ML18095A879

Philadephia Electric Co Annual Rept,1990

ML18095A879
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Site:	Salem, Hope Creek
Issue date:	12/31/1990
From:	Paquette J PECO ENERGY CO., (FORMERLY PHILADELPHIA ELECTRIC
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ML18095A877	List: ML18095A876 ML18095A878 ML18095A879 ML18095A880 ML18095A881
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910419018

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ANNUAL REPORT 1 9 9 0

PHILADELPHIA ELECTRIC COMPANY ANNUAL REPORT 1990 ONTENTS 2

Letter to Shareholders 4

Mission, Vision and Values 7 Report of 1990 Operations 1 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Consolidated Financial Statements 25 Notes to Financial Statements 38 Report of Independent Accountants 39 Financial Statistics 41 Operating Statistics 43 Officers and Directors M

areholder formation FINANCIAL HIGHLIGHTS Operating Revenues Operating Expenses Taxes Charged to Operations Operating lncome Earnings Applicable to Common Stock Earnings per Average Common Share Cash Dividends ?aid per Common Share Average Shares of Common Stock Outstanding Construction Expenditures Total Assets

$2.50 2.00 EARNINGS AND DIVIDENDS Dollars 1.50 1.00

.50 0

86 87 88 89 90 D Earnings Per Share Dividends Paid Per Share The financial pages of this report are primed on recycled paper.

1990 1989

$3, 705,161,000

$3,405,629,000

$2,937,447,000

$2,596,288,000

$420, 1 72,000

$4 35, 756,000

$767,714,000

$809,341,000

$123,871,000

$493,807,000

$0.58

$2.36

$1.45

$2.20 214,356,000 208,901,000

$660,757,000

$1,106,174,000

$12,565,951,000

$12,681,117,000 CONSTRUCTION EXPENDITURES Million Dollars

$ 1200 1000 800 86 87 88 D External Sources Internal Sources 89 90 Philadelphia Electric Company 1

2 Philadelphia Electric Company To OUR SHAREHOLDERS:

he year 1990 was one of marked contrasts for our Company.

Financially, the year was extremely disappointing because of the adverse order issued in April by the Pennsylvania Public Utility Commission (PUC), which denied the Company $307 million of its rate request to recover the costs of owning and operating its new Limerick Unit No. 2. As a result of the PU C's action, it was necessary to reduce the quarterly common stock dividend from $0.55 per share to

$0.30 per share effective with the June payment, thus causing the market price of the common stock, which began the year at $23 per share, to drop to $15 per share in April. It was also neces-sary to take a one-time charge against 1990 income of approximately $250 million ($1.18 per share) because of disallowances made by the PUC in its order.

For the year 1990, earnings amounted to only $0 58 per share versus $2.36 per share earned in 1989. The reduction was caused by the effect of the PUC disallowances, as well as non-recurring costs of an early retirement plan

($0.70 per share) and a lower rate of return on shareholders' investment as ordered by the PUC These items were partially offset by cost reductions, elimination of the Peach Bottom shutdown penalties and an accounting change to record unbilled revenues.

OPERATIONAL PROGRESS Despite these financial setbacks, the Company recorded significant progress on several fronts.

Some of the highlights were as follows :

• With ample capacity to serve our customers' needs, approximately $95 million of revenue resulted from sales of electric energy and capac-ity to other utilities.

• Although gas sales declined because of warmer weather, new gas house-heating customers increased 3.4% as a result of stable gas prices and conversions from higher-cost oil heating.

• The performance of our nuclear plants con-tinued to improve as Peach Bottom and Limerick operated at capacity factors of 78%

and 70%, respectively, and both stations received higher evaluations from the Nuclear Regulatory Commission.

• The Middle East Crisis has had little impact on the Company since, with the restart of Peach Bottom Unit No. 3 and the completion of Limerick Unit No. 2 in January 1990, 65% of our electric generation was provided by nuc power while only 4% was oil generated.

• Our fossil-fuel and hydroelectric units turned m strong performances again last year. These units were available for operation nearly 80% of the time.

• Our safety record, as measured by lost-time accidents, continued to improve, placing the Company in the top quartile of the industry.

• The market price of the Company's common stock recovered to $18 per share by year-end.

The year 1990 was also one of significant transition for the Company. With the start-up of Limerick Unit No. 2, the Company completed a 20-year expansion program which added 6,800 mega-watts of new capacity, mostly nuclear, and required the investment of $9 billion. Our focus has now shifted to achieving operational excellence.

NEW STRATEGIC PLAN To provide a sound basis for future activities, we have developed a new Strategic Plan which is centered on improving shareholder value by con-centrating on improving our core business -

providing reliable electric and gas energy in-southeastern Pennsylvania and northeastern Maryland. Our primary objectives will be to improve earnings and increase customer saris-

4 Philadelphia Electric Company continually strive to anticipate, understand and meet our customers' changing needs and expecta-tions so that we remain their preferred supplier of energy services.

SHAREHOLDER VALUE Our shareholders are the owners of the busi-ness and provide the equity capital necessary to construct and replace our facilities. We will operate our business in a manner that will increase shareholder value.

EMPLOYEE VALUES We will provide every person with necessary support, training and the opportunity to participate in our process of continuous improvement, to achieve their personal potential, and to realize job satisfaction. We will recognize commitment and excellent performance.

and the public and are committed to conduct all phases of our business with safety as a major consideration.

INTEGRITY The Company highly values its reputation for integrity in our dealings with customers, the public, elected officials, suppliers and other con-stituencies. We will conduct all of our activities in a manner which preserves that confidence.

ENVIRONMENTAL COMMITMENT We will conduct our business in a manner which demonstrates our commitment to protect the public and the environment.

COMMUNITY INVOLVEMENT Our Company's future depends on the prosperity of the communities that we serve. The Company and its employees will continue to be involved in civic activities, economic development initia-tives and the preservation of our communities.

Joseph F. Paquette, Jr. (left)

Chairman of the Board and Chief Executive Officer with Corbin A. McNeill, Jr.

President and Chief Operating Officer faction by minimizing the need for rate increase requests through improved productivity and increased utilization of our generating capacity.

We do not view diversification as an attractive option at this time.

During the year, your management imple-mented a number of major initiatives to set the stage for successfully achieving the new Strategic Plan including:

(1) Concurrent with the dividend reduction, we announced a plan to reduce operating expenses by $100 million per year by the end of 1991.

This is being accomplished through salary cuts for management, restrictions on overtime and the use of outside contractors, an early retirement program which is expected to reduce employment by about 1,500, and reductions in advertising and charitable contributions.

(2) We have developed a new Mission, Vision, and Values statement for our employees to provide guidance for the Strategic Plan. The Mission, Vision and Values are presented on pages 4 and 5 of this report.

(3) We announced a comprehensive plan to reorganize our division operations by decentralizing responsibility and transferring accountability to local division general managers for improving customer satisfaction and for achieving cost-saving objectives.

( 4) Further steps were taken to strengthen the Company's top management and Board of Directors. In April, Corbin A. McNeill,Jr. was promoted to the position of President and Chief Operating Officer after having success-fully provided leadership to our restructured nuclear department. We were also extremely fortunate to augment the Board of Directors with the addition ofJohn M. Palms, President of Georgia State University, James A. Hagen, Chairman, President and CEO of Consolidated Rail Corporation, and Richard H. Glanton, Esquire, Partner of the law firm Reed Smith Shaw

&McClay.

OUTLOOK We face the future with a number of significant challenges before us. Among these are the need to improve our competitive position while restoring shareholder value; to devote the resources and attention required to achieve excellence in all of our operations; and to comply with increasingly strict environmental standards, especially the anticipated stringent regulations to be issued under the Amendments to the Clean Air Act of 1990.

I believe the Company is well positioned to address these future challenges since we have already taken a number of difficult but significant steps to move ahead through the 1990's.

Specifically,

• our current generating capacity is sufficient for our customers' needs into the next decade;

• our nuclear units and the scrubbers already installed on our coal units significantly limit our exposure to the recently enacted clean air legislation;

• our low level of oil-fired generation insulates us from the potential scarcity of fuel oil and volatility of fuel oil prices;

• our commitment to operational excellence and continuing cost control is firmly established; and

• our construction program and financing needs have been significantly reduced.

In 1990, the stage was set to tum Philadelphia Electric in a new direction. For 1991, our objective is to complete the implementation of our new strategies and to demonstrate financial improve-ment at least sufficient to warrant consideration of a dividend increase in the near future. Our dedicated body of employees and their commit-ment to our Mission, Vision and Values will provide the foundation to achieve our objectives.

We extend our sincerest thanks for your loyalty to the Company, especially during this difficult year.

]. F Paquette, Jr.

Chainnan of the Board and Chief Executive Officer February 1, 1991 Philadelphia Electric Company 3

1990's. We will achieve this through rigorous control of expenses and capital expenditures, thus minimizing the need for rate increases while improving our income.

CUSTOMER SATISFACTION To achieve customer satisfaction, we will contin-ually evaluate our performance against their expectations. We will use the concepts of Quality Management to identify and address oppor-tunities for service quality improvement and cost reduction.

MARKETING We will implement strategic marketing and energy conservation programs that contribute to better utilization of our facilities, enhance our revenues, and assist customers in improving their energy use efficiency. We will aggressively market any tempor-arily excess capacity and energy through off-system sales when justified.

We will aggresQvely manage our natUral gas busi-ness by maximizing our profi1able marketing opporrunities and rigorously controlling expenses and capital expenditures. This will enable us to remain competitive and minimize the need for rate increases. We will consider acquisitions of related gas businesses which would permit the creation of value.

ELECTRIC SUPPLY STRATEGY We will realize the benefits of our significant commitment to nuclear power and will con-tinue to diligently manage the operation of our nuclear plants to maximize their safety and performance.

Although we have sufficient installed capacity to meet expected area load growth beyond the tum of the century, we will pursue various options to defer the need for construction of new generat-ing facilities, including demand side management.

Philadelphia Electric Company 5

6 Philadelphia Electric Company Gordon L. Johnston, Nuclear Maintenance Division: "Our newly developed group was formed to service the reactors at both Limerick and Peach Bottom. Having the same group service both sites makes us more efficient and saves the Company money."

Nuclear fuel Is loaded into the Limerick Unit No. 1 reactor. This view Is from directly above the reactor vessel and refueling bridge.

The 1990 reload required the individual replace-ment of one-third of the unit's 764 fuel elements by exchanging them en the spent fuel nd the reactor.

g the reload, some 2,000 maintenance tasks were performed, of which approximately 1,500 were preventive maintenance.

arnings per average share for 1990 amounted to $0.58 versus

$2.36 earned in 1989. The decrease in earnings was primarily due to the one-time write-off in the first quarter of 1990 of approximately

$250 million, or $1.18 per share, associated with various disallowances made by the Pennsyl-vania Public Utility Commission (PUC) in the Limerick Generating Station (Limerick) Unit No. 2 rate order, as well as a lower rate of return allowed by the PUC, and the third quarter write-o!f of $0.70 per share associated with the Company's Special Retirement and Service Completion Plan (early retirement plan). This decrease in earnings was partially offset by electric sales to other utilities, effective cost manage-ment, the net effect of certain accounting changes and the elimination of costs associated with the Peach Bottom Atomic Power Station (Peach Bottom) shutdown which adversely affected 1989 results.

For a complete discussion of revenue and expense results and accounting changes, please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations on page 17.

S ALES RES U LTS Total electric sales increased 5.0% to 34.3 billion kilowatthours, including energy sales to other utilities. Excluding these sales, electric service territory sales decreased 0.7% from 1989 levels primarily due to more moderate weather.

Gas sales, including transported gas, decreased 4.4 billion cubic feet or 5.4% from last year.

Gas heating sales were down due to milder weather during the heating season in 1990 as compared to 1989, while transported gas improved by 6.4 billion cubic feet or 35.4%.

More than 10,000 new residential units were connected in 1990. Electric space heating was installed in 45% of these units and gas heat in 41 %

for a total market penetration of86% of new living units which will be using PE's clean and efficient energy products.

1 9 9 0 Fl NANCI NG S During 1990, the Company raised nearly $290 million in capital, less than one-third of the $940 million raised in 1989. The table below summarizes the 1990 financings.

Month October January January-Millions of Dollars Mortgage Bonds-10%

$100.0 Due 2000 Mortgage Bonds-10Y2%

100.0 Due 2020 Medium-Term Note Program:

9% Notes Due 1996 5.0 Dividend Reinvesttnent December

& Stock Purchase Plan:

4,976,745 Shares; Average Price of $17.04 Total 84.8

$289.8 The financing program was designed to take

$ 1250 1000 750 500 EXTERNAL FINANCINGS Million Dollars 86 87 88 0 Long-Term Debt Preferred Stock Common Stock 89 90 Philadelphia Electric Company 1

advantage of opportunities to refund high-interest-rate debt and high-dividend-rate preferred stock at lower rates. The Company refunded nearly

$220 million of securities in 1990 resulting in net annual savings of $12 million. Since the Com-pany began its refunding program in 1985, nearly

$1. 5 billion in securities have been refunded for a total reduction of $4 7 million in annual interest expense and preferred dividends.

PLANT INVESTMENT The Company invested $661 million in new plant and equipment in 1990, down $445 million from 1989. The level of new plant invest-ment decreased with the completion of Limerick Unit

o. 2 injanuary. Construction spending is expected to decrease further to $588 million for 1991 and to average approximately $550 million per year through 1994. New transmission and distribution projects will account for a sub-stantial portion of the projected expenditures.

$10000 8000 6000 CAPITALIZATION Million Dollars 86 87 88 0 Long-Term Debt Preferred Stock Common Equity 8

Philadelphia Electric Company 89 90 LIMERICK RATE ORDER In July 1989, the Company filed a $549 million base-rate increase request with the PUC to include in electric rates the costs of owning and operating Limerick Unit No. 2 and associated common facilities. The PUC issued a final order, effective April 20, 1990, approving an annual rate increase of only $242 million, or approximately 44%

of the Company's request. The $307 million of revenue disallowed included $106 million due to the PUC finding that 399 megawatts (MW) represented excess capacity and $95 million associated with a lower authorized rate of return on common shareholder equity. The PUC did approve recovery of approximately $137 million of Limerick Unit No. 1 costs which had pre-viously been deferred pursuant to a Declaratory Order. On May 18, 1990, the Company filed with the Commonwealth Court of Pennsylvania (Commonwealth Court) a Petition for Review of the PUC's final order. The Company appealed, among other things, the PUC's disallowance of any return on the common equity investment for 399 MW of Limerick Unit No. 2 and associated common facilities based on the PUC's finding of excess capacity. The Office of Consumer Advocate COCA) also appealed, challenging the permitted recovery of Limerick Unit No. 1 Declaratory Order costs.

On December 3, 1990, the Company, the OCA and others filed a joint petition for settlement of all appeals arising from the PUC's final order. The proposed settlement, which is subject to PUC approval, provides that the Com-pany and the OCA will withdraw their appeals of the Limerick Unit No. 2 rate order and that the Company will not file a request for another base-rate increase before April 1994, except for emergency or single-issue rate filings (e.g., a change in costs associated with new legislation or regulations). In addition, the Company has agreed to consolidate the previously authorized Limerick Unit No. 1 and Unit No. 2 phase-in plans and Eddystone Generating Station (left) with Its scrubbing plant (right).

The scrubbers were Installed in 1982 to remove sulfur dioxide and particulate emls*

sions from the flue gas.

Herman Perez, Eddystone Generating Station:

"Scrubbers allow our Eddystone and Cromby coal plants to operate In compliance with the new clean air legislation.

Through my work on the scrubbers, I am aware of the Company's commit-ment to operate in a way which protects the public and the environment."

Philadelphia Elemic Company 9

10 Philadelphia Electric Company Giibert L. Jones, Peach Bottom Atomic Power Station: "I'm very proud to be part of the successful restart of the Peach Bottom Station. Now that we are operational, I enjoy being part of a team striving for excellence."

A new, two-story, 70,000-square-foot training center (left) was opened at Peach Bottom during 1990. The facility is adjacent to the Unit No. 1 building (center) which currently houses the control room training simulator for Units No. 2 and No. 3. Peach Bottom

't No. 1 was an experi-1 high-temperature ooled reactor which operated between 1967 and 1974. Peach Bottom Units No. 2 and No. 3 appear in the distance (right).

levelize associated rates over the May 1991 to December 1992 time period. In return, the Com-pany will be permitted to retain the net proceeds of any sales to other utilities of the 399 MW of electric capacity/energy deemed excess by the PUC In addition, beginning in April 1994, the Company will be allowed to retain 16.5% of the energy cost savings from the operation of Limerick Unit No. 1 and Unit No. 2, with cus-tomers receiving the remainder of such energy savings. The Company's potential benefit from this proposed settlement is limited to $106 million per year through 1994 and to higher amounts thereafter. Please refer to note 2 of the Notes to Financial Statements for further information.

OPERATIONS Economic advantages of the Company's invest-ment in nuclear power and reduced dependence on oil were affirmed by events in the Middle East during the second half of 1990. As oil prices rose dramatically, the Company's cost of fuel was 1.28 cents per kilowatthour, down 28% from the 1989 level.

The Company has ownership interests in six nuclear units-two each at Limerick, Peach Bottom and Salem Generating Station (Salem).

Limerick is operated and 100% owned by the Company. The Company operates Peach Bottom and owns a 4 2. 49% share of the plant while Public Service Electric and Gas Company operates Salem, with PE owning a 42.59% share of that facility. These six units produced 65% of the Company's total output in 1990, equivalent to burning 37.5 million barrels of oil and saving

$630 million in fuel costs for customers.

On January 8, 1990, Limerick Unit No. 2 began commercial operation following a record-setting start-up program of 200 days. Unit No. 2 operated at an 80% capacity factor during its first year of operation. The highly praised Limerick Unit No. 2 construction project received yet another award in 1990-national "Project of the Year" honors presented by the Project Manage-ment Institute.

A new water processing facility, designed to cool and treat water from the Delaware River, was constructed to meet strict environmental requirements imposed by the Pennsylvania Department of Environmental Resources. The

$21 million facility, located in Bucks County, Pennsylvania, began operation in June in conjunc-tion with the supplemental cooling water system for Limerick. This supplemental cooling water system has provided Delaware River water to Limerick for more than a year with no negative environmental effects.

In December, the Company received a Systematic Assessment of Licensee Performance (SALP) evaluation of Limerick from the Nuclear Regulatory Commission (NRC) covering the period September 1, 1989 to October 15, 1990. The report found that Limerick's performance had improved since the last SALP evaluation and awarded top scores in five of the seven evaluated areas with continuing improvement noted in the remaining two areas. The SALP evaluation found that management involvement was key to the continued strong operating performance at the plant. PE management, it said, continued to demonstrate a commitment to safe, quality operation at Limerick.

During 1990, Peach Bottom continued its record of improving performance since it was restarted following the NRC shutdown. In February, the NRC announced that "Peach Bottom had demonstrated sustained improvement suf-ficient to warrant removal from the category of plants that require increased attention from NRC headquarters and the Regional office." The Com-pany has a new nuclear management team which is committed to excellence and is confident of its ability to operate its nuclear facilities safely and efficiently.

The SALP evaluation of Peach Bottom's plant performance for the period July 1989 through May 1990 stated that ".. during this assessment Philadelphia Electric Company 11

period, the licensee successfully implemented the restart and power ascension programs for both units. A solid foundation of self-assessment programs and a management philosophy of safety-conscious operations have been established'.'

The most recent SALP evaluations for Limerick and Peach Bottom are the best evaluations the Company has ever received for the stations from the NRC; however, both plants have a number of specifically identified areas where improve-ment is required.

A new 70,000-square-foot training center and personnel processing facility, opened at Peach Bottom in October, enables the station to meet the growth and expanding responsibilities of its Training Division.

1990 was also a year of accomplishment for the Company's gas operations. During the year, the number of residential gas house-heating customers topped 250,000 for the first time.

The events in the Middle East caused oil prices to increase 50% or more during the fall of 1990 while natural gas prices remained stable.

35 ELECTRIC SALES Billion Kilowatthours 011111 86 87 88 89 90 0 Sales to Other Utllltles 12 Philadelphia Electric Company An aggressive direct mail campaign to homes located along existing gas mains was mounted in early September. As a result, residential conversions from oil heating for 1990 were ahead of 1989 by 24% with over 2,800 homeowners switching to clean, affordable and abundant natural gas. The number of residential gas heating service contracts at the end of 1990 totaled 80,179, representing over 31 % of the residential heating customers.

This level of market penetration for service contracts is one of the highest in the industry.

The Company's strategy in this market is to continue to offer highly reliable, reasonably priced natural gas while focusing on becoming a premier heating appliance service organization.

Extensive work was completed during planned outages at both Eddystone and Cromby Generating Stations in 1990. In addition to major boiler and auxiliary equipment mainte-nance, significant improvements were made to the Unit No. 2 and Unit

o. 4 turbines at Eddystone, which has been in operation for 30 years. At Cromby, a large section of the Unit No. 2 boiler was replaced and a major turbine inspection on Unit No. 1 was completed.

LEGAL MATTERS During 1990, a settlement was reached in the derivative suit brought by certain shareholders against the Company's former Chairman and former President in connection with the events leading to the shutdown of Peach Bottom by the NRC on March 31, 1987. The settlement became final on October 30, 1990. Under the terms of the settlement, two of the Company's director-and officer-liability insurance carriers paid

$34.5 million. The recovery, less $6.5 million for attorneys' fees and expenses, was paid to the Company on November 1. The Company will also arbitrate an insurance coverage issue with a third insurance carrier. Depending on the results of the arbitration, another $9 million may be paid as part of the settlement. As a derivative suit filed on behalf of the Company, awards are The West Conshohocken Llqulfled Natural Gas (LNG)

Plant supplements the Company's natural gas supply system by provld*

Ing liqulfled natural gas from storage (tank at left rear) to meet peak load requirements. During periods of heavy demand In the winter, the plan. t converts the LNG ton gas to supplement re pipeline supplies.

Vernon C. Readman, Ill, West Conshohocken Gas Plant: "Our customers depend on us for a reliable supply of natural gas-even on the coldest winter days. My job Is to be sure that our customers have all the gas they need, when they need It, 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day, 365 days a year."

Philadelphia Electric Company 13

14 Philadelphia Electric Company Catherine A. McGinley, Western Division: "As an engineer In Electric Trans-mission and Distribution, I get the opportunity to work in the field with many different groups to coordi-nate projects that will allow the Company to serve Its customers with Increased reliability and quality of service."

Providing reliable service requires the installation of an adequate number of transmission substations to meet growing load requirements in our service territory. Workmen inspect a circuit breaker at Plane-brook Substation near Exton, Pennsylvania.

paid to the Company and not directly to the shareholders.

The two lawsuits ftl.ed by the co-owners of Peach Bottom against the Company concerning the NRC-ordered shutdown of Peach Bottom are still pending. In these suits, which were both ftl.ed on July 27, 1988 in the United States District Court for the District of New Jersey, the co-owners seek compensation for certain replacement power costs and other costs which they incurred as a result of the shutdown. The suits include claims for punitive damages. The parties to the htigation are currently engaged in ongoing discovery. The Company continues to defend itself vigorously against these claims. Please refer to note 3 of the Notes to Financial Statements for further information.

ENVIRONMENTAL COMMITMENT Coal was used to produce 18% of the Company's energy in 1990 and a significant portion of that was generated at Cromby and Eddystone, which are already equipped with state-of-the-art scrubbing equipment to clean emissions into the atmosphere. These plants already meet the most stringent sulfur dioxide limits specified in the Amendments to the Clean Air Act of 1990. Oil was used to produce just 4% of the Company's total generation in 1990.

POWER SALES I SAVINGS The commercial operation of Limerick Unit No. 2 enabled the Company to evolve from a buyer to a seller of power and related services. Sales of capacity, energy and transmission system import capability under contract to other utilities during 1990 generated $95 million of revenue for the Company and contributed $0.19 per share to,

common stock earnings. In addition, through its membership in the Pennsylvania-New Jersey-Maryland Interconnection (P]M) and the continua-tion of its long-standing agreement to purchase coal-fired power from systems outside P]M, the Company achieved savings for customers of approximately $45 million through the purchase and sale of economical power.

CONSERVATION AND LOAD MANAGEMENT During the year, the Company accelerated its marketing efforts on such customer-benefit pro-grams as conservation, load management and compressed natural gas vehicles (N GV's). Through an advertising campaign, "The Power Is In Your Hands, Use It Wisely;' the Company informed its customers-residential, commercial and industrial

-how to use energy more efficiently, thereby saving on their electric bills and ultimately delaying the need for the Company to build or buy expen-sive additional electric capacity.

Clean air legislation and the Middle East crisis greatly accelerated interest in NGV's using natural gas as a gasoline alternative. NGV's offer lower fuel and operating costs, cleaner-burning engines and less reliance on foreign fuel sources.

In 1990, several public and private fleet mana-gers made the decision to convert a portion of their fleets to NGV's. Philadelphia Electric Company continues to increase the number of NGV's in its ~eet and plans to increase its refueling-station network.

90 GAS SALES & TRANSPORTED GAS Billions of Cubic Feet 86 87 88 89 90 Philadelphia Electric Company 15

The Company's strong commitment to the environment and the economic well-being of its customers, combined with other market forces, may in the long run pave the way for public acceptance ofNGV's.

AREA DEVELOPMENT As the 1990's begin, southeastern Pennsylvania is positioned to continue the growth and develop-ment seen in the 1980's. The region's unemploy-ment rate of 5.3% continues to be below both the state and national rates.

The service territory continues to be a center for insurance, financial, health care, real estate, publishing, chemical and pharmaceutical industries. Major renovations totaling $700 million are underway at the Philadelphia International Air-port, and an $80 million four-hotel Airport Interplex" is scheduled to be built across from the airport adjacent to Interstate 95. The Philadelphia waterfront has projects representing $1.75 billion planned, including hotels, townhouses, condo-miniums, restaurants, retail shopping and marinas. Also, construction of the $530 million Philadelphia Convention Center has begun in the downtown Philadelphia area. Plans for the center, scheduled to be completed in late 1993, include a 1,100-room hotel, a ballroom, meet-ing rooms and exhibition space.

During 1990, the Company provided loca-tion assistance in the service territory to numerous companies, with 21 establishing new facilities, 8 establishing branch plants and 38 relocating and/or expanding within the service area. As a result, 9,300 jobs were either created or retained in PE's service territory.

DIVISIONAL REORGANIZATION In September, the Company announced a major divisional reorganization designed to bring the management of the Company's operations closer to its customers. During 1991, the Company will decentralize the administration of its electric and gas distribution and customer-related func-tions to give its divisional general managers 16 Philadelphia Electric Company direct responsibility and accountability for the quality and reliability of service to its customers.

Under the reorganization, the remaining central operations at the Company's headquarters in Philadelphia will continue to supervise the transmission of gas and electricity and will pro-vide extensive administrative services to support divisional operations in the field.

The reorganization will also change the existing boundaries of the Company's suburban divisions to conform with the geographical boundaries of Bucks, Chester, Delaware, and Montgomery Counties, thereby realigning divisions that now cross county lines.

The reorganization will also establish two divisions ill Philadelphia, but will leave basically unchanged the boundaries of Conowingo Power Company, a PE subsidiary serving portions of Cecil and Harford Counties in Maryland and a part of York County in Pennsylvania. (Please refer to the map on the inside front cover.)

EARLY RETIREMENT PLAN As part of the Company's plan to reduce operating costs by $100 million by year-end 1991, the Company initiated an early retirement plan for employees. This plan provided a one-time opportunity for all Company employees who were 50 years of age or older and who had five or more years of credited service to elect an improved pension benefit. The plan provides long-term benefits to the Company as a result of the salaries and associated benefits saved through retirements. Of the 2,608 eligible employees (23% of total employment), 1,909 employees elected to accept early retirement. As a result, the Company incurred a one-time, pre-tax charge of approximately $249 million, or $0.70 per share, in the third quarter of 1990 but expects to save approximately $75 million per year by the end of 1992. Please refer to note 5 of the Notes to Financial Statements for further information.

Philadelphia Electric Company and Subsidiary Companies NAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EARNINGS Earnings per share for 1990 were $0.58, including a $0.51 per share cumulative effect of an accounting change. These earnings were $1.78 per share below 1989 earnings of $2.36, when 2.6%

fewer shares were outstanding. The decrease in earnings was due primarily to a one-time charge against income in the first quarter of approximately $250 million, or $1.18 per share, associated with various disallowances made by the Pennsylvania Public Utility Commission (PUC) in the Limerick Unit No. 2 rate order and the third quarter charge of approximately $150 million, or $0.70 per share, resulting from the Company's special early retirement plan. In addition, the rates allowed by the PUC rate order were substantially less than the amount requested by the Company, resulting in a $0.55 per share decrease in earnings compared to 1989. Partially offsetting these reductions was the elimination of penalties associated with the Peach Bottom shut-down which reduced 1989 earnings by $0.25 per share.

On July 21, 1989, the Company filed with the PUC a request for an electric rate increase designed to yield $549 million annually, net of limerick Unit No. 2 fuel savings, prin-cipally to recover costs associated with Limerick Unit No.*2 and associated common facilities. On April 19, 1990, the PUC issued 1 order in the Limerick Unit No. 2 rate case approving an 1 rate increase of $24 2 million, or approximately 8%, to be ed in over approximately a three-year period. Additionally, as a result of the PUC's final order, the Company incurred a one-time after-tax charge against income in the first quarter of 1990 of approximately $250 million associated with various disallowances.

In recognition of the adverse impact on future earnings of the PUC's final order in the Limerick Unit No. 2 rate case, on April 23, 1990, the Board of Directors of the Company reduced the Company's quarterly common stock dividend by approx-imately 45% to $0.30 per share.

The Company also initiated a Company-wide cost-reduction program designed to reduce operating expenses by at least $100 million annually by December 31, 1991. The program includes, among other initiatives, a reduction in pay for top management and in fees for the Board of Directors, a reduction in the number of contract personnel and in capital spending, and a special, one-time early retirement plan.

The election by eligible employees to accept early retirement under the plan was required to be made between July 15, 1990 and September 15, 1990. Of the 2,608 eligible employees, 1,909 employees elected to accept early retirement.

In order to ensure an orderly restructuring of the workforce and to provide time for training of replacements, where necessary, employees who allowed management to schedule their specific of retirement receive (upon retirement) payments equal to onths of base salary. Retirements taken pursuant to this sion are occurring in stages between November 1, 1990 and December 31, 1992. Of the 1,909 employees electing to accept early retirement, 1,859 employees opted to allow manage-ment to schedule their retirement dates. The costs associated The financial pages of this report are printed on recycled paper.

with the early retirement plan were recognized during the third quarter of 1990. As a result, the Company incurred a one-time after-tax charge of $150 million applicable to electric and gas operations.

In accordance with a Declaratory Order of the PUC dated May 3, 1989 and modified on February 23, 1990, the Company deferred the operating and maintenance expenses, depreciation, and accrued carrying charges on its capital invest-ment in Limerick Unit No. 2 and associated common facilities from January 8, 1990, the commercial operation date of Limerick Unit No. 2, until April 20, 1990, the effective date of the Limerick Unit No. 2 rate order. At December 31, 1990, these costs, which are included in Deferred Limerick Costs, totalled $91 million.

Recovery of these costs, which is not assured, will be addressed by the PUC in a subsequent electric rate case.

ELECTRIC OPERATING REVENUE Provided below are the components of the net increase in elec-tric operating revenue from 1988 through 1990:

(Millions of Dollars)

Rate Increase Federal Tax Adjusanent Credit Fuel Adjusanent Revenue Energy and Capacity Sales Sales and Other Electric Revenue Increase/(Decrease)

'90 VS '89 '89 VS '88 '88 VS '87

$167

$ 1 41 96

_J1)

$300

$ (2)

(55) 114 16 58

$170 79

$41 In 1990, kilowatthour (kWh) sales of electricity to retail customers were 0.7% below those in 1989, primarily as a result of moderate weather. Sales to retail customers increased 1.4% in 1989 over 1988 and 5.5% in 1988 over 1987 due to economic growth and favorable weather.

GAS OPERATING REVENUE Gas revenue in 1990 was lower than 1989 due primarily to milder weather, partially offset by increased revenue from transported gas sales. Total gas sales in 1990, including trans-ported gas, decreased by 5.4%. Increased gas revenue in 1989 over 1988 was primarily due to an increase in the purchased gas cost rate. For 1989, total gas sales, including transported gas, were essentially the same as 1988.

FUEL AND ENERGY INTERCHANGE EXPENSE For accounting purposes, fuel and energy interchange costs are deferred until billed as fuel adjustment revenue. (See note 1 of Notes to Financial Statements.) In 1990, fuel and energy inter-change costs were $130 million lower than 1989 primarily due to increased nuclear generation as a result of the return to service of the Peach Bottom Units and the commercial opera-tion of Limerick Unit No. 2. In 1989, fuel and energy interchange Philadelphia Electric Company 17

Philadelphia Electric Company and Subsidiary Companies MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RES UL TS OF OPERATIONS costs were $76 million higher than 1988 primarily due to increased output, higher cost of fossil generation and costs deferred in previous years.

Effective April 20, 1990, the PUC established an Energy Cost Adjustment (ECA) which, in addition to reconciling fuel costs and revenues, incorporates a nudear performance stan-dard which provides for financial born,1ses or penalties depend-ing upon whether the Company's system nuclear capacity factor exceeds or falls below a specified range. The bonuses or penalties are based upon average system replacement energy costs. If the capacity factor is within the range of 60-70%, there is no bonus or penalty. If the capacity factor exceeds or falls below the specified range, then progressive incremental bonuses or penalties are incurred. The Company did not incur a bonus or a penalty for 1990.

Effective April 20, 1990, the Energy Cost Rate Factor was changed from a credit value of 2.782 mills per kWh to an ECA credit value of 3.744 mills per kWh, which represents a decrease in annual revenue of approximately $30 million.

OTHER OPERATING AND MAINTENANCE EXPENSES In 1990, non-fuel operating and maintenance expenses increased

$406 million or 38% over 1989 primarily due to a one-time charge associated with the early retirement plan, additional charge-offs for i,mcollectible accounts resulting from the limerick Unit No. 2 electric rate order, the establishment of an allowance for uncollectible accounts for all classes of service, and higher incremental nuclear maintenance and refueling outage costs resulting from the adoption of a method of accounting which recognizes a normalized monthly level of such costs over the pe1iod of the operating cycle.

In 1989, non-fuel operating and maintenance expenses increased $30 million or 2.9% over 1988 primarily due to expenses associated with the Limerick Unit No. 1 refueling outage.

DEPRECIATION Depreciation expense increased in 1990 compared to 1989 primarily as a result of Limerick Unit No. 2 being placed in com-mercial operation.

Depreciation expense for 1989 increased over 1988 due to plant additions.

• INCOME TAXES The sum of income taxes charged to operations and income tax credits included in other income decreased in 1990 compared to 1989 primarily due to the costs associated with higher operating and maintenance expenses and write-offs associated with various disallowances made by the PUC In 1989, compared to 1988, the sum of income taxes charged to operations and income tax credits included in other income decreased primarily due to higher interest charges and higher operating and maintenance expenses.

18 Philaddphia Electric Company OTHER TAXES Other taxes decreased slightly in 1990 compared to 1989 primarily due to lower capital stock tax, partially offset by increased federal old age benefits taxes.

Other taxes increased in 1989 versus 1988 due to higher gross receipts taxes, partially offset by lower capital stock taxes.

ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION The decrease in Allowance for Funds Used During Construction (AFUDC) in 1990 compared to 1989 is due to the inclusion of Limerick Unit No. 2 in rate base. The increase in 1989 versus 1988 was due to increases in construction work in progress, primarily related to Limerick Unit No. 2.

INTEREST CHARGES Interest charges on debt decreased in 1990 compared to 1989 primarily due to the interest on the settlement of the Salem Unit No. 2 safe harbor lease transaction which was reflected in 1989.

The increase in 1989 over 1988 was also associated with th~ safe harbor lease transaction.

CHANGES IN ACCOUNTING In December 1990, effective January 1, 1990, the Coi:ripany adopted a change in accounting for revenues in order to reco the estimated amount of operating revenues for sales of ele and gas service unbilled at the end of each month. This ace ing change, reflected as a cumulative effect, resulted in an increase in 1990 earnings of approximately $108 million, or

$0,51 per share. The change in accounting had an insignificant effect on 1990 earnings before reflecting the cumulative effect of such change *atjanuary 1, 1990. (See notes 1and4 of Notes to Financial Statements.)

Also in December 1990, effective January 1, 1990, the Company adopted a change in accounting for incremental nuclear maintenance and refueling outage costs which recognizes a normalized monthly level of estimated costs over the period of the unit operating cycle. This accounting change decreased earnings by approximately $17 million, or $0.08 per share. (See notes 1and4 of Notes to Financial Statements.)

CAPITAL EXPENDITURES AND LIQUIDITY The Company's construction program is estimated to require expenditures of approximately $588 million in 1991 and $1.6 billion from 1992 to 1994, which are expected to be fi,nanced primarily from internal sources. The estimated expenditures do not include any amounts for cooling towers at the Salem Generating Station or scrubbers at the Keystone and Conemaugh Stations that may be required for environmental reasons. Such construction expenditures, if required, may be substantial and may require external sources of financing. The construction program_ is subject ~o perio_d~c revie"". and revision to re**..,

changes m economic condmons, revised load forecasts other appropriate factors. Certain facilities under construction and to be constructed may require permits and licenses which the Company has no assurance will be granted.

Philadelphia Electric Company and Subsidiary Companies 11 NAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS While the final order in the Limerick Unit No. 2 rate case yielded a rate increase substantially below the requested amount, the Company's liquidity has improved as a result of the $24 2 million rate increase that was allowed and the reduc-tion of the common stock dividend.

OUTLOOK On December 3, 1990, the Company agreed to a proposed set-tlement of all appeals arising from the April 19, 1990 decision of the PUC on the Company's requested rate increase to recover the costs of owning and operating Limerick Unit No. 2. The set-tlement must be approved by the PUC before it can be placed into effect.

Under the terms of the proposed settlement, the Com-pany has conditionally agreed not to file a request for another base rate increase before 1994 and, through a base rate leveliza-tion plan, to eliminate some of the volatility in scheduled rate changes currently authorized by the PUC from 1991 through 1993. In return, the Company will have an opportunity to sell to other utilities up to 399 megawatts of the electric capacity found

• by the PUC to be near-term excess. Further, beginning in April 1994, the Company will be allowed to keep 16.5% of the energy savings from the operation of Limerick Units No. 1 and with its customers receiving ~e benef~t of the remainin~

of the savings. The Company s potennal benefit from this proposed settlement is limited to $106 million per year through 1994 and to higher amounts thereafter. This agreement benefits customers by minimizing the potential for rate increases for at least four years and gives the Company an opportunity and incentive to gain back for its shareholders what was lost through the excess capacity ruling. (See note 2 of Notes to Financial Statements.)

Onjuly 27, 1988, the co-owners of Peach Bottom filed suits against the Company in the United States District Court for the District of New Jersey concerning the shutdown of Peach Bottom ordered by the NRC. The plaintiffs seek compensation for certain replacement power costs which they incurred as a result of the shutdown. Additionally, the complaints allege that the co-owners were deprived of the benefits of their Peach Bottom ownership interests and investments, that they made payments to the Company for capital and operating and maintenance costs for which they received no benefit and that they incurred increased costs and lost profits. The suits include claims for punitive damages. Although the Company has taken the appropriate actions to defend itself against these claims, if the litigation ultimately is determined in favor of the plaintiffs, such determination could have a material adverse effect upon the Company's financial condition. (See note 3 of Notes to Financial Statements.)

On November 28, 1990, a class action suit was filed in urt of Common Pleas for Philadelphia County on behalf of 4 rmer Company employees who retired between January and April 1990. The suit alleges that the Company fraudulently and/or negligently misrepresented or concealed facts concerning the initiation of the early retirement plan, thereby depriving plaintiffs of substantial pension and salary benefits. If the litiga-tion ultimately is determined in favor of the plaintiffs, such deter-mination is not expected to have a material adverse effect upon the Company's financial condition.

The Amendments to the Clean Air Act of 1990 (Act) will require, among other things, the reduction in emissions of sulfur dioxide (S02) by 10 million tons per year nationwide and provide a national limit on S02 emissions beginning in the year 2000. The Act will also require the reduction in emissions of oxides of nitrogen (NOx) by approximately 2 million tons per year.

The Company believes that its two service-area coal-fired plants, Eddystone and Cromby, will comply with the S02 limitations of the Act since both plants are equtpped with flue gas desulfuriza-tion equipment, but could require installation of new equipment to meet the NOx emission limitations to be established by the Environmental Protection Agency. The Company is currently studying the impact of the Act on its other fossil-fuel plants, in particular the Keystone and Conemaugh Stations of which the Company is a co-owner. If the Act requires the installation of equipment at the Keystone and Conemaugh Stations to meet S02 and NOx standards, the Company's share of such capital costs could be substantial. The Company expects that any such capital costs, as well as any increased operating costs associated with such equipment, would ultimately be recovered from its customers.

In December 1987, the Financial Accounting Standards Board (FASB) issued SFAS No. 96, "Accounting for Income Taxes;' which must be implemented by 1992 under present guidelines. Adoption of SFAS No. 96 is not expected to have a material effect upon the Company's results of operations. In December 1990, the FASB issued SFAS No. 106, '.'Employers' Accounting for Postretirement Benefits Other than Pensions;'

which must be adopted by 1993. SFAS No. 106 is expected to significantly increase liabilities reported on the Company's con-solidated balance sheets; but, depending on future regulatory actions taken by the PUC, may not have a material adverse effect on the Company's results of operations. (See note 18 of Notes to Financial Statements.)

The Limerick Unit No. 2 rate order provided for substantially less rate relief than requested by the Company and will have an adverse annual future earnings impact, compared to the historic level of earnings. Therefore, the Company will rely oi:i its cost-reduction program and sales of the 399 megawatts of electric capacity (pending final PUC approval) to offset, or partially offset, the adverse effects on earnings caused by the rate order.

The future financial condition of the Company is also dependent upon the continued successful operation of the nuclear generating facilities in which it has ownership interests.

During 1990, nuclear generation provided 65% of actual electric output for the year.

Philad~lphia Electric Company 19

Philadelphia Electric Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31 (Thousands of Dollars) 1990 1989 1988 OPERATING REVENUES Electric

$3,320,132

$3,019,976

$2,850,315 Gas 385,029 385,653 378,397 TOTAL OPERATING REVENUES 3, 705,161 3,405,629 3,228,712 OPERATING EXPENSES Fuel and Energy Interchange 691,205 820,954 745,110 Other Operating Expenses 879,628 777,190 727,791 Early Retirement Plan 249,252 Maintenance 339,650 285,389 304,751 Depreciation 357,540 276,999 264,091 Income Taxes 181,320 195,765 206,774 Other Taxes 238,852 239,991 237,600 TOTAL OPERATING EXPENSES 2,937,447 2,596,288 2,486,117 OPERATING INCOME 767,714 809,341 742,595 OTHER INCOME AND DEDUCTIONS Allowance for Other Funds Used During Construction 27,184 121,851 98,924 Capitalized Limerick Costs 80;325 82,008 73,074 Credit Related to Limerick Unit No. 1 Phase-In Plan 15,325 24,010 26,162 Adjustment to limerick Plant Costs (263,860) 4-Income Tax Credits, Net 86,869 56,656 Other, Net (25,060) 4,010 TOTAL OTHER INCOME AND DEDUCTIONS (79,217) 288,535 249,527 INCOME BEFORE INTEREST CHARGES 688,497 1,097,876 992,122 INTEREST CHARGES long-Term Debt 579,837 569,689 524,131 Short-Term Debt 31,034 86,429 24,188 Allowance for Borrowed Funds Used During Construction (28,151)

(148,649)

(122,147)

NET INTEREST CHARGES 582,720 507,469 426,172 Income before cumulative effect of accounting change 105,777 590,407 565,950 Cumulative effect as of]anuary 1, 1990 of accounting change for unbilled operating revenues (Note 4) 108,413 Net Income 214,190 590,407 565,950 Preferred Stock Dividends 90,319 96,600 97,185 EARNINGS APPLICABLE TO COMMON STOCK 123,871

$ 493,807

$ 468,765 Average Shares of Common Stock Outstanding {Thousands) 214,356 208,901 201,517 Earnings per average common share before cumulative effect of accounting change (Dollars) 0.07 2.36 2.33 Cumulative effect as of January 1, 1990 of accounting change for unbilled operating revenues (Dollars) 0.51 Earnings Per Average Common Share (Dollars) 0.58 2.36 2.33 DIVIDENDS PER COMMON SHARE (DOLLARS) 1.45 2.20 2.20 See notes to financial statements.

20 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

.SOLIDATED STATEMENTS OF CASH FLOW For the Years Ended December 31 (Thousands of Dollars) 1990 1989 1988 CASH FLOWS FROM OPERATING ACTIVITIES Net Income

$214,190

$590,407

$565,950 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Early Retirement Plan, Net of Cash Payments 211,380 Adjustment to Limerick Plant Costs 263,860 Cumulative Effect of Accounting Change (108,413)

Depreciation and Amortization 451,997 318,403 291,277 Deferred Income Taxes (57,713) 107,336 86,156 Investment Tax Credits, Net 5,492 (20,250)

(9,291)

Allowance for Other Funds Used During Construction (27,184)

(121,851)

(98,924)

Increase in Capitalized Limerick Costs (80,325)

(82,008)

(73,074)

Decrease (Increase) in Unrecovered Phase-In Plan Revenue 57,345 48,057 (61,231)

Credit Related to Limerick Unit No. 1 Phase-In Plan (15,325)

(24,010)

(26,162)

Amortization of Leased Property 33,500 45,200 36,100 Limerick Unit No. 2 Precommercial Fuel Cost 4,993 29,655 Change in Current Assets and Other Current Liabilities 49,660 (40,749) 193,939 Change in Other Deferred Debits and Credits 101,594 44,065 (28,843)

Net Cash Provided by Operating Activities 1,105,051 894,255 875,897 FLOWS FROM INVESTING ACTIVITIES se in Utility Plant (541,190)

(1,037,501)

(991,947) owance for Other Funds Used During Construction 27,184 121,851 98,924 Sale of Merrill Creek Reservoir 145,330 (Increase) Decrease in Other Investments (17,574)

(10,472) 3,154 Net Cash Used by Investing Activities (531,580)

(926,122)

(744,539)

CASH FLOWS FROM FINANCING ACTIVITIES Issuance of Common Stock 84,828 117,801 182,345 Issuance of Preferred Stock 50,000 Retirement of Preferred Stock Including Change in Other Paid-in Capital (224,219)

(16,842)

(20,529)

Dividends on Preferred and Common Stock (398,192)

(555,998)

(541,526)

Change in Dividends Payable (13,598) 1,514 2,933 Expenses of Issuing Preferred and Common Stock (16,941)

(223)

(1,632) issuance of Long-Term Debt 205,000 597,000 584,200 Retirement of Long-Term Debt (131,678)

(331,905)

(395,702)

Premium on Retirement of Long-Term Debt (24,315)

(2,800)

Net Borrowings Under Revolving Credit Agreements 225,000 150,000 Cha?ge in Short-Term Debt (43,500) 112,000 (102,000)

Capital Lease Payments (33,500)

(45,200)

(36,100)

Settlement of Safe Harbor Lease (26,111)

Change in Escrow Funds (30)

Net Cash (Used) Provided by Financing Activities (571,800) 52,721 (130,841)

Net Change in Cash and Cash Equivalents 1,671

$ 20,854 517 Cash and Cash Equivalents at the beginning of the period

$ 64,452

$ 43,598

$ 43,081 and Cash Equivalents at the end of the period

$ 66,123

$ 64,452

$ 43,598 e notes to financial statements.

Philadelphia Electric Company 21

Philadelphia Electric Company and Subsidiary Companies CONSOLIDATED BALANCE SHEETS ASSETS (Thousands of Dollars)

UTILITY PLANT, AT ORIGINAL COST Electric Gas Common, used in all services Less: Accumulated Depreciation Nuclear Fuel, Net Construction Work in Progress Leased Property, Net NET UTILITY PLANT CURRENT ASSETS Cash and Temporary Cash Investments Accounts Receivable, Net Customers Other Inventories, at average cost Fossil Fuel Materials and Supplies Unrecovered Phase-In Plan Revenue, Net Compensated Absences Other TOTAL CURRENT ASSETS DEFERRED DEBITS AND OTHER ASSETS Unrecovered Phase-In Plan Revenue, Net Deferred Limerick Costs Investments Loss on Reacquired Debt Other TOTAL DEFERRED DEBITS AND OTHER ASSETS TOTAL See notes to financial statements.

22 Philadelphia Electric Company December 31 1990

$12,272,963 670,870 152,010 13,095,843 2,951,420 10,144,423 220,137 226,815 241,271 10,832,646 66,123 326,374 11,321 65,249 129,614 119,157 56,477 20,384 794,699 119,815 498,548 125,826 129,321 65,096 938,606

$12,565,951 1989

$ 9,278,402 622,510 148,031 10,048,943 2,637,214 7,411,729 296,357 3,012,678 273,523 10,994,287 64,452 212,306 43,455 4

14

117, 67,602 18,486 713,988 163,084 475,064 108,252 137,271 89,171 972,842

$12,681,117

Philadelphia Ele~tric Company and Subsidiary Companies CAPITALIZATION AND LIABILITIES (Thousands of Dollars)

CAPITALIZATION Common Shareholders' Equity Common Stock Other Paid-In Capital Retained Earnings Preferred Stock Without Mandatory Redemption With Mandatory Redemption Long-Term Debt TOTAL CAPITALIZATION CURRENT LIABILITIES Notes Payable, Bank Long-Term Debt Due Within One Year Capital Lease Obligations Due Within One Year Accounts Payable Taxes Accrued Deferred Energy Costs red Income Taxes st Accrued aends Payable Compensated Absences Other TOTAL CURRENT LIABILITIES DEFERRED CREDITS AND OTHER LIABILITIES Capital Lease Obligations Deferred Income Taxes Unamortized Investment Tax Credits Pension Obligation for Early Retirees Other TOTAL DEFERRED CREDITS AND OTHER LIABILITIES COMMITMENTS AND CONTINGENCIES (Note 3)

TOTAL December 31 1990 1989

$ 3,380,213

$ 3,295,385 1,214 5,311 243,106 444,049 3,624,533 3,744,745 422,472 622,472 330,922 351,044 5,830,813 5,762,741 10,208,740 10,481,002 68,500 112,000 22,350 17,100 60,898 73,726 252,539 232,318 154,972 141,140 3,447 (39,243) 49,723 59,021 108,637 124,238 27,491 41,089 56,477 67,602 28,447 20,525 833,481 849,516 180,373 199,797 753,250 809,486 247,693 242,292 180,300 162,114 99,024 1,523,730 1,350,599

$12,565,951

$12,68lp 7 Philadelphia Electric Company 23

Philadelphia Electric Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY AND PREFERRED STOCK.

Other Common Stock Paid-Jn Retained Preferred Stock (All amounts in thousands)

Shares Amount Capital Earnings Shares Amount Balance,january 1, 1988 196,877

$2,995,239

$4,579

$387,070 9,616

$961,618 Net Income 565,950 Cash Dividends Declared Preferred Stock (at specified annual rates)

(97,463)

Common Stock ($2.20 per share)

(444,063)

Expenses of Capital Stock Issues (1,631)

Issuance of Stock Public Sales 2,000 37,435 500 50,000 Employee Stock Ownership Plans 609 11,478 Dividend Reinvestment and Stock Purchase Plan 7,103 133,432 Redemptions 540 (211)

(21,068)

Balance, December 31, 1988 206,589 3,177,584 5,119 409,863 9,905 990,550 Net Income 590,407 Cash Dividends Declared Preferred Stock (at specified annual rates)

(96,448)

Common Stock ($2.20 per share)

(459,550)

Expenses of Capital Stock Issues (223)

Issuance of Stock Dividend Reinvestment and Stock Purchase Plan*

5,387 117,801 Redemptions 192 (170)

(17,034)

Balance, December 31, 1989 211,976 3,295,385 5,311 444,049 9,735 973,516 Net Income 214,190 Cash Dividends Declared Preferred Stock (at specified annual rates)

(87,920)

Common Stock ($1.45 per share)

(310,272)

Expenses of Capital Stock Issues (16,941)

Issuance of Stock Dividend Reinvestment and Stock Purchase Plan 4,977 84,828 Redemptions (4,097)

(2,201)

(220,122)

Balance, December 31, 1990 216,953 $3,380,213

$1,214

$243,106 7,534

$753,394

• During 1989, the Employee Stock Ownership Plans were incorporated into the Dividend Reinvestment and Stock Purchase Plan.

See notes to financial statements.

24 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

.ES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES GENERAL The consolidated financial statements of Philadelphia Electric Company (Company) include the accounts of its utility sub-sidiary companies, all of which are wholly owned. Non-utility subsidiaries are not material and are accounted for on the equity method. Accounting policies are in accordance with those prescribed by the regulatory authorities havingjurisdiction, principally the Federal Energy Regulatory Commission (FERC) and the Pennsylvania Public Utility Commission (PUC).

REVENUES Prior to 1990, the Company recorded revenues as billed to its customers on a monthly cycle billing basis. At the end of each month, there was an amount of unbilled electric and gas service that had been rendered from the latest date of each cycle billing to the month end. In December 1990, effective as of]anuary 1, 1990, the Company began recording revenues for services provided but not yet billed to more closely match revenues with expenses. Adoption of the new accounting policy is discussed in note 4.

On June 27, 1989, the final phase of the electric rate ase approved by the PUC in its June 27, 1986 order became

• ve. This final phase is designed to recover, over approx-imately a three-year period, the unrecovered revenue under the Company's 1986 rate increase phase-in plan. Pursuant to a rate phase-in plan approved by the PUC in its electric rate order dated April 19, 1990, the Company is recording revenue equal to the full amount of the rate increase approved, based on kilowatt-hours rendered to customers. This plan is designed to recover the unrecovered revenue over approximately three years. Rate increases are billed from dates authorized or permitted to become effective by the regulatory authorities. As of December 31, 1990, the Company had approximately $239 million of Unrecovered Phase-in Plan Revenue, Net, which is classified as a current or other asset in the accompanying balance sheets according to whether it will be billed to customers within the next year or in subsequent years.

FUEL AND ENERGY COST ADJUSTMENT CLAUSES Each of the Company's classes of service is subject to fuel adjust-ment clauses designed to recover or refund the differences between actual costs of fuel, energy interchange, purchased power and gas, and the amounts of such costs included in base rates. Differences between the amounts billed to customers and the actual costs recoverable are deferred and recovered or refunded in future periods by means of prospective adjustments to rates. Generally, such rates are adjusted every twelve months.

Effective December 1989, the PUC permitted the Com-pany to begin recovery, through a separate purchased gas costs clause, of approximately 90% of take-or-pay costs billed to the Company by its interstate pipeline suppliers.

Effective April 20, 1990, the PUC established an electric Energy Cost Adjustment (ECA) which, in addition to reconciling fuel costs and revenues, incorporates a nuclear performance standard which allows for financial bonuses or penalties depend-ing upon whether the Company's system nuclear capacity factor exceeds or falls below a specified range (see note 2).

NUCLEAR FUEL Nuclear fuel is capitalized and charged to fuel expense on the unit of production method. Estimated costs of nuclear fuel disposal are charged to fuel expense as the related fuel is con-sumed. The Company's share of nuclear fuel at the Peach Bottom Atomic Power Station (Peach Bottom) and Salem Generating Station (Salem) is accounted for as a capital lease. Nuclear fuel at the Limerick Generating Station (Limerick) is owned.

DEPRECIATION AND DECOMMISSIONING For financial reporting purposes, depreciation is provided over the estimated service lives of the plant on the straight-line method and, for tax purposes, generally over shorter lives on accelerated methods. Annual depreciation provisions for finan-cial reporting purposes, expressed as a percent of average.

depreciable utility plant in service, were approximately 2.79%

in 1990, 2.92% in 1989 and 2.87% in 1988.

The Company's ownership portion of the estimated costs for decommissioning nuclear generating stations as approved for ratemaking purposes is $64 3 million as of December 31, 1990. The associated annual expense, which is recovered through rates, currently is being charged to operations consistent with amounts approved for ratemaking purposes. The amounts charged are deposited in escrow and trust accounts and invested for funding of future costs (see note 3).

INCOME TAXES-Deferred income taxes are provided for differences between book and taxable income to the extent approved for ratemaking purposes. In addition, the effects of the Alternative Minimum Tax (AMT) are normalized. Investment Tax Credit (ITC) is deferred and amortized to income over the estimated useful lives of the related utility plant ITC related to plant in service, not included in rate base, is accounted for on the flow-through method. ITC currently utilized applies to transition property only.

Philadelphia Electric Company 25

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)

AFUDC is a non-cash item which is defined in the Uniform System of Accounts as the net cost for the period of construction of borrowed funds used for construction purposes and a reason-able rate on other funds when so used. AFUDC is recorded as a charge to Construction Work In Progress, and the credits are to Interest Charges for the pretax cost of borrowed funds and to Other Income and Deductions for the remainder as the allow-ance for other funds. The rates used for capitalizing AFUDC, which averaged 9.01 % in 1990 and 9.50% in 1989 and 1988, are computed under a method prescribed by the regulatory authori-ties. The rate is a net after-tax rate and the current income tax reductions applicable to the iriterest charges capitalized are recorded in Other Income and Deductions. In addition, the PUC permit-ted the Company to record, until]anuary 8, 1990, the commer-cial operation date of Limerick Unit No. 2, a carrying charge equivalent to AFUDC on 50% of Limerick common facilities which is deemed associated with Unit No. 2; the credit is to Capitalized Limerick Costs. AFUDC and carrying charges on 50% of Limerick common facilities are not included in regular taxable income and the depreciation of capitalized AFUDC and the amortization of carrying charges are not tax deductible.

Under the Tax Reform Act of 1986, AFUDC and earrying charges were considered tax preference items when computing the Company's 1989 and 1988 AMT GAS EXPLORATION AND DEVELOPMENT JOINT VENTURES The Company has invested in several joint ventures for explor-ing and drilling for natural gas. Costs are capitalized under the full-cost method and charged to operations commensurate with production.

NUCLEAR OUTAGE COSTS Effective in 1990, incremental nuclear maintenance and refueling outage costs are accrued over the unit operating cycle of approx-imately eighteen months. For each unit, a reserve for incremental nuclear maintenance and refueling outage expense is estimated based upon the latest planned outage schedule and estimated costs for the outage. Differences between accrued and actual expense for the outage are adjusted when such differences are known (see note 4 ).

CAPITALIZED SOFTWARE COSTS Software and installation projects which exceed $5 million are capitalized. At December 31, 1990, capitalized software costs totalled $4.5 million. Such capitalized amounts are amortized ratably over four years when the projects become operational.

GAINS AND LOSSES ON REACQUIRED DEBT Gains and losses on reacquired debt are deferred and amortized to interest expense over the period approved for ratemaking purposes.

26 Philadelphia Electric Company RECLASSIFICATIONS Certain prior year amounts have been reclassified for com-parative purposes. These reclassifications had no effect on net income.

2. RATE MATTERS LIMERICK UNIT No. 2 ELECTRIC RATE ORDER On]uly 21, 1989, the Company filed with the PUC a request for an electric rate increase designed to yield $549 million annually, net of $14 2 million of estimated Limerick Unit No. 2 fuel savings, principally to recover costs associated with Limerick Unit No. 2 and associated common facilities.

In its final order dated April 19, 1990, the PUC approved a $24 2 million annual increase to be phased in over approx-imately three years. The Company was denied recovery of certain plant costs, including deferred Limerick costs, resulting in a pre-tax loss of $264 million. Also, as part of the rate order, the Company was denied recovery of other costs deferred pending regulatory approval resulting in an additional pre-tax loss of

$32 million.

The PUC order also reduced the Company's requested increase by $106 million resulting from a disallowance of a return on common equity for 399 megawatts (mW) ofLimeri Unit No. 2 and associated common facilities, finding that th Company has 399 mW of near-term excess capacity As part of the PUC final order, the PUC approved recovery of $285 million of deferred Limerick costs representing carrying charges and depreciation associated with 50% of Limerick common facilities. These costs are included in rate base and are being recovered over the life of Limerick. The PUC also approved recovery of $137 million of Limerick Unit No. 1 costs which had previously been deferred pursuant to a Declaratory Order dated September 28, 1984. These costs are being recovered over a ten-year period without a return on investment.

New tariffs implementing the PUC final order became effective on April 20, 1990.

On May 18, 1990, the Company filed with the Com-monwealth Court of Pennsylvania a petition for review of the PUC's final order. The Company appealed the excess capacity disallowance and the disallowance due to alleged imprudent construction delays. The Office of Consumer Advocate (OCA) filed a Notice of Appeal, challenging the excess capacity disallowance and the permitted recovery of Limerick Unit No. 1 Declaratory Order costs.

Philadelphia Electric Company and Subsidiary Companies

-ES TO FINANCIAL STATEMENTS-Coofumd PROPOSED SETTLEMENT OF APPEALS On December 3, 1990, the Company entered into a joint petition for settlement of all appeals arising from the PU C's April 19, 1990 Limerick Unit No. 2 order. The agreement, which must be approved without modification by the PUC, was reached with the OCA and other intervenors. As part of the settlement, the Company would be allowed to retain for shareholders any pro-ceeds above the average energy cost for sales of up to 399 mW of capacity and/or associated energy. Beginning on April 1, 1994, the proposed settlement also provides for the Company to share in the benefits which result from the operation of both Limerick Unit No. 1 and Unit No. 2 through the retention of 16.5% of the energy savings. Through 1994, the Company's potential benefit from the sale of up to 399 mW of capacity/energy and the retained Limerick energy savings is limited to $106 million per year, with any excess accruing to customers. Beginning in 1995, in addition to retaining the first $106 million, the Company would share in any excess above $106 million with the Com-pany's share of the excess increasing from 10% in 1995 to 30%

in 1997 and thereafter.

In return, except as allowed by the PUC or under terms of the settlement, the Company would not file a base electric

• crease before April 1994. This would not preclude ency or single-issue rate filings (e.g., a substanial change in

~associated with new legislation or regulations). Further, both the Company and the OCA would withdraw their appeals and the Company would consolidate the previously authorized Limerick Unit No. 1 and Unit No. 2 phase-in plans and levelize associated rate increases between May 1, 1991 and December 31, 1992. The proposed levelization would have no net impact on income. Additionally, the Company would establish advisory committees dealing with demand side management issues and the evaluation and improvement of the Company's Customer Assistance Program. Approval by the PUC is pending.

LIMERICK UNIT No. 2 DECLARATORY ORDER In accordance with a Declaratory Order of the PUC dated May 3, 1989, and modified on February 23, 1990, the Company has deferred the operating and maintenance expenses, depreciation and accrued carrying charges on its capital investment in Limerick Unit No. 2 and 50% of Limerick common facilities during the period fromjanuary 8, 1990, the commercial opera-tion date of Limerick Unit No. 2, until April 20, 1990. At December 31, 1990, these costs included in Deferred Limerick Costs totalled approximately $91 million. Recovery of these costs deferred pursuant to the Declaratory Order, which is not assured, will be addressed by the PUC in a ~ubsequent electric rate case.

ENERGY COST ADJUSTMENT (ECA)

Effective April 20, 1990, the PUC established an electric ECA which, in addition to reconciling fuel costs and revenues, incor-porates a nuclear performance standard which allows for finan-cial bonuses or penalties depending on whether the Company's system nuclear capacity factor exceeds or falls below a specified range. The bonuses or penalties are based upon average system replacement energy costs. If the capacity factor is within the range of 60-70%, there is no bonus or penalty. If the capacity factor exceeds the specified range, progressive incremental bonuses are earned and, if the capacity factor falls below the specified range, progressive incremental penalties are incurred.

For the year ended December 31, 1990, the Company incurred neither a bcinus nor a penalty.

3. COMMITMENTS AND CONTINGENCIES The Company has incurred substantial commitments in connec-tion with its construction program. Construction expenditures are estimated to be approximately $588 million for 1991 and

$1.6 billion for 1992-1994. These estimates are reviewed and revised periodically to reflect changes in economic conditions, revised load forecasts and other appropriate factors. Certain facilities under construction and to be constructed may require permits and licenses which the Company has no assurance will be granted.

The Price-Anderson Act (Act), as amended, sets the limit of liability of approximately $7.8 billion for claims that could arise from an incident involving any licensed nuclear facility in the nation. The limit is subject to increase to reflect the effects of inflation and changes in the number of licensed reac-tors. All utilities with nuclear generating plants, including the Company, obtained coverage for these potential claims through a combination of private insurances of $200 million and man-datory participation in a financial protection pool. Under the amended law, all nuclear reactor operators or owners can be assessed up to $63 million per reactor, payable at $10 million per reactor per incident per year. This assessment is subject to an additional surcharge of 5% if the total amount of claims and legal costs exceeds the basic assessment.

If the damages from an incident at a licensed nuclear facility exceed $7.8 billion, the President of the United States is to submit to Congress a plan for providing additional compensa-tion to the injured parties. Congress could impose further*

revenue-raising measures on the nuclear industry to pay claims.

The Act and the extensive regulation of nuclear safety by the NRC do not preempt claims under state law for personal, prop-erty or punitive damages related to radiation hazards.

The Company maintains property insurance, including contamination coverage, for loss or damage to its nuclear facilities. Although it is not possible to determine the total amount of the loss that may result from an occurrence at these facilities, the Company maintains the maximum amount of Philadelphia Electric Company 27

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued insurance presently available, its proportionate share of $2.325 billion for each station. Under the terms of the various insurance agreements, the Company could be assessed up to $22 million for losses incurred at any plants insured by the insurance com-panies. The Company is self-insured to the extent that any losses may exceed the maximum amount of insurance available. Any such losses, if not recovered through the ratemaking process, could have a material adverse effect on the financial condition of the Company.

The Company is a member of an industry mutual insurance company which provides replacement power cost insurance in the event of a major outage at a nuclear station. The premium for this coverage is subject to an assessment for adverse loss experience. The Company's maximum share of any assess-ment is $18 million per year.

OnJuly 27, 1988, Public Service Enterprise Group Incorporated and its subsidiary Public Service Electric and Gas Company (PSE&:G) filed an action against the Company in the United States District Court for the District of New Jersey (District Court) concerning the shutdown of Peach Bottom ordered by the Nuclear Regulatory Commission (NRC); on the same dare, Atlantic City Electric Company (Atlantic Electric) and Delmarva Power and Light Company (Delmarva) filed a similar suit against the Company in the same court The two suits allege that the Company breached the provisions of the Owners Agreement pursuant to which the four companies own Peach Bottom and under which the Company operates Peach. Bottom. These suits also variously allege negligence, gross negligence, failure to disclose, fraudulent misrepresentation and negligent misrepre-sentation. The plaintiffs seek compensation for certain replace-ment power costs they incurred as a result of the shutdown of Peach Bottom and for increased operating and maintenance costs and lost profits. PSE&G and Atlantic Electric further allege that they were required by the New Jersey Board of Public Utilities to provide their customers with a credit because of the Peach Bottom shutdown. Neither of the complaints specifies any dollar amount of damages. Both complaints include claims for punitive damages. The Company has filed contingent breach-of-contract counterclaims against PSE&:G for outages and NRC penalties at the Salem Generating Station (which is operated by PSE&:G and 4 2.59% owned by the Company), and PSE&:G has amended its complaint to include additional contingent breach-of-contract claims related to other alleged outages and NRC 28 Philadelphia Electric Company penalties at Peach Bottom. Action (including discovery) on the Company's counterclaims and these additional claims of PSE&G has been stayed. In addition, the co-owners have amended their complaints to allege that in violation of its purported fiduciary obligations to the co-owners, the Company misallocated person-nel and other resources to Limerick and to seek an accounting and disgorgement of economic benefits allegedly obtained by the Company. The parties to the litigation are currently engaged in ongoing discovery. On Decembed8, 1990, the District Court issued an order that the fact discovery process relating to all remaining liability issues in the case shall be limited to the period ending May 31, 1991. If the litigation is ultimately deter-mined favorably to the plaintiffs, such determination could have a material adverse effect on the Company's financial condition.

A settlement was reached in the consolidated actions brought on behalf of the Company by certain shareholders of the Company (plaintiffs) against the Company's former Chair-man and former President, alleging mismanagement and negligence in connection with the events leading to the shut-down of Peach Bottom by the NRC on March 31, 1987. Under the terms of a settlement agreement signed on August 30, 1990, two of the Company's director-and officer-liability insurance carriers paid $34.5 million. The settlement became final on.

October 30, 1990. The plaintiffs' recovery, less $6.5 million attorneys' fees and expenses, was paid to the Company on November 1, 1990. Recognition of this recovery was deferred, pending the conclusion of the litigation brought by the Peach Bottom co-owners. The Company will also arbitrate an insur-ance coverage issue with a third insurance carrier. Depending on the results of the arbitration, an additional $9 million may be paid as part of the settlement Counsel for the plaintiffs will receive approximately 25% of any recovery resulting from the arbitration.

In conjunction with the Company's Limerick Unit No. 2 electric rate order, the PUC recognized a revised decom-missioning cost estimate based upon total cost. The Company's share of this revised cost is $64 3 million expressed in 1990 dollars. Under a contract with the U.S. Departinent of Energy (DOE), the DOE is obligated ultimately to take possession of all spent nuclear fuel generated by the Company's nuclear units for long-term storage. The contract currently requires that a spent fuel disposal fee of one mill ($.001) per net kilowatthour gen-erated be paid to the DOE. The fee may be adjusted prospec-tively in order to ensure full cost recovery. The Company's Peach Bottom and Limerick generating units have on-site storage facilities with the capacity to store spent fuel discharged from the units through the late-1990's and by further modifying spent fuel storage facilities, capacity could be provided to approximately 2010. Salem has spent fuel storage capacity through 1996 fa Unit No. 1 and 2000 for Unit No. 2. PSE&G plans to expar fuel storage capacity of Salem. The Company believes that ultimate cost of decommissioning and spent fuel disposal will be recoverable through adjustments of rates.

Philadelphia Electric Company and Subsidiary Companies

.ES TO FINANCIAL STATEMENTS-Continued On November 28, 1990, 33 former employees of the Company who retired between February and April 1990 filed a class action suit against the Company in the Court of Common Pleas for Philadelphia County concerning the Company's one-time early retirement plan.on behalf of all 144 persons who retired from the Company between January and April 1990. The suit alleges that the Company fraudulently and/or negligently misrepresented or concealed facts which induced plaintiffs to retire or not to defer retirement immediately before the initiation of the early retirement plan, thereby depriving plaintiffs of substantial pension and salary benefits. The complaint does not specify any dollar amount of damages. The plaintiffs seek, among other things, damages representing increased pension benefits and nine months salary pursuant to the terms of the Company's early retirement plan as well as punitive damages.

The ultimate outcome of this matter is not expected to have a material adverse effect on the Company's financial condition.

The Company is involved in various matters oflitigation, including environmental matters. The ultimate outcome of these matters is not expected to have a material adverse effect on the Company's financial condition.

CHANGES IN ACCOUNTING ember 1990, effective January 1, 1990, the Company recording operating revenues for services provided but not yet billed to more closely match revenues with expenses.

Previously, the Company recognized operating revenues when services were billed (see note 1). The cumulative effect of the change on the periods prior to January 1, 1990, was $108 million, net of income tax effect of $2 million, or $0.51 per share. The effect of the change upon net income for 1990 and the pro forma effects for 1989 and 1988 were not con-sidered material. The income tax expense applicable to the aforementioned unbilled revenues was recorded in the years reported for tax purposes in accordance with the ratemaking treatment.

Also in December 1990, effective January 1, 1990, the Company adopted a change in accounting method to accrue for incremental nuclear maintenance and refueling outage costs for nuclear plants over the period of the unit operating cycle, which is approximately eighteen months. For 1989 and prior, the Com-pany recognized such costs as incurred during the outage period. The after-tax effect of this accounting change decreased 1990 net income by $17 million or $0.08 per share which includes the cumulative effect on periods prior to January 1, 1990. The amount of the cumulative effect was not considered material. The pro forma effects of the change upon net income for 1989 and 1988 were not considered material.

5. EARLY RETIREMENT PLAN On May 25, 1990, the Company's Board of Directors approved a special, one-time early retirement plan for employees who were fifty years of age or older and had five or more years of credited service as of December 31, 1990. In accordance with Statement of Financial Accounting Standards (SFAS) No. 88, "Employer's Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits;' the estimated costs associated with the program of $249 million ($150 million, net of taxes) were recognized in the third quarter of 1990.

6. RETIREMENT BENEFITS The Company and its subsidiaries have non-contributory trusteed retirement plans applicable to all regular employees.

The benefits are based primarily upon employees' years of service and average earnings prior to retirement. The Company's funding policy is to contribute, at a minimum, amounts suffi-cient to meet ERISA requirements. During 1990, approximately 86% of pension costs were charged to operations and the remainder, associated with construction labor, to the cost of new utility plant.

Pension cost was $12,206,000 in 1990, $7,532,000 in 1989 and $7,101,000 in 1988. Pension costs for 1990, 1989 and 1988 included the following components:

(Thousands of Dollars)

Service cost-Benefits earned during the period Interest cost on projected benefit obligations Actual return on plan assets Amortization of transition asset Amortization and deferral Net pension cost 1990 1989 1988

$30,365 $ 25,570 $ 24,073 99,554 91,318 85,779 (24,735) (263,191) (134,647)

(4,539)

(4,539)

( 4,539)

(88,439) 158,374 36,435

$12,206 $

7,532 $

7,101 Philadelphia Electric Company 29

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued CHANGE IN NET PERIODIC PENSION COST The change in net periodic pension cost in 1990, 1989 and 1988 was accounted for as follows:

(Thousands of Dollars)

Change in number, characteristics and salary levels of participants and net actuarial gain Change in plan provisions Change in actuarial assumptions Net change 1990

$(3,996) 799 7,871

~

1989 1988

$(198) $ 16,189 629 375 (38,921)

$ 431 $(22,357)

Plan assets consist principally of common stock, U.S.

government obligations and other fixed income instruments. In determining pension costs, the assumed long-term rate of return on assets was 9.5% for 1990, 1989 and 1988.

The weighted-average discount rate used in determin-ing the actuarial present value of the projected benefit obligation was 8.25% and 8.75% at December 31, 1990 and 1989, respec-tively: The average rate of increase in future compensation levels ranged from 5% to 7% at December 31, 1990, 1989 and 1988.

Prior service cost is amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plan. The funded status of the plan at December 31, 1990 and 1989 is summarized as follows:

(Thousands of Dollars)

Actuarial present value of accumulated plan benefit obligations:

Vested benefit obligations Accumulated benefit obligation Projected benefit obligation for services rendered to date Plan assets at fair value Funded Status Unrecognized transition asset Unrecognized prior service costs Unrecognized net (gain)

(Pension liability) prepaid cost 30 Philadelphia Electric Company 1990

$(1,155,400)

(1,161,220)

$(1,438,604) 1,373,764 (64,840)

(67,477) 98,893 (150,997)

$ (184,421) 1989

$ (878,074)

(882,504)

$ (1,207,617) 1,399,656 "192,039 (72,016) 107,376 (221,484) 5,915 In addition to providing pension benefits, the Com-pany provides certain health care and life insurance benefits for retired employees. Substantially all of the Company's employees will become eligible for these benefits if they reach retirement age while still working for the Company: These benefits and similar benefits for active employees are provided by an insurance company whose premiums are based upon the benefits paid during the year. The Company recognizes the cost of providing these benefits by charging the annual insurance premiums to expense. The cost of providing those benefits for approximately 5,200 and 4,100 retirees during 1990, and 1989 and 1988 respectively, is not separable from the cost of pro-viding benefits for approximately 10,500 and 11,100 active employees for the same periods. Total premiums amounted to

$54 million, $42 million and $39 million for 1990, 1989 and

. 1988, respectively.

7. COMMON STOCK At December 31, 1990 and 1989, Common Stock without par value consisted of 500,000,000 and 240,000,000 shares authorized and 216,952,649 and 211,975,905 shares outstanding, respectively. At December 31, 1990, there were 9,522,333 shares reserved for issuance under stock purchase plans.

In 1989, the Company established the Long-Term Incentive Plan (Plan) for certain full-time salaried employe the Company: The types oflong-term incentive awards which:

may be granted under the Plan are non-qualified options to pur-chase shares of the Company's common stock, dividend equivalents and shares of restricted stock. Pursuant to the Plan, 4,800,000 shares of stock were authorized for issuance. At December 31, 1990 and 1989, there were options for 1,126,675 and 938,000 shares outstanding, respectively (at an average price of $21.18 and $22.13, respectively) of which options for 884,000 and 60,000 shares were exercisable. During 1990 and 1989, options for 274,177 and 961,000 shares were granted and options for 85,502 and 23,000 shares expired. As of December 31, 1990, no options had been exercised pursuant to the Plan.

Philadelphia Electric Company and Subsidiary Companies

.ES TO FINANCIAL STATEMENTS-Continued

8. PREFERRED AND PREFERENCE STOCK At December 31, 1990, Series Preference Stock consisted of 100,000,000 shares authorized, of which no shares were outstanding. At December 31, 1990 and 1989, cumulative Preferred Stock, no par value and $100 par, respectively, consisted of 15,000,000 shares authorized.

Current Refunding Shares Amount Redemption Restricted Outstanding (Thousands of Dollars)

Price (a)

Prior to (bl 1990 1989 1990 1989 Series (without mandatory redemption)

$14.15 (c) 500,000

$ 50,000

$13.35 (c) 750,000 75,000

$12.80 (c) 750,000 75,000

$10.75 (d)

(d)

(d) 500,000 500,000 $ 50,000 50,000

$950

$101.00 750,000 750,000 75,000 75,000

$8.75

$7.85

$7.80

$7.75

$4.68

$4.4

$4.3

$3.80 Series (with mandatory redemption) (e)

.5 25

"' $9.875

$952

$950 1986 Series

$8.75 1978 Series

$7.325

$7 Total Preferred Stock (a) Redeemable, at the option of the Company, at the indicated dollar amounts per share, plus accrued dividends.

(b) Prior to the date specified, none of the shares of each series indicated may be redeemed through refunding at an interest or dividend rate which is less than the dividend rate of such series.

(c) Ownership of these series of preferred stock was evidenced by depositary receipts, each representing one-tenth of a share of preferred stock (d) The dividend rate through April 30, 1993 is $10.75 per annum, and the rate for each subsequent dividend period, either a long-term period (1-10 years) or a short-term period ( 49 days),

will be established by an auction held on the business day next preceding the beginning of each such period. The issue is.

101.00 650,000 650,000 65,000 65,000 101.00 500,000 500,000 50,000 50,000 101.00 750,000 750,000 75,000 75,000 101.00 200,000 200,000 20,000 20,000 104.00 150,000 150,000 15,000 15,000 112.50 274,720 274,720 27,472 27,472 102.00 150,000 150,000 15,000 15,000 106.00 300,000 300,000 30,000 30,000 4,224,720 6,224,720 422,472 622,472 105.00 250,000 300,000 25,000 30,000 108.70 500,000 500,000 50,000 50,000 44,000 4,400 109.88 8-1-92 650,000 650,000 65,000 65,000 103.00 276,321 279,523 27,632 27,952 109.50 11-1-91 720,000 750,000 72,000 75,000 102.57 266,900 300,200 26,690 30,020 102.34 390,000 420,000 39,000 42,000 101.00 256,000 266,720 25,600 26,672 3,309,221 3,510,443 330,922 351,044 7,533,941 9,735,163 $753,394 $973,516 redeemable during any long-term period only on the last day of the period or following an unsuccessful auction, in an aggregate number which constitutes one or more units (1,000 shares), at a price of $100 per share, plus accrued and unpaid dividends to the redemption date on the shares redeemed. On any dividend payment date with respect to a short-term period, units are redeemable, in whole or in part, at the option of the Company at a price of $100,000 per unit, plus an amount equal to accrued and unpaid dividends to the date of redemption.

(e) Sinking fund requirements ($100 per share) in the period 1991-1995 are as follows: 1991-$20,462,000; 1992-$21,580,000; 1993-$38,380,000; 1994-$48,380,000; 1995-$28,380,000.

Philadelphia Electric Company 31

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued

9. LONG-TERM DEBT (Thousands of Dollars)

First and Refunding Mortgage Bonds (a)

Total First and Refunding Mortgage Bonds Notes Payable-Banks Revolving Credit and Term Loan Agreement Pollution Control Notes Debentures Medium-Term Notes Sinking Fund Debentures-Philadelphia Electric Power Company, a Subsidiary Unamortized Debt Discount and Premium, Net Total Long-Term Debt Due Within One Year (e)

Long-Term Debt included in Capitalization (f)

(a) Utility Plant is subject to the lien of the Company's mortgage.

(b) At various interest rates.

(c) The Company has a $525 million revolving credit and term loan agreement with a group of banks. The revolving credit arrangement converts into a term loan in November 1994. The borrowings are due in six semi-annual installments with the first payment due 6 months after the conversion into the term loan.

Interest on outstanding borrowings is based on specific formulas selected by the Company involving yields on several types of debt instruments. There is an annual commitment fee of 0.15%

on the unused amount At December 31, 1990, $525 million was outstanding under this agreement The Company also has a

$175 million revolving credit and term loan agreement with a group of banks which expires in 1992. There is an annual com-mitment fee of 0.30% on the unused amount At December 31, 1990, no amount was outstanding under this agreement and at 32 Philadelphia Electric Company Series Due 14%

1990 14%

1991 14%

1992

.6Y2%-14%

1993 4Y2%-14%

1994 9%-10Ys%

1995 61h%-15\\4%

1996-2000 T%%-9%%

2001-2005 6%-10\\4%

2006-2010 10Y2%-11%%

2011-2015 8Ys%-121h%

2016-2020 (b) 1991-1996 (c) 1995-1997 5Y2%-13%

1997-2013 9.85%-11%

1993-2011 (d) 1996-2005 4h%

1995 At December 31 1990 11,000 11,000 71,000 181,000 202,800 1,074,025 380,000 363,500 536,000 1,134,000 3,964,325 497,000 525,000 263,700 537,000 85,000 12,516 (31,378) 5,853,163 22,350

$5,830,813 1989 11,000 11,000 11,000 71,000 181,000 203,781 986,969 380,000 363,500 536,000 1,034,000 3,789,250 572,000 525,000 265,315 556,850 80,000,9 (21,332) 5,779,841 17,100

$5,762,741 December 31, 1989 (prior to the reduction in the commitment)

$525 million was outstanding under this agreement (d) The Company has a program for the issuance of up to $200 million of medium-term notes collateralized by mortgage bonds.

These notes will be offered at varying maturities and interest rates to be set at the time of sale. As of December 31, 1990 and 1989, the Company had outstanding $85 million and $80 million under this program at an average coupon rate of 9.05%

and 9.06%, respectively.

(e) Long-term debt m?turities in the period 1992-1995 are as follows: 1992-$105,413,000; 1993-$372,348,000; 1994-$214,748,000; 1995-$411,523,000.

(f) The annualized interest on long-term debt at December 31, 1990, was $567.6 million of which $394.5 million was associated with mortgage bonds and $173.1 million was associated with other long-term debt I

Philadelphia Electric Company and Subsidiary Companies

. ~ ES TO FINANCIAL STATEMENTS-Continued

10. SHORT-TERM DEBT (Thousands of Dollars) 1990 1989 1988 Average Borrowings

$60,344

$94,000

$114,164 Average Interest Rates, Computed on Daily Basis 8.85%

9.98%

8.18%

Maximum Borrowings Outstanding

$187,000

$248,500

$216,000 Average Interest Rates at December 31:

8.98%

9.61%

At December 31, 1990, the Company had $68.5 million in short-term debt outstanding under formal and informal lines of credit with banks aggregating approximately $335 million. The Company generally does not have formal compensating balance arrangements with these banks.

11. ACCOUNTS RECEIVABLE Accounts receivable at December 31, 1990, include unbilled operating revenues of $111.5 million related to the change in accounting, effective January 1, 1990 (see note 4). Accounts receivable at December 31, 1990 are net of allowance for uncollectible accounts of $30 million.

The Company is party to an agreement, expiring in 1993, with a financial institution whereby it can sell on a daily basis and with limited recourse up to $200 million of an undivided interest in designated accounts receivable. At December 31, 1990, the Company had sold a $200 million INCOME TAXES sands of Dollars)

Federal Current Deferred Investment Tax Credit, Net State Current Deferred INCLUDED IN OTHER INCOME AND DEDUCTIONS:

Federal Current Deferred Investment Tax Credit, Net State Current Deferred Income Tax Effect of Cumulative Effect of Accounting Change for Unbilled Operating Revenues TOTAL ITC reduced federal income taxes currently payable by $31 million in 1990, $16 million in 1989, and $23 million in 1988.

the Tax Reform Act of 1986, ITC has been repealed effec-nuary 1, 1986 with the exception of transition property.

ompany believes that Limerick Unit No. 2 qualifies as transition property eligible for ITC.

interest in accounts receivable under this agreement The Com-pany retained the servicing responsibility for these receivables.

The average interest rate computed on a daily basis on the por-tion of the accounts receivable sold but not yet collected was 8.40%, 9.45% and 9.39% for 1990, 1989 and 1988, respectively.

By terms of this agreement, under certain circum-stances, up to $75 million of unrecovered phase-in plan revenue could be included in the pool of eligible receivables. At December 31, 1990 and 1989, no unrecovered revenue was included in tlie pool of eligible receivables.

1990

$137,554 15,884 15,638 44,347 (32,102)

(23,150)

(42,096)

(10,146)

(12,078) 601 (1,888)

$ 92,564 1989

$ 56,342 160,972 (20,250) 14,128 (15,427)

(1,063)

(41,647)

(17,384) 3438

$139,109 1988

$ 57,484 132,742 (9,291) 22,982 2,857 16,578 (48,732)

(10,602)

(711)

$163,307 Approximately $191 million of additional business credits generated from 1984 through 1990 have not been utilized due to limitations based on taxable income. These credits, which expire between 1999 and 2005, may be used to reduce federal income taxes in future years.

Philadelphia Electric Company 33

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued Since 1987, the Company's current tax liability was determined under the AMT method resulting in a cumulative tax credit of $182 million which can be utilized in future years when regular tax liability exceeds AMT liability.

For a number of years, the Company has used accelerated depreciation for income tax purposes and straight-line depreciation for financial reporting purposes. Deferred taxes were recorded only on those timing differences normalized for ratemaking. The cumulative net amount of such timing dif-ferences for which deferred taxes were not recorded was approximately $650 million at December 31, 1990. Since the Company expects to charge customers for taxes when the tim-ing differences reverse, the tax effect of such timing differences is not recorded currently.

Provisions for deferred income taxes consist of the following tax effects of timing differences:

(Thousands of Dollars)

Depreciation and Amortization Deferred Energy Costs Precommercial Operation of Limerick Unit No. 2 Deferred Limerick Unit No. 2 Costs Early Retirement Plan Incremental Nuclear Maintenance and Refueling Outage Costs Uncollectible Accounts Receivable Reacquired Debt Unrecovered Revenue Alternative Minimum Tux Adoption of SFAS 90 and SFAS 92 Gain on Sale of Merrill Creek Reservoir Other TOTAL 1990

$119,943 (13,761)

(1,221) 8,547 (83,588)

(11,574)

(15,813)

(4,526)

(24,939)

(20,478)

(7,283)

(3,020)

$(57,713) 1989

$ 89,626 (7,664) 59,396 6,039 (18,122)

(48,873) 23,993 2,941

$107,336 1988

$ 72,966 17,332 (1,874) 23,425 (29,776) 25,087 (19,

(

$ 8,

The total income tax provisions differed from amounts computed by applying the federal statutory tax rate to income and adjusted income before income taxes for the following reasons:

(Thousands of Dollars) 1990 1989 1988 Net Income

$214,190

$590,407

$565,950 Total Income Tax Provision 92,564 139,109 163,307 Income Before Income Taxes 306,754 729,516 729,257 Deduct: Allowance for Funds Used During Construction 55,335 270,500 221,071 Limerick Carrying Charges 80,325 82,008 73,074 ADJUSTED INCOME BEFORE INCOME TAXES

$171,094

$377,008

$435,112 Income Taxes on Above at Federal Statutory Rate of34%

$ 58,172

$128,183

$147,938 Increase (Decrease) due to:

Depreciation Timing Differences Not Normalized 20,647 2,612 5,493 Effects of SFAS 90 and SFAS 92 69,284 5,761 5,993 Cumulative Effect of Accounting Change for Unbilled Operating Revenues (37,910)

Unbilled Revenues Not Normalized 8,769 13,551 12,903 State Income Taxes, Net of Federal Income Tax Benefits 507 (10,062) 9,587 Amortization of Investment Tax Credit (20,320)

(311)

(11,903)

Other, Net (6,585)

(625)

(6,704)

TOTAL INCOME TAX PROVISION

$ 92,564

$139,109

$163,307 Provision for Income Taxes as a Percent of:

Income Before Income Taxes 30.2%

19.1%

Adjusted Income Before Income Taxes 54.1%

36.9%

34 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

.ES TO FINANCIAL STATEMENTS-Continued

13. TAXES, OTHER THAN INCOME-OPERATING (Thousands of Dollars)

Gross Receipts Capital Stock Realty Payroll Other TOTAL

14. LEASES Leased property included in Utility Plant at December 31 Nuclear Fuel Electric Plant Common Plant Gross Leased Property Accumulated Amortization Net Leased Property The nuclear fuel obligation is amortized as the fuel is consumed.

Amortization ofleased property totaled $33.5 million, $45.2 million and $36.1 million for the years ended December 31, 1989 and 1988, respectively. Other operating expenses nding December 31 1991 1992 1993 1994 1995 Remaining Years Total Minimum Future Lease Payments Imputed Interest (rates ranging from 6.5% to 17%)

Present Value of Net Minimum Future Lease Payments 1990

$148,274 21,817 33,632 30,854 4,275

$238,852 1989 1988

$149,210

$137,172 25,848 33,519 35,296 35,975 28,040 27,095 1,597 3,839

$239,991

$237,600 1990 1989 (Thousands of Dollars)

$542,851

$534,607 2,317 9,325 545,168 (303',897}

$241,271 1

543,933 (270,410)

$273,523 included interest on capital lease obligations of $15.7 million,

$19.0 million and $15.4 million in 1990, 1989 and 1988, respec-tively. Minimum future lease payments as of December 31, 1990 were:

Capital Leases Operating Leases (Thousands of Dollars)

$ 80,919

$ 105,560 75,691 97,703 66,647 96,496 50,288 94,500 14,297 93,178 1,543 664,287

$289,385

$1,151,724 (48,114)

$241,271 Total

$ 186,479 173,394 163,143 144,788 107,475 665,830

$1,441,109 Rental expense under operating leases totaled $87.5 million, $76.1 million and $64.2 million in 1990, 1989 and 1988, respectively.

Philadelphia Electric Company 35

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued

15. JOINTLY OWNED ELECTRIC UTILITY PLANT The Company's ownership interests in jointly owned utility plant at December 31, 1990 were as follows:

Transmission and Production Plants Other Plant Peach Bottom Salem Keystone Conemaugh Operator Philadelphia Public Service Pennsylvania Pennsylvania Various Electric Electric and Electric Electric Companies Company Gas Company Company Company Participating Interest 42.49%

42.59%

20.99%

20.72%

21%to43%

Company's share of:

(Thousands of Dollars)

Utility Plant

$629,791

$1,035,573

$79,390

$80,793

$88,126 Accumulated Depreciation 197,832 280,140 33,826 34,078 21,984 Construction Work In Progress 34,852 25,929 3,202 2,187 8

The Company's participating interests are financed with Com-pany funds and, when placed in service, all operations are accounted for as if such participating interests were wholly

16. SEGMENT INFORMATION (Thousands of Dollars)

ELECTRIC OPERATIONS Operating Revenues Operating Expenses, excluding depreciation Depreciation Operating Income Utility Plant Additions GAS OPERATIONS Operating Revenues Operating Expenses, excluding depreciation Depreciation Operating Income Utility Plant Additions Identifiable Assets*.

Electric Gas Nonallocable Assets TOTAL ASSETS owned facilities.

1990

$ 3,320,132 2,243,743 337,715 738,674 430,179 385,029 336,164 19,825 29,040 51,073

$10,510,639 542,917 1,512,395

$12,565,951

• Includes Utility Plant less accumulated depreciation, inventories and allocated common utility property.

17. CASH AND CASH EQUIVALENTS 1989 1988

$ 3,019,976 2,85 2,009,158 1,913,

'.)

257,420 245,499 753,398 691,091 961,621 827,620 385,653 378,397 310,131 308,301 19,579 18,592 55,943 51,504 44,571 46,117

$10,603,988

$10,012,922 524,925 500,205 1,552,204 1,349,725

$12,681,117

$11,862,852 For purposes of the Statements of Cash Flow, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The following supplemental disclosures are required by SFAS No. 95:

(Thousands of Dollars) 1990 1989 1988 Cash paid during the year:

Interest (net of amount capitalized)

$597,603

$511,467

$42 Income taxes (net of refunds)

$ 97,621

$ 66,864 Noncash Investing and Financing:

Capital lease obligations incurred

$ 30,845

$ 31,200

$ 35,800 36 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

.ES TO FINANCIAL STATEMENTS-Continued

18. PROSPECTIVE STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In December 1987, the Financial Accounting Standards Board (FASB) issued SFAS 96, "Accounting for Income Taxes;' which requires an asset and liability approach for financial accounting and reporting for income taxes. Current guidelines require adoption of its provisions by the first quarter of 1992. The provi-sions of the statement may be applied cumulatively in the year of adoption or may be applied retroactively by restating previously issued financial statements. Adoption of the statement is not expected to have a material effect upon the Company's results of operations. The Company has not made a determination as to when it will adopt SFAS No. 96 or the method of adoption.

In December 1990, the FASB issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than

19. INVESTMENTS (Thousands of Dollars)

Gas Exploration and DevelopmentJoint Ventures Real Estate Developments and Other Ventures Non-Utility Property Trusts and Escrow Deposits for Decommissioning uclear Plants r Deposits TOTAL

20. QUARTERLY DATA (UNAUDITED)

Pensions;' which requires accrual accounting for such costs dur-ing the years that the employee renders the necessary service of the expected cost of providing those benefits to an employee and the employee's beneficiaries and covered dependents. The Company is required to adopt this statement by 1993.

SFAS No. 106 will result in a significant increase in the related liability reported on the consolidated financial statements.

The Company cannot determine the effect of this statement upon the results of operations for subsequent years until a deter-mination is made by the PUC of the recoverability of this liability in the ratemaking process. The Company has not made a deter-mination as to when it will adopt SFAS No. 106 or the method of adoption.

At December 31 1990 1989 7,217

$ 11,099 23,959 23,633 20,786 18,745

.73,585 279

$125,826 53,750 1,025

$108,252 The data shown below include all adjustments which the Company considers necessary for a fair presentation of such amounts. 1990 quarterly data have been restated for the effect of the change in accounting for unbilled operating revenues discussed in note 4.

Operating Revenues Operating Income Net Income Quarter Ended 1990 1989 1990 1989 1990 1989

• (Thousands of Dollars)

March 31

$ 935,948

$890,371

$201,573

$232,529

$ 31,266

$143,310 June 30 857,765 777,541 219,402 157,123 135,879 108,945 September 30 1,001,462 895,394 151,847 247,451 5,637 205,533 December 31 909,986 842,323 194,892 172,238 41,408 132,619 Earnings (Loss) Applicable Average Shares Earnings (Loss) to Common Stock Outstanding Per Average Share Quarter Ended 1990 1989 1990 1989 1990 1989 (Thousands of Dollars)

(Thousands)

(Dollars)

March 31 7,269

$118,859 212,171 206,763

$ 0.03

$ 0.57 June 30 112,172 84,795 213,942 208,260 0.52 0.41 September 30 (17,923) 181,534 215,023 209,556 (0.08) 0.87 December 31 22,353 108,619 216,236 210,970 0.10 0.51 Philadelphia Electric Company 37

Philadelphia Electric Company and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS-Continued The quarterly amounts previously reported are restated for the effects of the change in accounting for unbilled operating revenues. The cumulative effect of the accounting change, $108 million or $0.51 per share, was recognized in the first quarter.

Operating Operating Income Revenues (Loss) 1990 1990 March 31

$ 953,548

$218,715 Adjustment (17,600)

(17,142)

March 31 Restated 935,948 201,573 June 30 841,865 203,933 Adjustment 15,900 15,469 June 30 Restated 857,765 219,402 September 30 1,011,962 162,076 Adjustment (10,500)

(10,229)

September 30 Restated 1,001,462 151,847 1990 first quarter results include a charge of approximately $296 million ($249 million, net of taxes) or $1.18 per share, resulting from the disallowances ordered by the PUC in its final decision rendered April 19, 1990 (see note 2).

1990 third quarter results include a charge of approx-imately $249 million ($150 million, net of taxes) or $0.70 per share, for costs associated with the Company's early retirement REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Philadelphia Electric Company Earnings (Loss)

Net Income Applicable to Earnings (Loss)

(Loss)

Common Stock Per Average Share 1990 1990 1990

$(60,005)

$(84,002)

$(0.40) 91,271 91,271 0.43 31,266 7,269 0.03 120,410 96,703 0.45 15,469 15,469 0.07 135,879 112,172 0.52 15,866 (7,694)

(0.04)

(10,229)

(10,229)

(0.04) 5,637 (17,923)

(0.08) plan (see note 5).

1990 fourth quarter results include charges aggregating approximately $75 million ($46 million, net of taxes) or $0.21 per share, including an accrual for the incremental nuclear maintenance and refueling outage costs, higher charges for uncollectible accounts, and a write-off of costs associated wi damaged nuclear fuel.

We have audited the accompanying consolidated balance sheets of Philadelphia Electric Company and Subsidiary Companies as of December 31, 1990 and 1989, and the related consolidated statements of income, changes in common shareholders' equity and preferred stock, and cash flows for each of the three years in the period ended December 31, 1990. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial state-ment presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Philadelphia Electric Company and Subsidiary Companies as of December 31, 1990 and 1989, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1990, in conformity with generally accepted accounting principles.

As discussed in Note 3 to the consolidated financial statements, certain legal actions were filed against the Company in 1988 by the other co-owners of the Peach Bottom Atomic Power Station seeking compensatory and punitive damages related to the shutdown of this Station. The ultimate outcome of these legal actions cannot presently be determined. Accordingly, the provision in the accompany-ing consolidated financial statements for any liability that may result may not be sufficient.

As discussed in Note 4 to the consolidated financial statements, the Company changed its methods of accounting for unbilled operating revenues and for incremental nuclear maintenance and refueling outage costs in 1990.

2400 Eleven Penn Center Philadelphia, Pennsylvania February 1, 1991 38 Philad.elphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

.NCIAL STATISTICS

SUMMARY

OF EARNINGS (MILLIONS OF DOLLARS)

For the Year Ended 1990 1989 1988 1987 1986 1985 OPERATING REVENUES (for details see pages 41 and 4 2)

$3,705.1

$3,405.6

$3,228.7

$3,181.5

$3,090.9

$2,945.2 OPERATING EXPENSES Fuel and Energy Interchange 691.2 821.0 745.1 710.6 889.3 1,097.8 Labor 590.3 425.2 424.2 437.6 417.2 370.8 Other Materials, Supplies and Services 878.2 637.3 608.3 564.6 475.2 440.1 TOTAL OPERATION AND MAINTENANCE 2,159.7 1,883.5 1,777.6 1,712.8 1,781.7 1,908.7 Depreciation 357.5 277.0 264.1 251.9 217.7 183.0 Taxes 420.2 435.8 444.4 499.7 517.0 440.9 TOTAL OPERATING EXPENSES 2,937.4 2,596.3 2,486.1 2,464.4 2,516.4 2,532.6 OPERATING INCOME 767.7 809.3 742.6 717.1 574.5 412.6 OTHER INCOME AND DEDUCTIONS Allowance for Other Funds Used During Construction 27.2 121.9 98.9 77.2 76.8 176.3 Capitalized Limerick Costs 80.3 82.0 73.1 66.6 172.9 Adjustment to Limerick Plant Costs (263.9)

(368.9)

Credit (Charge) Related to Limerick Unit No. 1 Phase-In Plan 15.3 24.0 26.2 18.4 (91.8)

Income Tax Credits, Net 86.9 56.7 43.5 35.3 279.7 133.4 Other, Net (25.0) 4.0 7.9 18.3 2.4 (3.5)

TOTAL OTHER INCOME AND DEDUCTIONS (79.2) 288.6 249.6 215.8 71.1 306.2 ME BEFORE INTEREST CHARGES 688.5 1,097.9 992.2 932.9 645.6 718.8 INTEREST CHARGES Long-Term Debt 579.8 569.7 524.1 467.3 458.9 435.4 Short-Term Debt 31.0 86.4 24.2 17.2 12.5 17.7 Allowance for Borrowed Funds Used During Construction

{28.1)

(148.7)

(122.1)

(92.2)

(101.6)

(257.2)

NET INTEREST CHARGES 582.7 507.4 426.2 392.3 369.8 195.9 Income From Continuing Operations 105.8 590.5 566.0 540.6 275.8 522.9 Income From Discontinued Operations 1.8 1.9 2.4 Loss on Disposal of Discontinued Operations (1.2)

Income Before Cumulative Effect of Accounting Change 105.8 590.5 566.0 542.4 276.5 525.3 Cumulative Effect of Accounting Change 108.4 NET INCOME 214.2 590.5 566.0 542.4 276.5 525.3 PREFERRED STOCK DIVIDENDS 90.3 96.6 97.2 94.2 90.9 90.6 EARNINGS APPLICABLE TO COMMON STOCK 123.9 493.9 468.8 448.2 185.6 434.7 DIVIDENDS ON COMMON STOCK 310.3 459.6 444.1 423.3 403.5 373.5 EARNINGS (DEFICIT) RETAINED

$ (:i.86.4) 34.3 24.7 24.9

$ (217.9) $

61.2 EARNINGS PER AVERAGE CO.MMON SHARE FROM CONTINUING OPE.RATIONS (DOLLARS) 0.07 2.36 2.33 2.33 1.01 2.55 EARNINGS PER AVERAGE COMMON SHARE (DOLLARS) 0.58 2.36 2.33 2.33 1.01 2.56 DIVIDENDS PER COMMON SHARE (DOLLARS) 1.45 2.20 2.20 2.20 2.20 2.20 C MMON STOCK EQUITY (PER SHA RE) 16.71

$ 17.67

$ 17.39

$ 17.20

$ 16.95

$ 17.97 AGE SHARES OF COMMON STOCK TSTANDING (MILLIONS) 214.4 208.9 201.5 192.5 183.1 169.8 Philadelphia Electric Company 39

Philadelphia Electric Company and Subsidiary Companies FINANCIAL STATISTICS-Continued

SUMMARY

OF FINANCIAL CONDITION (MILLIONS OF DOLLARS)

December 31 1990 1989 1988 1987 1986 1985 ASSETS UTILITY PLANT, AT ORIGINAL COST

$13,542.8 $13,358.0 $12,444.3

$11,641.2 $10,847.8 $10,572.2 Less: Accumulated Depreciation 2,951.4 2,637.2 2,395.8 2,169.4 2,005.7 1,824.4 Leased Property, Net 241.3 273.5 287.5 287.2 281.3 338.l Net Utility Plant 10,832.7 10,994.3 10,336.0 9,759.0 9,123.4 9,085.9 CURRENT ASSETS Cash and Temporary Cash Investments 66.1 64.4 43.6 43.0 90.7 188.8 Accounts Receivable, Net 337.7 255.8 175.7 385.8 375.6 370.9 Inventories 194.9 189.8 170.3 150.3 129.7 123.7 Unrecovered Phase-In Plan Revenue, Net 119.2 118.0 54.1 Other 76.8 86.1 78.9 73.8 78.6 71.8 DEFERRED DEBITS AND OTHER ASSETS Unrecovered Phase-In Plan Revenue, Net 119.8 163.0 251.0 217.6 20.6 Deferred Limerick Costs 498.5 475.1 375.9 286.0 202.7 Investments 125.8 108.2 97.8 100.9 89.7 87.7 Loss on Reacquired Debt 129.3 137.3 118.3

• 119.1 76.8 48.6 Other 65.1 89.2 110.9 68.0 70.7 86.2 TOTAL

$12,565.9 $12,681.2 $11,812.5

$11,203.5

$10,258.5

$10,063.6

. CAPITALIZATION AND LIABILITIES CommQn Stock

$ 3,380.2 $ 3,295.4 $ 3,177.6 $ 2,995.2 $ 2,833.0 $2,-

Other Paid-In Capital 1.2 5.3 5.1 4.6 7.8 Retained Earnings 243.1 444.1 409.9 387.1 363.3 583.

Common Shareholders' Equity 3,624.5 3,744.8 3,592.6 3,386.9 3,204.1 3,193.0 Preferred Stock Without Mandatory Redemption 422.5 622.4 622.4 572.5 572.5 572.5 With Mandatory Redemption 330.9 351.1 368.1 389.1 374.9 318.3 Long-Term Debt 5,830.8 5,762.7 5,219.5 4,870.7 4,286.8 4,309.2 TOTAL CAPITALIZATION 10,208.7 10,481.0 9,802.6 9,219.2 8,438.3 8,393.0 CURRENT LIABILITIES Notes Payable, Bank 68.5 112.0 102.0 1.0 Long-Term Debt Due Within One Year 22.4 17.l 70.2 80.9 108.6 80.8 Capital Lease Obligations Due Within One Year 60.9 73.8 72.1 60.6 69.4 76.3 Accounts and Dividends Payable 280.0 273.4 220.4 206.0 222.1 185.1 Taxes Accrued 155.0 141.l 140.0 114.7 86.l 58.5 Deferred Energy Costs 3.4 (39.2)

(50.4)

(6.2) 88.2 (101.7)

Deferred Income Taxes 49.7 59.0 20.0 2.7 (44.8) 51.8 Interest Accrued 108.6 124.3 129.4 121.7 90.7 93.0 Other 85.0 88.1 80.7 72.1 80.0 72.0 DEFERRED CREDITS AND OTHER LIABILITIES Capital Lease Obligations 180.4 199.8 215.5 226.6 212.0 261.8 Deferred Income Taxes 753.2 809.5 753.3 682.9 560.5 502.6 Unamortized Investment Tax Credits 247.7 242.3 273.0 282.3 299.7 302.4 Pension Obligation for Early Retirees 180.3 Other 162.1 99.0 85.7 38.0 47.7 87.0 TOTAL

$12,565.9 $12,681.2 $11,812.5

$11,203.5 $10,258.5 Certain prior year amounts have been reclassified for comparative purposes.

40 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies

"'RATING STATISTICS ELECTRIC OPERATIONS 1990 1989 1988 1987 1986 1985 OUTPUT (MILLIONS OF KILOWATTHOURS)

Fossil 7,913 10,470 10,225 9,835 7,864 9,455 Nuclear 23,715 12,890 12,328 11,853 17,125 8,359 Hydraulic 2,266 1,743 1,307 1,590 1,848 1,484 Pumped Storage Output 1,437 1,354 1,515 1,251 1,176 1,235 Pumped Storage Input (2,059)

(1,937)

(2,163)

(1,787)

(1,661)

(1,754)

Purchase and Net Interchange 2,325 9,165 11,367 9,806 4,258 10,252 Internal Combustion 152 348 285 232 269 178 Other 891 1,063 382 1,254 TOTAL ELECTRIC OUTPUT 36,640 35,096 34,864 32,780 31,261 30,463 SALES (MILLIONS OF KILOWATTHOURS)

Residential 9,815 9,974 10,058 9,441 8,900 8,440 Small Commercial and Industrial 5,066 4,921 4,666 4,341 4,022 3,731 1.2.rge Commercial and Industrial 16,554 16,749 16,516 15,789 15,068 14,920 All Other 1,010 1,031 999 974 993 1,044 Service Territory 32,445 32,675 32,239 30,545 28,983 28,135 Sales to Other Utilities 1,865 TOTAL ELECTRIC SALES 34,310 32,675 32,239 30,545 28,983 28,135 NUMBER OF CUSTOMERS, DECEMBER 31 Residential 1,320,126 1,309,717 1,296,784 1,280,297 1,263,465 1,245,481 Commercial and Industrial 140,305 138,244 135,274 131,279 127,797 124,719 Commercial and Industrial 4,344 4,449 4,520 4,589 4,668 4,881 817 775 779 771 763 773 TOTAL ELECTRIC CUSTOMERS 1,465,592 1,453,185 1,437,357 1,416,936 1,396,693 1,375,854 OPERATING REVENUES (MILLIONS OF DOLLARS)

Residential

$1,229.8

$1,157.0

$1,127.8

$1,092.6

$1,023.6

$ 923.9 Small Commercial and Industrial 595.2 537.1 489.4 471.7 437.0 388.7 1.2.rge Commercial and Industrial 1,247.1 1,182.0 1,089.3 1,103.3 1,103.3 1,061.8 All Other 153.5 143.9 143.8 142.1 135.5 141.8 Service Territory 3,225.6 3,020.0 2,850.3 2,809.7 2,699.4 2,516.2 Sales to Other Utilities 94.5 TOTAL ELECTRIC REVENUES

$3,320.1

$3,020.0

$2,850.3

$2,809.7

$2,699.4

$2,516.2 OPERATING EXPENSES (MILLIONS OF DOLLARS)

Operating expenses excluding depreciation

$2,243.7

$2,009.2

$1,913.7

$1,895.1

$1,961.4

$1,974.2 Depreciation 337.7 257.4 245.5 234.9 201.8 168.2 TOTAL OPERATING EXPENSES

$2,581.4

$2,266.6

$2,159.2

$2,130.0

$2,163.2

$2,142.4 ELECTRIC OPERATING INCOME, (MILLIONS OF DOLLARS)

$ 738.7

$ 753.4

$. 691.1

$ 679.7

$ 536.2

$ 373.8 Average Use per Residential Customer (kilowatthours)

Without Electric Heating 6,428 6,488 6,667 6,431 6,177 6,034 With Electric Heating 16,430 17,250 17,738 16,824 16,661 15,923 Total,.

7,553 7,655 7,807 7,427 7,097 6,820 Electric Peak Load, Demand (thousands of kilowatts) 6,755 6,467 6,826 6,547 6,134 6,034 Net Electric Generating Capacity-Year-End Summer rating (thousands of kilowatts) 8,130 7,759 7,762 7,762 7,870 7,599 of Fuel per Million Btu

$1.08

$1.37

$1.19

$1.35

$1.18

$1.72 Net Kilowatthour Generated 10,844 10,894 10,881 10,879 10,844 10,843 Philadelphia Electric Company

• 41

Philadelphia Electric Company and Subsidiary Companies OPERATING STATISTICS-Continued GAS OPERATIONS 1990 1989 1988 1987 1986 1985 SALES (MILLIONS OF CUBIC FEET)

Residential 1,778 1,951 1,933 1,854 1,856 1,810 House Heating 25,303 28,301 28,112 26,010 25,731 23,227 Commercial and Industrial 16, 791 30,038 39,073 38,170 33,834 36,254 All Other 8,004 2,344 2,228 1,541 578 1,209 TOTAL GAS SALES 51,876 62,634 71,346 67,575 61,999 62,500 Gas Transported for Customers 24,413 18,033 9,272 7,374 3,907 10,262 TOTAL GAS SALES & TRANSPORTED 76,289 80,667 80,618 74,949 65,906 72,762 NUMBER OF CUSTOMERS, DECEMBE.R 31 Residential 63,267 65,544 66,599 67,688 68,590 69,632 House Heating 254,564 246,273 239,022 231,618 225,010 217,840 Commercial and Industrial 29,456 28,369 27,119 26,021 24,884 24,234 TOTAL GAS CUSTOMERS 347,287 340,186 332,740 325,327 318,484 311,706 OPERATING REVENUES (MILLIONS OF DOLLARS)

Residential

$ 18.1

$ 18.0

$ 17.0

$ 16.7

$ 18.0

$ 18.7 House Heating 200.8 195.8 180.6 175.7 189.8 185.4 Commercial and Industrial 119.4 152.5 165.1 167.5 177.7 214.1 All Other 30.9 7.3 6.6 4.4 2.0 5.2

• Subtotal

$369.2

$373.6

$369.3

$364.3

$387.5

$423.4 Other Revenues (including Transported for Customers) 15.8 12.1 9.1 7.5 4.0 5.5 TOTAL GAS REVENUES

$385.0

$385.7

$378.4

$371.8

$391.5 OPERATING EXPENSES (MILLIONS OF DOLLARS)

Operating expenses excluding depreciation

$336.2

$310.2

$308.3

$317.4

$337.3 Depreciation 19.8 19.6 18.6 17.0 15.9 14.8 TOTAL OPERATING EXPENSES

$356.0

$329.8

$326.9

$334.4

$353.2

$390.2 GAS OPERATING INCOME (MILLIONS OF DOLLARS)

$ 29.0

$ 55.9

$ 51.5

$ 37.4

$ 38.3

$ 38.7 SECURITIES STATISTICS Ratings on Philadelphia Electric Company's Securities Debentures Agency Mortgage Bonds Rating Date Established Rating Date Established Preferred Stock Rating Date Established Duff and Phelps, Im:.

BBB 3/80 BBB-3/80 BB+

2/83 Fitch Investors Service BBB 9/82 BBB-9/82 BBB-4/90 Moody's Investors Service Baa3 1/83 Bai 1/83 bal 1/83 Standard & Poor's Corporation BBB 4/90 BBB-4/90 BBB-4/90 NYSE-COMPOSITE COMMON STOCK PRICES, EARNINGS AND DIVIDENDS BY QUARTERS (PER SHARE) 1990 1989 Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter High Price

$18%

$16%

$18

$23112

$24

$24Vi

$22~

$21~

Low Price

$14%

$14112

$15

$17%

$21~

$2P4

$19¥1

$19~

Earnings*

10¢ (8¢)

52¢ 3¢ 51¢ 87¢ 41¢ 57¢ Dividends 30¢ 30¢ 30¢ 55¢ 55¢ 55¢ 55¢ 55¢

• First through third quarter earnings for 1990 were restated for the effects of the change in accounting for unbilled operating reve 42 Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies FICERS JOSEPH F. PAQUETTE, JR. (56)

Chairman and Chief Executive Officer CORBIN A. MCNEILL, JR. (51)

President and Chief Operating Officer NICHOLAS DEBENEDICTIS (45)

Senior Vice President, Corporate and Public Affairs JAMES W. DURHAM (53)

Senior Vice President and General Counsel RICHARD G. GILMORE (63)

Senior Vice President, Finance and Chief Financial Officer RAYMOND F. HOLMAN (62)

Senior Vice President, Planning and Performance DICKINSON M. SMITH (57)

Senior Vice President, Nuclear DAVID R. HELWIG (39)

President, Nuclear Engineering Services MANAGEMENT CHANGES:

THOMAS P. HILL, JR. (42)

Vice President and Controller KENNETH G. LAWRENCE (43)

Vice President, Gas Operations GRAHAM M. LEITCH (56)

Vice President, Limerick Generating Station JOHN M. MADARA, JR. (47)

Vice President, Engineering and Production ALBERT G. Ml.KALAUSKAS (54)

Vice President, Customer and Marketing Services DONALD B. MILLER, JR. (49)

Vice President, Peach Bottom Atomic Power Station MORTON W. RIMERMAN (61)

Vice President, Finance and Treasurer ALBERT J. SOLECKI (50)

Vice President, Information Systems and General Services ALVIN J. WEIGAND (52)

Vice President, Electric Transmission and Distribution LUCY S. BINDER (53)

Secretary J. BARRY MITCHELL (43)

Assistant Treasurer JON A. KATHERINE (55)

Assistant Treasurer J. ROBERT CAUSTON (53)

Assistant Treasurer JAMES F. HOHENSTEIN (47)

Assistant Treasurer WILLIAM M. LENNOX, JR. (53)

Assistant Treasurer M. DOROTHY LYONS (49)

Assistant Secretary Corbin A McNeill,Jr. was elected President and Chief Operating Officer, effective April 16, 1990.

Morton W Rimerman was elected Vice President, Finance and Treasurer, effective November 26, 1990.

Raymond E Holman was elected Senior Vice President, Planning and Performance, effective April 16, 1990.

Dickinson M. Smith was elected Senior Vice President, Nuclear, effective April 16, 1990.

David R Helwig was elected Vice President, Nuclear Engineering and Services, effective April 16, 1990.

Donald B. Miller, Jr. was elected Vice President, Peach Bottom Atomic Power Station, effective May 1, 1990.

S.Joseph Kowalski retired as Vice President, Nuclear Engineering, onJuly 31, 1990.

Donald P. Scott retired as Treasurer on October 31, 1990.

]. Barry Mitchell was elected Assistant Treasurer, effective November 26, 1990.

John S. Kemper retired as Vice President, Engineering and Production on December 30, 1990.

Raymond C. Williams retired as Vice President, Rates on December 30, 1990.

Thomas P. Hill, Jr was elected Vice President and Controller, effectiveJanuary 1, 1991.

John M. Madara,Jr. was elected Vice President, Engineering and Production, effective January 1, 1991.

James F. Hohenstein was elected Assistant Treasurer, effective January 28, 1991.

Philadelphia Electric Company 43

Philadelphia Electric Company and Subsidiary Companies BOARD OF DIRECTORS SUSAN W. CATHERWOOD (47)

Chairman, Board of Overseers, The University Museum, University of Pennsylvania WILLIAM T. COLEMAN, JR., ESQUIRE (70)

Senior Parmer of the law firm O'Melveny & Myers M. WALTER D'ALESSIO* (S7)

President and Chief Executive Officer, Latimer & Buck, Inc. (Mortgage banking and real estate development)

RICHARD G. GILMORE (63)

Senior Vice President, Finance, and Chief Financial Officer of the Company RICHARD H. GLANTON, ESQUIRE (44)

Parmer of the law firm Reed Smith Shaw & McClay JAMES A. HAGEN* (SS)

Chairman, President and Chief Executive Officer, Consolidated Rail Corporation NELSON G. HARRIS (64)

President and Chief Executive Officer, Tasty Baking Company ROBERT D. HARRISON (67)

Management and marketing consultant 44 Philadelphia Electric Company JOSEPH C. LADD* (64)

Chairman, The Fidelity Mutual Life Insurance Company EDITHE J. LEVIT, M.D. * (64)

President Emeritus and Life Member of the Board, National Board of Medical Examiners ADMIRAL KINNAIRD R. McKEE* (61)

Director Emeritus, U.S. Navy Nuclear Propulsion JOSEPH J. McLAUGHLIN (62)

President and Chief Executive Officer; Beneficial Mutual Savings Bank CORBIN A. MCNEILL, JR. (Sl)

President and Chief Operating Officer of the Company JOHN M. PALMS, PHO. (SS)

President, Georgia State University JOSEPH F. PAQUETTE, JR.* (S6)

Chairman and Chief Executive Officer of the Company RONALD RUBIN (59)

General Parmer, Richard I. Rubin &

Company (Real estate development and management)

• Member of Executive Committee DIRECTOR CHANGES:

William S. Gaither resigned from the Board, effective March 31, 1990.

Ralph]. Roberts' term expired on March 31, 1990.

Corbin A. McNeill,]r. was elected a member of the Board, effective April 11, 1990.

John M. Palms was elected a member of the Board, effective June 11 1990.

James A Hagen was elected a member of the Board, effective August 1, 1990.

Richard H. Glanton was.elected a member of the Board, effective January 28, 1991.