ML18095A881

Atlantic Energy Annual Rept 1990.

ML18095A881
Person / Time
Site:	Salem, Hope Creek
Issue date:	12/31/1990
From:	HUGGARD E D, JACOBS J L ATLANTIC ENERGY, INC.
To:
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ML18095A877	List: ML18095A876 ML18095A878 ML18095A879 ML18095A880 ML18095A881
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NUDOCS 9104190193
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• 9104190193 910415 PDR ADOCK I PDR Contents IJ L e tter to Shareholders Chairman Doug Huggard and President Jerry Jacobs discuss financial performance, utility opera ti ons a nd expectatio n s for the next few years. II The Top Stories of 1990 Kilowatt-hour sales and peak load increased.

We filed a request for an increase in base rates of $113 million. A n ew combustion turbine unit was placed in service. Atlant ic Electric re co rd s its safest year in history. II The Power to Shape the Future Do we have the pow e r to shape o ur own future? You bet we dol Fi n d out h ow we intend to accomplish thi s task in the yea rs to come. lllJ Atlantic Electric At-A-Glance Residential customers used slightly more e l ectricity in 1990. Over 700 new Commercial customers were added. Sales to lndu st rial customers decreased s li ghtly over 198 9. ID Index to Financial Information m Investor Information Where to go for help concerning you r investment in Atlantic Ene r gy; Common stock data for 1990; proposed record and payable dates for dividends.

m Atlantic Energy's Officers and Directors Information r egarding officers and directors , with director photographs and committee membership information.

Notice of Annual Meeting The 1991 Annual Meeting o f Shar e holders w ill be held on Wedn es day , April 24, 1991 a t Wheaton V illa ge, Millv ill e, New J e rs ey. A No tice of Annua l Meeting will be mailed in March to those shareholders entitled to vo t e. Corporate Address: 1199 Black Hors e Pike Pleasantville, New J e rse y 08232 (609) 645-4500 financial Highlights

• R esu lt s of Operations 1990-1988

% Change % Change 1990 1990-1989 1989 1989-1988 1988 Earnings Per Common Share $ 3.02 (19 3) $ 3.74 1.6 $ 3.68 Divid en d s Pa id P er Common Share $ 2.92 3.5 $ 2.82 1.8 $ 2.77 Book Value Per Common Share $ 28.73 0.7 $ 28.54 5.1 $ 27.16 Return on Average Common Equity 10.57% (22.5) 13.64% ( 4.1) 14.22% E l ectric Opera ting Revenues ($000) $ 716,779 1.7 $ 705 , 020 4.3 $ 675 , 859 Operating Expens es ($00 0) $ 592,217 3.8 $ 570,275 3.1 $ 553 ,080 Ne t ln come ($000) $ 68,879 (1 4 9) $ 80 , 964 12.2 $ 72,171 Uti lit y Cas h Construction Expenditures

($000) $ 166,818 15.0 $ 145,081 14.1 $ 127 ,099 Tota l Assets ($000) $2,006,010 7.6 $1 , 864 , 461 12.3 $1,660,286 Sa l es o f E l ec tricit y (KW H) (000) 7,756,867 1.8 7,617,784 3.6 7 ,35 0 ,280 Price Paid Per Kilowatt-hour (A ll C u stome r s) 9.288¢ 1.4 9 16 1¢ 1.2 9.055¢ Total Electric Cus t omer Accounts (Year-end) 449,717 1.3 444,018 2.2 434 , 262 umber of Sha r e h o ld ers -Common Stock (Year-end) 42,295 (2 5) 43,383 (2 5) 44 , 473 N umb e r of At l antic E l ec tric Emp l oyees (Yea r-e nd) 2,055 1.7 2 , 021 (34) 2 ,092

• in dollars 5 y ear-end dollars 40 4 ............. . 3.68 3 2.65 2.77 2 3.74 2.82 J.02 2.92 1 . 0 86 87 88 89 90 ntic Energy Earnings and Dividends Paid Share of Common Stock EAR N I N G S -DI V IDE N D S Earn i n gs p e r s har e of Co mmon Sta c h i s n e t in co m e divid ed b y th e av e ra ge numb e r of co mmon s har es out s tandin g. Divid e nd s paid p e r s har e i s lhe s um of th e quart e rl y di v id e nd pa y m e nt s mad e in January , April , July and O c tob e r. 30 20. 10. 0 37.37 38.50 3 2.75 .30.62. 86 87 88 89 90 Atlantic Energy Market Price Pe.r Share of Common Stock 33.87 Ti1i s i s th e cl o sin g pri ce o f Atlanti c En e r gy's Co mm o n St ac h o n th e la s t tradin g dat e of e a c h ye ai; as r e p o rt ed b y th e Ne w Y o rh Sta c h Ex c han ge C ompo s it e Transa c tion s li s tin g.

E.D. Hu gga r d J.L. J acobs A fter enjoying three of the best earnings years in your Company's history, earnings per share declined in 1990 to $3.02 from $3.74 in 1989. This 19 percent setback is expected to be temporary.

It is the result of reduced sales growth from mild weather , a predicted downturn in economic activity , increased shares outstanding and our inability to fully recover purchased power costs in a timely fashion. Your management has already taken action with respect to the 1990 financial results by filing a formal request in September with the New Jersey Board of Public Utilities for a rate increase of $113 million. By the time this case is decided later this year , it will have been almost five years since our last general base rate increase.

All that while , we have been ing our customers' growing electricity needs. We made capital investments and experienced added operating costs which now require regulatory action. A significant rate increase will be needed in 1991 to reverse the 1990 earnings decline and address the problems that prompted the recent downgrade of some of our securities.

In June , your Board of Directors increased the ular quarterly dividend by $.02 per share to $.74. Our 38 consecutive years of increases in dividends paid is a record that speaks for itself -a ment to dividend growth! By far , the primary business of Atlantic Energy is Atlantic Electric -the utility. Kilowatt-hour sales grew 1.8 percent and 7,100 new customers were Letter

• To Shareholders added. This growth , while not matching previous years' impressive increases, reflects strong future potential.

We achieved a new level of peak dema in 1990of1,741megawatts,a2.4 percent increa over 1989. Aggressive load management programs helped to reduce the peak by about 57 megawatts.

During 1990 , we achieved most of our mance objectives. We are quite proud of l 990's safety record -it was the safest year in our history' We also achieved our objectives in rate stability , bility and quality of service rendered to our tomers. Performance of our jointly-owned nuclear units improved as Peach Bottom turned in a full year of service, and other units were recognized for standing operating performance.

The most significant challenge for any electric ity is to accurately forecast future requirements and effectively implement the optimum plan to meet those requirements. During 1990 , we installed a new 82-megawatt combustion turbine and have begun construction of another such unit to be completed in mid-1991.

In addition, our contracted 569 megawatts of cogeneration is intended to help meet our capacity demand in the mid-1990s.

These are components of a comprehensive integrated resour plan that also includes cost-effective measures on customers' side of the meter to enhance energy ciency and reduce the demand for expensive, new capacity.

Our planning process also provides for tingencies.

In Novemb e r, we filed a conting e nt

'ficate of Need for a combined-cycle unit that uld be built in the event that planned tion projects are delayed or cancelled, or load grows faster than expected. In all of our planning, we continue to embrace a strategy which we call, Strength Through Planned Diversity.

Our generation is derived from capacity sources that are appropriate to our size and fuel ply which is well diversified , with over 75 percent of our energy produced by coal and nuclear power. This has enhanced our ability to hold down costs and improve reliability, while focusing mostly on domestic resources.

We will be impacted by the acid rain provisions of the recently amended Clean Air Act. Compliance action will be required by 1995 at our wholly-owned B.L. England Generating Station as well as at two western Pennsylvania coal-fired units in which we have a small ownership interest.

While we have not yet fully established our strategy , studies are advanced to the point where we can expect to *eve compliance with little impact on financial

• perating conditions.

ur challenge in a growth-oriented service area entails careful planning of transmission and tion as well as generation.

We continually update master plans in these areas and assign high priority to their implementation. The combined effec t on all of these plans requires a construction program which will exceed $500 million over the next three years -a financing challenge which we expect to meet while maintaining a favorable capital structure.

In a service territory where nearl y half of our utility revenues come from residential customers, we can ex pect some degree of revenue stability during all cycles of economic activity.

In future years, we expect to further enhance revenues through a very hensive marketing strategy. This marketing strategy is intended to give customers a variety of services that offer convenience, satisfaction and value, and makes Atlantic Electric th e customers' choice for e nergy services.

We have always had a deep-rooted conviction that t opportunity exists in the electric utility busi-n South jersey. We have established both r-and shareholder-oriented goals to pursue these opportunities and we have linked those goals to management compensation.

The electric utility business continues to ence fundamental structural change and we continue to work with our regulators and others to mold that change to the advantage of our shareholders and our customers.

That change has also provided opportunities in the nonregulated activities of Atlantic Energy. Atlantic Generation has started construction of a 117-megawatt cogeneration plant in our service ritory through its participation in the Pedricktown Cogeneration Limited Partnership.

We are also suing development of two other cogeneration ects. These investments have excellent prospects for earnings e nhancement in the next few years. However, in 1990 , Atlantic Generation

's dev ement costs produced a loss of $.05 per share. ATE Investment contributed

$.06 per share in 1990 through its leverag e d lea se activities , but future advantaged investments ma y be limited in this sidiary. Atlantic Southern Properties ex perienced a slight operating loss equal to about $.02 per share in 1990 , as the area real estate market was relatively quiet. Future nonregulated investments will probably be limited to cogeneration and independent power ects through Atlantic Generation and other ing bu s iness opportunities that are functionall y related to the electric utilit y business and that will support the growth in our service territory.

The management and Board of Directors of your Company are grateful for your loyalty and support. We are confident that we have the power to shape the future. That confidence springs from a philosophy built upon our respect and concern for customers and our desire to l e t employees realize their highest potential.

The result, we believe, is a safe and ing investm e nt. That is our commitment to you. For the Board of Directors, z If /c4t '!4(-:J ---..: E.D. Huggard Chairman and Chief Executive Officer J.L. Jacobs P r esident January 31, 1991 The Top Stories of 1990

• HAPPY BIRTHD A Y , OLD FRIE N D Deepwater S t at i on D In June, Atlantic Electric's Deepwater Station celeb r ated its 60th year of continuous service to southern New jersey. Built in 1 930 at a cost of $13 million, it was hailed as " the last word in efficiency and economy." Today , Deepwater is sti ll going strong. With a net capability of 308 megawatts , it provides over 25 percent of At l ant i c Electric's w h olly-owned generation and operates Atlantic Electric's most effic i ent unit. MORE PO WE R TO YO U D On May 31, Cumbe rl and Unit #l, an 82-megawatt

" peaking" unit began mercia l operation in time to serve Atlantic Electric's tomers during the summer peak demand. I n 1991 , a ond 82-megawatt " peaking" unit will be completed.

Both of these units use natural gas as thei r primary fuel source. D On June 1 , Atlantic Electric began purchasing 200 megawatts of capacity and energy under a year arrangement with Philadelphia Electric Compan y. Also on June 1 , Atlantic Electric began purchasing 20 megawatts of capacity under a two-year arrangement with Pennsy l vania Power&: Light Company. T h e chase will increase to 35 megawatts in 1991. New jersey's Governor has recognized this group for their safe work habits. D The 1 86 emplo y ees at the B. L. England Generating Station completed one full year without a lost time accident in 1990. This is the first time in over ten years that this record has been set at a generating station. D Atlantic Electric's Communications Department has worked 21 years without a lost time accident.

On]uly 5, 1990, a new peak demand of l, 7 4 l megawatts was recorded.

Reserve margin at time of peak was I0.9 percent. Load management programs reduced demand at time of peak by about 57 megawatts.

SA FETY TOPS THE RECORDS D The safest y ear in At l antic Electrics' history was recorded in 1 990. Emp l oyees' safe work habits on the job and on the road reduced the number of " l ost time accidents" -work related accidents that cause employees to lose da y s away from their jobs. D Th e Pr e sident's Award is an annua l recognition of employees who make extraordinary contribution s to At l antic Electric's tions, performance and vice. Don Kell y, john Herman and Larry Stone , employees of the tion Department, received this award for their heroic actions to save an infant's life In making the award, President Jerry Jacobs called the workers the " kind of caring , compassionate human beings that At l antic Electric is proud to emplo y." N IGHT LIGHT S, BRIGH T LI G HT S o Several hundred Residential, Commercial and Industrial customers made their homes and busines. b r ighter an d more secur signing up for Atlantic Electric's Night Guard Lighting Program. For a modes t mo n th l y fee, Atlantic Electric will des i gn, purchase and install energy-efficient , low-maintenance night lighting for customers.

By all accounts , it's a success. The program exceeded its lig h ting goals by 200 percent. D One of the most visible parti c ipants in the Night Guard Lighting Program , the Trump Taj Mahal Casino Resort , is a bright addition to Atlantic Cit y's skyline. Before its Apri l opening , At l antic Electric representatives showed our new customer how it cou ld save money and D Over 40 employees at Atlantic Electric's Salem Operations center se t a record by wo r king one millio n hours without a lost time accident.

In ea c h of the last three y ears , Atlantic Electric's l 990 cash construction expenditures totalled $166.8 million, plus $4.0 million in Allowance for Funds Used During Construction.

• f;?-;,, r; 'f; ;,

l (.Y fli. J , /p,, \ ,( ) '-1) [\, ,, 'I. --------------------------------"""" ( j11..-.! ' J '-.. l ---'-1, The combined capacity 'actor oif "= ':.;:f/, *,* J' Atlantic Electric's five jointly-'

owned nuclear units for 1990 was 70.2%. Coal and nuclear fuel sources provided almost 80 percent of customers' energy needs, and resulted i . a savings of $145 million compared to the use of oil. /5-)., x Trump Taj Mahal Casino Resort use e n ergy wisely. The result -26 energy-efficient floodlights illuminate the ing's grand exterior.

NUCLEAR UNITS GET HIGH SCORES D The Hope Creek Nuclear Generating Station recei ved a rating of 'l' from the Institute of Nuclear Power Operations, a nuclear industry peer group. This rating recognizes excellence in all aspects of plant oper-. ons , maintenance and inistration.

ope Creek set a new tion record for the number of days of continuous run. o Two of Atlantic Electric's jointly-owned units, Hope Creek and Peach Bottom Unit 3, were rated among the top ten int ernat ionall y for availability of boiling water reactors.

o The Salem Nuclear Generating Station matched its dual-unit continuous run record. THE FINANCIAL PAGE o On Jul y 5, Atlantic Electric issu ed and sold 500,000 shares of its $8.20 No Par Preferred Stock at a price to the public of $100 per sha r e. Atlantic Electric used the funds for general corporate purposes including tion costs and the repayment of short term debt. D During 1990, Atlantic Energy's Dividend Reinvestment and Stock Purchase Plan provided over $13.3 million in new Common Equity. An tional $1.8 million of mon equity was raised through th e operation of Atlantic Electric's employee benefit plans. These funds were allocated to Atlantic Energy's subsid iari es for their respective capital and ing n ee ds. D In January 1991 , Standard & Poor's lowered its ratings on Atlantic Electric's senior secured debt to 'A' from 'A+' and its ratings on Atlantic Electric's preferred stock and senior unsecured debt to 'A-' from 'A'. D On September 2 7 , Atlantic Electric filed a petition with the New Jersey Board of Public Utilities seeking a $113 million incr ease in base rates. This petition seeks to recover the cost of a power purchase arrangement , tal investments in new plant and equipment and the increased costs of operation.

Atlantic Electric is requesting a 13. 7 percent return on equi t y and an overall return of 11.13 percent. A decision on the request i s expected in the second half of 1991. HOLLY CITY, USA D Atlantic Electric announced that it would rejuvenate its 40-acre holly orchard locat ed on a 1,600-acre tract of land in Millville, New Jers ey. The 50-year-o ld orchard will be r e planted with new seed lings from an existing stock of over 3,000 matur e tr ees, representing most of the varieties of holly found in the United States. When restoration is complete, the holl y farm will be th e site of a meeting a nd ex hibit house 5 -that will become a center for tourism and communit y activity in southern New Jers ey. AGI MAKES TION PROGRESS o In June, construction ed on a 117-megawatt cogeneration facility that will be built and operated by Cogeneration Partners of America, a partnership arrangement that includes Atlantic Generation , Inc. The facility , located at the BF Goodrich plant in Pedricktown , New Jersey , will supply 106 megawatts of capacity and energy to Atlantic Electric.

It is ed to be completed in 1992. D Cogeneration Partners of America will manage the construction and operation of a SO-megawatt tion facility in Binghamton , New York. Excess electricity generated from the project will be sold to New York State Electric & Gas under a power purchase agreement.

Co nstru ct ion at the Pedricktown s ite I °' I

• WE HAVE ... T UJF F or the past several years, our success has been shaped by growth. A robust local economy brought increases in sales, new customers and peak load. We were challenged to manage growth, finding new ways to supply electricity while keeping it reliab l e and affordable. Manage it we did, and our work gave us strong financial results. In the decade of the 1990s , different factors will shape success. Because of industry trends which we , too, will experience , growth slowed. Kilowatt-hour sales and peak load grow at less than ha l f the rate of recent hisy We will begin to feel the effects of competi-tion as some of our larger customers become self-generators.

Although these factors will make it difficult to set new financial records over the next few years, we will remain strong. Our time and efforts will be spent breaking new ground and preparing to harvest the opportunities and success of years to come. Do we have the power to shape the future? You bet we do! The power comes from building partnerships with our customers

-getting them to choose us for all of their energy needs and ing sure our electricity represents value to them. The power comes from empowering employees in a more competitive environment, encouraging them to think creatively , solve problems and make decisions.

And, the power comes from maintaining diversity-in our future energy supply , our ating stations and our fuel sources.

THE POWER COMES FROM SHIPS

• T he power to shape the future comes from building partnerships with our customers , working together to achieve our mutual goals of energy efficiency and affordable prices. I t's giving our customers complete se r vice from start to finish. It's being competitive, getting customers to choose Atlantic Electric for their energy services.

Good, working partnerships don't happen overnight.

We've been building them for years. Good , working partnerships don't happen night. We've been building them for years. We ganized internally to provide more specialized a responsive customer service. We created more an A e opportunities for customers to tell us their .s and needs at consumer roundtab l es, industrial conferences and one-on-one. We listened to c u stomers' suggestions and renewed our commitment to provide choices that save energy and give them more control over how t h ey spend their energy dollar. Our commitment is underscored by t he variety of marketing programs we can now offer customers.

Time-of-Use rates allow customers to save money by using electricity during off-peak hours. Summer Savers cus t omers get pa i d for a ll owing Atlantic Elect r ic to switch off major appliances w h en our system demand is reaching a p eak. Two programs, SaveA-Watt and t he N i g ht G u a r d Lighting Program , offer efficient, cost-effec ti ve lig h ting to area homes and businesses.

Thro u g h the H ome E n ergy Savings Program, we can help customers determine areas in their home where minor improvements (such as weather stripping and insulation) can provide term savings. O ur partnerships with customers don't stop with a of programs.

Personalized attention, li ke he l ping mmunity college solve its heating and air condiing needs, investigat i ng the latest techno l ogy for Our commitment is underscored by the variety of marketing programs we can now off er customers. a glass ma nu facturer or winterizing the h o u se next door , makes for good relationships with customers in the long run. We see a renewed concern for energy dence and security As domestic energy sources become more important for meeting energy needs, we know that the lasting partnerships we cultivate today will produce bountiful res u lts in the future. Why build an all-electric home? To help our tomers, our partners, get the most out of their gy dollar. One of our marketing programs is proving that electricity is the right choice for all of a home's energy needs. Customers in the ket for a new home have told us that they want comf art, reliability and energy efficiency

-all at a reasonable cost. We set out to find the "B.E.S. T Home" for our customers, an all-electric home ]iuilt for Energy S.aving Iomorrows.

The B.E.S. T Home brings together the latest technology in lation, appliances, dows, construction techniques, and heating and cooling systems. The "best" part -customers save energy dollars for the long haul. Atlantic Electric works with customers through--9-TOBE THE BEST ... On e very s p e cial partn ers hip wi ll yie ld a B.E.S. T. Hom e in 19 9 1. Vo c ational s tud ents in M ill vi ll e, New j ersey are g aini n g va luabl e experience in g a B.E.S. T. H o m e wi th h e l p fr om A tl a nti c E l ectric. On ce th e hous e i s c ompl e t e d , it wi ll be s old by au c tion in th e communi ty, wh ere th e su cce ssful bidd er can b e gin enj oyi ng " en er gy s av ing tomorrows" right a way. out the B.E.S. T Home process. We inspect and certify the home at al stages during its struction and make sure that all work meets our exacting standards.

Once the home is completed, our Comfort Assurance program sees to it that customers are completely satisfied with the tion of the home's heating and cooling systems. The first B.E.S. T. Home was built in a growing area of Cape May County. Right now, there are 52 B. E.S. T Homes scheduled to be built in Atlantic Electric's service area. And, judging from the enthusiasm of the 200 area builders who ed our recent B.E.S. T Home conj erence, we could see more of these homes in the near future.

S uccess in an increasingly competitive world requires many critical elements:

alertness, im ination, prompt decision-making and siveness.

A company able to call upon such talents has a strategic advantage that is hard to beat. It is our good fortune to have enthusiastic, creative and dedicated employees.

Even though the number of utility customers has increased si gnificantly over the past five years, the size of our workforce is now It is our good fortune to have enthusiastic, creative and dedicated employees.

about th e same as it was in 19 85. Th e b est part is, w hil e costs h ave been controlled, service has b ee n impro ved. To enhance o ur success an d to further encourage our employees, we carefully developed our own Employee Involvement Program and began to impl e-t it throughout the utility Guided by President ry Jacobs , the program focuses on empowering employees

-encouraging them to work together to make decisions about how to improve their jobs and the Company. He has met personally with over 700 employees over the past year, to bring them his spective on the process and to gain their support. His endorsement of the program is clear: " We have good, motivated, intelligent people with lots of ideas who know their jobs best." He added, " There's no limit to what we can achieve when employees have the resources and the decision-making power right on the front lines." The program is working well at Atlantic Electric.

At the end of 1990 , ten percent of Atlantic E l ectric's workforce were members of Employee Invol ve ment teams. Their efforts are making a difference.

In our Customer Service area, teams have found ways to eliminate paperwork and to shorten the processing time for orders to connect or disconnect service. The Customer Payment area increased productivity by a n ging work schedules to better match the flow of payments received.

Employees at the Deepwater t i on heightened their efficiency by streamlining their procedures for purchasing materials. 'There's no limit to what w e can achi eve when employe e s have the resources and th e decision-making power right on the front lin e s.' -Jerry Jacobs These examples are but a few of the many cases where employees' efforts and accomplishments have shown us that we already have the talents needed to move forward. Their enthusiasm, energy and i t y are sowing the seeds of success and g i ving us the power to shape the future. SMALL BUT MIGHTY ... Keeping track of over 42,000 shareholders and providing them with the full spectrum of services are big responsibilities.

Many companies use eral firms to do the work. But, at Atlantic Energy, the eight dedicated people in the Investor Records area (our first Employee Involvement team) do it all with courtesy, sion and style. The Investor Records area keeps track of shares bought and sold, transfers certificates to new owners and complies with cable laws and tions. "The company saves money as its own transfer agent," explains MaryAnn Lindsay, Investor Records supervisor. "But most of all, we can give our holders better service. We have more control over Inves tor R eco rds goes t o grea t l engt h s to p rov id e qu ality service to s h are h o ld ers. Th e t e am recen tl y visite d t h e New York St o c k Exc han ge to expa n d t h eir kn ow l e d ge o f se cu rities ma r k ets. Pi c tu red are: (I to r) Caro l j o h ns, Ju dy So m ers, Ka th y Taggart , S t ep ha n i e Sco l a, M a ryA nn Lindsa y, A ud rey L u cy, D e b b ie S ilip ena a nd Marie S t ec h er. when transfers are done, we can turn things around usually in a day and we can give shareholders complete service for their account," she added. With the help of a notch computer system, Investor Records can dle most shareholders' requests with the touch of a few buttons. The system is an important tool, used to keep and manage records, generate checks, print certificates and pare statistics.

Investor Records' operations and their mastery of the tem have been used as models for many other companies considering bringing their shareholder services in-house.

-""_ -----THE POWER COMES FROM MANY SOURCES ----S everal years ago, Atlantic Electric decided that the best way to give customers reliable, affordable energy was to have many different sources of generating capac i ry and to use different types of fuel. We gave that strategy a name , Strength Through Planned Diversity, and made it the heart of our ness. It's a strategy that believes in the motto, " Don't put all of your eggs in one basket." We haven't, and our business has benefited from it. It's a strategy that is even more valid in today's competitive business The best way to give customers reliable , affordable energy is to have many different sources of generating capacity and to use different types of fuel. environment.

We've expanded this strategy to inclu energy produced by nonutility power producers, demand-side management programs and energy c . s e rvation. These elements now constitute important parts of our plans to meet future energy needs.

tlantic Electric has several long-term nts with nonutility power producers, primarily cogenerators, to supply energy in the near future. When these projects come on-line, they wou ld vide for additional operating diversity and the use of several different fuel types. The way customers use electricity will also play an important role in meeting future energy needs. Successful demand-side management programs that control energy use during peak times, along with customers' energy conservation efforts , result in energy savings. Energy saved by one customer can be ava il able for another. Traditional utility-supplied capacity will continue to be essential for providing reliable, affordable tricity. Atlantic Electric's generating sources include base load and peaking units that we own and operate ourselves.

We also own small portions of units ated by other utilities and have arrangements with neighboring utilities for the purchase of energy and capacity.

Altogether , there are over 30 generating its that Atlantic Electric can call on to meet ers' energy needs. If one of those units is not ilable to generate electricity, we can rely on the other units to carry the load. And , these units use ferent fuel sources. In fact, some of them can burn more than one fuel. If fuel supplies are disrupted or become uneconomical , other fuels can be us ed to a greater degree. It's a strategy that believes in the motto, 'Don't put all of your eggs in one basket.' We have learned that it is best to depend on fuel supplies that are native to our country. In the last five years , over 75 percent of the energy generated by Atlantic Electric has been provided by coal and nuclear fuel. Compared to the use of oil, this has saved customers almost $500 million. Customers expect reliable , affordable energy. With Atlantic Electric's broad range of generating sources, fuel and energy management techniques , the prospects for continuing good service and custom e r

• faction are great indeed. KEEPING TRACK OF THE POWER ... How does Atlantic Electric keep track of all the ating units and their ous fuel sources? The answer is Atlantic Electric's system control center. On any given day, the center coordinates energy supply from our own base load and peaking units. The center is linked to the Pennsylvania-New Jersey-Maryland connection, (the "P]M") which integrates Atlantic Electric's operations with those of neighboring ties. The P]M provides pricing and availability information about the units owned by its eleven bers. In addition, the P]M makes it possible to ule and operate all the units in the system, using the most economical ones first. These operations become even more critical when the demand for tricity reaches a peak. In 1990, Atlantic Electric's system reached its peak on]uly 5th. We -1 3-Atlantic Eledlic's system c.ontml center uses state-of-the-an nology to monitor and direct erating station output, measure the load on transmission lines, track weather conditions and pinpoint any trouble spots on the system. Pictured:

Frank Mooney , Jr., shift supervisor.

knew conditions were in place to set a new peak, as hot, humid weather started to settle in over the service territory.

The system control center and the P]M were ready for the record demand that would be placed on the utility network. As the day progressed, the demand for energy increased right along with the ture. The system control center coordinated this growing demand with available generating units. Atlantic Electric was ready. Within hours, the temperature reached 95° and the demand for tricity reached a record level of 1,7 41 megawatts.

Our units delivered the maximum output possible.

Peak demand may pen just a few times each year. But, handling it is all in a day's work for the tem control center.

HARVESTING THE FU TUR

• A prosperous future r e flects careful tion , teamwork and sound business gies in th e present. It comes from doing ordinary tasks in an extraordinary way At Atlantic Energy , the power to shape the future is with us today. It i s found in ment's commitment of time and resources to li sten and learn w hat c ustom ers ex pect from an electric utility, an d then d eve loping e ner gy ser-iliJi.s at competitive prices to satisfy their needs .

• found in the skill , talent and enthusiasm of employees who are given the opportunity to make decisions that make m ea ningful tions to their work. And, it is found in our di versit y , a business strategy that has served us well in the past and will continue to do so. These elements, with proper cultivation and attention, hold the promise for Atlantic Energys s uccess for yea rs to come. Our lab ors today wi ll bring a harvest of pl enty , rich with vices a nd value for o ur customers a nd growth for our shareholders.

Atlantic Electric At-A-Glance .................

...... --;::_,,_._

..,.........

_ ....... Atlantic Electric serves almost 450 , 000 c ustomer s in a 2 ,7 00 square-mile area in the southern one-third of New jerse y Peak load has occurred during the summer months. Major busine sses include gaming, stone, cl ay, glass, chemical, petroleum , rubber and food processing.

• Residential Customers Sales to Residential customers increased 0.1%in1990 as a result of over 6,300 new customers added to the system. Average use per customer decreased because of milder temperatures in the 1990 hea t ing season. % Annual Est. % Annual Growth Rate Est. Growth Rate For the ten-year period 1 985 -1995: 1985 1990 '85-'90 1995 '90-'95 Sa l es (billion kwh) 2.638 3.268 4.4% 3.720 2.6% % of Tota l Sa l es 43 42 43 Average Use (kwh) 7 ,6 43 8,251 1.5% 8,527 0.7% Peak (Mw) 680 895 5.6% 9 41 1.0% Commercial Customers Sa l es to Commercia l customers in creased 5.0% in 1990 as a result of increased customer usage. Sales to 12 hotel/casinos increased 18.9% and comprise 6.8% of total sa l es. %A nnual Est. % Annual Growth Rate Est. Growth Rate For the ten-year period 1 985 -1995: 1985 1990 '85-'90 1995 '90-'95 Sales (billion kwh) 2.299 3.063 5.9% 3.4 9 1 2.7% % of Total Sa l es 37 40 41 Average Use (kw h) 5 1 ,9 45 60,927 3.2% 63,715 0.9% Peak (Mw) 562 671 3.6% 737 1.9% Industrial

& Other Customers Sa l es to Indu strial & Other customers decreased 0.6% in 1990 as a result o f a decrease in th e number o f c u stomers. * %Annual Growth Rate For the ten-year period 1985 -1995: 1985 1990 '85-'90 Sa l es (b illi on kw h) 1.263 1.426 25% % of Total Sales 20 18 Average Use (000 kw h)* 1181.3 1373.7 3.1% Peak (Mw) 190 175 (16)% 'In dustrial Customers Only in billions of kilowatt-hours 8 ................................................. . ... . 7 ...... **********

• • • 6 5 4 3 2 l 0 1.281 2A01 2.839 1.382 1.395 2.592 2.742 3.213 Est. % Annual Est. Growth Rate 1995 '90-'95 1.351 (11)% 1 6 1272.5 (1.5)% 146 (3.6)% 1.435 1.426 )06:3 3.266 .. 3..268. 86 87 88 89 90 A tl antic E l ectric E n ergy Sa l es by Cus tom er C la ss .* -RESIDENTIAL

-COMMERCIAL

-I NDUSTRIAL AND OTHE The growth in kilowatt-hour sa l es is determined by h ow many new cus tom ers are added, how much electricity each customer uses and weather conditions.

Since 1985, kilowatt-hour sales have increased an average of 4.6% each year as a result of customer additions and increased usage per customer Contents m m m m m m m Management

's Discussion and Analysis of Financial Condition and Results of Operation Report of the Audit Committee Report of Management Independent Auditors' Report Consolidated Statement of Income Consolidated Statement of Cash Flows Consolidated Balance Sheet Consolidated Statement of Changes in Common Shareholders

' Equity Notes to Consolidated Financial Statements Summary Financial and Statistical Review Management's Discussion and Analysis of Financial Condition and Results of Operation Atlantic Energy, Inc. and Subsidiaries Atlantic Energy, Inc. (the Company) is the parent of a solidated group consisting of the following wholly-owned subsidiaries

Atlantic City Electric Company (ACE), Atlantic Southern Properties, Inc. (ASP), Atlantic Generation, Inc. (AGI) and ATE Investment, Inc. (ATE). ACE, the primary subsidiary, is a regulated electric utility which has a owned subsidiary that operates certain generating facilities.

ASP owns, develops and manages commercial real estate property.

AGI is engaged in the development of cogeneration and alternate energy projects through various partnership arrangements.

ATE manages capital investments for the Company. The Company'.s business plan has been and will continue to be concentrated on the operations of ACE. Approximately 95% of consolidated assets belong to the utility. With respect to the nonutility businesses, the Company follows a vative and modest strategy:

investments will be made only in activities that utilize familiar management resources, vide acceptable return in relation to the level of risk and are ctionally related to the utility business.

The Company ts and restructures the business plans and operations of onutility companies as necessary to reflect changes in consolidated tax position, economic conditions in the vice territory and operating results. As a result, management expects to direct resources to the activities of AGI and the development of alternate power projects, principally cogen-eration. ASP and ATE will continue to manage their existing investments.

With respect to ASP and ATE, new investments would be undertaken in light of the Company's consolidated tax position, economic conditions and an acceptable balance of risk and reward. Nonutility operations for 1990, 1989 and 1988 resulted in losses amounting to $275,000, $1.9 million and $2.0 lion, net of income tax benefits, or $.01, $.09 and $.10 per share, respectively.

ATE has provided positive results to solidated earnings from its investments in leveraged leases. Due to a general slowdown in real estate activity and a tinuing over-supply of local rental office space, ASP'.s results continue to show losses. AGI continues to experience operating losses due to higher than expected costs incurred in nection with certain cogeneration projects.

FINANCIA L RESULTS Consolidated operating revenues for the twelve months ended December 31, 1990 , 1989 and 1988 were $716.8 million, $705.0 million and $675.9 million, respectively.

The increased revenues reflect increases in sales of energy and, in 1990, the effects of a provisional base rate increase granted in June.

\lanagcmcnt'-, Discu-,-,ion and .\nal> -,i-, ol Financial Condition and Result-, ol Operation Atlantic En"'X)', Inc. and Subsidiaries Consolidated earnings per share for 1990 were $3.02 on net income of $68.9 million , compared with $3.74 on net income of $81.0 million in 1989 and $3.68 on net income of $72.2 million in 1988. The decrease in net income and earnings per share in 1990 from 1989 reflects higher ing expenses, primarily associated with the purchase of capacity from Philadelphia Electric Compan y (PE), which commenced June 1 , 1990. Net income for 1990 was also affected by increases in depreciation expense, the amount of taxes recorded, interest expense and Preferred Stock dend requirements of ACE. Earnings per share were also affected by an increase in the average number of shares of Common Stock outstanding during 1990. The increase in earnings per share in 1989 from 1988 is primarily due to higher net income resulting from higher sales of energy, set in part by increases in operating expenses. Earnings per share were also affected by an increase in the average ber of shares of Common Stock outstanding in 1989. Earnings in 1989 and 1988 were impacted b y regulatory actions relating to the shutdown of the Peach Bottom Atomic Power Station. The per share impacts of those actions amounted to reductions of $.30 and $.34 , respectively, in 1989 and 1988. In June 1990 , the quarterl y dividend on Common Stock was increased by $.02 to $.74 per share , or an annual rate of $2.96 per share. This is the 38th consecutive year in which cash dividends paid were increased.

Information with respect to Common Stock for the period 1988-1990 is as follows: 1990 1989 1988 Dividends Paid Per Share $ 2.92 $ 2.82 $ 2.77 Book Value Per Share $ 28.73 $28.54 $27.16 Annualized Dividend Yield 8.7% 7.5% 8.4% Return on Average Common Equity 10.6% 13.6% 14.2% Total Return (Dividends paid plus change in share price) (4.4)% 26.2% 16.0% Market to Book Value 118% 135% 121% Price/Earnings Ratio 11 10 9 Closing Price -New York Stock Exchange $33.875 $38.50 $32.75 LIQUIDITY AND CAPITAL RESOURCES Overview The Company commenced its business under a holding company structure in November 1987. Since its inception, the Company's cash flows have been dependent on the cash flows of its subsidiaries , primarily ACE. Principal cash inflows of the Company are the payment of dividends to it by ACE and funds provided b y the issuance of new Common Stock. Principal cash outflows of the Company are investments (capital contributions and advances) in its sidiaries and the payment of dividends to common holders. Cash invested in ACE is utilized primarily for the construction of utility generating , transmission and tion facilities, redemption and maturity of long and short term debt , and redemption of Preferred Stock. Cash invested in the nonutility subsidiaries is utilized primarily for the development of commercial real estate , the development of nonutility power generation projects and investments in financial assets. To facilitate the activities and operations of the subsidiaries, certain credit support agreements exist between the Compan y and ATE and between the Company and ASP In addition , agreements between the Company and each of its subsidiaries provide for allocation of tax liabilities and fits generated by the respective subsidiaries.

In 1990 , 1989 and 1988 , the Company recorded $67.1 lion , $62.4 million and $54.5 million , respectively, in dends from ACE. Other sources of funds utilized by the Compan y include the issuance of common equity through public offerings, the operation of the Dividend Reinvestment and Stock Purchase Plan (DRP) and ACE's employee bene

• plans, as follows: Issuance of Common Stock 1990 1989 1988 ($000) Public Offerings Shares issued 2,200 , 000 1,300,000 Proceeds $69 , 850 $42,641 DRP Shares issued 379,599 339 , 603 355,047 Proceeds $13,372 $11 , 719 $11,680 Employee Benefit Plans Shares issued 50,672 8,716 9,995 Proceeds $ 1,753 $ 326 $ 332 The Company's current financing plans for 1991-1993 template the issuance of approximately

$150.0 million in additional common equity In 1990, the Company declared $67.1 million in dividends to its common shareholders, and made $10.6 million in ital contributions and advances , net of repayments, to its subsidiaries.

In 1989 and 1988, the Company declared $62.4 million and $54.5 million, respectively , in dividends. In 1989 and 1988, the Company made $83.7 million and $51.4 million, respectively , in advances and capital tions to its subsidiaries.

Cash construction expenditures for the 1988-1990 period amounted to $439.0 million a n d included expenditures for two new combustion turbine units and upgrades to existing transmission and distribution facilities.

ACE's current mate of construction expenditures for the 1991-1993 period is $519.0 million, an increase of 18.2% from the prior year period. These estimated expenditures reflect the tion of new generating equipment as well as major improvements to transmission and distribution facilities.

ACE also utilizes cash for mandatory redemptions of Preferred Stock and maturities of long term debt. Optional redemptions of securities are reviewed on an o n going basis with a view toward red u cing t h e overa ll cost of funds. Redemptions and maturities of Preferred Stock (at par or stated va l ue) and First Mortgage Bonds for the period 1988-1990 are shown below: 1990 1989 1988 Preferred Stock (number of shares) 9.96% 8,000 8,000 8,000 $8.25 2,500 2,500 2,500 $9.45 30,000 40 , 000 nt (000) $ 1,050 $ 4,050 $ 5,050 t Mortgage Bonds Principal Amount Retired (000) $21,215 $15,800 $10,000 In October 1990, ACE redeemed $21.215 million principal amount of First Mortgage Bonds , ll 1t2% Series due 2015 at a redemption price of 108.53%. In December 1989, $13.025 million principal amount of ll7i fl% Series First Mortgage Bonds due 1993 were redeemed at a price of 101.52%. Scheduled debt maturit i es and mandatory Preferred Stock sinking fund requirements aggregate

$33.0 million for the years 1991-1993.

ACE's cash flows from operating activities after dividends on Preferred Stock and Common Stock (internal generation) amounted to $75.2 million, or 45.1%of1990 construction expenditures.

In 1989 and 1988, ACE's internal generation was $58.8 million and $63.9 million, and represented 40.5% and 50.3%, respectively, of construction expenditures. For the three-year period 1991-1993, ACE's internal tion is expected to average 50.1 % of currently estimated construction expenditures.

However, actual levels may vary within the period based upon specific amounts of tion expenditures and internally generated funds in the indi-. al years. times coverage 4 ......................... . 3.68 3 ..... *T99** . 3-.06... . .: U.9... . ... :i.94 2* 1 . 0 86 87 88 89 90 Atlantic Electric Pre-Tax Interest Coverage Ratio This ratio measures the ability of Atlantic Electric to m eet its interest payments to creditors.

It is the number of times that interest c harges are "covered" by earnings before the payment of income taxes. For an 'A' rated company, pre-tax coverage should be between 2.5 and 4.0. in percent Atlantic Energy Year-End Capitalization

-COMMON EQUITY -PREFFERED STOCK -LONG TERM DEBT -SHORT TERM DEBT Atlantic Energy's capitalization is the relative proportion of equity funds provided by its owners, com mon and preferred shareholders , and borrowed funds provided by creditors, holders of short and long term debt securities.

M a nag e ment's D i scu ss ion and Anal ys is of Fin a ncial Condition and R e sults of Operation A tlanti c E n ergy, Inc. a nd S ub si dia ries in cents 10 ...... ***** *******************************************

8 6 4 2* 0 8.8 9.1 9.0 9.0 86 87 88 89 90 Atlantic Electric Av erage Booked Revenue per Kilowatt-Hour 9.2 This i s Atl a ntic El ec tri c's t o tal r e v e nu e di v ided b y t o t a l kil o watt-hours a s r eco rd e d on th e bo oks o f th e co mpan y. It re pr e s e nt s th e a ve ra ge am o un t of r e v e nu e r ece ived f o r e a c h kil o watt-hour so ld. as a perc e n t 35 .. . ............. . 30 . 31.0 25. 20 15 . 10. 0 Atlantic Energy AFDC as a Percent of Net Income Atlant ic En e r gy's n e t in co m e includ es an a cco untin g all o wan ce f o r th e co st of b o rr owe d a nd e qui ty fu n ds u se d for so m e co n s tru c ti on p ro j ec t s. B e cau se A FD C r e pr ese n ts a n o n-c ash a dditi on t o n e t in co m e , it i s pr e f e rabl e to maintain a l o w rati o. in millions o f do ll ars 300 .................................

... . 250 ............ . 1 9.9 253"5 200 .. 150 . 100 1"5".1 1 87.6 **27: 9** 17 9.2 50. 0 Atlantic E nergy Cash Requirements and Internal Generation of Funds -CONS TRU C TI ONS & O TH E R -I N TER NAL CAS H GENE RA T I ON -MATU RIT!E S , RETI RE MEN T S, S I NK I NG F UN D S Thi s co mp a r es th e amount of cas h exp e nditur es f o r co nstru c ti o n and oth e r ca pital n ee ds t o the a mount of c ash that i s ie n e rat e d int e rn a ll y from th e co mp a n y's o p erations a ft e r t h e p ay m e nt oj d ivi d e n ds to s h a r e h o ld e r s. Th e dif.f e r e n ce b e tw ee n the a m o unt of cas h t h at i s r e quir e d a nd the a m o unt of c ash that i s ge nerat e d internall y is th e am o unt o f funds that will h a v e t o b e ra i se d i n t he c apit al m a rk e t s. *Excl u des cert a i n optio n al r e ti re m e n ts On an interim basis, ACE finances that portion of its struction c osts and other capital requirements in exc e ss of internall y g e nerated funds through the issuance of cured short term debt consisting of commercial paper and borrowings from banks. Permanent financing b y ACE is undertaken by the issuance of its long term debt and Preferred Stock , and from capital contributions from the Compan y. ACE's nuclear fuel requirements associated with its jointly-owned units have been financed through ments with nonaffiliated corporations.

In July 1990 , ACE received proceeds of $49.9 million from the issuance and sale of 500 , 000 shares of $8.20 No Par Pref erred Stock. ACE also received $13. 5 million in capital contributions from the Company during 1990. In October 1989 , ACE issued and sold $135 million principal amount of First Mortgage Bonds , 9%% Series due 2019. ACE also received $69.3 million in capital contributions from the Company during 1989. In 1988 , ACE received proceeds of $60.0 million from the issuance of 600,000 shares of $8.53 No Par Preferred Stock, and received $40.0 million in capital contributions from the Company. During the three-year period 1991-1993 , ACE exp e cts to issue $150.0 million in First Mortgage Bonds and Preferred Stock , and to receive $134.0 million in capital contributi from the Company. Between October 1989 and Jan u ary 1991 , two major rating agencies lowered their ratings on ACEs senior debt to a rating equivalent to 'A and Preferred Stock to a rating equivalent to 'A-'. In taking these actions , the agencies cited ACE's on-going construction program and its continuing need for external financing and growing capacity requirements.

T h e effect of these actions will be to increase ACEs financing costs. Provisions of ACE's charter, mortgage and debenture ments can limit , in certain cases , the amount and type of additional financing which ma y be used. At December 31, 1990, ACE's estimated additional funding capacities amounted to $362.6 million of First Mortgage Bonds , or $335.2 million of Preferred Stock , or $313.5 million of unsecured debt. These amounts are not necessarily additive. ASP ASP's real estate inv e stment to date has be e n the purchase and improv e ment of a 275,000 square-foot office and house facilit y in Atlantic County , New jerse y , of which approximately 56% of the office space is leased to ACE. As of December 31 , 1990 , ASP's investment has been funded by capital contributions from the Compan y and borrowings under a loan agreement with ATE. ASPs current agreement with ATE provides for the repayment of such borrowings on or before Ma y 31, 1991 , but this date may be ext e ndedestimates that its business activities in the 1991-199 3 p will be limited to the development of the existing proper and that additional investment will not be significant.

ASP's cash flows from op e rating activities are principally affected b y rental income and financing expenses.

ATEs operations commenced in 1988 and to date it has ed in leveraged leases of three commercial aircraft and two contai n erships. Through December 31, 1990, its cash outlay for that equipment was $60.9 million. ATE also has made loans to ASP totaling $6.5 million. Additional capital ments associated with lease investments include deferred equity payments in future years of $8.4 million. As of December 31, 1990, ATE obtained funds for its business activities and loans to ASP through capital contributions and advances of $11.6 million, net of repayments, from the Company. Funds also have been provided by a revolving credit and term loan facility.

A t year-end 1990, borrowings u nder the $70 million facility totaled $38.9 million. Future investments by ATE will be undertaken with respect to the Companys consolidated tax position.

ATEs cash flows from operatio n s are expected to be provided from lease rental receipts, realization of tax benefits and loan repayments from ASP. AGI Net cash outlays for investments by AGI for the period 1988-1990 totaled $12.3 million. AGis activities are sented by partnership interests in cogeneration development projects.

Such activities have been funded by a combination t pital contributions, loans and advances. At December 990 , $14.3 million has been invested in AGI by the pany. AGI's current business plan for the period 1991-3 is to invest up to an additional

$12.0 million in eration, generation and alternate power projects.

AGis business activities are primarily directed toward developing new proj-ects and therefore it does not yet generate cash from operations.

RESULTS OF OPERATION Operating results are dependent upon the performance of the subsid i aries, primarily ACE. Since ACE is the principal subsidiary within the consolidated group, the operating results presented in the Consolidated Statement of Income are those of ACE, after elimination of transactions among members of the consolidated group. Results of the nonutility companies are reported in Other Income. Revenues Operating Revenues-Electric increased

$11.8 million or 1.7% in 1990 to $716.8 million , compared to $705.0 million in revenues in 1989. Total revenues in 1989 increased

$29.1 million or 4.3% over 1988. Components of the overall changes are shown below: (in millions) 1990 1989 Base and Unbilled Revenues $ 16.2 $ (15.8) Levelized Energy Clauses (17.5) 20.5 -*u-hom s.1<. 13.1 24.4 $ 11.8 $ 29.1 Base reven u es in 1990 increased as a result of a $41. 6 lion provisional base rate increase ordered effective June 20, 1990. Base revenues decreased in 1989 primarily as a result of a $21.8 million rate reduction ordered in April 1988, mainly reflecting the effects in 1988 of the Tax Reform Act of 1986. Base revenues in 1989 were also affected by revenue credits to ACE's customers of $9.7 million resulting from the regulatory treatment of the Peach Bottom outages. Levelized Energy Clause (LEC) revenues decreased in 1990, reflecting a net decrease in LEC revenues of $35.8 million ordered effective June 20, 1990. LEC revenues in 1989 increased as a result of a $62 .1 million rate increase ordered effective in April 1988. Overall, the combined effects of changes in rates charged to customers and kilowatt-hour sales resulted in increases of 1.7% and 0.5% in revenues per kilowatt-hour in 1990 and 1989, respectively.

These matters are discussed under " Sales." Changes in operating revenues in the future will result from changes in customer rates and general economic conditions in the service area, as well as the impacts of load ment and conservation programs instituted by ACE and cogeneration projects established within the service territory.

Sales Changes in kilowatt-hour sales are generally due to changes in the average number of customers and average customer use, which is affected by economic and weather conditions.

Energy sales statistics, stated as percentage changes from the previous year, are shown below: Customer Class 1990 1989 Avg Avg# Avg Avg# Sales Use of Cust Sales Use of Cust Residential 0.1% (1.6)% 1.6% 1.6% (0.9)% 2.6% Commercial 5.0 3.4 1.5 6.4 4.0 2.3 Industrial (0.3) 0.3 (0.6) 3.1 3.7 (0.6) Other (7.6) (5.5) (2.2) (4.3) (3.8) (0.5) Total 1.8 0.2 1.6 3.6 1.1 2.6 Increases in total kilowatt-hour sales in 1990 and 1989 are primarily a result of increased numbers of customers in the Residential and Commercial classes and higher average use by Commercial customers.

In 1990, sales to Residential and Commercial customers were adversely affected by milder weather during the 1990 heating season. The slight increase in sales to Residential customers in 1990 was due to an increase in the number of customers. Commercial sales increased 5.0%, due to higher average use per customer and an increase in the number of customers in that class ing the opening of a new hotel-casino.

Industrial sales

\lanagcrncnt's Discussion and .\nalysis of rinancial Condition and Results of Operation A tlanti c E n ergy, In c. a nd S ub si d i a ries declined slightly in 1990 as a result of a general economic slowdown, notably in the construction sector. In 1990 , nomic growth in ACEs service area reflected the overall eral economic weakness in the northeastern United States , with a strong local downturn in construction activity ing sales to all customer classes. Costs and Expenses Total Operating Expenses increased 3 .8% and 3 .1 % in 1990 and 1989 , respectively.

Excluding depreciation and taxes , operating expenses increased 2.1%and3.9%

in 1990 and 1989, respectively.

Information with respect to those changes is outlined below. Net Energy Costs reflect the amount of energy needed to meet load requirements, as well as the various fuel and chased power sources used and the operation of the LECs. Annual fuel , interchange and purchased power costs reflect changes in the availability of low-cost generation from both owned and purchased sources and in the unit prices of the fuel sources used , as well as changes in the needs of other utilities participating in the Pennsylvania-New Maryland Interconnection. The cost of energy is recovered through base rates and by the operation of LECs. Earnings are not directly affected by Net Energy Costs because such costs are adjusted to match amounts recovered through revenues.

In any period, the actual amount of LEC revenue recovered from customers will be greater or less than the actual amount of fuel cost incurred in that period. Such respective overrecovery or underrecovery of current fuel cost is recorded on the Consolidated Balance Sheet as a liability or an asset as appropriate. These amounts are recognized in the Consolidated Statement of Income as Deferred Energy Costs during the period in which they are subsequently recovered through the LECs. Fuel expenses decreased in 1990 compared with 1989 as a result of increased availability of nuclear generation from the Peach Bottom Station. Increased fuel expenses in 1989 compared with 1988 are due primarily to higher levels of kilowatt-hour sales. Interchange expenses in 1990 and 1989 decreased as a result of improved availability of wholly-and jointly-owned sources and , in 1990, the purchase of energy from PE. Deferred Energy Costs increased in 1990 and 1989 as a result of overrecovery of fuel cost. The 1990 average fuel cost per kilowatt-hour was 1.66¢ compared with 1989 and 1988 average fuel cost per kilowatt-hour of 1.96¢ and 1. 99¢, respectively.

The decrease in 1990 average fuel cost per kilowatt-hour is due to a 30% increase in nuclear ation and the purchase of energy from PE. The average fuel cost for 1989 was lower than 1988 because of increased nuclear generation and lower unit fuel prices. The 1988 average fuel cost per kilowatt-hour reflects generation from higher cost coal sources. Operations and Maintenance expenses amounted to $243.3 million in 1990 and include costs associated with jointly-owned generating units and purchased power sources. Costs of purchased power, exclusive of fuel, principally reflect chases of capacit y under long term arrangements. Operations expenses increased by 14.0% in 1990 to $191.0 million primarily due to increased capacity charges relating to a four-year purchase power arrangement with PE. Operations expenses increased 3 .1 % in 1989 and reflect increases in purchased capacity and employee benefits.

Maintenance expenses decreased 5.2% and 7.5% in 1990 and 1989 , respectively, reflecting the completion of major nuclear unit overhauls at jointly-owned nuclear facilities that were underway in 1988 and 1989. In addition, the mentation of various cost containment programs by ment have been successful in controlling the growth of certain expenses. Costs associated with certain long term purchase power arrangements are deferred on the Consolidated Balance Sheet since rates are levelized to collect those costs over the term of the arrangements.

The balance of such Unrecovered Purchased Power Costs at December 31, 1990 was $124.9 million , compared to $103.0 million at December 31 , 1989. Depreciation and Amortization expense increased 6.3% to $62 .1 million in 1990 and reflects variances in depreciatia expense resulting from the cost and mix of electric utility plant in-service and the respective in-service dates. Gross Receipts and Franchise Taxes increased 4.7% to $87.3 lion in 1990 due to an increased level of revenues subject to the tax. Federal Income Taxes increased 17.7% to $26.9 million in 1990. Federal Income Taxes decreased by 13.6% in 1989. Changes in Federal Income Taxes are detailed in Note 2 of the Notes to Consolidated Financial Statements. Interest Charges before the Allowance for Borrowed Funds Used During Construction rose to $56.4 million in 1990 compared to $53.3 million in 1989 and $52.2 million in 1988. Interest on Long Term Debt in 1990 increased as a result of the issuance in October 1989 of $135 million of First Mortgage Bonds, 9%% Series due 2019. At December 31, 1990 and 1989, ACE's embedded cost of Long Term Debt was 9.2% compared with 9.1 % at year-end 1988. Interest on Short Term Debt decreased in 1990 as the result of lower average balances outstanding and lower average interest rates. The increase in short term interest expense in 1989 over 1988 reflects higher average balances and higher average interest rates. Other Interest Expense in 1988 includes payments to customers resulting from the recovery of LEC revenues in prior years, as ordered by the New jersey Board of Public Utilities (BPU), and interest on deposits from third parties for cogeneration projects.

• The Allowance for Funds Used During Construction (AF including both the Borrowed Funds portion, which reduces interest expense, and the Equity Funds portion, shown under Other Income , was $4.0 million in 1990, $2.8 million

-89 and $3.2 million in 1988. The allocation of AFDC i.5 a function, among other factors , of the amount of construction in progress.

Increased Preferred Stock Divi.dend Requirements for 1990 reflect the issuance in July of 500 , 000 shares of $8.20 N o Par Preferred Stock , and for 1989 reflect the issuance in September 1988 of 600 , 000 shares of $8.53 No Par Preferred Stock. These incr e ased requirements w ere offset in part b y the effects of sinking fund payments for the 9.96% and $8.25 Series of Preferred Stock in each of th e three years, and in 1989 and 1988 for the $9.45 No Par Preferred Stock. Embedded cost of Preferred Stock was 7.7% at December 31 , 1990, and 7.5% at December 31 , 1989 and 1988. OUTLOOK The nature of the electric utilit y business is capital intensi v e. ACE's ability to generate cash flows from operating activi.ties and its continued access to the capital markets is affected b y the timing and adequac y of rate relief, competition and the economic vi.talit y of its servi.ce territory. Income of ACE has been and ma y continue to be affected by the operational p e rforman c e of nuclear generating facilities. In Jul y 1990, the BPU revi.sed the nuclear performance stan-a for electric utilities under ltS JUrisd1ction.

These are .wn s of kil o watt-h o ur s 6% 1 0% 1% 11% 10% 6 2% i 6% 3% 27% 11% 3 1% 35% 56% + 45% 42% 2 0 considered generally more stringent than previ.ous dards and could result in higher penalties , depending on the actual performance of jointly-owned nuclear units in which ACE has an ownership interest.

The financial performance of ACE also will be affected in the future by the level of sales of energy and the impacts of lation. In September 1990, ACE filed a request for a $113.0 million increase in base rates. A decision on the request is e xpected in the second half of 1991. The amount earned on capital investments by the utility is subject to general ness conditions and regulation.

Other issues which may impact the electric utility business include public health , safety and envi.ronmental legislation. Recent Federal legislation has served to encourage the opment of electric generating facilities b y nonutilities. Development of several such projects is currentl y underway in ACE'.s servi.ce territory. It is estimated that , if all such projects were to be completed , by 1994 these projects could displace the equivalent of 5.5% and 3.9% of 1990 hour0.023 days <br />0.553 hours <br />0.00329 weeks <br />7.57195e-4 months <br /> sales and revenues , respectively.

That effect could be offset to some extent b y natural growth in the s e rvi.ce tory and additional efforts b y ACE to r e duce the impact of the potential loss of kilowatt-hour sales and revenues.

As a result of economic conditions in the servi.ce territor y, .... ... 7% 3% 1 0% 29% 5 1% 15%* 2% 4% 38% 41% 86 87 88 89 90 Atlantic Electric Total Sources and Costs of Energy '8 6 '87 '88 '8 9 '9 0 in c ents per kil o watt-h o ur 2.4 8 3.07 3.4 0 2.86 1.59.

• I NTE R CHANGE 3.80 3.55 4.77 3.35 3.2 1

• NATURA L GAS 4.09 3.4 7 3.4 3 3.46 4.65 .OIL 0.93 0.89 0.87 0.83 .NUC L EA R 1.85 2.05 2.09 2.06 .COA L 1.81 1.92 1.9 9 1.96 1.66 YEARLY AVERAGE F o r e a c h o f th e last fi ve ye ars , coa l a nd nucl e ar Juel so ur ces co mb i n ed h ave produ ce d 75% o f Atlanti c El ec tri c's t o tal e n e r gy r e quir e m e nts. The se fu e l s ar e pr o du ce d w ithin th e U nit e d S tat es and are t h e m o st in expe n s i ve co mp a r ed to o th e r f uel s.

• Includ es pur c h ased p o w e r f rom PE -2 3-Management's Discussion and r\nalysis of financial Condition and Results of Operation Atlantic En"'X)', Inc. and Subsidiaries ACE estimates that the rate of growth of overall sales of gy will be slower than that experienced in recent years, the extent of which presently is not determinable. The amount and timing of ACE's projected construction program is premised on the availability of generating capacity from nonutility sources described above. If for any reason these projects are delayed or do not materialize, or if load growth is greater than estimated, it may become necessary for ACE to increase its construction program. Such an increase would put additional burdens on ACE to generate cash from tions and on ACE's financing programs. Amendments to the Clean Air Act enacted in 1990 relating to acid rain and limitations on emissions at electric ing plants will require modifications at certain of ACE's ities, and compliance will cause ACE to incur additional operating and/or capital costs , the exact extent of which has not yet been determined. The New jersey Department of Environmental Protection (NJDEP) has proposed modifications to certain mental permits at the Salem Nuclear Generating Station. The Salem owners have opposed these modifications.

Compliance with the NJDEP proposed modifications would require the construction of cooling towers, at costs which Report of the Audit Commillee Atla n tic En"'X)', Inc. and Subsidiaries The Audit Committee of the Board of Directors is composed solely of independent directors.

The members of the Audit Committee are: Richard B. McGlynn , Chairman, Jos. Michael Galvin, Jr., Gerald A. Hale, Matthew Holden, Jr., Madeline H. McWhinney and Harold]. Raveche. The Committee held six meetings during fiscal year 1990. The Audit Committee oversees the Companys financial reporting process on behalf of the Board of Directors.

In filling its responsibility, the Committee recommended to the Board of Directors, subject to shareholder ratification, the selection of the Company's independent public accountants. The Audit Committee discussed with the internal auditors and the independent public accountants the overall scope and specific plans for their respective audits. The Committee also discussed the Company's consolidated financial state-could be substantial, and would require extended outage. upon completion of construction in order to be integrated with the existing systems. Certain accounting standards applicable to the Company have been issued by the Financial Accounting Standards Board but not yet adopted by the Company. One standard , effective in 1992, relates to the accounting for income taxes and is not expected to have a material effect on the results of operations or financial position.

Another standard, effective in 1993, relates to the accounting for post-retirement fits other than pensions and will significantly increase the annual costs of benefits recognized in future years over the amount currently recognized.

This impact should be ened by continued contributions to the trusteed plan as well as through rate regulation.

INFLATION Inflation affects the level of operating expenses and also the cost of new utility plant placed in service. Traditionally, the rate making practices that have applied to ACE have involved the use of historical test years and the actual cost of utility plant. However, the ability to recover increased costs through rates, whether resulting from inflation or otherwise, depends upon the frequency, timing and results of rate case decisions.

ments and the adequacy of the Company's internal control structure with the independent public accountants.

The Committee met regularly with the Company's internal tors and independent public accountants, without ment present, to discuss the results of their examinations , their evaluations of the Companys internal control structure and the overall quality of the Companys financial reporting.

The meetings also were designed to facilitate any private communication with the Committee desired by the internal auditors or independent public accountants.

Richard B. McGlynn Chairman, Audit Committee

• Report ol Management

.n ergy, In c. a nd S ub si di a ri£s REPORT OF MANAGEMENT The management of Atlantic Energy , Inc. and it subsidiaries is responsible for the preparation of the financial statements presented in this Annual Report. The financial statements have been prepared in conformit y with generally accepted accounting principles.

In preparing the financial statements, management made informed judgments and estimates, as necessary, relating to events and transactions reported.

Management is also responsible for the preparation of oth e r financial information included els e where in this Annual Report. Management has established a s y stem of int e rnal accounting and financial controls and procedures designed to provide reasonable assurance as to the integrit y and reliabilit y of financial reporting. This s y stem i s examined b y management on a c ontinuing ba s is for effecti ve ness and effi c ien cy. Management belie v es that , as of December 31 , 1990, the s ystem of internal accounting and financial controls is quate to accomplish its objectives. Management also niz e s its responsibility for fostering a strong ethic a l climat e in which the Compan y s affairs are c onduct e d a ccording to the highest standards o f corporat e conduct. This ity is characterized and reflected in the Company's code of et and busin e ss conduct policy. ncial statements have been audited b y Deloitte & e , Certified Public Accountants. The auditors provide an obje c ti v e, independent review as to manag e ment's charge of its responsibilities insofar as they relate to the fair-Independent Auditors*

Report Atlantic Energy, Inc. and Subsidiari£S Deloitte&

Touche Certified Pub li c Accou nt ants One World Trade Center New York , New York 1 0048 To the Shareholders and the Board of Directors of Atlantic Energy, Inc.: W e ha v e audited the a ccompanying consolid a ted balance sheets of Atlantic Energy, Inc. and subsidiaries as of December 31, 1990 and 1989 and the related consolidated st a tements of income , changes in common shareholders

' e quit y , a nd of ca s h fl ow s for e ac h o f the three y ears in the p e ri o d ended D e c e mber 31 , 1990. Thes e financial s tat e m e nt s ar e the responsibility o f th e C o mpan y's m a nag e m e nt. Our responsibility is to express an opinion on thes e financial

• nts based o n our audits. ducted our audits in accordance with generall y 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 include s examining, on a test basis , ness of reported operating results and financial condition.

Their examination is based on procedures believed b y them to provide reasonable assurance that the financial statements are not misleading and includes a review of the Companys internal control structure and tests of transactions. The internal auditing function conducts audits and appraisals of the Compan y s accounting and other tions , and evaluates the financial and operational control procedures which have been established, and compliance with those procedures. Both Deloitte & Touche and the internal auditors periodically make recommendations cerning the Company's internal control structure, and agement responds to such recommendations as appropriate in the circumstances. None of the recommendations made for the y ear ended December 31 , 1990 represented cant deficiencies in the design or operation of the Companys internal control structure. J.L.Jacobs P re s id e nt J. G. Salomone Vice Pr es id e nt a n d T rea sur er evidenc e supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made b y management , as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion. In our opinion , such consolidated financial statements sent fairly , in all material respects , the financial position of Atlantic En e rg y, Inc. and its subsidiaries at December 31, 1990 and 1989 and the 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. January 31 , 1991 Consolidated Statement ol Income Atlantic Energy, Inc. and Subsidiaries Thousands of Dollars Operating Revenues-Electric Operating Expenses:

Energy: Fuel Interchange Deferred Costs Net Energy Costs Operations Maintenance Depreciation and Amortization Gross Receipts and Franchise Taxes Federal Income Taxes Other Taxes Total Operating Expenses Operating Income Other Income: Allowance for Equity Funds Used During Construction Miscellaneous Income-Net Total Other Income Income Before Interest Char es Interest Charges: Interest on Long Term Debt Interest on Short Term Debt Other Interest Expense Total Interest Charges Allowance for Borrowed Funds Used During Construction Net Interest Charges Preferred Stock Dividend Requirements of Subsidiary Net Income Average Number of Shares of Common Stock Outstanding (in thousands)

Per Common Share: Earnings Dividends Declared Dividends Paid The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. $716,779 134,493 6,799 20,136 161,428 190,951 52,351 62,141 87,314 26,917 11,115 592,217 124,562 1,727 7,585 9,312 133,874 54,803 1,510 109 56,422 (2,226) 54,196 (10,799) $ 68,879 22,795 $3.02 $2.94 $2.92 F o r the Years Ended December 31 1989 1988 $705,020 $675,859 149,808 17,312 6,604 173 , 724 167,435 55 , 203 58,485 83,396 22,865 9,167 570 , 275 134 , 745 5 , 450 5 , 450 140,195 47 , 131 5 , 231 909 53 , 271 (2,805) 50,466 (8,765) $ 80,964 21,634 $3.74 $2.85

$2.82 $ 145,225 18,138 (3,838) 159,525 162,362 59,649 54 , 799 80,556 26 , 471 9,718 553,080 122 , 779 359 4,362 12 44,506 4 , 958 2 , 723 52,187 (2,823) 49,364 (5,965) 72,171 19 , 593 $3.68 $2.74

$2.77 *

( onsolidatcd Statement of Cash rim\ s .tic Energy, Inc. and Subsidiaries Thousands of Dollars Cash Flows Of Operating Activities:

Net Income Deferred Purchased Power Costs Deferred Energy Costs Noncash items affecting operating activities

Preferred Stock Dividend Requirements of Subsidiary Depreciation and Amortization Allowance for Funds Used During Construction Investment Tax Credit Adjustments-Net Deferred Income Taxes-Net Net Decrease (Increase) in Other Working Capital Other-Net Net Cash Provided by Operating Activities Cash Flows Of Investing Activities:

Utility Cash Construction Expenditures Leveraged Lease Investments Leased Property Nuclear Decommissioning Trust Fund Deposits Nonutility Property and Equipment oval Costs r-Net t Cash Used by Investing Activities Cash Flows Of Financing Activities

Proceeds from Long Term Debt Retirement and Maturity of Long Term Debt Increase (Decrease) in Short Term Debt Proceeds from Capital Lease Obligations Common Stock Issued Preferred Stock Issued Redemption of Preferred Stock Dividends on Preferred Stock Dividends on Common Stock Other-Net Net Cash Provided by Financing Activities Net Increase (Decrease) in Cash and Temporary Investments Cash and Temporary Investments, beginning of year Cash and Temporary Investments, end of year Supplemental Schedule of Payments: Interest Federal income taxes The accompanying Notes to Consolidated Financial Statements are an integral part of these s tat ements .

• 1990 $ 68,879 (21,840) 20,136 10,799 62,141 (3,953) (2,349) 15,177 11,669 1,290 161,949 (166,818) 3,993 (10,576) (1,920) (129) (3,912) (4,200) (183,562)

(28,625) 43,950 10,576 15,106 50,000 (1,050) (10,799) (67,085) (4,329) 7,744 (13,869) 37,539 $ 23,670 $ 58,080 $ 19,279 For the Years Ended December 31 1989 1988 $ 80 ,964 $ 72,171 (19,660) (18,110) 8,560 (3,838) 8,765 5,965 58,485 54,799 (2,805) (3,182) (2,449) (217) 17,616 14 , 642 (18,880) (2,591) 902 4,939 131 , 498 124,578 (145,081)

(127,099)

(27,777) (32,615) (9,229) (5,144) (3,263) (5,561) (3,536) (4,214) (4,286) (8,963) (4,548) 708 (197,720)

(182,888) 150,183 26,500 (15,998) (10,000) (61,000) (2,700) 9,229 5 , 144 81 , 244 54,563 60,000 (4,050) (5,050) (8,765) (5,965) (62,395) (54,455) (4,044) 90 84,404 68,127 18,182 9,817 19,357 9,540 $ 37,539 $ 19,357 $ 52,817 $ 48 , 922 $ 14,284 $ 10,822 Consolidated Balance Sheet Allanlic Energy , Inc. and Subsidiaries Th o usands o f Dollar s Assets Electric Utility Plant: In Service: Production Transmission Distribution General Total In Service Less Accumulated Depreciation Net Construction Work in Progress Land Held for Future Use Leased Property-Net Electric Utility Plant-Net Nonutility Property and Investments:

Investment in Leveraged Leases Nuclear Decommissioning Trust Fund Non utility Property and Equipment-Net Other Investments and Funds Total Nonutilit Pro ert and Investments Current Assets: Cash and Working Funds Temporary Cash Investments Accounts Receivable:

Utility Service Miscellaneous Allowance for Doubtful Accounts Unbilled Revenues Fuel (at average cost) Materials and Supplies (at average cost) Prepayments Deferred Taxes Deferred Energy Costs Total Current Assets Deferred Debits: Propert y Abandonment Costs Unrecovered Purchased Power Costs Deferred Energy Costs Unamortized Debt Costs Other Total Deferred Debits Total Assets T h e accompa n yi n g No t es to Consoli d ated Financia l Statements are an integral pan of these sta t ements. -2 8-December 31

• 1990 1989 $ 953,342 $ 897 , 238 281,431 268 , 258 494,807 454,819 119,892 104 , 962 1,849,472 1 , 725 , 277 504,202 459 , 223 1,345,270 1,266,054 114,622 81,240 5,073 6 , 459 57,971 33 , 146 1,522,936 1 , 386 , 899 75,156 73 , 217 11,784 9 , 235 15,003 15 , 336 7,425 7 , 463 109,368 105 18,670 15 , 189 5,000 22,350 48,461 53 , 062 17,767 13 , 067 (2,000) (1 , 800) 34,849 38 , 904 26,262 21 , 776 28,221 31 , 404 12,113 13,694 7,476 8 , 725 196,819 216,371 9,443 10 , 287 124,880 103 , 040 10,360 10,360 22,379 22,537 9,825 9 , 716 176,887 155 , 940 $2,006,010

$1,864 ,

• Thousands of Dollars Liabilities and Capitalization Capitalization:

Common Shareholders' Equity: Common Stock, no par value; 50 , 000 , 000 shares authorized Retained Earnings Total Common Shareholders

' Equit y Preferred Stock of Atlantic Electric:

Not Subject to Mandatory Redemption Subject to Mandatory Redemption Long Term Debt Total Capitalization Current Liabilities:

Preferred Stock Redemption Requirement Long Term Debt due within one year Capital Lease Obligations due within one year t Term Debt unts Payable es Accrued Interest Accrued Dividends Declar e d Custom er D e p o sit s Deferred Taxes Deferred Energy Costs Other Total Current Liabilities Deferred Credits and Other Liabilities:

Deferred Inv e stment Tax Credit s Deferred Income Taxes Obligations under Capital Leases Other Total Deferred Credits and Oth e r Liabilities Commitments and Contingent Liabilities (Note 10) al Liabilities and Capitalization December 31 1990 1989 $ 436,343 $ 421,237 223,749 222,163 660,092 643 , 400 40,000 40,000 122,350 73 , 400 575,577 606,379 1,398,019 1,363 , 179 1,050 1,050 48,900 44 , 500 686 636 43,950 61,890 46,877 10,776 10,224 13,128 13 , 399 20,127 18 ,3 57 2,777 2 , 773 880 11,412 20,997 27 , 813 235,693 166 , 509 61,597 63 , 946 236,068 212 , 535 57,285 32 , 510 17,348 25,782 372,298 334 , 773 $2,006,010

$1 , 864 , 461

( un...,ul1datcd

'-,Utcrncnt ul ( hangco.., in Curnnwn ._,harchuldrr<

rqu1t\ Atlantic Energy , Inc. and Subsidiaries Thousands of Dollars Balance, December 31, 1987 Common stock issued: Public offerings Other Net income Capital stock expense of subsidiary Common stock dividends Balance, December 31, 1988

• Common stock issued: Public offerings Other Net income Common stock dividends Balance, December 31, 1989 Common stock issued Net income Capital stock expense of subsidiary Common stock dividends Balance, December 31, 1990 As of December 31, 1990, there were 50 million shares authorized of no par value Common Stock. Common Stock issued during 1990, and other issuances in 1989 and 1988 , were for the Dividend Reinvestment and Stock Purchase Common Shares Stock 18,346,519

$285,430 $186 , 294 1,300,000 42,551 365,042 12,012 72,171 (416) (54 , 455) 20 , 011,561 339,993 203,594 2,200,000 69 , 730 334,156 11,514 80,964 (62,395) 22,545,717 421,237 222,163 430,271 15 , 106 68,879 (208) (67 , 085) 22,975,988

$436,343 $223,749 Plan (DRP) and ACE employee benefit plans. At December 31, 1990, 575 , 751 and 81,384 shares were reserved for issuance under the DRP and ACE employee benefit plans , respectively.

T h e acco mp a n yi n g No t es t o Conso lid a t ed Fi n a n cial Sta t e m e n ts a re a n inte gral p a n of these s t ateme n ts.

• Notes to Consolidated Financial Statements ntic Energy, Inc. and Subsidiaries N O T E 1. SIG NIF IC ANT A CCO UNTIN G POLIC IES Organization Atlantic Energy, Inc. (the Company) is the parent of a solidated group consisting of the following wholly-owned subsidiaries:

Atlantic City Electric Company (ACE), Atlantic Generation, Inc. (AGI), Atlantic Southern Properties, Inc. (ASP) and ATE Investment, Inc. (ATE). ACE is a public ity primarily engaged in the generation, transmission, bution and sale of electric energy. Rates for service are regulated by the New Jersey Board of Public Utilities (BPU). ACE's service territory encompasses 2,700 squa r e miles within the southern one-third of New Jersey. The majority of ACE's customers are residential and commercial.

ACE, with its wholly-owned s u bsidiary that operates certa i n generating facilities, is the primary company within the consolidated group. AGI and its wholly-owned subsidiaries are engaged in the development of cogeneration power projects through various partnership arrangements. ASP owns, develops and manages a commercial office and storage facility located in southern New Jersey. The operations of ATE are nately investments in leveraged leases for property used in the airline and shipping industries. "nciples of Consolidation consolidated financial statements include the accounts e Company and its subsidiaries.

All significant company accounts and transactions have been eliminated in consolidation.

AGI accounts for its partnership investments using the equity method by recognizing its proportionate share of the results of operations of the partnerships. The results of operations of the nonutility companies are not nificant and are classified under Other Income in the Consolidated Statement of Income. Regulation The accounting policies and rates of ACE are subject to the regulations of the BPU and in certain respects to the Federal Energy Regulatory Commission (FERC). All significant accounting policies and practices used in the determination of rates are also used for financial reporting purposes.

Electric Operating Revenues Revenues are recognized when electric energy services are rendered, and include estimates for amounts unbilled at the end of the period for energy used subsequent to the last billing cycle .

• Electric Utility Plant Property is stated at original cost. Generally, the plant is ject to a first mortgage lien. The cost of property additions, including replacement of units of property and betterments, is capitalized.

Included in certain property additions is an Allowance for Funds Used During Construction (AFDC) which is defined in the applicable regulatory system of accounts as the cost during the period of construction of borrowed funds used for construction purposes and a sonable rate on other funds when so used. AFDC has been calc u lated using a semi-an n ually compounde d rate of 8.95%, as approved by t h e BPU, for the years presented.

Deferred Energy Costs and Revenues As approved by the BPU, ACE has Levelized Energy Clauses which are based on projected energy costs and include visions for prior period underrecoveries or overrecoveries. The recovery of energy costs is made through levelized rates over the period of projection.

Any underrecovery or recovery of costs is def erred in balance sheet accounts as an asset or liability as appropriate.

These deferrals are nized in the Consolidated Statement of Income during the period in whic h t h ey are s u bsequently recovered through the clauses. Depreciation ACE provides for straight-line depreciation based on the estimated remaining life of transmission and distribution property , and based on the estimated average service life for all other depreciable property. Depreciation applicable to certain nuclear plant includes amounts provided for missioning.

The overall composite rate of depreciation was approximate l y 3.6% in each of the years presented.

Accumulated depreciation is charged with t he cost of ciable property retired together with removal costs less vage and other recoveries. Depreciable property of the nonutility companies is insignificant.

Nuclear Fuel Fuel costs associated with ACE'.s participation in owned nuclear generating stations, including spent nuclear fuel disposal costs , are charged to Fuel Expense based on the units of thermal energy produced.

Notes to Consolidated Financial Statements At l antic Energy , Inc. and Subsidiaries I ncome Taxes Deferred Federal and State income taxes are provided on all significant current transactions for which the timing of reporting differs for book and tax purposes.

Investment tax credits from utility property , which are used to reduce rent Federal income taxes , are deferred on the Consolidated Balance Sheet and recognized in book income over the life of the related property.

The Company and its subsidiaries file a consolidated Federal income tax return. Income taxes are allocated to each of the companies within the consolidated group based on the separate return method. Property Abandonments and Disallowances of Plant Costs A loss is recognized if the carrying amounts of abandoned utility assets exceed the present value of future revenues to be generated by those assets. Any disallowance of the cost of a newly completed utility plant, including an indirect lowance which provides no return on investment of any tion of the plant , is recognized as a l oss. Property Abandonment Costs , which are stated at their net present value on the Consolidated Balance Sheet, consist of ACE's investment in the following as of December 31, 1990: Investment Offshore Nuclear Generating Units Remaining Recovery Period (years) Nuclear Generating Unit Unrecovered Nuclear Fuel Advances Proposed Plant Site costs Unamortized Cost ($000) $1,729 6,261 3,559 3,113 Out of an investment level fixed by the BPU for ratemaking purposes of $217.4 million associated with the construction of the Hope Creek Generating Station , $3.4 million are excluded from rate base for purposes of computing a return on the investment. Since no return on these costs was granted by the BPU, the excess of the carrying value of the assets over their discounted present value was recognized as a loss at the date of ment. Such discount is being restored to income by accretion over the amortization period allowed for ratemaking.

• Unrecovered Purchased Power Costs ACE has agreements for the purchase of 125 megawatts (MW) of capacity and related energy from Pennsylvania Power and Light Company (PP&:L) under two Capacity and Energy Sales Agreements (the PP&:L Agreements).

The PP&:L Agreements provide for the purchase of capacity and energy from PP&:L'.s Susquehanna nuclear Unit 1 and Unit 2 through September 30, 1991, and then from certain PP&:L coal-fired units through September 30 , 2000. Through September 30, 1991, the estimated costs to be incurred for purchases of capacity and associated energy from the Susquehanna units will exceed the levelized costs to be recovered from customers.

As authorized by the BPU, such unrecovered costs are being accumulated and deferred as Unrecovered Purchased Power Costs. Related deferred taxes have been provided. The level of rates approved by the BPU is designed to recover these def erred costs and associated carrying charges during the balance of the contract period. Differences between the actual costs incurred and those mated in the agreements are subject to recovery under usual cost recovery procedures.

Nuclear Decommissioning Trust ACE established a trust to fund the future decommissioni costs related to the nuclear units in which it has an owner ship interest.

Funding is based upon estimates and forecasts of decommissioning costs. ACE has received favorable Internal Revenue Service (IRS) rulings that the current ings of the trust are deductible for Federal income tax poses. ACE has deposited

$10.7 million into the trust fund balance of $11.8 million at December 31, 1990, with the difference representing net earnings of the trust. In dance with a BPU approved stipulation, ACE is required to deposit an additional

$9.2 million by 1993. This represents the amounts previously collected from customers and vided for , but not yet funded. Other Debt premium , discount and expenses of ACE are amortized over the life of the related debt. Costs associated with debt reacquired by refundings are amortized over the life of the newly issued debt as permitted by the BPU in accordance with FERC guidelines.

Temporary investments considered as cash equivalents for Consolidated Statement of Cash Flows purposes represent purchases of highly liquid debt ments maturing in three months or less. Certain prior year amounts have been reclassified to form to the current year reporting.

• N O T E 2. FE D E RA L INCOME TAXE S Years Ended December 31 ($000) 1990 1989 1988 The components of Federal income tax expense are as follows: Current $ 16,652 $ 9,711 $ 11,483 Deferred 12,292 14,554 14,677 Investment Tax Credits Recognized on Leveraged Leases (752) (1,000) (727) Total Federal Income Tax Expense 28,192 23,265 25,433 Less Amounts Included in Other Income 1,275 400 (1,038) Federal Income Taxes Included in Operating Expenses $ 26,917 $ 22,865 $ 26,471 Deferred Federal income taxes result from the following: Liberalized Depreciation

$ 11,156 $ 9,564 $ 12,096 Unbilled Revenues (2,848) (2,848) (2,848) Unrecovered Purchased Power Costs 5,845 5,104 4,577 Deferred Energy Costs (5,781) (2,750) (36) Costs Associated with Reacquired Debt (409) (1,089) (1,195) Leveraged Leases 7,932 10,279 3,582 Deferred Investment Tax Credits (2,349) (2,449) (217) Ot h er-Net (1,254) (1 ,257) (1,282) Deferred Federal Income Tax Expense $ 12,292 $ 14,554 $ 14,677 A reconciliation of the reported Federal income tax expense compared to the expected Federal income taxes computed by applying the statutory rate follows: Net Income $ 68,879 $ 80,964 $ 72,171 Preferred Stock Dividend Requirements of Subsidiary 10,799 8,765 5,965 Federal Income Tax ExEense (as below) 28,192 23,265 25,433 Book Income Subject to Tax $107,870 $112 ,994 $103,569 Statutory Federal Income Tax Rate 34% 34% 34% Income Tax Computed at the Statutory Rate $ 36,676 $ 38,418 $ 35,213 Items for which deferred taxes are not provided:

Difference Between Tax and Book Depreciation 4,661 2,437 591 Investment Tax Credits (3,277) (3,519) (3 , 257) Reversal of Excess Deferred Taxes (5,678) (5,934) (5,578) Removal Costs (2,245) (2 ,659) (3,874) Other-Net (1,945) (5,478) 2,338 Total Federal Income Tax Expense $ 28,192 $ 23,265 $ 25,433 Effective Federal Income Tax Rate 26% 21% 25%

Notes to Consolidated Financial Statements Allantic Energy, Inc. and Subsidiaries In 1990 and 1989 the Company'.s computed Alternative Minimum Tax (AMT), attributable to nonutility operations , exceeded its regular tax b y $9.4 million and $5.9 million, respecti v ely. This results in a cumulative AMT credit at December 31 , 1990 of $15.3 million. The AMT credit is available for indefinite carryforward against future tax payable , to the e x tent that the regular tax payable exceeds future AMT payable. At December 31 , 1990 , the cumulative amount of deferred Federal income taxes which have not been provided on ing differences , principall y depreciation , amounted to approximately

$50 million. Federal income tax returns for 1983 and prior years have been examined b y the IRS. The IRS has proposed certain deficiencies in taxes for 1980 through 1983. The Company has protested the proposed deficiencies and is of the opinion that the final settlement of its Federal income ta x liabilities NOTE 3. RATE MATTE R S OF ACE Energy Clause Proceedings ACE's energy clauses are subject to annual review b y the BPU. In March 1988 , the BPU authorized an increase in annual energy clause revenues , effective April 1988 , of $62.1 lion. The increase is net of a reduction of $5.4 million in revenue resulting from the disallowance of $4.8 million of replacement energy costs due to the application of the BPU mandated nuclear performance standard for 1987. This net increase was compressed into the remainder of 1988. In September 1988 , ACE filed petitions with the BPU ing to continue its existing energy clauses through 1989. Although ACE's petitions supported alternative rates that would increase energy clause revenues by $9.3 million, the petitions requested deferral of a sufficient level of prior period underreco v ered fuel costs to maintain e x isting rates. for these years will not ha ve a material adverse e ffect on its results of operations or financial position. The Financial Accounting Standards Board (FASB) issued a statement entitled " Accounting for Income Taxes" which was originally effective for years after 1989. The statement changes the recording methodology relating to deferred income taxes to a liability approach. The principal impacts to the Company relate to the recording, on a current basis, of changes in tax rates and the recording of deferred tax liabilities not previously recorded by ACE. The FASB currentl y is reexamining certain provisions contained in the original statement and in so doing has dela y ed its application until 1992. T h e Company expects the i mpacts of this change to be lessened due to rate regulation. In the opinion of ment, the impacts of the final provisions are not expected to have a material effect on results of operations or financial position.

ACE requested that such deferrals be considered in conn tion with the next change in energy clause rates but not later than January 1 , 1990. In Januar y 1989 , ACE amended its petitions to request a net increase in energy revenues of $9.3 million. Contained in these amended petitions was an native for energy clause rates to utilize a cost basis of 18 months rather than the usual 12 months. This alternative would produce a net increase of $4.5 million in annual energy clause revenues.

The petitions also provided for a reduction in revenue of $5.3 million for the application of the nuclear performance standard regarding 1988 nuclear operations disallowing the recovery of $4.6 million of replacement energy costs from customers. Earnings for 1988 were reduced by a provision in the amount of such lowance. An initial decision of the Administrative Law Judge rendered in June 1989 approved the 18-month period and found that certain capacity costs requested to be collected in

• energy clause revenues are more appropriately recovered through base rates. This decision also recommended a year amortization of unrecovered deferred energy costs related to certain generator outages at the Salem Nuclear Generating Station. In January 1990, ACE and other parties signed a joint tion which included recommendations designed to settle certain contested issues in the proceeding.

The joint position provided for an increase in annual base rate revenues of $41.6 million for ACE's four-year power purchase agreement of 200 MW of capacity and associated energy from Philadelphia Electric Company (PE). Coincident with the base rate increase, energy clause revenues were to be decreased by a like amount. A level of PE capacity costs in excess of those recovered through the base rate increase would have been def erred and recovered through the energy clause over successive three-year periods commencing June 1 , 1991. ACE also agreed that it would not, except under certain circumstances, further increase base rates before October 1, 1992. The BPU approved a motion by ACE to reopen the record in the proceeding to accept additional dence as presented by the joint position.

ay 1990, the BPU announced that it was rejecting the t position, ruling that the capacity costs associated with t e PE purchase were reasonable , but only would be ered within a formal base rate proceeding. ACE was granted a provisional base rate increase of $41. 6 million effecti v e June 1 , 1990. The provisional base rate increase was mented June 20 , 1990 and $17.9 million of such revenue has been recognized through December 31, 1990. Capacity costs including those not covered by the provisional rates are being charged to operating expenses as incurred.

Through December 31 , 1990 , $27.5 million of PE capacity costs have been charged to operations. A motion to the pending base rate case proceeding, as discussed below under 'Base Rate Case Proceedings

', was filed in November 1990 seeking BPU approval to defer the costs not covered by the provisional rates. In December 1990, the BPU rendered an oral decision denying ACE'.s motion. In March 1990, ACE filed proposed LEC tariffs with the BPU for the period June 1 , 1990 through May 31 , 1991 , which reflected the terms of the joint position discussed above. As a result of the May 1990 BPU action , in June 1990 ACE amended its request to provide for a decrease in annual LEC revenues of $26.2 million. This request included recovery over three years of the Salem costs deferred since 1984 amounting to $10.4 million, recovery of interest associated with certain overrecovery and underrecovery issues which previously had been paid to customers and retention of a portion of the fuel and energy savings associated with the PE power purchase agreement.

In June 1990, the BPU approved an interim net decrease in LEC revenues of $35.8 million effective June 20, 1990. The BPU has transferred the ceeding to the Office of Administrative Law for hearings regarding the ratemaking treatment of the Salem deferred costs, certain interest calculations on overrecoveries and underrecoveries and ACE's proposal to retain a portion of the fuel savings associated with the PE agreement.

ACE at this time cannot predict the final determination of these issues. Base Rate Case Proceedings The BPU in April 1988 ordered a decrease in base rates of $21.8 million primarily to reflect the lower corporate Federal income tax rates effective in 1988 resulting from the Tax Reform Act of 1986. In compliance with the May 1990 BPU provisional rate order discussed under 'Energy Clause Proceedings

', in September 1990 , ACE filed a petition with the BPU ing an increase in base rate revenues of $112. 989 million on an annual basis. ACE requested that the increase become Notes to Consolidated Financial Statements Atlantic Energy, Inc. and Subsidiaries effective no later than July 1, 1991. Additionally in this ing, ACE requested that the $41.6 million provisional base rate revenue increase granted by the BPU effective June 20, 1990, as discussed in 'Energy Clause Proceedings

', be firmed and continued in permanent rates. Also , ACE has requested recovery of the first year costs of the PE agreement not covered by the provisional increase, plus full recovery of the costs for the remaining three years of the agreement.

In its filing, ACE is seeking to increase its net rate base by an additional

$400 million and has requested an overall rate of return of 11.13% and a return on common equity of 13.7%. ACE currently has an authorized overall return of 11. 4 2 % and a return on common equity of 14.1 %. Hearings are scheduled for April , May and June 1991, with a decision expected in the second half of 1991. Other Rate Proceedings ACE is a 7.51 % owner of the Peach Bottom Atomic Power Station, which is operated by PE. The units were ordered shut down by the Nuclear Regulatory Commission (NRC) in March 1987 and could not be restarted without their approval.

Proceedings were initiated before the BPU to determine whether the base rate revenues stemming from the investment in the station should be made interim and subject to refund to customers while the units were out of operation under the NRC order. In February 1988, the BPU ruled that base rate revenues of $27.6 million associated with the Peach Bottom facilities were interim and subject to refund pending the outcome of further investigations.

In April 1988, the BPU approved a stipulation among ACE and other affected parties resolving all matters related to the Peach Bottom NRC outages from March 31, 1987 through December 31, 1988. The stipulation provided , among other things, for a revenue credit to ACE's customers of $5.3 million , which was given in June 1988. The Peach Bottom units continued to be out of operation at December 31, 1988. In March 1989 , the BPU approved a stipulation which resolved rate treatment for Peach Bottom for 1989. This stipulation provided for an initial re v enue credit to ACE's customers of $5.7 million that was applied in April 1989 and covered 12 unit-months of nonoperation. Any additional unit-month of nonoperation would result in an additional revenue credit of $750,000 and would be applied to customers' future bills. PE received approval from the NRC in April 1989 to restart Peach Bottom Unit 2. In Jul y 1989, the unit was considered to have returned to commercial operation in accordance with the provisions of the stipulation. In October 1989 , the NRC lifted its March 1987 shutdown order permitting PE to operate both units under normal NRC regulations and review. In December 1989, Unit 3 was connected to the Pennsylvania

-New Jersey-Maryland Interconnection. In January 1990, Unit 3 was considered to have returned to commercial operation. Under the terms of the stipulation , in November 1989, ACE's customers received revenue credits of $2.0 million for the nonoperation of Unit 3 during July, August and September.

In February 1990 , ACE provided customers with additional revenue credits of $1.8 million for the tion of Unit 3 during October , November and December 1989 , satisfying the terms of the stipulation. Provisions f the above credits were made against 1989 earnings. In Jul y 1990, the BPU revised certain aspects of its nuclear plant performance standards , effect i ve January 1 , 1990. The target capacity factor of 70% remains unchanged, but the zone of reasonable performance has been narrowed to between 65% and 75%. Rewards and penalties, based on replacement powe r costs , are to be calculated to the boundaries of the zone of reasonable performance with penalties calculated incrementally in steps. The revised standards are to be incorporated in ACES tariffs for electric service, but the performance standards will not apply to plants designated not used and useful. For 1990 , the performance of ACE'.s nuclear units was within the zone of reasonable performance. -3 6-N O TE 4. RETIREMENT BENEFITS ACE and its subsidiary have a noncontributory defined efit retirement plan covering substantially all their ees. Benefits are based on an employees years of service and average final pay. The companies' policy is to fund pension costs within the guidelines of the minimum required by the Employee Retirement Income Security Act, and the mum allowable as a tax deduction.

Pension costs for 1990, 1989 and 1988 were $7.2 million , $6.8 million and $4.1 million, respectively.

Approximately 70% of these costs were charged to operating expense and the remainder, which was associated with construction labor, was charged to the cost of new utility plant. Net pension costs for 1990, 1989 and 1988 included the lowing components:

($000) 1990 1989 1988 Service cost-benefits earned during the period $ 6,843 $ 6 , 094 $ 5 , 045 Interest cost on projected benefit obligation 16,179 14,294 12,053 al return on plan assets 3,060 (34,648) (16,217) red ain (loss) (18,755) 21,249 3,390 ExEected return on plan assets (15,695) (13 , 399) (12,827) Amortization of unrecognized net transitional asset (172) (172) (172) Net periodic pension costs $ 7,155 $ 6 , 817 $ 4,099 A reconciliation of the funded status of the plan as of December 31, 1990 and 1989 is as follows: ($000) Fair value of plan assets Projected benefit obligation Plan assets (under) over projected benefit obligation Unrecognized net transitional asset Unrecognized net loss (gain) Prepaid pension cost Accumulated benefit obligation

Vested benefits Non-vested benefits 1990 $189,000 204,314 (15,314) (2,410) 19,178 $ 1,454 $158,473 3,111 $161,584 1989 $198 , 348 186 , 610 11,738 (2,583) (8,246) $ 909 $141 , 273 3,000 $144 , 273 At December 31, 1990 approximately 60% of plan assets were invested in equity securities, 23% in fixed income securities and 17% in other investments.

The assumed rates used in determining the actuarial present value of the projected benefit obligation at year end were as follows: Weighted average discount Anticipated rate of increase in compensation 1990 8.50% 6.00% 1989 8.25% 6.00% The assumed long term rate of return on plan assets was 8.00% for 1990, 1989 and 1988. In addition to pension benefits, the companies provide tain health care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits if they reach retirement age while working for the companies.

Benefits are provided through insurance companies and other plan providers whose premiums and related plan costs are based on the benefits paid during the year. ACE and its subsidiary established a qualified tax exempt trusteed plan in 1986 to fund these other postretirement benefits. Funding on behalf of active employees is based on the aggregate cost method over their service lives and is equivalent to normal cost. For current retirees, ing is based on current actual experience and amortization of expected benefits over the remaining life expectancy of the retiree group. The actuarial present value of accumulated other postretirement benefits under the plan was $45.2 lion and $41. 9 million at January 1 , 1990 and 1989, respectively, notwithstanding the effects of new accounting standards discussed below. The cost of these benefits was $3.5 million for 1990 , $3.4 million in 1989 and $3.2 lion in 1988. The net asset value of the trust fund was approximately

$8.7 million at December 31 , 1990 and $8.0 million at December 31, 1989. In December 1990, the FASB issued Statement of Financial Accounting Standards No. 106 entitled " Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires employers to record the unfunded and unrecognized accumulated postretirement benefit obligation immediately or , alternatively, on a delayed basis over the plan participants' future service periods. The statement is effective for ACE beginning in 1993. ACE believes that the annual costs recognized for other ment benefits , as defined by the FASB statement, will increase significantly over current levels. Management believes that the financial impact of these benefits will be lessened by continued contributions to the trusteed plan as well as through rate regulation.

Notes to Consolidated Financial Statements Atlantic Energy, Inc. and Subsidiaries NOTE 5.JOINTLY-OWNED GENERATING STATIONS ACE participates with other utilities in the construction and The amounts shown represent ACE's share of each plant at operation of several electric production facilities.

December 31, including AFDC as appropriate.

Peach Hope Keystone Conemaugh Bottom Salem Creek Energy Source Coal Coal Nuclear Nuclear Nuclear Company's Share (%) 2.47 3.83 7.51 7.41 5.00 Electric Plant in Service ($000): 1990 9,507 15,435 112,902 182,316 230,677 1989 8,951 15,168 106,695 176,150 229 , 068 Accumulated Depreciation

($000): 1990 2,833 5,165 42,300 62,828 26,691 1989 2,652 4,590 38,071 55,293 19,193 Construction Work in Progress ($000): 1990 381 436 5,089 5,109 1,863 1989 401 374 7,007 3,913 1,368 Operation and Maintenance Expenses (including fuel) ($000): 1990 4,855 8,358 27,340 19,154 8,458 1989 4 , 768 7,740 25,871 19,851 8,772 1988 5,017 8 , 421 25,697 21,966 8,668 Generation (MWH): 1990 276,080 448,978 1,062,569 837,486 404,084 1989 292,627 1988 298,785 ACE provides its own financing during the construction period for its share of the jointly-owned plants and includes its share of direct operations and maintenance expenses in the Consolidated Statement of Income. NOTE 6. NONUTIUTY COM P ANIES Assets of ASP consist primarily of a commercial real estate site with a book cost at December 31 , 1990 and 1989 of approximately

$15 million. Assets of AGI at December 31, 1990 and 1989, excluding accumulated equity in ments, are represented by contributions, loans and advances to the partnerships amounting to approximately

$15 million and $14 million, respectively.

Assets of ATE primarily are 433,660 302,310 1 , 035,718 329 , 426 469,092 991 , 322 347 , 570 Generation in 1988 for Peach Bottom is zero because the station was shutdown under order of the NRC (see Note 3). investments in leveraged leases which amount to mately $75 million and $73 million at December 31, 1990 and 1989, respectively.

The combined results of operations of these companies for 1990, 1989 and 1988 were losses of $275,000 , $1.9 million and $2.0 million, respectively , net of income tax benefits of $231,000, $738,000 and $1.7 lion, respectively.

NOTE 7. CUMULATIVE PREFER R ED STOCK OF ACE ACE has authorized 799,979 shares of Cumulative Preferred Stock, $100 Par Value, 2 million shares of No Par Preferred Stock and 3 million shares of Preference Stock, No Par 1990 Series Par Value Shares Amount ($000) Not Subject to Mandatory Redemption

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

9.96% $100 64,000 $ 6,400 $8.25 None 70,000 7,000 None 600,000 60,000 None 500,000 50,000 123,400 1,050 $122,350 Cumulative Preferred Stock Not Subject to Mandatory Redemption is redeemable solely at the option of ACE. On August 1 of each year, 8,000 shares of the 9.96% Series must be redeemed through the operation of a sinking fund at a redemption price of $100 per share. ACE redeemed 8 , 000 shares in each of the years 1990 , 1989 and 1988. On November 1 of each yea r, 2,500 shares of the $8.25 No Par Preferred Stock Series must be redeemed through the operation of a sinking fund at a redemption price of $100 per share. ACE may redeem not more than an additional 2,500 shares on any sinking fund date without premium. ACE redeemed 2 , 500 shares in each of the years 1990, 1989 and 1988. On November 1 , 1989, ACE redeemed the remaining 30 , 000 shares of the $9.45 No Par Preferred Stock Series at $100 per share through the regular operation of the sinking fund. *nning November 1, 1994 and annually thereafter , 00 shares of the $8.53 No Par Preferred Stock Series be redeemed through the operation of a sinking fund Value. Information relating to outstanding shares at December 31 is shown in the table below. 1989 Shares Amount ($000) 77,000 72,000 15,000 36,000 50,000 50,000 100 , 000 72,000 72 , 500 600,000 $ 7,700 7,200 1,500 3,600 5 , 000 5,000 10 , 000 $40,000 $ 7,200 7 , 250 60,000 Current Redemption Price $ 105.50 101.00 101.00 101.00 101.00 100.00 103.01 $ 104.26 105.51 106.3 2 at a redemption price of $100 per share. At the option of ACE , not more than an additional 120,000 shares may be redeemed on any sinking fund date without premium. Refunding of this series is restricted prior to November 1 , 1993 if the effective cost to ACE of any refunding issue is less than specified rates. In Jul y 1990 , ACE issued and sold 500 , 000 shares of $8.20 No Par Cumulative Preferred Stock Series. Beginning August 1, 1996 and annually thereafter, 100 , 000 shares of this series must be redeemed through the operation of a sinking fund at a redemption price of $100 per share. At the option of ACE , not more than an additional 100 , 000 shares may be redeemed on any sinking fund date without premium. Other than in connection with the sinking fund , this series is not redeemable prior to August 1, 2000, which is the calculated retirement date of the series. The annual minimum sinking fund provisions of the above series aggregate

$1.05 million in each of the years 1991 through 1993 and $13.05 million in each of the years 1994 and 1995.

Notes to Consolidated rinancial Statements Atlantic Energy, Inc. and Subsidiaries NOTE 8. LONG TERM DEBT Maturity December 31 Series Date 1990 1989 ($000) long term debt of ACE consists of the following:

First Mortgage Bonds: 4 'Ii% March 1, 1991 $ 10,000 $ 10,000 4 1/2 % July 1, 1992 10,350 10,350 4 3/s % March 1, 1993 9,540 9,540 5 '/s % February 1 , 1996 9,980 9,980 8% November 1, 1996 95,000 95,000 8 '/s % September 1, 2000 19,000 19,000 8% May 1 , 2001 27,000 27,000 7 V2 % Aprill,2002 20,000 20,000 7 31. % June 1 , 2003 29,976 29,976 7 '/s % Pollution Control January 1, 2005 6,500 6 , 500 6 3/s % Pollution Control December 1, 2006 2,500 2,500 11 5/s % Pollution Control Series A May 1, 2011 39,000 39,000 10 V2 % Pollution Control Series B July 15, 2012 850 850 7 3/s % Pollution Control Series A April 15,2014 18,200 18 , 200 10 V2 % Pollution Control Series C July 15, 2014 23,150 23,150 11 1/2 % October 1 , 2015 21,215. 8 7/s % May 1, 2016 125,000 125 , 000 8 'I* % Pollution Control July 15, 2017 4,400 4,400 9 '!. % October 1 , 2019 135,000 135,000 Total 585,446 606,661 Debentures:

5 v. % February 1 , 1996 2,267 2,267 7 v. % May 1, 1998 2,619 2,619 Total 4,886 4,886 Unamortized Premium and Discount-Net (4,755) (5,168) Total long Term Debt of ACE 585,577 606,379 Revolving Credit and Term loan of ATE May 31 , 1991 38,900 44 , 500 less portion due within one year 48,900 44,500 Total long Term Debt $575,577 $606,379 In October 1990 , ACE reacquired the remaining

$21.215 million principal amount of First Mortgage Bonds , 11 V2% Series due 2015 at a price of 108.53% of principal.

The aggregate cost of this reacquisition was $1.5 million, net of related income taxes. Deposits in sinking funds for retirement of debentures ar e required on February 1 of each year through 1995 for the 5'1.% Debentures and on May 1 of each y ear through 1997 for the 7 V.% Debentures in amounts in each case sufficient to redeem $100 , 000 principal amount plus , at the election of ACE, up to an additional

$100,000 principal amount in each year. By December 31, 1990 , ACE had reacquired and cancelled

$733 , 000 and $581,000 principal amount of the 5 V.% and 7 V.% Debentures , respectively, towards its ments for 1991 and subsequent periods. Regular redemption prices currently are in effect for each series of first mortgage bonds , except for certain pollution control series for which redemption is restricted prior to specified dates. Also , certain pollution control series contain future sinking fund requirements.

Redemption of certain series of the first mortgage bonds are restricted prior to ified dates if the redemption is for the purpose of refunding at effective interest costs to ACE of less than specified rates. ent sinking fund requirements of $500 , 000 in with certain first mortgage bonds outstanding may be sfied by certification of property additions as provided for in the related mortgage indentures. ATE has a revolving credit and term loan agreement (Agreement) which provides for borrowings of up to $70 million during successive revolving credit and term loan periods. In accordance with provisions of the Agreement, the expiration of the revolving credit period was extended from May 31 , 1990 to May 31, 1991. ATE may request a one year extension of the revolving credit period. Thereafter , the Agreement provides for repayment of borrowings in four equal semi-annual installments. Interest rates on borrowings are determined with reference to periodic pricing options available under the facility.

Interest rates on borrowings in 1990 ranged from approximately 8.4% to 9.2%. The aggregate amount of debt maturities, in addition to sinking fund requ i rements, of all long term debt outstanding at December 31 , 1990 are $48.9 million in 1991, $10.35 million in 1992 and $9.54 million in 1993. No outstanding long term debt matures in 1994 and 1995.

Notes to Consolidated Financial Statements Allan!ic Energy, Inc. and Subsidiaries NOTE 9. SHORT TERM DEBT AND COMPENSATING BALANCES As of December 31, 1990, ACE had bank lines of credit of $129 million, all of which were available for use. ACE is required, with respect to $9 million of these credit lines, to maintain average compensating balances in demand deposits Short term debt outstanding at December 31 consisted of: ($000) Commercial Paper Notes Payable to Banks Total Additional information regarding short term debt follows: ($000) For the year ended: Maximum amounts of total short term debt at any month end: Commercial Paper Notes Payable to Banks which are not significant or legally restricted.

ACE is in pliance with such compensating balance arrangements.

With respect to the remaining available credit lines, ACE paid mitment fees for which charges were not significant.

1990 1989 1988 $43,950 $51,000 10,000 $43,950 $61,000 1990 1989 1988 $46,850 $76,550 $84,000 $10,000 $10,000 Average amounts of short term debt (based on daily outstanding balances): Commercial Paper Notes Payable to Banks Weighted daily average interest rates on short term debt: Commercial Paper Notes Payable to Banks NOTE 10. COMMITMENTS AN D CONTINGENCIES Construction Program ACE's cash construction expenditures for 1991 are estimated at approximately

$189 million. Current commitments for the construction of major production and transmission ities approximate

$100 million of which it is estimated approximately

$54 million will be expended in 1991. These amounts exclude AFDC and customer contributions.

Insurance Programs ACE is a member of certain insurance programs which vide coverage for decontamination and property damage to members' nuclear generating plants. Facilities at the Peach Bottom, Salem and Hope Creek Stations are insured against property damage losses up to $2.185 billion per site under these programs.

In addition, ACE is a member of an insurance program which provides coverage for the cost of replacement power $16,979 $50,015 $59,S. $ 3,351 $ 2,8 8.1% 9.4% 7.6% 9.6% 7.8% during prolonged outages of nuclear units caused by certain specific conditions.

Under the property and replacement power insurance programs, ACE could be assessed spective premiums in the event the insurers' losses exceed their reserves.

As of December 31, 1990, the maximum amount of retrospective premiums ACE could be assessed for losses during the current policy year was $5.64 million under these programs.

The Price-Anderson provisions of the Atomic Energy Act of 1954, as amended by the Price-Anderson Amendments Act of 1988, govern liability and indemnification for nuclear incidents.

All nuclear facilities could be assessed, after exhaustion of private insurance , up to $66.15 million each, payable at $10 million per year, per reactor and per incident. Based on its ownership share of nuclear facilities, ACE coul be assessed up to $30.9 million per incident.

This amou would be payable at $4.67 million per year, per incident.

• Purchased Energy and Capacity Arrangements ACE has an arrangement for a limited term purchase of energy and capacity from Allegheny Power System (APS) which is subject to annual extensions.

In addition, ACE can procure from selling members of the local power pool their available transmission capability entitlements through negotiated short term arrangements and a monthly competitive bidding cess. Through these entitlement purchases ACE is able to chase additional energy and capacity from APS and another utility's system. ACE also conducts energy transactions through separate arrangements with two other utilities.

ACE has an agreement with PE for the purchase of 200 MW of capacity and energy for a four-year period that began June 1 , 1990. Under this agreement, ACE incurs a basic monthly charge aggregating on an annual basis approximately

$48 million, $52 million, $56 million and $24 million in the respective years 1991 through 1994. The basic charge is subject to annual adjustment based on PE'.s actual annual nuclear capacity achieved. ACE also has an agreement with PP&:L to provide for a capacity purchase of 20 MW through May 1991, and 35 MW thereafter through Ma y 1992. Additional sources of energy and capacity for use by ACE are expected to be made available from nonutility sources, prin-lly cogenerators. ACE has currently contracted, and ed BPU approval, to purchase an aggregate of 569 MW ergy and capacity from nonutility sources. To date, 181 MW are in the construction phase and 388 MW are uled to go to financial closing in 1991. Based on the terms and conditions of the existing agreements , ACE is obligated to construct 230 KV transmission facilities and to purchase certain specified minimum amounts of electric power ally from these sources. ACE currently expects the first of such facilities to be operational in 1991 , with the remaining projects to be in operation through 1994. However, mencement of required minimum purchase payments is conditioned upon ultimate commercial operation , which can vary within agreed upon construction extension periods. Also, the amount of such payments is subject to adjustment for actual performance levels achieved by these facilities. Environmenta l Matters In October 1990, the New jersey Department of Environmental Protection issued for public comment a Draft Permit pertaining to the Salem Station , of which ACE has a 7.41 % ownership interest.

The Draft Permit proposes that recirculating water cooling towers are necessary at the tion to minimize adverse environmental impacts in the Delaware River. The Draft Permit does not provide for tinued operation of the station during construction of the cooling towers. Public Service Electric and Gas Company -he operator of the station, has advised ACE that it is esently able to determine whether it is possible to and construct cooling towers to meet the conditions in the Draft Permit. If it is possible to do so , PS advises that the design, licensing , construction and related system tie scenario could require at least four years. The overall cost associated with constructing the cooling towers, including replacement power costs incurred during station outage time , could approximate

$2 billion. PS has advised ACE that it intends to vigorously defend against the proposed need to construct the cooling towers and that it is prepared to sue all available remedies of any conditions that may be imposed by a Final Permit. In November 1990, the Clean Air Act of 1970 was amended to provide for further restrictions on acid deposition and limitations on sulfur dioxide (S0 2) and other emission sources. Phase I of the legislation mandates certain controls by January 1 , 1995 , and Phase II mandates further controls by January 1, 2000. ACE's wholly-owned B. L. England Units 1 and 2 and its jointly-owned Conemaugh Units 1 and 2 , in which ACE has an undivided 3.83% ownership est, are specifically named in the legislation for emission reductions during Phase I. The jointly-owned Keystone Units 1and2, in which ACE has a 2.47% ownership est , would require emission reductions during Phase II. Compliance with the legislation will cause ACE to incur additional capital and/or operating costs. ACE'.s preliminary estimates indicate that the cost of compliance for S0 2 tions for all affected units could ultimately increase rates charged to customers by approximately 5% based on 1990 revenues, pending appropriate regulatory approvals.

The costs of certain power purchase arrangements between ACE and other electric utilities may also be affected by the tion. Any capital costs that may be incurred to comply with this legislation are not included in ACE's current estimate of construction expenditures. Other provisions of the tion will require capital and/or operating costs to reduce emissions of nitrogen oxide. Specific cost estimates for pliance with these provisions are not yet available.

ACE is involved in various other environmental matters ated by governmental agencies.

While it is not possible to predict the results of these matters, they are not expected to materially affect ACE'.s financial position.

Additional pollution control expenditures may be required in the future if more stringent standards become applicable or when facilities are added or expanded. These additional amounts, beyond what is included under 'Construction Program ,' as discussed above, are not presently determinable.

Other In connection with the extended outage of the Peach Bottom Station under the 1987 NRC order, ACE has filed suit along with another co-owner of the station against PE. ACE is seeking compensatory and punitive damages resulting from the outage of the station , including the costs incurred for replacement energy necessitated by the outage. ACE is unable to predict the outcome of this litigation or its effect at this time.

Notes to Consolidated Financial Statements Atlant i c Ene.gy, Inc. and Subsidiaries NOTE 11. LEASES ACE leases variou s types of prop e rt y and equipment for use in it s operations.

Certain of these lease agreements are ctal leas e s consisting of th e following at December 31: ($000) 1990 Production plant $13,521 Less accumulated amortization 6,622 N et 6,899 Nuclear Fuel 51,072 Leased property-net $57,971 1989 $13,521 5,986 7,535 25,611 $33,146 ACE has a contractual obligation to purchase nuclear fuel for the Salem, Hope Creek and Peach Bottom nuclear generating stations from Pearl Fuel Corporation. The leasing arrangements with Pearl F u el were amended and restated in March 1990 to include the fuel requirements for Peach Bottom in the amount of $28.9 million. The asset and related tion for the leased fuel are reduced as the fuel is burned, and are increased as additional fuel purchases are made. No commitments for future payments beyond satisfaction of the outstanding obligation exist. Operating expenses for 1990 , 1989 and 1988 include leased nuclear fuel costs of approximately $15.4 million, $8.6 million and $9.9 million , tivel y , and rentals and lease payments for all other capital and operating leases of $4.2 million, $4.5 million and $5.5 million , respectively.

Future minimum rental payments for all noncancellable lease agreements are not significant to ACE's operations. N O TE 12. Q UA R TE R LY FINANCIAL R ESU L TS (UNAU DIT E D) Quarterly financial data, reflecting all adjustments necessary in the opinion of the Company for a fair presentation of such amounts , are as follows: Operating Operating Net Earnings Quarter Revenues Income Income Per Share 1990 ($000) ($000) ($000) 1st $166,738 $ 28,247 $15,114 $ .67 2nd 165,132 25,407 12,111 .53 3rd 218,885 53,237 38,310 1.68 4th 166,024 17,670 3,344 .15 Annual $716,779 $124,562 $68,879 $3.02 1 98 9 1st $160 , 773 $ 25 , 627 $12 , 624 $ .63 2nd 162,920 30 , 105 16,200 .76 3rd 207 , 333 51 , 628 38 , 971 1.74 4th 173 , 991 27 , 384 13 , 168 .58 Annual $705,020 $134,745 $80 , 964 $3.74 Individual quarters may not add to the total due to rounding , as well as the effect on earnings per share of increasing average number of c ommon shares outstanding.

The revenues of ACE are subject to seasonal fluctuation to increased sales and higher residential rates during the summer months.

Summary financial and Statistical Rc\*ic\\' 1990-198'5 '"'"'* ""' '"k"""" 1990 1989 1988 1987 1986 1985 Atlantic Energy, Inc. Investor Information Operating Revenues ($000) $ 716,779 $ 705,020 $ 675,859 $ 648,173 $ 582,961 $ 579,733 Net Income ($000) $ 68,879 $ 80,964 $ 72,171 $ 73,765 $ 54,946 $ 46,150 Average Number of Shares Outstanding (OOO) 22,795 21,634 19,593 18,311 18,266 18,069 Earnings per Average Common Share $ 3.02 $ 3.74 $ 3.68 $ 4.03 $ 3.00 $ 2.55 Total Assets (Year-end)($000)

$2,006,010

$1,864,461

$1,660,286

$1,499,381

$1,401,064

$1,319,027 Long Term Debt and Cumulative Preferred Stock Subject to Mandatory Redemption (Year-end)

($000) $ 747,877 $ 725 ,3 29 $ 594,461 $ 522,815 $ 534,822 $ 521,612 Capital Lease Obligations (Year-end)

($000) $ 57,971 $ 33,146 $ 32 , 880 $ 37 , 694 $ 37,603 $ 38,857 Dividends Declared on Common Stock $ 2.94 $ 2.85 $ 2.74 $ 2.715 $ 2.61 $ 2.555 Dividend Payout Ratio 97% 75% 75% 66% 87% 99% Book Value per Share (Year-end)

$ 28.73 $ 28.54 $ 27.16 $ 25.71 $ 24.37 $ 23.96 Price/Earnings Ratio (Year-end) 11 10 9 8 12 11 Times Fixed Charges Earned (pre-tax, Atlantic Electric) 2.94 3.19 3.06 3.68 2.99 3.06 Shareholders and Employees (Year-end):

Common Shareholders 42,295 43 ,383 44,473 45,586 47 , 133 48,635 Employees (Atlantic Electric) 2,055 2,021 2 ,0 92 2,148 2,168 2,099 Atlantic City Electric Company (Principa l Subsidiary)

Facilities for Service Total Utility Plant ($000) $2,027,138

$1,846,122

$1,712,6 14 $1,602,801

$1,503,010

$1,438,643 Additions to Utility Plant ($000) $ 170,772 $ 147,886 $ 130 , 281 $ 105 , 521 $ 109,303 $ 105,213 Generating Capacity (Kilowatts) (a) (b) 1,959,700 1 ,879,700 1,807,700 1 ,660,700 1,660,700 1 , 605,700 ximum Utility System Demand owatts) 1,741,000 1,700,000 1,636,000 1,609,000 1,459,000 1,432,000 ity Reserve at Time of Peak of Installed Generation) 10.9% 9.6% 9.5% 3.1% 9.1% 10.8% Energy Supp l y (Thousands of kwh): Net Generation 6,265,335 6,260,942 5,863,119 6,157,938 5,966,600 5,817,254 Purchased and Interchanged-Net 2,044,174 2,110 , 554 2,209,777 1,483,685 1,131,900 1,049 ,393 Total System L oa d 8,309,509 8,371,496 8,072 , 896 7,641 ,6 23 7 , 098 , 500 6,866,647 Electric Sales (Thousands of kwh) Residential 3,267,606 3,265,918 3,213,010 3,040,410 2 , 839,114 2,638,121 Commercial 3,063,069 2,917,162 2 , 741 , 976 2,592,232 2,401,199 2,298,895 Industrial 1,376,423 1,380,832 1,339,005 1 , 323,567 1,222,981 1,204,971 All Others 49,769 53,872 56,289 58,191 58,120 57 , 685 Total (c) 7,756,867 7,617 , 784 7,350,280 7,014 , 400 6 , 521,414 6,199,672 Residential Electric Service (Average per Customer)

Amount of Electricity Used During the Year (kw h) 8,251 8 , 382 8 , 460 8,281 7,982 7,643 Revenue for a Year's Service $ 844.37 $ 840.3 4 $ 838.70 $ 838.08 $ 780.43 $ 778.77 Revenue per Kilowatt-hour 10.23¢ 10.03¢ 9.91¢ 10.1 2¢ 9.78¢ 10 19¢ Customer Data (Average)

Residential With Electric Heating 81,479 80 , 409 78,805 75,900 72,640 68 , 871 Residential Without Electric Heating 314,529 309,245 300,974 291 , 253 283 , 062 276,305 Total Residential 396,008 389,654 379,779 367,153 355 , 702 345 , 176 Commercial 50,274 49,509 48,398 46 , 775 45,359 44,256 Industrial 1,002 1 ,008 1,014 1 , 015 1,022 1,020 Other 537 549 552 554 554 554 Total Customers (c) 447,821 440 ,720 429 , 743 415 , 497 402,637 391,006 Operating Revenues ($000) Energy Revenues:

Residential

$ 334,375 $ 327,443 $ 318,520 $ 307,704 $ 277 , 601 $ 268 , 814 Commercial 271,688 256,199 240,890 231 , 498 211,023 209,880 Industrial 96,766 94,634 91 , 661 89 , 261 78 , 404 80,392 All Others 9,668 9,901 9 , 935 10,409 10,152 10,315 ta! Energy Revenues 712,497 688,177 661 , 006 638,872 577,180 569,401 ed Revenues-Net (4,055) 7,215 6,716 385 (1,813) 3,076 Electric Revenues 8,448 9,765 8,137 8 , 916 7,594 7 , 256 Total (c) $ 716,890 $ 705,157 $ 675,859 $ 648,173 $ 582,961 $ 579,733 (a) Excludes capac ity allocated to a large industrial c ustomer. (b) In cludes unit purchase of capaci t y under contracts with certain other utilities. (c) Includ es sa l es to an affiliate within th e Atlantic Energy consolidated group.

I mTstor In format ion A tlanti c E n ergy, ln c. and Sub s idiari es Where should I send inquiries concerning my invest* ment in Atlantic Energy, Inc.? The Company serves as recordkeeping agent , dividend disbursing agent and also as Transfer Agent for Common Stock. Correspondence concerning such matters as the replacement of dividend checks or stock certificates, address changes, transfer of Common Stock certificates, Dividend Rein v estment and Stock Purchase Plan inquiries or an y general information about the Compan y should be addressed to: Atlantic Energy , Inc. Investor Records P.O. Box 1334 1199 Black Horse Pike Pleasantville, New jersey 08232 Telephone (609) 645-4506 or (609) 645-4507 Ms. S. D. McMillian , Secretary , is the corporate officer ble for all investor services. Does the Company have a Dividend Reinvestment and Stock Purchase Plan? Yes. The Plan allows shareholders to automatically invest their cash dividends and/or optional cash payments in shares of the Company's Common Stock. Holders of record of Common Stock interested in enrolling in the Plan should contact Investor Records at the address above. In addition , shareholders whose stock is held in a brokerage account may be able to participate in the Plan. These shareholders should contact their broker for more information.

Where is the Company's stock listed? Common Stock is listed on the New York , Pacific and Philadelphia Stock Exchanges. The trading symbol of the Company's Common Stock is ATE; however , newspaper ings generally use At!Enrg or AtlanEngy.

The high and low sale prices of the Common Stock as reported in the Wall Street journal as New York Stock Exchange-Composite Transactions for the periods indicated were as follows: 1990 1989 High Low High First Quarter 38 1/2 35112 33 314 Second Quarter 37 7 1 8 347/e 36 Third Quarter 36 3 1 8 31 7/a 38 1/s Fourth Quarter 34314 323/a 39 314 low 32 1/2 32 1/2 35 t1i 35 Is additional infonnation about the Company available?

The annual report to the Securities and Exchange Commission on Form 10-K and other reports containing financial data are able to shareholders. Specific requests should be addressed to: Atlantic Electric Financial Services Department P.O. Box 1264 1199 Black Horse Pike Pleasantville, New jersey 08232 Telephon e (609) 645-4655 or (609) 645-4888 When are dividends paid?

• The proposed record dates and payable dates for dividends on Common Stock are as follows: Record Dates March 15 , 1991 June 18 , 1991 September 24, 1991 December 17 , 1991 Payable Dates April 15 , 1991 July 15, 1991 October 15 , 1991 January 15 , 1992 The following table indicates dividends paid per share in 1990 and 1989 on Common Stock: 1990 1989 First Quarter $ .72 $ .69 Second Quarter .72 .69 Third Quarter .74 .72 Fourth Quarter .74 .72 Annual Total $2.92 $2.82 Dividends paid on Common Stock in 1990 and 1989 were fully taxable. Some state and local governments may impose person-al property taxes on shares held in certain corporations.

• Shareholders residing in those states should consult their ta advisors with regard to personal property tax liability. Who is the trustee and interest paying agent for Atlantic Electric's bonds and debentures?

First Mortgage Bond recordkeeping and interest disbursing are performed by The Bank of New York, 101 Barclay Street , New York, New York 10286. Debenture recordkeeping and interest disbursing are performed by First Fidelity Bank, N.A., 765 Broad Street, Newark , New jersey 07102. Whom can I contact regarding the Preferred Stock of Atlantic Electric?

Atlantic Electric serves as recordkeeping agent , dividend bursing agent and Transfer Agent for its Preferred Stock. Inquiries regarding such matters can be directed to Investor Records at the address listed above. Who are the independent auditors for Atlantic Energy, Inc.? Deloitte & T ouche Certified Public Accountants One World Trade Center New York , New York 10048

• Olliccrs of .\tlantic Encrg:. Inc. and D ecember 3 1 , 1990 icers of Atlantic Energy, Inc. E. DOUGLAS HUGGARD Chairman and Chief Executive Officer JERROLD L. JACOBS President MEREDITH I. HARLACHER, JR. Vice President JOHN R. LILLY Vice President BRIAN A. PARENT Vice President

].G. SALOMONE Vice President and Treasurer SABRINA D. McMILLIAN Secretary J. DAVID McCANN Assistant Treasurer and Assistant Secretary Officer of Atlantic Generation, Inc. ent , Treasurer and Secretary Di rec t o rs o f Atlanti c En e r gy's subs i diari e s a r e: Me s srs. Huggard , Harl a ch e r , J aco bs , Par e nt and S al o mone. Officers of Atlantic Southern Properties, Inc. JOHN R. LILLY President J. DAVID Mc CANN Treasurer and Secretary Officers of ATE Investment, Inc. ].G. SALOMONE President LANCE E. COOPER Vi c e President JOHN R. LILLY Vice President J. DAVID McCANN Treasurer and Secretary Officers of Atlantic City Electric Company E. DOUGLAS HUGGARD Chairman and Chief Executive Officer JERROLD L. JACOBS President and Chief Operating Officer MEREDITH I. HARLACHER , JR. Senior Vice Corporate Planning And Services BRIAN A. PARENT Senior Vice Presiqent-Utility Operations

].G. SALOMONE S e nior Vice Presid e nt-Finance and Accounting JOHN M. CARDEN Vice President-Customer Service LANCE E. COOPER Vice President-Control .... and Assistant Treasurer THOMAS E. FREEMAN Vice Human Resources JAMES]. LEES Vice Marketing and Rates HENRY K. LEV ARI , JR. Vice Power Delivery J. DAVID McCANN Vice President , Treasurer and Assistant Secretary SABRINA D. McMILLIAN Secretary MORGAN T. MORRIS III Vice PresidentAdministrative Servi c es HENRY C. SCHWEMM, JR. Vice PresidentProduction Years of Service 35 29 25 23 14 23 8 10 20 19 18 5 21 21 Board of Directors of Atlantic Energy, Inc. as of December 31, 1 990 JOS. MICHAEL GALVIN, JR. Mr. Galvin, a Director since 1978, is president and chief executive officer of the South jersey Health Corporation

-The Memorial Hospital of Salem County. He is also immediate-past chairman of the board , New jersey Hospital Association and a trustee for the Center of Health Affairs. He is currently a member of the Southern New jersey Chamber of Commerce and of the editorial board of Modem Healthcare Magazine. Committee Chainnan:

Personnel.

Committee Membership:

Audit; Energy, Operations

& Research; Pension & Insurance.

GERALD A. HALE Mr. Hale, a Director since 1983, is president of Hale Resources , Inc., an investment and management company. He serves as chairman and director of the Evans Clay Company, and as a director of New jersey Manufacturers Insurance Company, New jersey Business and Industry Association and Strong Systems, Inc. Committee Chainnan:

Energy, Operations

& Research.

Committee Membership:

Audit; Corporate Development; Personnel.

MATTHEW HOLDEN, JR. Mr. Holden , a Director since 1981, is the Henry L. and Grace M. Doherty Professor of Government and Foreign Affairs at the University of Virginia.

He is also an arbitrator and an energy and regulatory affairs consultant.

He is a former commissioner of the Federal Energy Regulatory Commission and the Wisconsin Public Service Commission.

Committee Chainnan:

Pension & Insurance. Committee Membership:

Audit; Corporate Development; Personnel.

CYRUS H. HOLLEY Mr. Holley, executive vice president

-Engelhard Corporation , was elected as a Director in early 1990. Mr. Holley joined Engelhard in 1979 , where he has served in various executive positions.

He is man of the Independent College Fund of New jersey and is active in several civic and educational organizations.

Committee Membership:

Corporate Development; Energy, Operations

& Research; Finance & Investor Relations; Personnel.

E. DOUGLAS HUGGARD Mr. Huggard , a Director since 1984, was elected Chairman and Chief Executive Officer in 1990 , and has been Chief Executive Officer since 1985. He serves as a Director of all of the Company's subsidiaries and has been with the Company for 35 years. He is currently a director of the New jersey State Chamber of Commerce and First Fidelity Bank of South jersey. Committee Membership:

Ex-officio member of all committees except Audit. JERROLD L. JACOBS Mr. Jacobs was elected President and a Director of the Company in 1990 and serves as President and Chief Operating Officer of Atlantic Electric.

He is a Director of all of the Company's subsidiaries and has been with the Company for 29 years. He is currently a director of the South jersey Chamber of Commerce and is regional chairman of U.S. Savings Bonds sales. Committee Membership:

Ex-officio member of all committees except Audit. RICHARD B. McGL YNN Mr. McGlynn, Attorney at Law and partner in the law firm of Stryker, Tams & Dill , has been a Director since 1986. He is a member of the American, New jersey State and Essex County Bar Associations, as well as the American Bar Foundation and the American Law Institute.

He is a former commissioner of the New jersey Board of Public Utilities and a former judge in Essex County , New jersey. Committee Chainnan:

Audit. Committee Membership:

Corporate Development; Energy, Operations

& Research; Finance & Investor Relations; Pension & Insurance.

MADELINE H. McWHINNEY Miss McWhinney, a Director since 1983, is president of Dale , Elliott & Company, management consultants.

She is a trustee of the Charles F. Kettering Foundation , the Institute of International Education and Management of Managers Mutual Funds. Committee Chainnan:

Finance & Investor Relations.

Committee Membership:

Audit; Energy, Operations

& Research; Pension & Insurance.

BERNARD J. MORGAN Mr. Morgan, banking industry executive , was elected as a Director in 1988. He is a director of the Philadelphia Chamber of Commerce and St. Joseph's University.

Committee Chainnan:

Corporate Development.

Committee Membership:

Finance & Investor Relations; Pension & Insurance; Personnel.

HAROLD J. RAVECHE Dr. Raveche, who became a Director in 1990, is president of the Stevens Institute of Technology.

He is president of the Association of Independent Technological Universities, chairman of the board of trustees of the New jersey Consortium for Surface Engineered Materials , a director of National Westminster Bank, NJ, and a member of the U.S. Council on Competitiveness.

Committee Membership:

Audit; Corporate Development; Energy, Operations

& Research; Finance & Investor Relations . *

• Jos. Michael Galvin, Jr. Gerald A. Hale

• E. Do*gla* Hogga,. Jerrold L. Jacobs Madeline H. McWhinney Bernard J. Morgan Harold J. Raveche Matthew Holden, Jr. Richard B. McGlynn D es i g n: Mue ll e r&: Wister , Inc. Illu s trati o n: R o b e rt Byrd Cyrus H. Holley Ph o t ogra ph y: K e ll y/M oo n ey P h otography; Imp ac t Multi I mag e Printin g: Inno va tion Printin g and Lithography S ixt y-o n e per ce nt of this @ annua l r epo rt i s print e d on r ecyc l ed p a p e r.

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ENERCiY 1199 Black Horse Pike Pleasantville , New jersey 08232 BULK RATE U.S. POSTAGE PAID PERMIT NO. 11 SOUTH JERSEY , N.J. 08031