rate on other funds when so used. AFDC has been calculated using a Retirement Plan-The Company has a noncontributory rate of 8.5% for 1983 and 1982, as ordered by the BPU, defined benefit retirement plan covering all regular and 8% for 1981. Such rates are less than the maximum employees. Concurrent with a 1979 amendment, the allowed by FERC. Board of Directors established a funding policy providing for direct payment, from plan assets, of retirement Deferred Energy Costs and Revenues-The Company benefits relating to services on or subsequent to January has a Levelized Energy Clause (LEC) which is based on 1, 1979. (Benefits were previously provided by the projected energy costs and includes a provision for prior purchase of individual annuities upon the retirement of period under or over recoveries. The recovery of energy Plan participants.) Such funding arrangements were also costs is made through levelized monthly charges over the extended to service prior to January 1, 1979 for those period of projection. Any under or over recoveries are employees consenting to the change. Costs of the plan are deferred in Balance Sheet accounts as a current asset or determined under the aggregate cost method.

current liability as appropriate. Such deferrals are recog-nized in the Statement of Income during the period in Property Abandonment Costs-These costs consist of which they are subsequently recovered through the the Company's unamortized investment in Hope Creek clause. Unit No. 2, a nuclear generating unit which was cancelled in December, 1981, and offshore nuclear units Depreciation and Maintenance-The Company provides which were cancelled in 1978.

for straight-line depreciation based on the estimated remaining life of transmission and distribution property The Hope Creek No. 2 investment of $15,956,476 is being and, based on the estimated average service life, for all amortized over a 15-year period beginning in 1983. The other depreciable property. Depreciation applicable to offshore nuclear units are being amortized over a 20-year nuclear plant includes certain amounts for decommission- period.

ing. The overall composite rate of depreciation was Unrecovered Purchased Power Costs-These represent approximately 3. 7% for 1983 and 3.3% for 1982 and 1981.

purchased capacity costs, relative to a specific purchased Accumulated depreciation is charged with the cost of 22

power agreement, which are not being recovered cur- Debt premium, discount and expenses are amortized over rently, but for which recovery has been specifically the life of the related debt. All gains and losses relating provided in a levelized component of future rates (See to reacquired debt are recognized currently.

Note 3).

Certain 1982 and 1981 amounts have been reclassified to Other-Capital Stock expense is being amortized on a conform with 1983 presentations.

ratable basis over 20 years.

Note 2. Federal Income Taxes:

Federal income tax expense applicable to current the statutory rate on book income subject to tax for the operations is less than the amount computed by applying following reasons:

Years Ended December 31 1983 1982 1981 (Thousands of Dollars)

Net Income $ 66,152 $ 49,055 $ 46,988 Federal Income Tux Expense (as below) 49,061 27,004 27,332 Book Income Subject to Tux $115,213 $ 76,059 $ 74,320 Income Tax at Statutory Rate (46%) $ 52,998 $ 34,987 $ 34,187 Adjustments for items for which deferred taxes are not provided:

Tux Depreciation less than Book Depreciation 1,896 808 212 Allowance for Funds Used During Construction (4,211) (3,879) (4,645)

Capitalized Overheads (1,245) (1,301) (1,242)

Investment Tux Credits (1, 775) (1,485) (1,075)

Other 1,398 (2,126) (105)

Total Federal Income Tux Expense $ 49,061 $ 27,004 $ 27,332 Components of Federal Income Tux Expense:

Federal Income Tuxes Currently Payable $ 15,072 $ (1,672) $ 13,950 Deferred Federal Income Tuxes:

Liberalized Depreciation 11,013 9,879 6,195 Unbilled Revenues 2,609 8,737 Property Abandonment Costs (520) (74) 6,626 U nrecovered Purchased Power Costs 3,290 Unrecovered Nuclear Fuel Disposal Costs 2,209 Deferred Energy Costs and Revenues 6,925 (5,904) (8,698)

Gains on Reacquired Debt and Purchased Tux Benefits 713 2,319 1,512 Other (323) (697) 315 Deferred Investment Tax Credits 6,114 12,547 7,141 Employee Stock Ownership Plan Credits 1,959 1,869 291 Tutal Deferred Federal Income Tux Expense 33,989 28,676 13,382 49,061 27,004 27,332 Less: Federal Income Taxes-Other Income 333 2,077 2,338 Deferred Federal Income Tuxes on the Cumulative Effect of Change in Accounting Method 11,863 Federal Income Tuxes included in Operating Expenses $ 48,728 $ 13,064 $ 24,994 The Company has purchased tax benefits on equipment liabilities for all years through 1976 have been determined having an aggregate tax basis of approximately and settled. The IRS has proposed certain deficiencies in

$10,400,000, $2,900,000 and $2,600,000 in 1983, 1982 and tax for the years 1977 through 1979. The Company has 1981, respectively. Such tax benefits include 6% invest- protested the proposed deficiencies and is of the opinion ment tax credit and an ACRS life of 3 years. that the final settlement of its federal income tax liabilities for these years will not have a material adverse The Company's federal income tax returns for 1979 and effect on its results of operations or financial position.

prior years have been examined by the Internal Revenue Service (IRS) and the Company's federal income tax 23

Note 3. Rate Matters:

During the three year period ended December 31, 1983 follows, based in each case on the applicable test year base rate increases have been approved by the BPU as indicated:

Date of Amount Date Amount Increase Test Petition Requested Effective Apr.roved In Revenue Year (millions) (millions)

August 1981 $ 14.4 (1 ) Jan. 29, 1982 $ 11.3 2.4% June 30, 1980 February 1982 172.4 Dec. 14, 1982 73.7 16.3 Sept. 30, 1982 January 1983 30.8 Oct. 7, 1983 24.5 4.5 Sept. 30, 1982 (1) The Company's request was to recognize the cost of its share of the Salem Nuclear Generating Station Unit No. 2.

In December 1982, the New Jersey Board of Public proceeding, the BPU Staff, the Department of the Public Utilities (BPU) granted the Company an increase of Advocate, Division of Rate Counsel, the New Jersey

$73, 700,000 in base rates. In reaching its decision, the Energy Users Association and the Company, held a series BPU computed the Company's revenue requirement as if of discussions with a view toward settling the matter.

the Company recorded unbilled revenues on its books and These discussions resulted in a joint stipulation which directed the Company to change its accounting treatment was presented to the BPU. On September 29, 1983, the to record unbilled revenues as of the time service is BPU announced that it had approved the 17-year pur-furnished (see Note 4). chase power arrangement, accepted the joint stipulation and had granted the Company a net annual increase in In addition, the BPU granted a second phase of the base revenues of $12,400,000 designed to recover the estimated rate proceeding to review the Company's load forecast net costs associated with the purchase of 62,500 kilowatts and capacity plans and the revenue requirements associ-from Susquehanna Unit No. 1 and from coal generation ated with the performance under a Capacity and Energy under the 17-year arrangement. The net increase reflects Sales Agreement dated September 24, 1979 (the Sus-quehanna Agreement), which provided for the purchase a $24,500,000 increase in base rates and a $12,100,000 de-by the Company through September 30, 1991of5.94% of crease in energy clause rates. The net increase was made the net capacity and energy output of each of Pennsylva- effective for service rendered on or after October 7, 1983.

nia Power & Light Company (PP & L)'s two 1,050 Under the BPU Order and stipulation, the annual costs megawatt Susquehanna nuclear units, the first of which to be recovered through the increased base rates reflect was declared in commercial operation on June 8, 1983. a levelization of estimated costs over the 17-year period In January, 1983, the Company requested the rate relief of the arrangement. During the period June 8, 1983 required to perform under the Susquehanna Agreement. through September 30, 1991, the estimated costs to be In March, 1983, the BPU disapproved that request based incurred by the Company for purchases of capacity on a finding that the Susquehanna Capacity and Energy and associated energy from Susquehanna Unit Agreement was not needed and not economic. In April, No. 1 will exceed the levelized costs to be recovered 1983, FERC accepted the Susquehanna Agreement for by the Company from its customers. Such unrecovered filing. costs will be accumulated and deferred. The net unre-covered costs to the Company as of December 31, 1983 The Company and PP&L conducted negotiations in an aggregate $7,152,000. Such costs are included in the effort to resolve the dispute, due to conflicting regulatory Balance Sheet as Unrecovered Purchased Power Costs, orders, relating to the purchase of capacity and energy along with the related provision for deferred taxes of from PP&L's Susquehanna Units. As a result of the $3,290,000. The level of rates approved by the BPU is negotiations, the Company and PP&L reached agreement designed to enable the Company to recover these on a new 17-year arrangement providing for the Com- deferred costs and associated carrying charges during the pany's purchase of 125,000 kilowatts of capacity and the balance of the 17-year period. The stipulation provides associated energy from the Susquehanna units through that any difference between actual costs incurred by the September 30, 1991 and thirteen wholly-owned PP&L Company under the arrangement and the estimated costs coal-fired units from October 1, 1991 through September on which the increased rates were based will be recog-30, 2000. nized in future base rate proceedings if such costs are not Based on the new 17-year arrangement, the Company in found to be unreasonable. The BPU order prescribes a July, 1983, updated its filing before the BPU, requesting revenue reduction formula in the event that both revenues to recover the first year of costs associated Susquehanna Units fail to meet a combined minimum with the purchase of capacity and energy under the performance standard established by the stipulation arrangement. During the course of the hearings in the which could subject the Company, under the most adverse circumstances, to a revenue reduction not to 24

exceed $15,000,000 per unit per year. The Company's request consisted of a net $28,100,000 increase in energy clause revenues to become effective The stipulation also recognizes that increased rates to January 1, 1984 and a $25,300,000 increase in base recover the net levelized costs associated with the revenues to become effective no later than mid-1984. The remaining 62,500 kilowatts to be purchased from Sus-BPU has approved a $28,100,000 increase in energy quehanna Unit No. 2 and from coal generation should be clause revenues, effective January 20, 1984, and accepted authorized by the BPU upon the commercial operation of a joint stipulation regarding that filing. The Company Susquehanna Unit No. 2.

cannot presently predict the final outcome of the base On October 14, 1983 the Company filed a request with the revenue request proceedings or the effect, if any, on the BPU for a $53,400,000 (10.8%) increase in total revenues. Company.

Note 4. Change in Accounting for Revenues:

As a part of the December, 1982 rate decision (See Note with service rendered from the time the meters were last

3) the BPU directed the Company to adopt a policy of read to the end of the period. The cumulative effect of recording revenues based on service rendered to the end this change as of January 1, 1982 was $13,926,000 (after of the period. Previously, the Company recognized the related provisions for federal income taxes of revenues when bills were rendered to customers based on $11,863,000) and is separately identified in the 1982 monthly cycle meter readings. In recording unbilled Statement of Income and Retained Earnings.

revenues, the Company estimates the revenues associated Note 5. Retirement Plan:

The cost to the Company in providing a retirement plan January 1 1983 1982 for its employees was $6,563,000, $5,908,000 and (Thousands of Dollars)

$5,476,000 in 1983, 1982 and 1981, respectively. Approx- Actuarial present value of imately 80% of these costs were charged to operating accumulated plan benefits:

expense and the remaining 20%, which was associated Vested $79,111 $72,156 with construction labor, was charged to the cost of new Nonvested 1,124 1,495 utility plant. Total $80,235 $73,651 A comparison of accumulated plan benefits and plan net Net Assets available for benefits $99,100 $85,823 assets (including purchased annuity contract amounts) for the Company's Plan, as of the most recent actuarial The weighted average assumed rate of return used in valuation dates, is as follows: determining the actuarial present value of accumulated plan benefits was 7% for 1983 and 1982. The Company's Plan is in compliance with the Employee Retirement Income Security Act of 1974.

Note 6. Jointly-Owned Generating Stations and Nuclear Fuel:

The Company participates with other utilities in the The amounts shown represent the Company's share of construction and operation of several jointly-owned elec- each jointly-owned plant at December 31, and include an tric production facilities. allowance for funds used during construction.

Electric Plant Construction Energy Company's in Service Work in Progress Generation Station Source Share 1983 1982 1983 1982 1983 1982 (Thousands of Dollars) (KWHs)

Keystone Coal 2.47% $ 6,313 $ 5,808 $ 590 $ 495 244,672 261,237 Conemaugh Coal 3.83 11,600 11,547 127 92 400,441 273,738 Peach Bottom Nuclear 7.51 74,055 72,584 6,358 1,587 513,629 996,769 Salem Nuclear 7.41 152,639 145,505 3,111 4,140 452,691 883,903 Hope Creek Nuclear 5.00 130,390 99,555 The operators of the Salem and Peach Bottom Nuclear United States Department of Energy for spent nuclear Generating Stations entered into contracts with the fuel disposal. These contracts require the payment of a 25

one-time fee related to the Company's ownership interest has received approval for recovery of unrecovered nuclear in the Salem and Peach Bottom Stations through April 6, fuel disposal costs over a two year period. Current rates 1983, as well as quarterly charges after April 6, 1983. are adequate to recover costs since April 6, 1983.

At December 31, 1983 the Company's liability for its share The Company provides its own financing during the of the one-time fee related to nuclear fuel disposal costs is construction period for its share of the jointly-owned

$10,888,000, of which $4,802,000 remains to be recovered plants and includes its share of direct operations and from customers. Previous recoveries of nuclear fuel maintenance expenses in its Statement of Income (see disposal costs of $5,650,000 were included in Other Note 13).

Deferred Credits at December 31, 1982. The Company, in its energy clause effective in January 1984 (see Note 3),

Note 7. Investment in Subsidiary Companies:

The Company's investment in Deepwater Operating included in the Company's accounts classified as to Company (Deepwater), a wholly-owned subsidiary which operation, maintenance and taxes.

operates generating and process steam units owned by The Company also has an investment in Atlantic Hous-the Company, was $3,291,000 at December 31, 1983 and ing, Inc. (Housing), a wholly-owned subsidiary. Housing's

$2,841,000 at December 31, 1982. The principal asset of principal investment is a 20% undivided interest as tenant Deepwater is working capital in which the equity of the in common in a future generating station and industrial Company is fairly represented by its investment. The net site, the amount of which is not material to the Company.

production costs of Deepwater (after deducting contract charges) are charged to the Company. These costs are Note 8. Common Stock:

As of December 31, 1983 and 1982, the Company's of Common Stock ($3 par value). Shares issued and Common Stock included 25,000,000 authorized shares outstanding:

1983 1982 1981 Beginning of Year 16,574,021 14,427,990 12,538,880 Sale of Common Stock 1,500,000 1,500,000 Dividend Reinvestment and Stock Purchase Plan 535,614 487,601 302, 726 Employee Stock Ownership Plan 116,347 128,797 16,641 Conversion of Preferred Stock 24,900 29,633 69,743 Shares at end of year 17,250,882 16,574,021 14,427,990 At $3 Par Value $51, 752,646 $49, 722,063 $43,283,970 Premium on Capital Stock was credited in 1983 and 1982 the Dividend Reinvestment and Stock Purchase Plan and with $12,986,000 and $34,793,000, respectively, repre- the Employee Stock Ownership Plan, respectively. At senting the excess of proceeds over the par value of December 31, 1983, 69,070 shares of Common Stock were shares of Common Stock issued, sold and converted. At reserved for the conversion of 5%% Convertible Series of December 31, 1983 there were 517,554 and 107,494 shares Preferred Stock.

of Common Stock authorized for issuance pursuant to Note 9. Cumulative Preferred Stock:

The Company has authorized 799,979 shares of Cumula- issuance. In certain circumstances, if dividends on issued tive Preferred Stock, $100 Par Value, 2,000,000 shares of Preferred Stock are in arrears voting rights for the No Par Preferred Stock, and 3,000,000 shares of Prefer- election of a majority of the Board of Directors becomes ence Stock, No Par Value. Unissued shares may, or may operative.

not, possess mandatory redemption characteristics upon 26

Note 9(A).

Cumulative Preferred Stock Not Subject To Mandatory Redemption:

Current Cumulative Preferred Stock Not Subject to Mandatory Redemp- Redemption is redeemable solely at the option of the ti on December 31 Price Company upon payment of the redemption price plus 1983 1982 Per accumulated and unpaid dividends to the date fixed for

_ _ __ __ _ _ _ _ _(T_h_o_u_s_an_d_s_o_f_D_o_lla_r_s)_ _ Sh_a_re redemption. Premium on such Preferred Stock was

$100 Par Value-Cumulative $93,000 at December 31, 1983 and 1982.

and Non-participating shares issued and outstanding: The 5%% Convertible Series, of which 7,115 and 8,469 Series: shares were converted in 1983 and 1982, respectively is 4% 77,000 Shares $ 7,700 $ 7,700 $105.50 4.10% 72,000 Shares 7,200 7,200 101.00 convertible (subject to adjustment in certain events) into 4.35% 15,000 Shares 1,500 1,500 101.00 Common Stock at the rate of 3.5 shares of Common Stock 4.35% 36,000 Shares 3,600 3,600 101.00 for each share of Preferred.

4. 75% 50,000 Shares 5,000 5,000 101.00 5.0% 50,000 Shares 5,000 5,000 100.00 5Vs% Convertible Series:

19,729 Shares (1983) 1,973 101.50 26,844 Shares (1982) 2,684 7.52% 100,000 Shares 10,000 10,000 104.89 Total $41,973 $42,684 Note 9(B).

Cumulative Preferred Stock Subject To Mandatory Redemption:

December 31 Current Refunding Par 1983 1982 Redemption Restricted Value (Thousands of Dollars) Price Per Share Prior to Shares Issued and Outstanding:

Series:

8.40% 100,000 Shares $100 $10,000 $10,000 $115.00 9.96% 136,000 Shares (1983) 100 13,600 106.78 August 1, 1984 152,000 Shares (1982) 100 15,200

$8.25 95,000 Shares (1983) None 9,500 106.99 November 1, 1987 100,000 Shares (1982) None 10,000

$9.45 200,000 Shares None 20,000 20,000 53,100 55,200 Less Portion due within one year 1,050 1,050 Total $52,050 $54,150 On August 1, annually 8, 000 shares of the 9. 96% Series shares of the 8.40% Series must be redeemed through the must be redeemed through the operation of a sinking operation of a sinking fund at a redemption price of $100 fund at a redemption price of $100 per share. At the per share. At the option of the Company, an additional option of the Company, an additional 8,000 shares may be 4,000 shares may be redeemed on any sinking fund date redeemed on any sinking fund date, without premium, without premium, up to 32,000 shares in the aggregate.

up to 40,000 shares in the aggregate. The Company On November 1, 1986, and annually thereafter, 40,000 redeemed 16,000 and 8,000 shares at par in 1983 and 1982, shares of the $9.45 No Par Preferred Stock Series must respectively.

be redeemed through the operation of a sinking fund at a On November 1, 1983, and annually thereafter, 2,500 redemption price of $100 per share. At the option of the shares of the $8.25 No Par Preferred Stock Series must Company, an additional 40,000 shares may be redeemed be redeemed through the operation of a sinking fund at a on any sinking fund date, without premium, up to 50,000 redemption price of $100 per share. At the option of the shares in the aggregate.

Company, an additional number of shares not to exceed The minimum sinking fund provisions of the above series 2,500 may be redeemed on any sinking fund date without aggregate $1,050,000 in 1984, $1,450,000 in 1985, and premium. The Company redeemed 5,000 shares at par in

$5,450,000 in 1986, 1987 and 1988.

1983.

On February 1, 1985, and annually thereafter, 4,000 27

Note 10. Long Term Debt: Deposits in sinking funds for retirement of debentures December 31, 1983 1982 are required on February 1 of each year through 1995 for (Thousands of Dollars) the 5Y4% debentures, and on May 1 of each year through 1997 for the 7Y4% debentures in amounts in each case First Mortgage Bonds:

3V4% Series due (January 1) 1983 $ $ 4,050 sufficient to redeem $100,000 principal amount plus, at 9%% Series due (May 1) 1983 35,000 the election of the Company, up to an additional $100,000 3% Series due (March 1) 1984 5,000 5,000 principal amount in each year. At December 31, 1983 the 9% Pollution Control Series due Company had reacquired and cancelled $1,433,000 and (May 1) 1984 21,000 21,000 $1,281,000 principal amount of the 5Y4% and 7%% deben-31/4% Series due (March 1) 1985 10,000 10,000 4112% Series due (January 1) 1987 10,000 10,000 tures, respectively, toward its requirements for 1984 and 37/s% Series due (April 1) 1988 10,000 10,000 subsequent periods.

41/2% Series due (April 1) 1989 2,775 2,775 41/2% Series due (March 1) 1991 10,000 10,000 A sinking fund requirement of $3,000,000 each year 41/2% Series due (July 1) 1992 10,350 10,350 relative to the 12%% First Mortgage Bonds begins in 1986 4%% Series due (March 1) 1993 9,540 9,540 and continues through 2010. At December 31, 1983 the 11'1/s% Series due (November 1) 1993 50,000 Company had reacquired and cancelled $11,250,000 princi-51/s% Series due (February 1) 1996 9,980 9,980 pal amount of the 125/s% Series toward its requirements 8'1/s% Series due (September 1) 2000 19,000 19,000 8% Series due (May 1) 2001 27,000 27,000 for 1986 and subsequent periods. Current sinking fund 7V2% Series due (April 1) 2002 20,000 20,000 requirements of $900,000 in connection with certain First 7%% Series due (June 1) 2003 29,976 29,976 Mortgage Bonds outstanding, are being satisfied by 7%% Pollution Control Series due certification of property additions as provided for in the (January 1) 2005 6,500 6,500 related mortgage indentures.

6%% Pollution Control Series due (December 1) 2006 2,500 2,500 During 1983 and 1982 the Company reacquired, at 12%% Series due (January 1) 2010 63,750 75,000 amounts at or below par value, $11,250,000 and 11 %% Pollution Control Series due (May 1) 2011 39,000 39,000 $9,209,000, respectively, principal amount of First Mort-gage Bonds. These reacquisitions resulted in a loss in 356,371 356,671 1983 and a gain in 1982, both net of Federal income taxes Debentures: and expenses, of $8,000 and $1,816,000, respectively.

5%% Sinking Fund Debentures due (February 1) 1996 2,267 2,267 The aggregate amount of debt maturities in addition to 7114% Sinking Fund Debentures due sinking fund requirements of all long term debt outstand-(May 1) 1998 2,619 2,619 ing at December 31, 1983 are $26,000,000 in 1984, 4,886 4,886 $10,000,000 in 1985, $45,000,000 in 1986, $10,000,000 in Notes: 1987 and 1988.

Variable Rate Notes due (April 30) 1986 45,000 45,000 The amounts of $3,254,000 and $2, 785,000 as of December 45,000 45,000 31, 1983 and 1982, respectively, which represent the Unamortized Premium and accumulated investment earnings on the net available Discount-Net 9 713 proceeds of certain pollution control financings, are 406,266 407,270 included in Miscellaneous Accounts Receivable. Such amounts are restricted for use on the related pollution Deduct Long Term Debt due within one year (26,000) (39,050) control projects.

$380,266 $368,220 28

Note 11. Short Term Debt and Compensating Balances: The Company is also a member of an insurance program which provides insurance coverage for the cost of replace-As of December 31, 1983, the Company had bank lines of ment power during prolonged outages of nuclear units credit available for use of $115,000,000. The Company is caused by certain specific conditions. Under the property required, with respect to $20,000,000 of these credit and replacement power insurance programs, the Com-lines, to maintain average compensating balances of pany could be assessed retrospective premiums in the

$800,000. These compensating balances are maintained in event the insurers' losses exceed their reserves. As of demand deposits which are not legally restricted. The December 31, 1983, the maximum amount of retrospective Company is in compliance with such compensating premiums the Company could be assessed for losses balance arrangements. With respect to the remaining during the current policy year was $7.9 million under available credit lines, the Company pays commitment these programs.

fees (currently l4%) which aggregated $269,000 for 1983, $390,000 for 1982 and $401,000 for 1981. Certain other In the event of a nuclear incident at any of the facilities information regarding short term debt follows: covered by the federal government's third-party liability (Thousands of Dollars) 1983 1982 1981 indemnification program, the Company could be assessed For the year ended- up to $1.5 million per incident, but not more than $3.0 Maximum amount of total short million in a calendar year in the event more than one term debt at any month-end: incident is experienced.

Commercial Paper $50,000 $22,000 $62,475 Notes Payable to Banks $ 7,000 $ 3,000 $ 7,500 The Company has a five-year agreement expiring May 31, Average amount of short term 1985, with Delmarva Power & Light (DP&L) for the debt (based on daily outstand- purchase of 50 MW of power from the output of DP&L's ing balances): coal-fired Indian River Unit No. 4. The Company has an Commercial Paper $23,954 $10,550 $43,284 Notes Payable to Banks $ 2,567 $ 4,497 $ 3,661 agreement with Allegheny Power System (APS) which Weighted daily average interest entitles the Company to 50 MW of coal-fired capacity rates on short term debt: from the APS Pleasants Station through 1985. This Commercial Paper 9.0% 12.8% 16.4% agreement was modified for the years 1983 and 1984 to Notes Payable to Banks 9.3% 13.7% 16.7% provide the Company access to a cogeneration source on As of end of year-Weighted average interest rate an APS subsidiary's operating system. The Company has for short term debt also agreed to purchase certain capacity and energy outstanding: output from PP&L under the Susquehanna and Coal Commercial Paper 12.2% Units Agreements (see Note 3).

Notes Payable to Banks 12.8%

In July 1983 the BPU approved an Agreement between the Company, Public Service Electric and Gas Company Note 12. Commitments and Contingencies: (PSE&G), the New Jersey Department of Energy (DOE)

Total construction expenditures for 1984 are estimated at and the New Jersey Department of the Public Advocate approximately $94,000,000, which includes $36,679,000 (PA) which establishes an incentive program to contain for jointly-owned facilities. Current commitments for the the continuing construction costs of Hope Creek Unit No.

construction of major production and transmission facili- 1, which is currently 80% complete and scheduled for ties amount to approximately $48,000,000 of which it is completion in 1986. Under the Agreement, if the final estimated approximately $22,000,000 will be expended in cost of the facility is less than $3.55 billion, the 1984. These amounts exclude allowance for funds used Company's shareholders could share in the savings. On during construction. the other hand, if the final cost of the unit exceeds

$3. 7952 billion, the Company could be penalized by not The Company is a member of certain insurance programs being able to earn a return on the entire amount of the which provide coverage for property damage to members' cost overrun. As a part of this Agreement, the DOE and nuclear generating plants. Facilities at the Peach Bottom the PA have agreed not to challenge the need for the unit and Salem Stations are insured against property damage in which the Company has a 5% ownership interest.

losses up to $1.0 billion per site under these programs.

29

During February 1983, while Unit No. 1 of the Salem The Company's contractual liability to purchase nuclear Nuclear Generating Station, which is operated by fuel under a nuclear fuel agreement for Salem and Hope PSE&G, was in a low power restart phase, automatic Creek Generating Stations as of December 31, 1983 was shutdown controls failed to operate upon signal. The Unit approximately $28,000,000. Under certain conditions of was shutdown manually in accordance with established termination, the Company will be required to purchase procedure, without further incident. While Unit No. 1 all nuclear fuel then existing at a price which will allow was shutdown, PSE&G, as recommended by the Nuclear the lessor to recover its net investment costs. Nuclear Regulatory Commission (NRC), performed the necessary fuel requirements for Peach Bottom Generating Station corrective maintenance and reverifications of the oper- are being provided by the operating company through a ability of the Unit's safety-related systems. As authorized fuel purchase contract. The Company is responsible for by the NRC, such performance enabled Unit No. 1 to payment of its share of fuel consumed and interest return to service in May 1983. expense. Such costs have been included in the above nuclear fuel rental expense.

In proceedings before the BPU, PSE&G has maintained that its additional replacement power costs associated The future minimum rental commitments under all with the extended outage of Salem Unit No. 1 will be noncancelable lease agreements are not significant.

offset by extending the period during which the unit will be operated prior to the next scheduled refueling outage. Note 14. Supplementary Income Statement The Company has also incurred replacement energy costs Information:

associated with the extended outage of Salem Unit No. 1, Operating expenses include taxes and other items not and cannot predict what action may be ultimately taken separately identified in the Statement of Income as by the BPU with respect to the Company's replacement follows:

energy costs. The Company cannot predict the final outcome or the effect of the final outcome, if any, of these Year Ended December 31 1983 1982 1981 matters on the Company or its operations. (Thousands of Dollars)

Tuxes Other Than Federal Income Note 13. Leases: Tuxes:

State Gross Receipts and The Company has certain obligations related to the use of Franchise Tuxes $55,324 $58,064 $39,914 nuclear fuel, property and equipment which, in accor- Real and Personal Property Taxes 1,947 1,633 918 Payroll Tuxes- Federal and State 2,755 2,455 2,078 dance with criteria established by the Financial Miscellaneous State and Local Accounting Standards Board (FASB), are capital leases, Tuxes 1,638 (1,604) 1,290 but are accounted for as operating leases in accordance $61,664 $60,548 $44,200 Total with the ratemaking treatment. An accounting standard issued by the FASB in December 1982 requires that the Maintenance Expense $35,066 $30,313 $28,087 Company record such leases on its balance sheet by 1987. Charges to income for royalties and advertising are less Recording capital leases would not have a material effect than 1% of gross revenue.

on assets or liabilities, and would not affect income, since the total amortization of the leased assets and the interest on the lease obligation would equal the rental expense currently allowed for ratemaking purposes.

Rentals charged to operating expenses were as follows:

(Thousands of Dollars) 1983 1982 1981 Nuclear Fuel $ 6,364 $ 6,090 $4,002 Other 5,268 5,940 5,652 Total $11,632 $12,030 $9,654 30

Note 15. Quarterly Financial Results (Unaudited):

Quarterly financial data which reflect all adjustments necessary in the opinion of the Company for a fair (which consist of only normal recurring accruals) presentation of such amounts are as follows:

Operating Operating Earnings For Earnings Quarter Revenues Income Income Common Stock Per Share (Thousands of Dollars) 1983 1st $121,977 $21,469 $14,526 $12,705 $ .76 2nd 119,476 18,640 11,874 10,057 .60 3rd 157,450 37,356 30,597 28,808 1. 70 4th 118,239 15,637 9,155 7,381 .43

$517,142 $93,102 $66,152 $58,951 $3.48 (I) 1982 1st $128,259 $13,875 $ 7,191 (2) $ 5,337 (2) $ .37 (2) 2nd 103,044 14,464 8,521 6,668 .46 3rd 115, 794 22,080 13,788 11,938 .81 4th 97,081 12,351 5,629 3,818 .23

$444,178 $62,770 $35,129 (2) $27,761 (2) $1.84 (I) (2) 1981 1st $112,762 $18,969 $13,760 $11,856 $ .94 2nd 101,908 15,194 8,739 6,845 .54 3rd 133,552 24,963 17,499 15,627 1.22 4th 121,461 14,385 6,990 5,129 .36

$469,683 $73,511 $46,988 $39,457 $3.03 (I )

(1) The individual quarters may not add to the total due to the quarter) of a 1982 accounting change to record unbilled revenues (See increasing average number of common shares outstanding at the end of Note 4).

each quarter.

(2) Results for 1982 do not include the cumulative effect on net income The revenues of the Company are subject to seasonal and earnings for common stock of $13,926,000 (net of tax) or on earnings fluctuations due to increased sales and higher residential per share of $.92 ($.96 based on average shares outstanding in the first rates during the summer months.

SUPPLEMENTARY INFORMATION CONCERNING THE EFFECTS OF CHANGING PRICES (Unaudited)

The following supplementary information about the utility plant by applying the Handy-Whitman Index of effects of changing prices is calculated under two differ- Public Utility Construction Costs to historical cost by ent methods. vintage years, reflecting the current cost of replacing resources actually used in the Company's operations The first method, which uses the Consumer Price Index (current costs).

for All Urban Customers (CPI-U), adjusts data for general inflation, providing financial information in dollars Constant dollar amounts differ from current cost amounts of equivalent value or purchasing power (constant dol- because, over the period utility plant is held, specific lars). The purpose of this method is to make financial data prices increase more or less rapidly than general infla-more comparable by reporting the financial statement tion. Both of these methods involve the use of effects of the Company's investment in Utility Plant over assumptions, approximations and estimates and therefore a period of time in terms of a common unit of purchasing the resulting measurements should be viewed in that power. context and not as precise indicators of the effects of inflation.

The second method adjusts the financial data for changes in specific prices of the components of the Company's 31

STATEMENT OF INCOME FROM CONTINUING OPERATIONS ADJUSTED FOR CHANGING PRICES Year Ended December 31, 1983 (In Average 1983 Dollars)

Results of Operations: In Constant At Current (Thousands of Dollars) Historical Dollars Cost Operating Revenues $517,142 $517,142 $517,142 Operating Expenses:

Operation and Maintenance Expenses 336,929 336,929 336,929 Depreciation and Amortization Expense 38,383 79,076 82,787 Federal Income Tax Expense 48,728 48,728 48,728 Other 26,950 26,950 26,950 Income from Continuing Operations $ 66,152 $ 25,459 $ 21,748 Depreciation and amortization expense expressed in ing the respective cost data by a percentage representing constant dollar and current cost amounts were deter- the expired life of existing facilities of each class at mined using the rates and methods used for computing December 31, 1983.

book depreciation and amortization applied to utility Fuel inventories, the cost of fossil fuels used in genera-plant balances reexpressed in terms of constant dollars tion, have not been restated from their historical cost.

and current costs.

New Jersey regulation controls fuel costs, through the Only depreciation and amortization of nuclear fuel have operation of a levelized energy clause, such that recovery been specifically adjusted for inflation in the above is ultimately limited to actual cost. For this reason fuel schedule. Operating revenues and other operating inventories are effectively monetary assets.

expenses were generally incurred ratably over the year.

Net Utility Plant Costs Recoverable:

Accordingly, the stated amounts already reflect, in effect, Under rate making prescribed by the regulatory commis-average 1983 dollars.

sions to which the Company is subject, only the historical Significant to this data is the impact of a fixed income tax cost of utility plant is recoverable in revenues as depreci-rate. Income taxes were not adjusted because the present ation. Therefore, the excess of the cost of utility plant

.tax laws do not allow a deduction for depreciation and stated in terms of constant dollars or current cost over amortization adjusted for the impact of inflation. There- the historical cost of plant is not presently recoverable.

fore, the Company's effective tax rate rises from 42.6% Due to this feature, the value of utility plant and its effect under the historical cost basis to 72.6% and 75.6% under on income from continuing operation adjusted for chang-the respective constant dollar and current cost basis. ing prices must be considered in terms of its net recover-able cost which is historical cost. While the rate making This supplementary information should not be used to process gives no recognition to the current cost of re-assess the probability of future cash flows when existing placing utility plant, based on past practices the Company utility plant is replaced. The estimates do not reflect the believes it will be allowed to earn on the increased cost effects of the regulatory process nor the specific plans of of its net investment when replacement of facilities the Company for the replacement or modernization of actually occurs.

utility plant. A meaningful estimate of the estimated level of future capital expenditures is set forth on page 14 of Current Year Decline in Purchasing Power of Net the annual report. Amounts Owed:

Current Year Effect of Increased Price Levels: The current year decline in purchasing power of net (Thousands of Dollars) amounts owed was $18,572,000. During a period of in-flation, holders of monetary assets such as cash and re-Increases in General Price Levels on Utility Plant Held $63,838 Increase in Specific Prices on Utility Plant Held 63,520 ceivables suffer a loss of general purchasing power while holders of monetary liabilities, generally long term Excess of Increase in General Price Levels Over Increases in Specific Prices $ 318 debt, experience a gain because debt will be repaid in dollars having less purchasing power. The Company's gain At December 31, 1983 the cost of utility plant, net of from the decline in purchasing power of its net amounts accumulated depreciation was $1, 726,832,000 on a con- owed is primarily attributable to the substantial amount stant dollar basis and $1, 764,301,000 on a current cost of debt and cumulative preferred stock subject to man-basis, while historical cost was $951,328,000. The accumu- datory redemption which has been used to finance utility lated provisions for depreciation and amortization under plant. This gain, however, should not be considered as both constant dollar and current cost methods were providing funds to the Company, since the Company is estimated for each major class of utility plant (production; limited under rate making procedure to the recovery only transmission; distribution and general plant) by multiply- of its embedded cost of debt.

32

FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA INCLUDING UNAUDITED SUPPLEMENTARY DATA ADJUSTED FOR CHANGING PRICES (In Thousands of Dollars Except Per Share Amounts-Constant Dollar and Current Cost Amounts Expressed in 1979 Dollars)

Years Ended December 31 1983 1982 1981 1980 1979 Operating Revenue

-historical $ 517,142 $ 444,178 $ 469,683 $358,391 $283,106

-in constant dollars Ca) 376,639 333,786 374,850 315,697 283,106 Income from Continuing Operations

-historical $ 66,152 $ 49,055 $ 46,988 $ 38,538 $ 34,307

-in constant dollars Ca) 18,542 3,998 6,223 7,592 12,168

-at current cost Ca) 15,839 3,036 6,104 4,884 6,989 Income from Continuing Operations per Share of Common Stock Cb)

-historical $ 3.48 $ 2.76 $ 3.03 $ 2.62 $ 2.36

-in constant dollars .79 (.10) .01 .18 .51

-at current cost .63 (.17) .01 (.03) .08 Effective Income Tux Rate

-historical 42.6% 35.5% 36.8% 33.8% 35.5%

-constant dollar basis 72.6 87.1 81.5 72.2 60.8

-current cost basis 75.6 89.9 81.7 80.1 73.0 Excess of Increases in General Price Levels Over Increases in Specific Prices (a) $ 232 $ (5,366) $ (20,115) $ 38,368 $ 45,257 Decline in Purchasing Power of Amount Owed <a> $ 13,526 $ 16,282 $ 31,582 $ 39,654 $ 47,313 Net Assets at Year End

-historical $ 448,894 $ 414,834 $ 338,846 $324,127 $310,231

-in constant dollars (avg.) 320,913 306,335 261,688 272,699 293,444 Net Income as a Percent of Operating Revenue

-historical 12.79% 11.04% 10.00% 10.75% 12.12%

-trended in 1979 dollars 9.32 8.30 7.98 9.47 12.12 Earned Rate of Return on Shareholders' Equity

-historical 14.49% 11.20% 12.21% 11.62% 10.70%

-trended in 1979 dollars 10.55 8.41 9.74 10.24 10.70 Tutal Assets at Year End-historical $1,139,978 $1,077,969 $1,013,789 $879,795 $779,026 Long Term Debt and Cumulative Preferred Stock Subject to Mandatory Redemption

-historical $ 459,366 $ 462,470 $ 447,389 $394,288 $324,848 Dividends Declared per Share of Common Stock

-historical $ 2.32 $ 2.24 $ 2.08 $ 1.93 $ 1.79

-in constant dollars 1.69 1.68 1.66 1.70 1.79 Market Price per Common Share at Year End

-historical $ 23.25 $ 20.75 $ 17.25 $ 15.70 $ 17.235

-in constant dollars 16.93 15.59 13.77 13.87 17.235 Average Consumer Price Index 298.5 289.3 272.4 246.8 217.4 Certain comparative per share data trended in average 1983 dollars (without adjustment of earnings for the pro forma effects of inflation on depreciation amounts) are as follows:

Earnings Cb) $ 3.48 $ 2.85 $ 3.32 $ 3.17 $ 3.24 Dividends Declared 2.32 2.31 2.28 2.33 2.46 Market Price (Year End) 23.25 21.41 18.90 19.05 23.51 (a) These amounts will differ from those shown for constant dollar and current costs in Statement of Income From Continuing Operations Adjusted for Changing Prices because a different base year has been used in the data presented above (1979) and in the Changing Price information (1983) in order to illustrate the impact of changing prices in alternative forms.

(b) Income from Continuing Operations, Net Income and Earnings Per Share data for 1982 include the cumulative effect of change in accounting method (see Note 4 of Notes to Financial Statements).

33

STATISTICAL REVIEW 1983-1973 Facilities for Service 1983 1982 1981 1980 Total Utility Plant (Thousands) $1,225,690 $1,153,321 $1,064,928 $ 962,052 Gross Additions to Utility Plant (Thousands) $ 83,673 $ 126,893 $ 123,318 $ 97,330 Pole Miles of Transmission and Distribution Lines 6,925 6,918 6,910 6,879 Generating Capacity (Kilowatts) ( a ) (b ) 1,594,200 1,531,200 1,524,600 1,434,700 Maximum Utility System Demand-Kw 1,346,700 1,264,200 1,263,800 1,261,700 Capacity Reserve at Time of Peak (% of Instal. Gen.) 15.5% 17.4% 17.1% 12.1%

Energy Supply (Thousands of Kwh)

Net Generation 5,913,196 5,676,118 5,302,023 5,533,178 Purchased and Interchanged-Net 579,488 466,667 946,241 643,106 Total System Load 6,492,684 6,142,785 6,248,264 6,176,284 Electric Sales (Thousands of Kwh)

Residential 2,545,351 2,415,292 2,480,225 2,514,738 Commercial 2,019,468 1,894,535 1,849,863 1,769,208 Industrial 1,225,637 1,218,520 1,279,724 1,286,205 All Others 60,978 63,770 65,555 63,753 Total 5,851,434 5,592,117 5,675,367 5,633,904 Residential Electric Service (Average per Customer)

Amount of Electricity used during the year (Kwh) 7,715 7,444 7,751 8,003 Amount paid for a year's service $ 735.66 $ 644.77 $ 670.66 $ 536.99 Price per Kilowatt-hour 9.54¢ 8.66¢ 8.65¢ 6.71¢ Customer Data (Average)

Residential With Electric Heating 62,272 59,319 56,100 52,225 Residential Without Electric Heating 267,642 265,124 263,904 261,988 Total Residential 329,914 324,443 320,004 314,213 Commercial 43,152 42,885 43,219 43,267 Industrial 1,021 1,018 1,032 1,041 Other 549 627 634 654 Total Customers 374,636 368,973 364,889 359,175 Total Service Locations 398,526 391,989 386,046 379,242 Population Served 1,092,000 1,069,000 1,056,000 1,037,000 Financial Data (Thousands of Dollars)

Energy Sales Residential $ 242,705 $ 209,191 $ 214,614 $ 168,733 Commercial 175,520 154,792 156,624 115,973 Industrial 76,109 71,255 82,908 60,512 All Others 10,133 9,255 9,700 7,836 Total Energy Sales-Billed 504,467 444,493 463,846 353,054 Unbilled Revenues-Net 5,671 (6,795)

Other Electric Revenue 7,004 6,480 5,837 5,337 Total $ 517,142 $ 444,178 $ 469,683 $ 358,391 Investor Information Earnings per Average Common Share $ 3.48 $ 2.76 (c) $ 3.03 $ 2.62 Average Number of Shares Outstanding (In Thousands) 16,923 15,116 13,034 12,372 Dividends Paid on Common Stock $ 2.30 $ 2.20 $ 2.04 $ 1.90 Dividend Payout Ratio 66% 80% 67% 73%

Book Value Per Share (Year End) $ 23.58 $ 22.45 $ 22.40 $ 22.22 Price Earnings Ratio (Year End) 7 8 6 6 Times Fixed Charges Earned (before income taxes) 4.11 2.27 (c) 2.84 3.03 Shareholders and Employees (Year End)

Common shareholders 48,299 48,790 48,424 47,762 Employees 1,995 2,022 2,035 1,968 (a) Excludes capacity allocated to a large industrial customer.

(b) Includes unit purchase of capacity under contracts with Delmarva Power & Light Company and Pennsylvania Power and Light Company, commencing in 1980 and 1983, respectively.

(c) Earnings calculation includes the cumulative effect of an accounting change. Financial ratio is computed excluding the cumulative effect.

34

1979 1978 1977 1976 1975 1974 1973

$ 870,075 $ 802,473 $ 753,269 $ 710,343 $ 675,617 $ 637,250 $ 572,555

$ 72,773 $ 58,073 $ 48,733 $ 41 ,702 $ 46,745 $ 71,200 $ 67,864 6,831 6,786 6,735 6,696 6,645 6,580 6,506 1,384,700 1,414,700 1,414,700 1,334,700 1,334,700 1,278,700 1,013,500 1,192,600 1,177,400 1,176,000 1,030,300 1,069,400 1,004,400 1,051,400 13.9% 16.7% 16.9% 22.8% 19.9% 21.5%

5,397,338 5,625,988 5,293,019 4,918,906 4,715,357 4,651,334 4,236,083 464,143 130,037 224,169 324,196 190,852 229,197 665,558 5,861,481 5,756,025 5,517,188 5,243,102 4,906,209 4,880,531 4,901,641 2,411,732 2,377,202 2,221,250 2,070,766 1,938,724 1,882,560 1,899,122 1,580,384 1,586,097 1,478,559 1,392,029 1,346,216 1,298,858 1,351,974 1,255,304 1,250,636 1,220,260 1,143,170 1,036,755 1,136,935 1,119,478 60,799 60,705 58,866 57,667 56,465 57,477 58,129 5,308,219 5,274,640 4,978,935 4,663,632 4,378,160 4,375,830 4,428,703 7,849 7,951 7,653 7,320 7,018 6,982 7,303

$ 439.92 $ 406.18 $ 378.36 $ 349.64 $ 329.25 $ 291.21 $ 230.19 5.61¢ 5.11¢ 4.94¢ 4.78¢ 4.69¢ 4.17¢ 3.15¢ 48,339 44,387 40,318 37,581 35,235 32,215 28,627 258,941 254,592 249,927 245,296 241,019 237,397 231,408 307,280 298,979 290,245 282,877 276,254 269,612 260,035 43,219 42,672 42,033 41,170 40,608 40,351 39,810 1,048 1,034 1,047 1,071 1,100 1,080 948 667 673 676 681 684 679 678 352,214 343,358 334,001 325,799 318,646 311,722 301,471 371,362 362,131 352,205 343,147 336,105 330,758 320,834 1,015,000 990,000 961,000 937,000 915,000 894,000 865,000

$ 135,178 $ 121,440 $ 109,818 $ 98,904 $ 90,956 $ 78,512 $ 59,856 88,819 80,539 73,354 66,354 63,544 55,713 42,804 47,590 42,185 40,885 36,438 34,974 33,565 22,008 6,624 5,973 5,630 5,406 4,881 4,207 3,861 278,211 250,137 229,687 207,102 194,355 171,997 128,529 4,895 4,921 5,308 4,925 4,724 4,614 4,365

$ 283,106 $ 255,058 $ 234,995 $ 212,027 $ 199,079 $ 176,611 $ 132,894

$ 2.36 $ 2.21 $ 2.06 $ 2.60 $ 2.41 $ 2.54 $ 2.40 11,980 10, 791 10,630 9,747 9,490 8,973 8,453

$ 1.765 $ 1.67 $ 1.62 $ 1.56 $ 1.51 $ 1.50 $ 1.4688 75% 76% 79% 60% 63% 59% 61%

$ 21.63 $ 21.27 $ 20.71 $ 20.25 $ 19.34 $ 18.45 $ 17.85 7 8 11 9 7 5 7 3.62 3.62 3.17 3.14 2.88 2.33 2.62 48,194 44,490 43,826 42,516 39,232 39,054 36,835 1,903 1,797 1,739 1,714 1,741 1,811 1,810 This Annual Report has been prepared for the purpose of providing general and statistical information concerning the Company and not in connection with any sale, offer for sale or solicitation of an offer to buy any securities.

35

COMMON STOCK PRICE RANGE AND DIVIDENDS CORPORATE DATA The high and low sales prices of the Common Stock as reported in the Wall Dividend Reinvestment and Stock Street Journal as New York Stock Exchange-Composite Transactions for the Purchase Plan periods indicated were as follows: The Company continues to offer a

. Dividend Reinvestment and Stock Dividends Paid Purchase Plan which enables 1983 1982 Per Share shareholders and employees to High Low High Low 1983 1982 automatically invest their cash First Quarter 23Y2 203/s 18Ys 16% $.57 $.53 dividends in Company stock, and also make optional cash payments without Second Quarter 23:Ys 203/i 18% 17 $.57 $.53 paying brokerage commissions or Third Quarter 23 20% 20Y2 17 $.57 $.57 service charges. Over 535,000 shares were purchased through the Plan in Fourth Quarter 251/s 225/s 21% 19 $.59 $.57 1983 with proceeds to the Company in excess of $11. 7 million. There were For your convenience, listed below are the proposed 1984 record dates and 17,100 participants in the Plan at payable dates, for dividends on Common Stock: year-end. To enroll, please contact our Investor Records Department.

Record Dates Payable Dates See address on this page.

March 15, 1984 September 20, 1984 April 16, 1984 October 15, 1984 June 21, 1984 December 20, 1984 July 16, 1984 January 15, 1985 Share Listings Common Stock of the Company is Investor Records: Communications regardirg stock transfer requirements or listed on the New York Stock lost certificates should be directed to the appropriate Transfer Agent. Changes Exchange, the Philadelphia Stock of address, inquiries on dividends or matters concerning the Dividend Exchange and the Pacific Stock Reinvestment and Stock Purchase Plan should be addressed to: Exchange. The 5Y's% Cumulative Convertible Preferred Stock of the Atlantic City Electric Company Company is listed on the New York Investor Records Department Stock Exchange.

P. 0. Box 1334 Pleasantville, New Jersey 08232 10-K Report Available The annual report to the Securities or telephone Area Code 609/645-4506 or 4507. and Exchange Commission on Form 10-K is available to shareholders and may be obtained by writing to the Company, Attention: Mr. M. R.

Meyer, Secretary. See address on this page.

Transfer Agents For Common and Preferred Stock Morgan Guaranty Trust Company of New York 30 West Broadway New York, New York 10015 For Common Stock First National State Bank of South Jersey Atlantic City, New Jersey 08404 36

BOARD OF DIRECTORS OFFICERS COMMITTEE LISTINGS John D. Feehan Mr. Feehan, Chairman of the Board Chairman of the Board, and President, serves as an ex President and Chief officio member of all committees, Executive Officer except the Audit Committee.

Ernest D. Huggard Audit Committee Executive Vice President John M. Miner, Chairman (Left) Eleanor S. Daniel, Self employed. Vice President and Frank J. Ficadenti Eleanor S. Daniel Director of several real estate corporations. (Right) Richard M.

Dicke, Counselor at law. Partner of the law firm of Simpson Senior Vice President Jos. Michael Galvin, Jr.

Thacher and Bartlett.

Engineering and Construction Mack C. Jones Irving K. Kessler Jerrold L. Jacobs Senior Vice President Corporate Development Operations Committee Frank H. Wheaton, Jr., Chairman Michael A. Jarrett Eleanor S. Daniel Senior Vice President Gerald A. Hale (Left) John D. feehan, Chairman of the Board, President and Corporate Services Matthew Holden, Jr.

Chief Executive Officer. (Right) Jos. Michael Galvin, Jr. , Mack C. Jones President and Chief Executive Officer of Salem County Memo- David V. Boney rial Hospital.

Vice President John M. Miner Customer and Community Services Energy, Operations and Research John F. Born Committee Vice President Mack C. Jones, Chairman Electric Operations Richard M. Dicke Jos. Michael Galvin, Jr.

Thomas E. Freeman Gerald A. Hale Vice President Matthew Holden, Jr.

(Left) Gerald A. Hale, President, Hale Resources, Inc., an industriaVnatural resou rce investment and management com- Human Resources Irving K. Kessler pany. (Right) Matthew Holden, Jr., Professor of Government and foreign Affairs, University of Virginia. Meredith I. Harlacher, Jr. Madeline H. McWhinney Vice President Richard M. Wilson Engineering Finance Committee Brian A. Parent John M. Miner, Chairman Vice President and Treasurer Eleanor S. Daniel Richard M. Dicke Joseph G. Salomone Gerald A. Hale Vice President Mack C. Jones (Left) Mack C. Jones, Engineer. Retired. (Ri ght) Irving K.

Kessler, Retired. Former Executive Vice President, RCA Control Irving K. Kessler Corporation.

Henry C. Schwemm, Jr. Madeline H. McWhinney Vice President Richard M. Wilson Production Pension and Insurance Committee Martin R. Meyer Richard M. Dicke, Chairman Secretary and Matthew Holden, Jr.

Assistant Treasurer John M. Miner Frank H. Wheaton, Jr.

Lance E. Cooper Richard M. Wilson (Left) Madeline H. McWhinney, President, Dale, Elliott & Controller Company, Inc., management consultants for the banking indus- Personnel Committee try. (Right) John M. Miner, Senior Vice President of Crocker Joseph T. Kelly, Jr. Jos. Michael Galvin, Jr., Chairman National Bank.

Assistant Vice President Eleanor S. Daniel Operations and Assistant Secretary Richard M. Dicke Irving K. Kessler Frank H . Wheaton, Jr.

Shareholder, Community and Government Relations Committee Eleanor S. Daniel, Chairman (Left) frank H. Wheaton, Jr., President of Wheaton Industries.

Manufacturer of glass and plastic containers. (Right) Richar d M. Jos. Michael Galvin, Jr.

Wilson, Retired. former Senior Vice President of the Company. Matthew Holden, Jr.

Madeline H . McWhinney Frank H. Wheaton, Jr.

Richard M. Wilson

Bulk Rate

@ ATLANTIC ELECTRIC U.S. Postage 1199 Black Horse Pike PAID Pleasantville , N.J. 08232 Atlantic City Electric Company