ML18094B393

Delmarva Power,1989 Annual Rept.

ML18094B393
Person / Time
Site:	Salem, Hope Creek
Issue date:	12/31/1989
From:	Curtis N DELMARVA POWER & LIGHT CO.
To:
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ML18094B389	List: ML18094B388 ML18094B390 ML18094B391 ML18094B392 ML18094B393
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NUDOCS 9004160164
Download: ML18094B393 (56)

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Delr;zarva Power -NOTICE-THE A TT ACHED FILES ARE OFFICIAL CORDS OF THE RECORDS & REPORTS MANAGEMENT BRANCH. THEY HAVE BEEN CHARGED TO YOU FOR A LIMITED TIME PERIOD AND MUST BE RETURNED TO THE RECORDS & ARCHIVES SER\/ICES SECTION P1-122 WHITE FLINT. PLEASE DO NOT SEND DOCUMENTS CHARGED OUT THROUGH THE MAIL. REMOVAL OF ANY PAGE(S) FROM DOCUMENT FOR DUCTION MUST BE REFERRED TO FILE PERSONNEL. -NOTICE-9004160164 900404 PDR ADOCK 05000272 I PDR nergy And 1 9 8 9 Service, Annual roday And Report Tomorrow Looking To The Next Decade's Challenges 1 Maintaining Financial Strength 6 Meeting Energy Needs 9 Serving Customers Better 12 Improving The Environment 15 Providing Energy To The Delmarva Peninsula 18 Financial Highlights Revenues Net Income Earnings Per Share of Common Stock Dividends Declared Per Share of Common Stock Average Shares of Common Stock Outstanding Common Stock Book Value Per Share Construction Expenditures (t) Internally Generated Funds (2) Electric Sales Electric Customers (year end) Average Annual Residential Usage Gas Sales Gas Transported Gas Customers (year end) Average Annual Residential Usage $ $ $ $ 1989 789.7 million 91.3 million 1.80 1.51 46,686,745

$ $ $ 13.67 175.8 million 102.5 million 10,828,839 mwh 361,160 9,639 kwh 16.65 million mcf 0. 7 million mcf 82,883 89.6 mcf (I) Excludes Allowance for Funds Used During Construction.

Percent Increase 1988 (Decrease)

$ 768.3 million 2.8 $ 84. 7 million 7.8 $ 1.70 5.9 $ 1.47 2.7 45,892,013 1.7 $ 13.28 2.9 $ 171.1 million 2.8 $ 106.1 million (3.4) 10,225 , 043 mwh 5.9 351.578 2.7 9,575 kwh 0.7 16.15 million mcf 3.0 -million mcf 80,263 3.3 91.6 mcf (2.2) (2) Net cash provided by operating activities le ss common and preferred dividends.

About the cover-the lighted hom es, the bird, the moon , and the moving clock sym boli ze several of the key topics discussed in our 1989 annual satisfying customers in a growing service territory, protecting the environment, and providing energy in the future.

Looking To The Next Decade's Challenges Delmarva Power employees are committed to maintaining quality service for customers.

This line crew is upgrading neighborhood electric facilities to continue to provide reliable service. The reliability of the Company's energy service is the top reason why most customers gave the Company a favorable overall rating in this year's customer survey.

Looking To The N ex t De c ade's Challenges This panoramic view Is from the Edge Moor pawer plant to the Wilmington skyline. 1989 was a good year. Earnings increased 5.9 cent to $1.80 per share due mainly to the continued strong economic growth of the service territory.

1\.vo new combustion turbine power plants began operating.

Goals of energy vation programs were accelerated and achieved.

The customer approval rating increased for the seventh consecutive year. These and other accomp liments of 1989 are detailed on the fo ll owing pages. The remainder of this letter focuses on three key issues for Delmarva Power during the 1 990s-responding to growt h , protecting the environment, and improving earnings. Continuing Growth The economic development of the Delmarva Peninsula during the past five years has been dramatic.

Since 1 984, the demand for etricit y at peak periods has grown 36.5 percent compared to 12.5 percent for the entire decade between 1975 and 1984. The load and sales increases enced in 1989, for both electricity and natural gas, demonstrated that growth in the service territory is still healthy. While this growt h increased revenues, it also depleted ing reserves.

Delmarva Power's generating capacity dropped from 37.l percent beyond peak demand in 1984 to 3.3 percent at the end of 1988. About 15 to 20 percent additiona l capacity beyond peak demand is normal for the industry.

Responding In The 80s The Company developed a plan called Cha lleng e 2000 to meet the strong growth in the use By unloading rail cars quicker, coal handlers at the Edge Moor power plant saved the Company $188,000 In 1989. 2 Looking To The Next Decade's Challenges Growth In Wilmington, and the rest of the Delmarva Peninsula, has been dramatic over the past 5 years. of electricity in the service tory. The plan is designed to be as flexible as possible, meaning it can be accelerated or slowed as conditions change. It consists of a combination of customer-oriented conservation alternatives, called demand-side options, and the use of emerging and existing generation technologies, called side options. The strategy can be characterized as "Save Some, Buy Some, Build Some." In 1989, this strategy yielded positive results, both in terms of reducing peak demand and increasing generating reserves to 12.8 percent. More than 11,000 residential customers and 37 commercial and industrial customers participated in demand-side programs ("Save Some") which reduced their use of electricity during peak periods by 29 megawatts, or equal to about 25 percent of the output of our newest power plant. On the supply-side

("Buy Some" and "Build Some"), Delmarva Power applied for regulatory approval of an ment to buy 100 megawatts of coal-generated power from Duquesne Light Company of Pittsburgh, Pennsylvania, ning in 1990. After a competitive Gas Division employees are replacing nearly I 00 miles of old natural gas mains to help Improve gas service reliability.

bidding process, the Company began to finalize a contract to buy 48 megawatts of capacity from Star Enterprise's cogeneration ect at Delaware City, Delaware, beginning in 1992. In addition, two 105-megawatt natural fired combustion turbines were placed in service in 1989 at the Hay Road site near the Edge Moor power plant. 3 Looking To The Next De c ade's Challenges Delmarva Power plans to use a comblna* lion of customer conservation programs, power purchases, and new power plants, such as the Hay Road combustion fur* blnes, to respond to growing electricity use In the service territory.

Delmarva Power employees While we do not anticipate the purchases will not be enough. To performed exceptionally well to dramatic growth in peak use of meet our obligation to serve that control costs while bringing these electricity of the last five years to growth and to rebuild reserves, we new programs on line and hook-continue, we do predict a contin-will have to build new power ing up new customers.

Electric ued, solid average annual growth plants. We plan to complete a third rates are generally about 10 per-rate of about 2.4 percent for the 10 5-megawatt combustion turbine cent lower than they were in next five years. at Hay Road in 1991 and a 150-1983, making our prices among We plan to expand residential megawatt combined cycle unit at the lowest in the region. and commercial conservation pro-Hay Road by 1994. Responding In The 90 s grams to achieve a cumulative load In addition to responding to The strategy of Challenge 2000 reduction potential of 123 growth on the Delmarva will continue to apply-be as flexi-megawatts by 1996. However, con-Peninsula, the Company will also ble and balanced as possible.

servation programs and power need to respond to a changing Proposed Supply* Side Plan 90 The Company plans to begin a power purchase agreement with Duquesne Light Company for 100 megawatts of coal-fired electricity 91 The Company plans to complete a third 105-megawatt combustion turbine at Hay Road 92 The Company plans to begin a power purchase agreement with Star Enterprise for 48 megawatts of peaking-unit generation and complete an upgrade of existing generating units to gain 41 megawatts 9 4 The Company plans to complete a 150-megawatt combined cycle unit at Hay Road 4 industry nationally.

There will be increased pressure for deregulation of parts of the business and pres-sure to change traditional regula-tory precedent in others. All of this must be done without reducing reliability to customers and by min-imizing cost increases.

Protecting The Environment Along with economic growth has come an increasing public con-cern for the environment.

Delmarva Power shares the view of many stockholders and customers who live and work on the Delmarva Peninsula that pro-tecting the environment is impor-tant. Our policy is to comply with all environmental laws and seek opportunities within the bounds of financial responsibility to improve the quality of life in the service ter-ritory. Some examples that reflect our concern include maintaining a rockfish breeding pond at the Vienna power plant; turning acres of our transmission line rights-of-way into wildlife habitats; and find-ing new, environmentally accept-Looking To The Next Decade's Challenges able uses for coal ash, a power plant waste product. Also, Delmarva Power is spending $37 million to help solve an infrequent problem with emis-sions from the coal-fired Indian River power plant by building a 500-foot stack and by burning lower-sulfur coal at the plant. Improving Earnings A key to earnings growth in the 90s will be the timing of mod-est rate increases to recover the costs of building new energy sources, rebuilding generating reserves, adding transmission and distribution facilities to meet new customer needs, and protecting the environment.

During the decade, the challenge will be to synchro-nize rate relief with the start-up of new plants and power purchases.

Subsidiaries remain in a start-up mode and are expected to make proportionally small contributions to earnings in 1990. Summary Delmarva Power is in the midst of a growth period in a changing industry.

The challenges ahead are to meld growth, competitive pric-ing, and environmental protection while earning increases on stock-holders' investments and satisfying customers' needs. Flexibility and balance are the Company's strategies, along with the creativity and energy of a skilled workforce.

I appreciate the efforts and dedication of all employees and look forward to working with them in the 1990s. Sincerely, Nev Curtis February 9, 1990 5 Maintaining Financial Strength 6 In the past three years, Meter Reader Marvin Albert has read more than 250,000 meters without making an error. As a result of the participative skills process, Marvin and his co*workers worked together as a team to redesign hand* held meter*reading equipment and to set ambitious goals. Over the past five years, their efforts have led to an eightfold improvement in meter reading accu* racy, from one error In 423 readings to one error in 3,410 readings, while the cost per reading declined 11 percent.

Financial Position Delmarva Power increased quarterly dividends for the teenth consecutive year. Quarterly dividends increased by 2. 7 percent to 38.5 cents per share from 37.5 cents in 1988. On an annual basis, this is $1. 54 per share. Earnings were $1.80 per share as compared to $1.70 per share in 1988. The higher earnings were primarily the result of increased residential and commercial electric sales which resulted from customer growth and the strong economy on the Delmarva Peninsula.

This improvement was partly offset by increased replacement power costs incurred during the shutdown of the Peach Bottom Atomic Power Station and increases in interest and depreciation expenses related to the growing investments in facilities to serve our customers. The price of common stock increased to $20 7 /s from $17 3/4 last year , because of favorable market conditions. Delmarva Power's bonds are rated Al/A+/A+ by Moody's Investors Service , Standard & Poor's , and Duff & Phelps, respectively. Allowance for Funds Used During Construction (AFUDC) was 10.5 percent of net income. The Company paid for 58 percent of construction expenditures with cash from its own operations.

Combustion turbine tion, transmission and distribution additions , and environmental control investments have led the Company to seek more external financing. In 1989 , the Company issued $20 million of 7.5 percent Exempt Facilities Revenue Bonds, issued $45 million of Auction Preferred Stock, and raised $15.2 million of new common equity by issuing 824,428 new shares of common stock through the Dividend Reinvestment and Common Stock Purchase Plan. Rate Matters The cost of electricity and ural gas for customers on the Delmarva Peninsula was only marginally higher. The Delmarva Peninsula's shore and bay areas continue to develop. Maintaining Financial Str e ngth The Gas Cost Adjustment was unchanged in the Company's annual filing. The Electric Fuel Adjustment was increased in Delaware as of January 1, 1990, and in Maryland as of October 1989. For typical Delaware and Maryland residential electric customers using 750 kilowatt-hours per month , the increases in total charges were 1.3 percent and 3.7 percent, respectively.

These increases will allow the Company to recover higher than expected fuel costs incurred during 1989. Energy Prices The Company maintained regionally competitive prices. Electric price comparisons (for all customer categories in cents per kilowatt-hour) are: New York , 7 Maintaining Financial Strength Molten 1tHI pulses at the Claymont, Delaware mill of ClllSIHI USA. The reopening of the stHI mill contributed to sales growth. 11.36; Philadelphia , 9.22; Newark, N.J., 8.70; Delmarva Peninsula , 6.23; Norfolk, Va., 6.10; Baltimore, 6.07. Natural Gas prices are (in cents per 100-cubic-feet): New York , 75.72; Philadelphia , 59.68; Baltimore , 59.20; Newark , N.J., 56.90; Wilmington , Del., 51.61; Norfolk , Va., 48.58. Peach Bo tt om Co s t s On October 5, 1989, the Nuclear Regulatory Commission (NRC) released Philadelphia Electric Company (PE) from the terms of the shutdown order imposed March 31, 1987 , on the Peach Bottom Atomic Power Station, in which Delmarva Power has a 7.51 percent ownership interest. This release allowed both of Peach Bottom's generating units 8 to operate at full power under normal NRC regulations and review. The Company had been expensing replacement power costs without collection from customers, at the rate of approximately

$1 million pe r month during the 32-month shutdown.

The lawsuit filed by the Company and Atlantic Electric Company in July 1988 against PE to recover replacement power and other shutdown-related costs remains in the discovery phase. Outside Opportunities The Company is refining its subsidiary efforts to focus primarily on energy-related projects.

Two of the largest non-lated generation investments are now operating commercially. The 25-megawatt wood-burning power plant in Burney, California, began operating in 1989. A 30-percent share of the plant was sold at a profit to comply with a regulation which limits electric utility ownership of a cogene r ation facility to 50 percent. A sister unit to the Burney plant in Redding, California , achieve d its capacity goals under the terms of the power purchase agreement with Pacific Gas & Electric Company of S an Francisco, California.

Two 1 OS*megawatt combustion turbines (CTs) were completed and placed in service during the spring and summer at the Hay Road site in Wilmington.

The permitting process is underway to install a third 1 OS*megawatt CT and a 150* megawatt combined cycle facility at Hay Road. The third CT will use natural gas as a fuel and the combined cycle will use exhaust heat from the three CTs. Meeting Energy Needs 9 Meeting Energy Needs The Company developed the Challenge 2000 plan to assure customers an adequate and able supply of energy at competitive prices today and tomorrow.

Because the energy world is changing rapidly, Challenge 2000 uses a flexible integrated approach which consists of a combination of customer conservation programs, power purchases, and new power plants. This approach enables Delmarva Power to quickly respond to changes in demand, technology, and mental regulations.

Cus t ome r Conservation Prog rams By the end of 1989, more than 11,000 residential customers and 3 7 large commercial and industrial customers participated in the Company's energy conserva -tion programs, Energy For Tomorrow (EFT) and Peak Management (PM), respectively.

In exchange for credits on their energy bills during peak summer periods, residential customers who participate in EFT allow the 10 Company to modify the cycling of their central air conditioners, heat pumps, and electric water heaters. Large commercial and industrial customers who participate in PM reduce their use through auxiliary generation and load reduction to p r earranged leve l s when notified.

Under these programs, the Company can now reduce load by approximate l y 29 megawatts.

Delmarva Power is currently signing up more customers for these programs and is also introducing the Commercia l Lighting Efficiency Rebate, a new conservation program. Power Purchases Delmarva Power signed an agreement to purchase 100 megawatts of coa l-fired electricity from Duquesne Light Company of Pittsburgh, Pennsylvania, for 20 years beginning in 1990, pending regulatory approvals.

The Company also selected a proposa l to purchase 48 megawatts of peaking-unit generation from Star Enterprise of Delaware City, Delaware, ning in 1 992. Star's proposal, which uses an existing generating unit adjacent to its oil refinery, was selecte d from among 10 proposals because it posed the least development risk and the lowes t cost to custome r s. If the contract is ized and approved by regu l ators, Star wou l d se ll power to the Company for 26 years. New Power Plants Two 105-megawatt combustion turbines (CTs) were comp l eted and p l aced in service during the spring and summer at the Hay Road site in Wilmington. The installed cost of these units, $240 per kilowatt, was exceptionally low. The ting process is underway to install a third 105-megawatt CT and a 150-megawatt combined cycle facility at Hay Road. The Company plans to have the third CT in vice by the summer of 1 991 and the combined cycle by the summer of 1994. The third CT will use ural gas as a fuel and the combined cycle unit will use exhaust heat from the three CTs. Between 1990 and 1 994, the Company estimates that 65 percent of its electricity will be supplied by coal generation, 19 percent by Meeting Energy Needs A new substation in Chincoteague, Virginia, which improves service reliability, stands in the background as modern-day cowboys pose during the Annual Wild Pony Penning. The event is just one of the many attractions that brings visitors to the Delmarva Peninsula.

natural gas and oil, and 16 percent by nuclear generation.

Service Reliability Delmarva Power's wholly owned and operated coal and oil fired power plants' equivalent availability rate in 1989 was 82.3 percent compared to the most recent industry average of 80 percent. During the summer, when demand for electricity was high, Company plants had an even better availability of 92.2 percent. Also, to improve reliability, the Gas Division is replacing 90 miles of uncoated, unwrapped steel pipe installed prior to 1948 with new polyethylene pipe. More than 95 percent of Energy For Tomorrow participants were satisfied with the residential conservation program and would recommend the program to a friend, according to a 1989 survey. Workers handled emergency situations with expertise.

When nearly 10 inches of rain fell in Wilmington, on July 5, causing floods throughout northern Delaware, employees from the gas distribution, line, system operations, and service ments worked for three days to restore energy to severely flooded areas. Crews battled hour wind gusts, chilly tempera -tures, and uprooted trees to restore electric service to about 20,000 customers during two storms in November.

11 Serving Customers Better 12 This new Salisbury, Maryland resident received alright Ideas" in the mailbox. As a result of customer research, Delmarva Power developed alright Ideas For Your Home," a new video for people who recently purchased homes. The video, part of the Company's efforts to serve customers better, contains information about energy use, comfort, and convenience.

Serving Customers Better Fav o rability Rating EmployHs talked with more than 7,000 The Company's customer customers about home energy efficiency at favorability rating increased for the Delaware State Fair In Harrington.

the seventh consecutive year. In the 1989 customer survey, 81 per-cent of the customers surveyed gave the Company a favorable rating compared with 46 percent quarterly 60 Plus newsletter , in 1982. " Silver Bulletin," and th e quarterl y The reliability and value of commercial customer newsletter, billing, installment payments , load Delmarva Power's electric and gas "Energy Exchange." limiters, and communit y sources service and the Company's com-For several years, customer of funds. munications to customers were service, community relations, and Te am Effectiveness the top reasons customers gave the marketing representatives have As the corporate culture has Company a favorable rating. worked one-on-one with cus-incorporated the participative skills Usefu l Inf o rm a ti o n tomers having difficulty paying process, more employees at all The Company has worked their energy bills. They have pro-levels have had opportunities to hard to understand better the vided customers with information advance new ideas and to improve needs of customers and to provide about credit extensions, budget existing methods of performing them with useful information. their work. A s part of this effort , the For example, coal handl e r s at Company introduced a new the Edge Moor power plant advertising campaign, "Famous Nu m ber of Electric Customer s (1hou s and s) unloaded rail cars quicker to Tips ," to provide useful informa-reduce demurrage or detention tion about air conditioning, energy costs, lighting, power surges, and other energy topics. Useful 300 I I I I I '

• I! 5

• charges. Through a series of improvements , this team cut these charges by $188 , 000 in 1989. A publications includ e the monthly 200 -----1---1---meter departm e nt team in s tall ed a residential customer news l etter, new meter tran s lation system "Energy News You Can Use ," the ---------100 which uses a personal computer 0 79 80 8 1 82 83 84 85 86 87 88 89 13 __J Serving Customers Better network to calculate bills for Delmarva Power customers who use large amounts of electricity.

This system resulted in substantial cost savings. A new mobile former, obtained by a departmental team, allowed the Company to defer or eliminate purchases of duplicate transformers at some substations.

The mobile transformer also will allow the Company to react more quickly to transformer failures and to minimize inconveniences to customers.

Additionally, employees ach i eved five of the seven go a ls of the Corporate Performance Incentive Plan, saving the Company at least $2.3 million. Through the ach i evement of the plan's Wellness goal, over the last two years absenteeism decreased by more than one day per employee per year. Employees also are working together to tinually improve the health and safety of individuals.

Three dred and seventy employees improved their health by exercising regularly through Move To Improve, the Company-wide fitness program. As a result of a Company-sponsored smoking cessation program, 95 of the 222 people who enro ll ed in the gram have quit smoking. Fewer emp l oyees got hurt in 1989 and the Actions Prevent Accidents campaign was developed to increase and reward individual commitment, aw ar eness, and act i on directed towards ing accidents. Communit y Program s Through contributions of stockho l ders and customers, the Through the Gatekeeper program, employees are trained to link older customers In distress with community services.

Since the program's Introduction In March, more than 70 customers received the help they needed. 14 Good Neighbor Energy Fund tributed more than $1.3 million during the last seven years to tomers having trouble paying energy bills. Employees, as part of the highly successful Radio Watch program, continued to summon aid to people in the community by using radios in Company vehicles. Employees contributed

$297,803 to the United Way, surpassing their 1988 campaign total by nearly $30,000. About 60 percent of Delmarva Power's employees vo l unteer their personal time to help others in the community.

Company engineers designed and installed devices to significantly reduce a sporadic noise created by cooling fans at the Edge Moor power plant. The low fre* quency noise had been heard during certain operating and weather conditions in some north Wilmington, Delaware communities near the plant. Follow-up acoustical tests and discussions with area residents confirm that the new devices have solved the noise problem. Improving The Environment 15 Improving The Environment Pollution and the ment have become a top issue among Delmarva Power's tomers , according to the Company's 1989 customer survey. Local oil spills and general lems in the Chesapeake Bay along with national environmental issues are clearly increasing public sensitivity to and concern about the environment. Providing energy in an ronmentally acceptable manner is an important principle at Delmarva Power. During the past few years, through several pro ects, the Company has improved the environment in the service territory.

Wildlife Habitats Delmarva Power has turned more than 6 , 500 acres of electric transmission line right-of-way property into wildlife habitats.

The Company developed a of-way management program that benefits wildlife and reduces the Company's long-term tenance costs. Today, Delmarva Power rights-of-way are havens 16 for ducks, deer, muskrats, quail, and other nesting birds and small animals. Myrtle, blackberries, lies, dogwoods , wildflowers, and other herbaceous plants grow on these properties. In fact , the dew plant and pitcher plant, a couple of rare wetland species , are thriving on some Compan y of-way. Since 1985, the Company has released more than 100,000 striped bass (rockfish) fingerlings into the Nanticoke River in Maryland.

These fish were raised in a $50,000 brooding pond on the grounds of the Company's Vienna power plant. Delmarva Power constructed the fish pond to help save the dwindling striped bass population in the Chesapeake Bay and its tributaries.

The pond is maintained by 2 5 employees who volunteer their spare time. Also, bluebird and wood duck boxes were placed on properties to provide shelter to these birds , and employees worked with the Nature Conservancy to preserve and protect native rare plant species. Air Quality Delmarva Power is ing a 500-foot stack at the Indian River power plant to solve an infrequent air pollution problem. Emissions from the Indian River plant near Millsboro, Delaware, have the potential to exceed national air quality regulations about six to ten times a year when the wind blows from a particular direction. To comply with a Delaware Department of Natural Resources and Envirorunental Control order, the tall stack must be operational by March 1, 1992. In addition, on January 1, 1990, the Company began burning a 1.6 percent sulfur-content coal instead of a 2.0 percent content coal at the plant's units 1, 2, and 3. The switch to fur coal will cut sulfur dioxide emissions at Indian River by an estimated 7,000 tons per year. Fly Ash Utilization Delmarva Power is finding ways to utilize the coal ash duced each year at its Edge Moor and Indian River power plants. Improving The Environment Nesting platforms have been built to prevent ospreys from nesting on transmission lines, which has caused electrocution of the birds In the past. For many years, much of the ash, a combustion by-product, was placed into landfills, but some of it is now being used on various construction and environmental ects. For instance, coal ash was used to help repair a Wilmington, Delaware road which was washed out by the past summer's rain and flooding.

Tests proved the ash lized well with cement, was two to three times stronger than soil, and was environmentally sound. The Company hopes this project represents another step toward the routine use of coal ash in road struction projects.

Other projects that used Delmarva Power coal ash are two new interchange ramps for Interstate 495 in Wilmington, Delaware; Delmarva Power Hay Road combustion turbines' dations; the water main tion at the Edge Moor power plant; the new cooling tower dation for the Indian River plant; an artificial ocean reef for marine life in the Atlantic Ocean near Delaware's Indian River Inlet; and structural fill for a Sussex County, Delaware landfill.

In the future, coal ash could be used as core material for crete and structures such as jetties and piers. Today, more than 20 percent of the rockflsh In the Nanticoke River were raised in the Company's hatchery, according to local ecological studies. 17 Providing Energ y To The Delmarva Penin s ula 18 . . . .. ,J .... ) } *:_f* ,...-. . . . . . . . \,* ' . . . . . . . : .... a n 0 + Corporate Headquarters

• Northern Division Generat:Office

• Southenr Division Genera( Office

• Customer Service Location#

.1o. Power Plants The Delmarva Peninsula, made up of Delaware and the Eastern Shore counties of Maryland and Virginia, has a diverse blend of industrial, agricultural, commer* cial, and recreational activities which makes the demand for electricity and natural gas here less affected by fluctuations in the national economy than in many other areas of the nation. Delmarva Power's 361, 160 electric customers throughout most of the 5,700 square-mile peninsula and 82,883 natural gas customers in a 275 square-mile area in northern Delaware are served by 2,700 employees.

I_ 20 Selected Financial Data 21 Financial Review and Analysis 26 Report of Management 27 Report of Independent Accountants 28 Consolidated Financial Statements 34 Notes to Consolidated Financial Statements 48 Statistics 50 Committees and qfficers 51 Directors 52 Stockholder Information Earnings Per Share of Common Stock $2.00 ---------------0.4 0 -0.00 79 8 0 8 1 82 83 84 85 86 87 88 89 R e turn on Aver a ge Common Equity 1 4 1 2 I O 8 6 4-------2---------0 79 80 8 1 82 83 84 85 86 87 88 89 Utility Construction Expenditures (mill i on s) $200---------------

.. -.. 1 50-----------.

--1 00 .. --50 t--r ------

82 83 84 85 86 87 88 89 9 0* 9 ( 92* *Foreca s t / Financial Se c tion Dividend s Declared Per Share of Common Stock l.6 0 ----------------

1.20 ---------ri--t 0.8 0 0.40 0.00 79 80 8 1 82 83 84 85 86 8 7 88 89 Average Common Stock Market Price $24 ' -20 ' ' 1 6 1 2 I--I r 8 4 0 79 8 0 8 1 82 83 84 85 86 87 88 89 Utility External Financing (million s) $2 00---------------

1 50---------------82 83 84 85 86 87 8 8 89 90* 91' ?2. *f o rec as 1 Delmarva Power & Light Company 19 Selected Financial Data (Dollars in Thousands)

For the Years Ended December 31 1989 1988 1987 1986 1985 Operating Data Operating Revenues $ 789,707 $ 768,322 $ 712,479 $ 714,863 $ 722,834 Operating Income $ 139,421 $ 129,494 $ 124,967 *$ 134 , 738 $ 135 , 515 Net Income $ 91,308 $ 84,721 $ 79,803 $ 96,123 $ 96 , 63.8 Electric Sales (kwh 000) 10,828,839 10 , 225,043 9 , 565,276 9 , 205 , 795 8 , 530,520 Gas Sales (mcf 000) 16,645 16,154 15,411 15, 952 15.708 Gas Transported (mcf 000) 677 2 I Common Stock Data Earnings Per Share of Common Stock $1.80 $1.70 $1.60 $1.94 $1.84 Dividends Declared Per Share of Common Stock $1.51 $1.47 $1.42 1/2 $1.36 1/3 $1.29 2/3 Average Shares Outstanding (000) 46,687 45 , 892 45,717 45 , 717 45, 717 Capitalization Variable Rate Demand Bonds i 1 l $ 41,500 $ 75 , 000 $ $ $ Long-Term Debt i 2 l 663,084 641,291 . 670,738 666 , 979 '638 , 090 Preferred Stock without mandatory redemption 136,365 103,306 103,306 1'03,306 105,000 Preferred Stock with mandatory redemption Pl 877 2,477 3,277 4,077 5,992 Common Stockholders' Equity 642,641 613 , 177 594, 975 587,449 561 , 811 Total Capitalization

$1,484,467

$1,435,251

$1 , 372,296 $1.361,811

$1.310,893 Capitalization Ratios Variable Rate Demand Bonds I 1 l 3% 5% 0% 0% 0% Long-Term Debt 45% 45% 49% 49% 49% Preferred Stock without mandatory redemption 9% 7% 8% 8% 8% Preferred Stock with mandatory redemption 0% 0% 0% 0% 0% Common Stockholders' Equity 43% 43% 43% 43% 43% Total Capitalization 100% 100% 100% 100% 100% Other Financial Data Total Assets $ 2,028,661

$ 1,907,790

$1,807,831

$1,747 , 324 $1 , 683 , 864 Construction Expenditures 1 4 l $ 175,843 $ 171.102 $ 142,239 $ 102 , 597 $ 94,923 Internally Generated Funds i 5 l $ 102,467 $ 106,051 $ 129 , 345 $ 160 , 967 $ 150 , 856 (I) Variable ra t e d ema n d bon d s we r e reclass i fied from l o n g-t e rm d ebt to cu rr en t liabilities as of Dece m be r 31 , 1 988. The Company intends to use t h e b o n ds as a so u rce o f lo ng-t e rm fin a n ci n g a s di scussed i n No t e 7 o n p a ge 4 0. (2) I n cl u des l o ng-t er m debt du e within o n e yea r. (3) In cl u des m an d atory rede m p ti o n due w i t hin one ye ar. (4) E x cl ud es all o w a n ce f o r fund s u se d during c on s t ruc tion. (5) Net cas h p r ovided by ope r a tin g acti v ities less co mm o n an d pr efe rr ed divi d ends. 20 Delmarva Power & Light Company /

Results of

' Financial Review and Analysis Earnings Earnings per share of common stock increased to $1.80 from $1. 70 in 1988. The 10¢ increase was primarily due to increased residential and commercial kilowatthour (kwh) sales which resu)ted from customer growth and a strong economy in the service territory.

This improvement was partly offset by increased replacement power costs incurred during the shutdown of the Peach Bottom Atomic Power Station (Peach Bottom) and increases in depreciation and interest expenses.

During 1989, both Peach Bottom units were restarted and Philadelphia Electric Company , the operator , was released from the Nuclear Regulatory Commission's shutdown order that had been effective since March 31 , 1987. Replacement power costs attributed to the shutdown were not recovered through customer rates. Replacement power costs written-off in 1989 ' amounted to $13.9 million ( 18.5¢ per share) in comparison to $1 O.Q million ( 13.5¢ per share) in 1988. Since Peach Bottom is now operating, the Company's future earnings will not be burdened by the replacement power costs. Operation and maintenance expenses related to preparation for the restart of Peach Bottom were lower in 1989 , which mitigated the Company's overall operation and maintenance expense increase.

Utility earnings were also affected by increased depreciation expense and by incr e ased interest expense due to increased external financing requirements associated with the construction of new electric generating, transmission and distribution facilities.

These new facilities are needed to meet the growing demand for energy by the Company's customers. The Company's non-regulated subsidiaries contributed 11 ¢ to earnings per share in 1989 in comparison to l 0¢ per share in 1988. Earnings per share of common stock for 1988 increased to $1. 70 from $1.60 1987. The. l 0¢ increase was primarily due to increased electric kwh sales and improved earnings from the Company's non-regulated subsidiaries , partially offset by higher operation and ma.intenance expenses and increased replacement power co s ts related to the shutdown of Peach Bottom. Dividends On Decemb er 2 L 1989 , the Board of Directors raised the quarterly dividend on common stock to 38 1 /2¢ per share ($1.54 indicated annual rate) from 37 1/2¢ per share ($1.50 indicated annual rate). This 2.7% improvement mark s thirteen consecutive year s of increasing dividends and reflects the Company's goal to moderately increase dividends annually, earnings permitting , in order to provide stockholders with a fair and competitive return on their investment.

Electric Revenues And Sales Electric revenues, net of fuel costs, increased

$12.5 million in 1989 principally due to a 5. 9% increase in kwh sales that

$17.7 million revenue increase, which was partly offset by a $3. 9 million increase in Peach Bottom replacement power costs. Although about half of the total kwh sales increase was contributed by the lower priced indu s trial sales class, most of the revenue increase was attributed to the higher priced residential and commercial sales classes. Growth rates of 3.6% and 5.2% in 1989 residential and commerical kwh sales , respectively , were attributed to customer growth resulting from the strong economy of the service territory which continued to maintain a low unemployment rate. However , the growth rates were more moderate than the vigorous growth rates reported in 1988 due to milder weather and a slowdown in new residential and commercial construction.

The unusually strong increase in industrial kwh sales , which grew by 10.9%, was mainly due to resumption of production by a steel mill and another major customer temporarily running two plants. Thus, future industrial kwh sales growth is e xpected to be les s than the growth experienced in 1989. Du e to the large 1989 industrial kwh sales increa se and slower growth in the relatively higher priced residential and commercial s ale s classes , the 1989 s ales relat e d rev e nue increa s e of $17 .7 million was lower than the 1988 increase of $27.3 million. Delmarva Power & Light Company 21 Financial Review and Analysis Results of Operations (continued)

Electric revenues, net of fuel costs, increased

$17.4 million in 1988 mainly due to a $27 .3 million increase from 'higher kwh sales, which was partially offset by a $11.4 Illillion net decrease in base rates primarily attributed to a decrease in the 1988 federal income tax rate. See Note 13,beginning on page 42, for a discussion of rate matters. A 6.9% increase in total kwh sales was primarily due to a very hot summer and a high level of new residential and commercial construction. In 1988, both residential and commercial k'A'.h sales grew by 7.8% and industrial kwh sales grew by 4.5%. Gas Revenues And Sales Gas revenues, net of fuel costs, increased

$1.3 million in 1989 primarily due to a 3.0% sales increase attributed to higher industrial and commercial sales. Industrial sales benefitted from higher customer production levels and the resumption of production by a steel mill. Commercial sales increased primarily due to customer growth. Gas revenues, net of fuel costs, increased

$1.9 million in 1988 primarily due to a 4.8% sales increase which was attributed to residential and commercial customer growth. The sales increase was diminished by fuel switching by some large industrial and commercial customers due to lower 1 988 oil prices. Electric Fuel, Net Interchange, And Purchased Power Expenses In 1989, the electricity required by the Company's customers was provided by coal genhation (51 % ), oil generation (22%), nuclear generation (12%), gas generation (5%)' and interchange and' purchased power (10%). The Company's average electric fuel cost per kwh, which includes fuel, interchange and purchased power costs, was in 1989, in 1988 and in 1987. The increase in the 1989 average electric fuel cost per kwh was mainly due to increased oil prices and increased interchange purchases of electricity.

Electricity purchases were necessary in 1989 due to outages at the Company's coal-fired generating plants, availability of the Peach Bottom units for less than half the year, and increased energy demand by customers.

The timely mid-1989 installation of two 105 megawatt combustion turbines, which primarily burn gas, helped satisfy the increased energy demands. Nuclear generation, which has the lowest fuel cost. increased moderately due to-the restart of Peach Bottom Units 2 and 3, which achieved full power operations on August 4, 1989 and January 5, 1990, respectively.

The decline in the average electric fuel cost per kwh in 1988 from 1987 was principally due to lower oil prices and savings from renegotiated coal contracts.

22. Delmarva P0wer & Light Company /

Results of Operations

' Financial Review and Analysis Operating Expenses, Excluding Fuel Operation and maintenance expenses increased

$4.4 million in 1989 mainly due to outage expenses at the Company's generating plants and increased payroll expenses.

A $2.5 million iJ!crease in steam expenses, which are billed and reflected in increased steam revenues, also contributed to the increase. These increases were partly offset by lower expenses related to the preparation for the restart of Peach Bottom and a one-time $3. 9 million credit adjustment for previously expensed spare parts at the jointly-owned generating plants. The Company anticipates that its cost control programs will help to minimize any future increases in operation and maintenance expenses which are expected to occur mainly due to aging of the Company's existing plant and normal inflationary pressures.

Depreciation increased

$5.0 million in 1989 principally due to an increase in electric utility plant which resulted from installation of the two l05 megawatt combustion turbines and additions to the transmission and distribution system. Operation and maintenance expense s increased

$13.6 million in 1988 primarily due to increased outage expenses at the Peach Bottom and Salem nuclear units and higher payroll costs. Income taxes declined in 1988 due to the lower 1988 federal income tax rate. Other Income (Net of Income Taxes) Other income, excluding allowance for equity funds used during construction,

$1.6 million from 1988 mainly due to lower subsidiary operating income. The subsidiaries incurred start-up losses on the initial operations of a landfill and a non-regulated wood-burning power plant and its sawmill. Lower income from leveraged leases, lower investment income from marketable securities (which were sold to fund investments in partnerships), and accrual of a loss provision on an investment in a municipal waste water treatment venture also contributed to the decline in subsidiary operating income. These decreases were partially offset by the flow-through of investment tax credits on facilities completed in 1989 and a $4.8 millipn gain on the sale of a partial interest in a partnership which operates a wood-burning power plant and a sawmill. The effective tax rate on the $4.8 million gain was reduced by a $3.1 million capital loss carryforward.

See Notes 8 and 17 for more information on the Company's subsidiaries. Other income, excluding allowance for equity funds used during construction, increased

$1.3 million in 1988. This increase from 1987 reflected

$2. 7 million of 1987 capital losses on marketable securities and a $1.2 million decrease in subsidiary research and development project expenses, net of related tax credits. These items were partly offset by a $1.3 million in interest and dividend income and $1.3 million of other decreases. Financing Costs Intere s t charges on-debt increased

$6.1 million in 1989 primarily due to the higher levels of debt required to finance the Company's utility construction expenditures.

Effective September 1, 1989, the Company converted the interest rate on $33.5 million of bonds from a variable rate to a fixed rate of 7.3%. Preferred dividend s are expected to rise in 1990 due to the 1989 net $31.5 million increase in preferred stock outstanding. Capitalized interest and allowance for equity funds used during construction increased by a total of $4.0 million in 1989 due to higher utility construction expenditures and interest capitalized on qualifying subsidiary investments.

Delmarva Power & Light Company 23 Financial Review and Analysis Proposed Amendments to the Clean Air Act Impact of Accounting Pronouncements Liquidity Capital Resources Internally Generated Funds Utility. Construction Expenditures (excluding AFUDC) ' (milli o n s or dollars) l 5 0 _l-l ______ r-ill __ 100 50 0 88 89 90* 91' 92* *Forecast In November 1989 , the Senate Environmental and Public Works Committee released proposed amendments

'to the Clean Air Act which would require staged reductio,ns in sulfur dioxide emissions and limits for nitrogen oxide emissions.

If the proposed legislation is enacted, the Company would incur significant additional capital and operating costs in order to achieve compliance.

The Company anticipates that such costs would be recovered through rates charged to customers.

In February 1989 , the Financial Accounting Standards Board (FASB) issued an exposure draft of a proposed statement, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The exposure draft concludes that postretirement health care benefits represent a form of deferred compensation and proposes that the costs and obligation should be accrued as services are rendered.

The Company currently expenses these costs when paid. The FASB plans to issue a final statement in late 1990 which would tentatively become eftective in 1992. The Company expects that any increase in expense which results from adoption of a final statement would be recovered through rates charged to customers.

See Note 2 on page 3 7 for a discussion on Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes", and its anticipated effects on the Company's financial statements.

The Company's primary capital resources are internally generated funds (net cash provided by operating activities less common and preferred dividends) and external financing.

These resources provide capit?l for the Company's utility construction program and other capital requirements such as maturing debt. The Company anticipates that internally generated funds, which are affei;:ted by regulatdry acti , ons and economic conditions, will continue to be the Company's largest single capital resource.

The Company's main 1989 capital requirements were $175.8 million of utility construction expenditures, $34.5 million of investments by the Company's non-regulated subsidiaries and the maturity of a subsidiary bank loan. Internally generated funds of $102.5 million, which provided the largest single source of funds, represented 58% of utility capital expenditu r es. External sources of long-term capital were provided by $20 million of 7 1 /2% Exempt Facilities Revenue Bonds issued July 12, 1989, $45 million of Auction Preferred Stock issued August 9, 1989, and $15.2 million of common stock issued during 1989 under the Dividend ment and Common Share Purchase Plan. Favorable market conditions during 1989 enabled the Company to repurchase 119, 150 shares of its $100 par value Adjustable Rate Preferred Stock at a cost of $9.3 million. Capital req_uirements of the Company's non-regulated subsidiaries were financed primarily through proceeds of $17 .1 million from the sale of marketable securities and proceeds of $12. l million from the sale of a portion of an investment in a partnership.

The subsidiar i es repaid $15 million of a $28 million bank loan in February 1989 , and repaid the remaining

$13 million loan balance in January 1990. Capital requirements for the period 1990-1992 are estimated to be $601 million, including

$546 million for utility construction (excJuding AFUDC). The Company anticipates tl<J.at during this period $327 million will be generated internally , which represents 54% of capital requirements and 60% of utility construction expenditures.

Actual internally generated funds and construction expenditures may vary from the above estimates due to, among other factors, the rate of inflation , (egulation and legislation, rates of load growth, licensing and construction delays, results of rate proceedings, and the cost and availability of capital. 24. Delmarva Power & Light Company liquidity and Capital Resources (continued)

Ratio of Earnings to Fixed Interest Charges (SEC Method) 5-------4--1-------3 --11 ,.,_.,___, _____ 2 ----I-----0 85 86 87 88 89 Financial Review and Analysis As of December 31, 1989, the Company's capital,structure was comprised of 47.5% long-term debt and variable rate demand bonds, 9.2% preferred stock, and 43.3% common stockholders' equity. The Company plans to satisfy its estimated external financing requirements of $126 million in 1990, $89 million in 1991, and $69 million in 1992 with a mix of approximately47%

debt, 14%

stock and 39% common stock. The planned financing mix should help keep the Company's capital structure within its target ranges of 44-50% debt, 8-10% preferred stock, and 42-46% common stock. As of December 31, 1989, the Company's senior debt was rated Al by Moody's Investor Service, A+ by Standard & Poor's and A+ by Duff & Phelps. The Company's 1989 ratio of pre-tax earnings to fixed interest charges (computed according to SEC regulati ons), although slightly lower than in 1988 and 1987, was still strong at 3.01. Thus, current financial mt".asures indicate that the Company will be able to satisfy its projected external financing requirements at costs which should help keep electric and gas rates competitive.

Capital resources available to the Company for short-term financing needs include commercial paper, loan placement agreements, and lines of credit. As of January 1, 1990, the Company had $75 million in lines of credit available for the short-term financing needs of the utility business.

The Company plans to enter into a nuclear fuel energy contract in 1990 in order to finance its share of nuclear fuel for the Peach Bottom plant. The Company anticipates that the nuclear fuel energy contract would be accounted for as a capital lease which would increase assets and liabilities by approximately

$30 million. However, the nuclear fuel energy contract is not expected to ha.ve a material effect on the Company's cash flows or results of operations.

The Company's peak load in 1989 was 2,216 megawatts (MW) in comparison to 2,204 MW in 1988. The Company's present generating capacity of 2,499 MW provided a 12.8% reserve margin against the new peak of 2,216 MW reached on December 22, 1989. The Company estimates that its peak load will grow by an average of 2.4% annually over the next five years. ' The Company's Challenge 2000 Plan is its response to the growing demand for electricity in the service territory.

The plan combines customer-oriented conservation alternatives, called demand-side options, and the use of emerging and generation technologies, called supply-side options. The strategy can be characterized as "Sa';'e Some, Buy Some, Build Some." As of December 31, 1989, the demand side ("Save Some") of Challenge 2000 had enrolled over .11.000 residential customers and 37 commercial and industrial customers which provide the Company with the ability to reduce its peak load by 29 MW. By the year 1996 , these two programs should provide 123 MW of potential load reduction.

The supply side of the Challenge 2000 Plan combines the use of power purchases from regulated and non-regulated utilities

("Buy Some") and the construction of new generating capacity ("Build Some") as follows: In 1990, the Company plans to purchase 100 MW of capacity from Duquesne Light Company (see Note 8 on page 41 regard'ing fixed commitments under the agreement and the status of regulatory approvals);

in 1991, a third combustion turbine, with proximately I 05 MW of capacity, is scheduled for commercial operation at the Hay Road site; in 1992, the Company plans to purchase 48 MW of non-regulated generation peaking capacity and to have completed another 41 MW of upgrades of existing generating units r and in 1994, a 150 MW combined cycle addition to the Hay Road combustion turbines is planned. Preliminary plans for the remainder

• of the l 990's include the purchase of non-regulated base-load capaci ty and construction of a new base-load unit by the CompanY: Delmarva Power & Light Company 25

, Report of Management Report of Management Management is responsible for the information and representations contained in the Company's financial

'statements.

Our financial statements have been preparep in conformity with generally accepted accounting principles, based upon currently available facts and circumstances and management's best estimates and judgements of the expected effects of events and transactions.

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

Coopers & Lybrand, independent certified public accountants , are engaged to audit the financial statemems and expres s their opinion thereon. Their audits are conducted in accordance with generally accepted auditing standards which include a review of internal controls.

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

Nevius M. Curtis Chairman, President and Chief Executive Officer Paul S. Gerritsen Vice *President and Chief Financial Officer 26. Delmarva Power & Light Company

• Report*of

' Accountants

/ .-,. To the Board of Directors and Stockholders

• Delmarva Power & Lighi, Company Wilmington, Delaware /" ,Report of Indepf!ndent Accountants We have audited tht;.accompanying consolidated balance sheets and statements of.capitalization ofDelmarva Power & Light and Subsidiary Companies.

as of December 31, 1989 and 1988, and the related. consolidated statements of income, changes in common st_ockholders' equity, and cash flows for each of the three,years in the pe1ciod ended December 31, 1989. These financial statements are the responsibility of the .

management.

Our.responsibility is to express an opinion on these financial statements based on our audits. We conducted o*ur-audits in accordance with generally atcepte.d 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.

Ailauditincludes examining, on a test basis; evidence supporting the amounts 1 and disclosures in the financial statements.

An audit also includes assessin:g the accounting principles used and* significant estimates made by mkagement, as well as evaluating the overall financial statement presentation." We believe 'that our audits provide a reasonable basis forou'.i:

opinion. In *our* opinion, the financial referred to above present fajrly, .in all. material*

respects, the *consolidated financial position of Delmarva Power & *Light Company and Subsidiary Companies as of December 31, 1989 and* 1988, and the results of tneir* operations and tqeir cash flows for each of the three years 'in the period ended December 31,, 1989 in conformity with genera\ly accounting principles.

' '

• 2400 Eleven Penn Cent.er Philadelphia, Pennsylvania Februa,ry 2, 1 990 /

• Delmarva Power & light Company 27

<;onsolidated Statements of Income " , . (Dollars in Thousands)

'For the Years Ended December 31 1989. 1988 1987 Operating Revenues Electric $678,396' $667,553 $612,367 " Gas 78,615 78,233 Steam . ,22,154 21,879 789,707 768,322 712,479 Operating Expenses Operation.

' \ Fud for electric generation 216,618 215,491 211,006

.1 Net:llterchange a.nd purchased power 25,795, (5,274) (10,162) / Purchased gas 51,222 51,189 45,208 Deferred energy costs. (15,224)

• 11,863 (8,994) Other operation 151,536 .141,966 . 132,914 Maintenance 65,047 70,264 65,738 \ "

• Depreciation . 76,327 71,333 68,000 Taxes other than income taxes :fr,829 31,261 30,352 Income taxes 47,136 50,735 53,45,0 650,286 638,828 5$7,512 Operating Income 139;421 129;494 124,967 Other Income Allowance for equity funds used during construction 3,730 3,312 3,453 Other, net 6,501 8,149 6,889

• 10,231 11,461 10;342 Income Before Interest Charges 149,652 140,955 135,309 \ Inte,rest Charges . Debt 62,222 56,086 54,998 Other 1,943 2,356 lr658 Capitalized interest (2,208) (1,150) .58,344 56,234 55,506 Net.income 91,308 84,721 . 79,803 Dividends on preferred stock 7,427 6,889 ('/,814 Earnings applicable to common stock *' $ 83,881 $ 77_,832 $ 72,989 ' Common.Stock Average shares, outstanding* (thousands) 46,687 45,892 45,717 Earnings per avei:a$e share .$ 1.80' $ 1.70 $ 1.60 , Dividends declared per share $ 1.51 $ 1.47 $ 1.42 1/2 .See accompanying Notes.to.Consol!dated Financial Statements.

21, . Delmarva Power & Light Company . ' /

Consolidated StateJtlents o(Cash Flows. /' . ..;* . ' (Dollars in Thousands)

For the Years Ended December 31 '1989 1988 1987 Cash Flows from Net income $ 91,308 $ 84,721 $ 79,803. Operating Activities Adjustments to recm:1cile net income to net cash provided by operating actfvities:

Depreciation

' ' 76,327 71,333 . 68,000 Amortization of nuclear fuel *

• 5,665 -6,284 '6,027 Allowance for equity funds -used during construction (3,730) (3,312) .(3,453) Investmept tax credit adjustments, net (3,220) (2,658) (3,132) ( /-Deferred income .taxes, net 37,358 33,616. Net change in:. Accounts receivable (11,797) (9;728) 11,762 Inventories 1,344 (2,117) (3,494) "' Accounts payable 1,254 (771) 12,741 Other current assets & liabilities*

(17,755) 16,297 (4,471) Decrease in refundable taxes and interest 4,192 Other, net 2,487 (4,810) 3,378 :Net sasli provided by operating activities*

179,241 179,792 200,77.7 \ Cash-Flows' from Construction expenditures, excluding AFUDC ' (175,843)

(171,102)

(142,239)

Investing Activities Capitalized interest (5,821) (2,208) (1,150) Net proceeds from sales of ownership interests in: Nm;mtility partnership 12,113 Merrill Creek Reservoir 39,121 Investment in leveraged leases (7,280) (2,330) (8,0o7) Investment in partnerships and nonutility operations

• . (27,257) (34,193) (16,091) Decrease in marketable securities . 17,132 28,087 9,059 'Funds held by trustee (4,545) 180 . (180) Other, net 2,668 7,729 (752) Net cash used by-investing activities (188,833)

(134,716)

(159,420).

Flows from Dividends:

Common (69,738).

(66,852) (64,618)

Activitles Preferred , (7,036)

(6,814) Issuances:

Long-term debt 20,000 50,000 11,000 Variabte rate demand.bonds 18,000 8,000 Preferred stock 45,000 Common stock 15,235. 7,853 Redemptions:

Long-term debt (15,637) (25,499) (15,205) Prefe.rred stock (13,515) (800) (800) Net change in short-term debt 8,500 (6,000) 6,000 Other, net 478 (1,157) .

Net cash used by financing activities (16,713) (31,344) (62,822) Net change in cash, and cash equivalents'

• (26,305) 13,732 (21A65) Beginning of year cash and cash equivalents' 50,599 36,867 58,332 End of year cash arid cash equivalents

$ 24,294 $ 50,599 . $ 36,867 *Ot/ier than debt classified as current, preferred stock redeemable within one year and current deferred income taxes. See accompanying Notes to Consolidated Financial Statements.

• Del(\larva Power & Light Company 29 L Consolidated Balance Sheets. /' *Assets (Dollars in Thousands)

'As of December 31 1989 1988 Utility Plant-Electric'

' $ 2,022,404

$1,823,994

' at Original Cost Gas 121,920 118,426 Steam* ,2.;l,913 25,099 Common 113,045 2,282,959.

,2;080,564 Less: Accumulated depreciation 757,598 . 701,639 Net utility plarit in service 1,525,361 l,378,n5 ./. Plant held for future use 328 6,710 / Construction work. in progress.

44,413 97,221 Nuclear fuel, net 17,876 19,019 1,587,978 1,501,875 Other Property

• Illvestment in leveraged leases 81,804 73,811 ' . Investment in partnerships and Investments

• 55,149 47,327 Other property, net 55,651 30,69) Funds held by trustee 5,742 198;346 . 151;829 \ Current Assets ,

• Cash .and cash equivalents

-. 50,599 Marketable securities, at lower of cost or market 16,215 33,738 Accounts receivable:

Customers 64,127 50,691 Other . 11,860 13,552 Inventories, at average cosi:: Fuel (coal, oil and gas) 31,999 44,783 Materials and supplies 34,412 25,857 Prepaymef?.tS 6,701 5,417 Deferred income taxes, net 5,525 . 7,792 Deferred energy costs, net . 7,995 (7,147) 203,128 225,282 Deferre.d Charges Unamortized debt expense 7,984 6,917 and Other Assets Deferred recoverable plant

.12;966 6,540 *other 18,259 15,347 39,209 -28,804 Total $ 2,028,661

$1,907,790

/ See accompanying Notes to Consolidated Financial Statements.

' 30, . Delmarva Power & Light Company . ' /

' ' . Capital_ization and liabilities Capitalization (see Statements of Capitalization)

/* Current Liabilities (Dollars in Thousands)

' As of December 31 Common stock Additional paid-in capital Retained earnings , *Total common stockholders' .equitY Preferred stock: Without mandatory redemption , With mandatory redemption I;ong-term del;Jt Short-term:

debt Long-term debt due and stock redeemable within one year ' Variable rate demand bonds Accounts payable Taxes accrued Interest accrued-Dividends declared Other Deferred Credits and Deferred income taxes, net Other Liabilities Deferred investment credlts Other Other* Commitments and ConH,ngencies (Notes 8 and 15) Total See accompanying Notes to Financi/ii Statements, ." I Consolidfl-_ted Balance Sheets 1989. 1988 $105,737 $103,883 . 256,951 241,727 279,953 267,567 . 642,641 613,177. I. 136,365 . 103,306 77 1,677 662,544 609,687 1,327,847.

23,000 1,340 32,404 41,500 75,000 47,847 48,414 4,550 11,097 13,307 11,527 \ 18,484 17,314 ) 21,459 11,660 171,487 207,416 326,327 291,549 60,450 63,6'70 28,770 17,308 415,547 372,527 $ 2,028,661.

$1,907,790

• Delmarva Power & Light Company 31

• ,Consolidated Statements of Capitalization

..... ' '-... ' Common' (Dollars in Thousands)

'As 'of December 31

• t, Stockholders' Equity Total Common Stockholders' Equity!1 1 Cumulative*

Preferred Stock. I Long-Term Debt Par value $1 per share, l,.0"000,000 shares authorized, rione issued J>ar value $25 per share, 3,0_QO;OOO shares none issued Par value $100 per share, 1,800,000 sb,ares authorized Without Mandatory Redc:;mption: . Series Shares outstanding ( 1989.and 1988). 3.70%-4.56%

240,000 and 240,000 5.00%-7.88%

512,800 and 530,000 Adjustable-6.44%!

2 1 * .. 160,850 and 280,000 Auction rate-6.82%!21 450,000 and . \ ' Less:.Cost of 17,200 shares (7.88%

held in treasury as of December 31, 1988 Preferred Stock without Mandatory Redemption With Mandatory Redemption:

9.00% Series 8,766 and 24,766 shares Less: Amount to be redeemed within one:; year

• Preferred Stock with Mandatory First Mortgage Bonds: Maturity Int.erest Rates 1994-1997 4

3/s% \ 1998-2002 7%-11 %% 2003-2005 6.6%-10 1 14% 2008-2011 9 5/s%-12% . 2015-2018 9 1/4%-10 1/a% Other Bonds, due 2015-2017, 7.3%-7.5%

Pollution Cpntrol Notes: Series 1973, due 1990-1998, Series 1976, due 1992-2006, 7 1/a%-7 1/4% First Mortgage Notes, 9.-65%!3 1 Other Long-Term Debt !4 1, Other Obligations, due _1990-1993, 12 %

• Unamortized.premium and net Subtotal .-Less: Long-Term Debt due within one year. Total Long-Teri:n*

Debt

• Total *capitalization Variable Rate Demand Boridsi 5 1 . , *-' Total Capitalization with Variable Rate Demand Bonds . . . (1) to statement on page 33 for additional information.

(2) Average .rate during 1989. . ' * (3) Repaid through monthly payments of principal and inierest over 15 years ending November 2002. (4) See Note 6,item 2 under long-term debt on page 40 . . (5) Classified under.current liabilities as discussed in Note 7 on page 40. See acc;mpanying Notes to Financial Statements.

32 Delmarva

& Light Company . ./ '1989 1988 $ 642,641 $613,177 24,000. 24,000 51,280 53,000 16,085 28,000 45,000' '136,365 105,000 1,694 136,365 103,3Q6 877 '2,477 "800 800 77' 1,677 50,000 158,100 158,100 92,150 92,150 81,900 81,900 176,000 .1J6,000 558,150 558,150 53,500 7,100 7,250 34:500 34,500 41,600 41,750 10,211-10,596 28,000 245 3,398 (622) (603) 663,084 641,291 540 31,604 662,544 609,687 i,441,627 1,327,847 41,500 75,000, $1,483,127

'$1,402,847 J

Consolidated Statements of. Changes in Commtm Sto,ckholders' Equity , . ,

. \ Notes to Consoli'dated Financial Statements

1. Significant Accounting Policies / Financial Statements The consolidated financial statements include the accounts of the Company and its wholly*-owned . i_es,_Delmarva Energy Company, Delmarva Industries, Inc., Delmarva Services Company, and Delmarva . Capital Investments, Inc. and its subsidj.aries.

Delmarva Capital Ii:J.vestments, fuc. accounts its.20%. to 50%

• investment in with the. equity method. ill cqnformity with generally accepted accounting principles, the accounting policies reflect the financial effects of rate decisions issued. by regulatory commis-sions having jurisdiction over the utility business.

• * * . . . For purposes of the Statement of Cash Flows, the Company considers highly liquid marketable securities and debt instruments purchased with a maturity of three months-or less to be cash

\ Certain reclassifications, not affecting income, have been riiade to amounts reported in prior years to conform to the presentations used in 1989. Revenues Revenues are at the time billings are rendered to customers on a monthly cycle basis. At the end of each month, there an amount of unbilled electric and gas serviCe been rendered from the last. meter readi:Qgto the month-end.

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

Th.e difference between fuel costs recovered in.

billings and fuel costs actually incurred is deferred and ' . . / . reported as deferred energy costs. * * .Depreciation And Maintenance . ' . The annual provision for depreciation on l,ltility

• property)s computed on the straight-line*

basis using composite rates by classes of depreciable property.

The relationship of annual provision for for financial accounting purposes to average depreciable property was 3. 7% for 1989, l 9S8 and 1987. I . . . Provision for the costs of decommissioning of nucle.ar plant is made to the *extent of .the het cost of removal allowed for rate purposes (approximately 20% of original plant cost). In 1989, Delmarva deposited

$4.5. million in an external nuclear decommissioning trust to begin to externally fund its share of the future cost of decommissionirig the Peach Bottom and Salem nucl1;ar reactors.

Payments to the trust fund and trust earnings are included in funds held by trustee on. the balance sheet. The cost of mainten'ii.nce and repairs, focluding renewals of minor items of property, is* charged to operating I

A replacerlient of_ a unit of property .is accounted for as,_an a:ddftion to and a i:etirement from utility plant. The original cqst 'of the property retired is charged to accumulated deprecia!ion together with the net cost of removal. For income tax purposes, the cost of removing retired property is deducted a:s an expense. Nuclear *Fuel The Company's share of nuclear fuel costs relating to jointly-owned stations is charged td fuel e:Xpense on a uriit of production basts, which includes a factor for spent nuclear fud disposal costs pursuant to the Nuclear Waste Policy Act of 1982. The Company is collecting future storage and disposal costs for spent fuel as authorized by the regulatory commissions in jurisdiction and is paying such amounts quarterly . . . -. . I . ' .to the United States Department of Energy. . * . . . 34 Delmarva Power & Light

' '

\ 1. 1. Significant Accounting Polii:les (continued)

/ . I 'r ' ' Notes to Consolida.ted Financial -Statem.ents I .. Leveraged Leases' The Company's net investment in leveraged leases includes the aggregate ofrentals (net of princtpal and illterest on nonrecourse indebtedness) and estimµted residual values of* the leased equipment unearned and deferred income (including-investment .tax credits).

and income is recognized a level rate of return during the in which the net investment is positive .. Income Taxes . Tl1:e Company and its wholly-owned subsidiaries fil_e .a consolidated federal income tax retU.r:n.

Income taxes

• are allocated to the Company's utility business and subsidiaries based upon their respective taxable incomes, J *. r ,. tax credtts, and effects of the alternative minimum tax, if any. Deferred income taxes are provided on timing differer,tces between the' tax and financial accounting recogriition of certain income and expenses.

The . prlncipal timing difference .from accel.erated depreciation.

methods used for income tax .purposes.

-Investment tax cr_edits from regulated operations utilized to reduce federal income taxes are* deferred and gerierally amortized ove.r the useful lives of the related utility plant. Investment tax credits of the Company's*

subsidiary operations (excluding leveraged leases) are accounted for by the* flow-through method. * ' . . . . . '*

For Funds Used During Construction And CapitaliZed Interest Allowance .for Funds U_sed Duling (AFUDC) is included in the cost of utility plant and the of borrowed and equity funds used t.o' finance construction of ne.w utiiity facilities.

Capitalized interest includes interest capitalized on qualifying non-regulated assets of the Company's subsidiaries and allowance for borrowed funds used durjng construct;ion.

Capitalized interest ori is iri.cluded in the . . I . cost of other property and investments.

On the income statement, capitalized intetest is recorded as a reduction of interest charges and allowance for equity funds duririg construction is reflected as other income. ' ' . . l ' ,. ' . . . I AFUDC was capitalized on utility plant construction at the rate-.s.°<)f l0'.0% in 1989, 10.0% in 1988, and 8.5% ' . ' ' in 1987. . Unamortized Debt Discount, Premium And Expense ' i 1 These are amortized on a straight-line basis over the lives of the long-term debt issues to which they pertain. The amortization is included.

in other charges. .-' Delmarva Power & Ught Company 35

, ' Notes to Co'nsolidated Fin.ancial Sta'tements

2. Income Taxes * / \ Income tax exp-ense for 1989, 1988 and 1987 was as follows: (Dollars in Thousands)

Operation:

Federal: Current State: . Deferred*

Current Deferred Investment tax credit adjustments, net Operation income taxes Other incoine:

• Federal: Current Deferred State:** Current Deferred il!.come tax 1989 $22,534 18,746 . . 4,762. 4,314 (3,220) 47,136 (17,351) , 14,352 51 . (54) $44,134 I 1988 1987 $40,693 $28,592 2,857 1$,635 . 9,043 5,934 800 3,543 (2,658) (3,254) 50,735 53,450 (17,834) (16,022) '16,689 11,428 (59) (155) 15 10 $49,546 $48,711. Investment tax credits, utilized to reduce federal income. taxes payable amounted to $3,808,000 in 1989, $1,237,000 in 1988, and $1,835,000 in 1987. The increase in 1989 investment tax credits utilized was due to I '*

• the completion of two power plants considered tnmsitionai property under the Tax Reform Act of 1986. Investment tax credits of the Company's subsidiary operations, which are accounted for-on the through method, are reflected i;n the above _table as a reduction of fed¢ral current income taxes, under other

• income. ' . The following is a reconciliation of the difference between income tax expense and the amount computed by multiplying income before by the federal statutory rate: 1989 ,1988 1987 (Dollars in Thousands)

Amount __ Rate Amount Rate Amount Rate Statutory income-tax expense $46,050 34% $45,651 34% $51,406 40%* Increase* (decrease) in taxes resulting from:

• Exclusion of AFUDC for -* \ income tax purposes (1,445) (1 ). (1,247) ( 1) (1,842) (1) I Depreciation not normalized 1,358 1 2,495 2 1,504 1 ITC amortization/flow-through (7,160) (5)

(3) (5,089) (4) State income taxes, net . of federal tax oenefit 5,989 4: 6,509 5 5,455 4 Other, net (658) (474) (2,723) (2) --Income tax expense $44,134 33%. $49,546 37% $48,711 *38% The components of deferred income _taxes relate to the following taX: effects oftiming differences between book arid tax income: (Dollars in Th.ousartds) 1989, 1988 1987 Depreciation . $33,317 $28,269 $30,013 Deferred energy costs 4,512 (4,711). 3,541 Capitalized overhead costs (2;261) (2,558) (1,296). Deferred recoverable plant costs (448) (433) (254) P.ollution amortization . (914) (604) 2,717 ADR repair allowance

-., 3,789 2,261 3,788 Unbilled revenues (2,734) (2,6(52) (2,331)'

minimum tax' 2,600 (2,600) Other, net-2,097 (1,8,01) 38 TOtal . $37,358 ' . $20,361 $33,616 36 Delmarva Power & Light Company I_ 2. Income Taxes (continued)

3. Taxes Other Than Income Taxes 4. Supplemental Cash Flow Information Notes to ConsoUdatedr.FinanCial

--:...., In December 1987, the Financial Accounting Standards Board (FASB) Issued Statement of Financial Accounting St.andarcis ( SFAS) No. 96, "Accounting for Income Taxes"; which will replact; the curren:9y utilized deferred method of income tax accounting with the liability method. Under the liability"meth<;>d; deferred

• iµcqme taxes are recognized for the tax consequences of temporary differences by applying enacted statutory . tax rates *applicable t.o future years to qifferences between the statement carrying amounts and tax . bases of existing and liabilities.

Deferred tm(assetS and liabilities are adjusted currently for the effects of changes in enacted tax laws* or rates. In December' 1 989; the FASB *postponed the 'requited adoption of SFAS No. 96 until 1992. * * < *

• SFAS_ No. 96 allows adoption retroactively or prospectively.

The Company currently

'experts to adopt the . standard on a prospective basis in 1992. Since the. Company is primarily a ;regulated enterprise, adoptio\1 of SFAS No. 96 is not expected to have a material effect on the Company's of operations.

However, the total amount_bf assets liabilities on the consolidated sheet is expected to increase.

The expected increase is due to recognition of additional tax liabilities for tax benefits flowed through to customers partially offset by the reduction of existing accumulated deferred income taxes as a result of the_ reduction in the federal income *tax rates, and for other temporary qifferences.

Generally, the illcreased deferre_d and assets will be offset by corresponding regulatory assets and liabilities. . . The Company has not provided taxes of approximately

$90 millfon, based oii current income tax rates, related to cumulative timing differences of $227 million arising before the adoption-of full tax. normalizatioil for ratemaking purposes by regulatory auth6rities.

The Company is collecting the unnormal-, ized taxes in its rate jurisdictions either!on a leveiized basis. over the life of the related plant facilities or when actually 'paid,to taxing authorities. . ' . (Dollars in Thousands) 1989 1988 ' 1987 Delaware utility $10,857 $10,963 $10,212 Property / 8,243 7,881 7,481 Other gross receipts . 5,323 5,644 5,777 Payroll, franchise and-other 7Ao6 6,773 Total ' '$31,829 $31,261 $30/352 (Dollars in Thousands)

-. 1989 1988 1987 Cash paid (received) during the year f?r: Interest, net of amount , $55,839 $54,971 $54,855 Income taxes . $18,189 $24,531 $20,761 Income tax, refunds (1,312) . (2,730) (6,685) . Income taxes, net of refunds $16,877 $21,801 . $14,076 '* *, Delmarva Power Light Company * ' 37 *

---,.---Notes to Consolidated Financial Statements

5. Pension Plan and Post* Retireme11t Benefits -. . . The has a defined benefit pension plan covering regular employees.

The benefits are on years of and the employee's compensation.

The Company's funding policy is to contribute year the net periodic peneyion cost for that year. However; the .contribution for-any year will not be less than the,-, minimum required contribution nor greater' than the maximum tax deductible contribution.

there were no' . . . ; . pension contributions in 1989, 1988,or 1987.

• The following table reconciles the-p*lan assets and to the fonded status of the plan as of Dec;ember

-31, 1989 and 1988. Pension plan assets consist pri):narily of equity securities and public bond securities . . , ' ** I * (Millions of Dollars) ' Actuarial Pre_sent Value Of Benefit Obligations Accumulated benefit obligation:

vested / Non vested *Total Projected benefit obligation Plan assets <it fair vaJue

• Excess of plan assets over projected;benefit obligation . Unrecognized prior service cost ' Unrecognized net gail)-I 1989 '$167.5

$186.5 $280.9 380.3-99.4 6.5. (55.3) 1988 ' \ $159.4 23.7 $183.l $248:5 331.5 83.0 4.8 (34.5) / Unrecognized I_let transition asset ' (49.!7) (53.0) Prepaid pension cost ,. \ { (Millions of Dollars) Components Of Net Pension Cost Servic_e cost -benefits earned during period Inte-rest cost on projected bepefit *obligation Actual return on plan assets Net amortization and deferral Net pension cost Assumptions Discount rates used to dete'rmine pr,ojeCt:ed benefit . obligation as.of-December 31 Rates-of increase in compensation levels Expected long-term rates of return on assets 1989 $ 9.5 19.l (57.6) 28.4 $( 0.6)' 1989 7.25%

8:0%' $

$ 0.3 19&8, 1987 $ 8.5 $ 9.5 17.5 16.2 '(46.9) (15.8) 20.7 (10.0) $( 0.2) '$( 0.1) 1988 1987 7.5% 7.7?% I 6*.5% 6:S% 8.0%' 8.0% The Company provides health care Cilndlife insurance benefits for retired employees.

Substantially all of the Company's employees may become eligible for these benefits if they reach normal retirement age while still working for the'compa:ny.

The Company recognizes the cost of providing these benefits by expensing the' claims they paid. These c0sts totalled $3, 177,{>00, $2;387,000 and $2, 144,000 for 1989; 198§ and.1987, respectively.

-, . Delmarva P_ower & Ugh! Company

'* 6. Capitalization

/ \ ' ' Notes to Consolidated Financial StateJtJents.

Common -.Stock In April 1988, the Company registered 3,000,;000 of its shares under a Dividend and Common $hare.Purchase Plan (the Plan). As of December 31, 1989, 1,276,980 shares had been issued and 1,723;020 shares of common stock were reserved for i.ssuance under the Plan . . On April 29, 1987, the Company's common stock split on*a 3 for 2 basis. All per share disclqs.ures o and the of common shares have been adjusted to reflect the split.' Retained Earnings -The current first mortgage'bond indenture restricts the amount o'f consolidated retained earnings available for cash dividend payments on

'stock. to $3S,000,00Q plus after '1une 3o, 1978. The amount available at December 31, 1989 was approximately

$200,626,000.

Preferred Stock The an.nu11l preferred dividend.reqliirements on all outstanding preferred stock at December 31, 1989 are $8,870,000.

If preferred clividends are in arrears, the Company may not <;l.eclare common stock dividends or acquire its common stock. / Without Mandatory Redemption These series may be redeemed at the option of the Comp.any at any time, in whole or in part at the various redemption prices fixed for eath series (ranging from 100 to $106 at December *31, 1989). . . / ) i , . 1) In December 1989, the Company retired 17,200 shares.of

$100 par value 7.88% S.eries Preferred Stock* which was held in treasury at a cost of $1,694,000 as of Derember 31, 1988. 2) During 1989, the Company reacqµiied 119,150 shares of its $100 par value Adjustable Rate Preferred Stock for $9,294,000.

These shares were retired in December 1989 and the excess of the par value over . ' . the acquisition cost was credited to paid-in capital.

• I . 3 1) On August 9, 1989,the Companyissued450,000 shares of $100parvalue Auction Preferred Stock, Series A (APS): The net proceeds were used to fund the Cpmpany's construction program and for other general corporate puq)oses relating to the Company's utility business, including the repayment of short-term borrowings.

The dividend is cumulative arid payable every 49 days based on the rate determined by auction procedures prior to each 49 day dividend period. The maximum rate can range from 110% to 200% of the 60 day "AA" Composite Commercial Paper Rate. The percentage is determined by the prevailing credit rating of the APS. Based on the December 3 L 1989 credit rating of the APS, the maximum rate would be 125% of the 60 day "AA Composite Commercial Paper Rate. The weighted average dividend rate fo_r 1989 was 6.82%. The shares are .redeemable at the option of the Company on each dividend payment date for $1 QO per share plus accrued and unpaid dividends.

' ' '* With Mandatory Redemption The 9 % series a sinking fund requirementto redeem 8,000 shares annually at $100 per share. At the option of the an additional 8,000 shares ma:y be redeemed on any sinking fund date, without premium. *The Company redeemed 16,000 shares in 1989 at $100 per share. Mandatory sinking fun*d redemptions are $800,000 in 1990 and $77,000 in 19? 1. The redemption price at December 31, 1989 was $100 per share. '* Delmorvo Power & Light Company 39

• ___J

'r Notes .to Consolidated Financial Statements

6. Capitalization (continued)

7. Variable Rate Demand Bonds / \ Long-Term Debt 1) Sinking funcl ;equirements for the First Bonds be reduced by an amount exceectlng sixty percent (60%) of the bondable value of property additions.

For the years 1987-19S9,,property additions satisfied the sinking fund requirements*.

Substantially all utllity plant of the Company now or hereafter to be '-owned is subject to the lieii of the related Mortgage ap.d Deed of Trust. -2) In February 1989, a subsidiary of the Company repaid $15 million of a $28 million bank loan which had a 9.89% interest rate. After l 9S9, the interest rate'on the l'.emaining

$1 _3 million_ balance was based on the prime rate. The $13 million loan balai;ice was converted to a demand loan in December 1989 and, .

was-classified as sh_ort-term debt as of December 31, In January 1990, the million loan balance was repaid: , 3) On July 12, 1989, the Company issued, through the Delaware Economic Development A_1,1thority, $20 millfonof 7 1 /2% Exempt Facilities Revepue Bonds which mature on -October 1, 2017. The proceeds from the_ bond were _used to finance pollution cQntrol facilities and additions to the Company's gas system. For purposes of-the,statement of capitalization, the bonds are classified as "Other Bonds". 4) of long-term debt dµring the next fiy:e years are 1990-$541,000; 1991-$697,000; 1992-$2,054;000; 1993-$2,071,000;_1994-$27, 167,000. ,.,. 5) The *annual interest requirements on long-term debt at December 3l, 1989 are $57,309,000.

/ A total of $41.5 million and $75 million of Variable Rate Demand Bonds were outstanding as of D_ecember 31, 1989 and 1988, respectively. of 31, 1988, the Company reclassified Va:r;iable Rate Demand Bonds from long-term debt to current liabilities since the Com party elected not to keep available long-term financing agreements which had supported the bonds' long-term'classification.*However, the Company intends to use the Variable Rate Demand Bo_nds as a of long-term by setting the boµds' interest rates at -market rates and, if.advantageous, by utilizing one of the fixed rate/fixed term conversion' options of the, bonds. The are due in the years 2014 to 2017. During 1989, the Variable Rate Demand Bonds bore interest at'an average annu_al rate of 6.53%. The annual interest requirements on the Variable Rate Demand Bonds at December 31, 1989 are $2,683,000, based on the average rate in December 1989. --Effective September l, 1989, the Company converted the interest rate on $33,500,000 of Variable Rate Demand Bonds, Series 1985 (the Bonds) from a vadab!e rate to a fixed rate of 7.3 %, which willremain in effect 'until maturity on September l, 2015. Tlie owners of Bonds longer have the right to demand purchase of tf).e Bonds by the remarketing agent. Accordingly, the* Bonds have been r_eclassified on the balance sheet from Variable Rate Demand Bonds as of December 31, 1988, under current liabilities, to long-term debt as of December 31, 1989. For purposes of the statement of capitalization, as of December 31, 1989, the bonds are classified as "Other Bonds". 40 Delmarva Power & Light Company

• 8. Commitments

.\ I . 9. Short*Term Debt 10. Delaware' City Plant_ Notes to, Consolidated F(nancial Statements

,..,;-. The Company estimates that approximately

$193, 900,000, excluding AFUDC, will be expended for construe-.

tion purposes in 1990. The Company also has certain cominitinents under long-term fuel supply contracts.

• The CompaIJ.y leases certain distribution facilities, transportation equipment andy9-rious other facilities and equipment under agreements.

Rentals chargec;l to operating expenses aggregated

$10, l S0,000. in 1989, $8,8()7,000 in and $9, 191,000in1987.

Minimum commitments as ofD,ecember 31, 1989 under: all non-cancellable lease agreements (including-the Merrill Creek Reservoir lease discussed in Note 11) and

• an agreement*proviqmg for the availability.of fueloii storage and oil pipeline facilities are as follows: 1990-,$3,448,000; 1991-$9,215,000; 1992-$6,5.64,000; 1993-$6, 167,000; 1994-$5,849,000; after 1994-$173,493,000; total -$204, 736,000. Nuclear fuel requirements for the Peach Bottom, Atomic Power' Station are 'being I provided by the op!!ratiu"g company through a .fuel' purchase contract.

The Company is responsible for** payment of its of fuel consumed and reiat.ed interest expense. Nuclear fuel expense for Peach Bottom totalled $4, 709,000 in 1989, $1,643,000 in 1988, artd $3, 190,000 .in 1987. On July 14, 1989, the Company and Duquesne Light Company signed an agreement whereby Duquesne will sell up to lOOmegawatts of pbwer from.Duquesne;s system to the Company during the period Aprii 1, 1990 through December 31, 2009._ The for demand* and energy with diminishing demand in the event that less than 100 megawatts are available from DuquesIJ.e's system. Assuming 1 oo percent availability, monthly deman_d charge under the agreement is $634,000 irt 1990-1994', $1,700,000.in 1995-1999, $2,000,000 in 2000-2004, ang $2,344,000 in 2005-2009.

Another ment, with Allegheny Power System ,(APS), provides for transmission of power tchhe Company's system.

• The fixed monthly transmission fee under the APS agreement is $243,000 in 1990-1993;

$299,000 in 1994-. . . ' '* . 1998; $335,000 in 1999-2005; and $413,000 in 2006-2009.

The Duquesne contract will not become effective until the various regulatory commissions.having jurisdiction over the Company have approved the contract.

The Staff ofthe Delaware Public Service Commission (DPSC) has reviewed the Comp.any's proposed purchase from Duquesne 'and reported to the D:psc .that the Staff cannot recommend approval of the purchase as currently proposed.

The DPS<::; will rule on the Company's proposal after the Company has _responded to the Staff's report. The Maryland Public Service Commission is also reviewing the proposed purchase.

The company cannot predict if_or when the necessary regulatory approvals will be obtained. . ' -*Delmarva Capital Investments, Irie. (DCI), the Company's primary non-regulated subsidiary, has v.arious com-mitments to make equity contributions and loan funds under certain conditions to partnerships and regulated operati9nsin which DCihas invested.

The maximum amounts that D<::I could be required to provide as-loans or equity commitments

<;>Ver the next five years are as follows: 1990-$13,600,000; 199.1-$7,556,000; 756,000; i 993-$3,456,000; and 19.94-$3,456,000.

Also,DCI is the obligor on an.$8 million letter of credit which was issued to guarantee capital contributions to a partnership which operates a wood-burning power plant and sawmill'.

• As ofJanuary 1, 1990, the Co_mpany had unused bank lines of credit of$75 million. The Company is generally required to pay commitment fees for these"lines.

Such lines of cre.dit periodically reviewed by the Company, at which time they may be renewed. or cancelled.

The Company owns and operates an electric .generating plant which supplies electricity and_ steam to an adjacent refinery at Delaware City, Delaware which is owned by Star Enterprise, a-partnership between Texaco Refining and Marketing, Inc. and Refining, Inc. On January 19, 1989, Star Enterprise notified the .._ i . I ' . . ; Company of its intent to exercise a long-standing option which entitles Star Enterprise to purchase the plant on December-31, 1991 at net book value. The plant contributed 2 .4¢ to earnings per share ill 1989,and its net book value was $3'.2 million at Dece.mber 31, 1989. *

• Delmarva Power & Light Company 41 . I -I 'I ___J

/ Notes to-Consolidated*

FinanCial Statements

,. l * .1 11. Merrill Creek On June 16, 1988, the Company sold its 11.9% ownership interest in the.Merrill*Creek Reservoir, located in. Rosorvoir Sa!o-Leaseback northern New Jersey, for $39. l million and leasing it back..An $8.0 mlllion gain on the sale was deferred and, after receivmg regulatory appro'vals, the Company intends to amortize the deferred gain over. the . remaining life of the lease. The lease, which is being accounted for as an operating lease; has a 44 1 12 year term ending in 2032 and will require future minimum lease payments aggregating approxi!Ilately

$179 million. The. Company is deferring the retail portion of the rental expense and receiving approvals, intends to amort!ze the deferred amounts over the remaining life of the lease. As of 31, . . .. ' ' -1989, $4, 758,000 of retail rental expense had been accrued .and deferred.

The resale portion of the rental expense is. being expensed over the life of the lease iri accordance with an accounting ruling by the Federal Energy Regulatory Commission:

12. Jointly*Owned

_Plant . Information with respect to the Company's share of jointly-owned plant, including fuel for the Salem plant, as of December 31, .1989 was as . . * ' 'Megawatt

-.Construction.

I Ownership Capability

• Plant in Accumulated Work in (Dollars in Thousands)

Share owned Service Depreciation . Progress Nuclear: Peach Bottom 7.51 % 157MW $106,39} $ 39,445 $ 6,381 Salem 7.41%. 164MW 226,967 100,869 12,483 Coal-Fired:

/ Keystone 3.70%. "63MW 13,249 5,468 298 Conemaugh 3.72% 63MW 14,282 5,998 189 Transmission Facilities Various 4,463 1,518 Total $365,352 $153,298 $19,351 The Company's share of operating and maintenance expenses of the jointly-owned plant is included in the corresponding expenses in the statements clf The Company is responsible for its share of

• financing for the above jointly-owned facilities.

13. Rate Matters The Company is subject to regulation with respect.to its retail sales of electricity by the Delaware and Maryland Public Service Comniissions (DPSC and MPSC, respectively) arid the Virginia State Commission (VSCC),

have' powers over rate matters, accounting and terms of service. The Federal Energy . . . ' . . '-Regulatory Commission (FERC) exercises jurisdiCtion with respect to the Company's accounting systems and policies and t.he transmission and sale at wholesale (resale) of energy. The percentage of operatillg revenues regulate_d by each <;:ommission for the.year ending December 31, 1989 was as follows: DPSC 62%; .MPSC 21 %; VSCC3%; and FERC 11 %. Non-regulated steam operating revenues were 3% of total revenues.

• . . . ' . I) Delaware Electric Retail In accordance with a final rate order issued by the DPSC in April 1987, a reduction in rates of approximately

$4.2 million became effective January l, l 9BS, primarily t? reflect the lower 1988 feµeral tax , A Power Plant Perfonilance Program (PPPP) was in 1_988. The Program assesses performance at the Company's twelve largest generating units and can result in a financial reward or penalty. The DPSC is currently reviewillg the Company's proposal to continue the PPPP with certain modifications, including i.Ilcreasing the number of plants covered under the program and increasing the rnaxhrium annual reward or penaltyfrom

$1.5 million to $3.2 million. ' * * *< ,/ I 42 Delmarva Power & Light

'* l 3. Rate Matters (continued)

14. Peach Bottom and Salem Nuclear Generating Plants / \ Notes to Con,soli£atei Ffnanciµl St!].te1(1len ts -2) Maryland Retail Effective January 1, 1 988, Maryland retail electric rates were by'$ 3.8 million to reflect the lower 1988' federal income tax rate, pursuant to a 1986 settlement agreement. . . . ' 3) Virginia Retail By order dated August} 5,

• 1988, the VSCC approved a $0.8 i:nillion decrease in retail electric rates primarily to reflect the lower 1988 federal income tax rate. the lower rates had been in effect on an interim basis since . I

• May 1, 1988 .. _ 4) Resale By order dated September 20, i 988, t,he FERC approved a settlement providing for, an increase in electric rates of $1.23 million effective March l, 1988, the recovery of $3. 9 million over five years coillmencing March *1989 related-to ineome taxes paid on a one.-time gain, and a refund of $750,000 reflecting certain fuel related issues. The $750,000 due under the settlement was refunded to the resale customers in September

' . . . . 1988. -. On March 31, 1987, the Nuclear Commission (NRC) ordered,the shutdown of the Bottom. Atomic Power Station (Peach Bottom) for a of problems including operator inattention.

The Company has a 7. 51 % ownership interest in Peach Bottom which is operated by Philadelphia Electric Company (PE). Peach Bottom has two generating units, Unit 2 and Unit 3. Subsequent to the shutdown order, PE developed and implemented plans for Peach Bottom to operate safely and comply with NRC :regulations.On April 26, 1989_, the NRC authorized the restart of Unit 2 which, after a gradual pqwer ascension program, achieved full -power on August 4, .1989. On October 5, 1989, the NRC released PE from the_ ter;:ns and. conditions of the shutdown order, which allows both Unit 2 and Unit 3 to operate at fu_ll power under nom1al NRC regulations and review. On November 19, 1989, PE restarted Unit3,whicbachievedfullpoweron_January 5, 1990. During 1989; PE finalized an agreement_

with the Commonwealth of Pennsylvania (Pennsylvania) which provides Pennsylvania access to coricerning Peach Bottom .. and allows to monitor .pla_nt operations.

Th,e Company did not recover replacement power costs attributed to the shutdown from its customers. cordingly, the.Company's results of.operations reflect replacement power costs of $13.9 million (18.5i1 per share) in 1989, $10.0 million (l3.5i1 per share) in 1988 and $9.2 million (11.4¢ per share) in 1987. The -methodology for the amount of replacement power costs be foregone by the Company has been .resolved in all jurisdictions except Maryland and the Company believes -that adequate amounts of replacement power costs have been expensed for all jurisdictions, including Maryland .. On July 27, 1988, the Company and Atlantic Electric Company, as co--owners,.filed a lawsuit against PE in the U.S. District Court of New Jersey to recover losses incurred since Peach Bottcim was shut down by the NRC, -charging PE with breach o( contract*

and negligence for failing to manage and operate the nuclear plant in a safe and efficient-mannh-The amount of relief the Company is seeking in the

}s and the actual amount of damages to the co-owners is still being determined.

Public-Service Electric and Gas (aiso a co-owner of Peach Bottom) filed a simhar lawsuit against PE. These suits were in the discovery phase as of December 31, 1989. The Company cannot the outcome of-these lawsuits.

' . A report issued by'the Nuclear Regulatory Commission in August 1989, gave the operating performance of the Salem Nuclear Generating Station a low rating. Public Service Electric & Gas Company, operator of the plant, has implemented corrective to ii;nprove the plant's operating performance.

The Company is closely monitoring the everits of both the Salem and Peach Bottom plants to ensure that appropriate actions I , _are being taken. -Delmarva Power & Light Company -43 __J

\ 'r Notes to Consolidated Financial Statements

'* 15'. Contingencies

/ I

• 1) Pla.nt Held FQr Future Use Ill 1982, tlie Company delayed the construction schedule for the coal-fired Nanticoke#

1 generating unit near Vienna, Maryland.

During 1986, the Company downsized the planned unit and reclassified costs associated with the previously planned larger unit as a deferred asset ($5.5 million bal&nce at December 31, 1989). Cost recovery has been approved in' the Delaware, Virginia and resale jurisdictions.

Due to recent environmental legislatfori in Maryland, the rio longer plans to construct the Nanticoke # 1 generating unit at the previously selected sfte. Accordingly;

$6:7 fuillion of costs which were as* plant held for future use at December 31. 1988 and.$0.8 nitllion of costs associated with the smaller Nanticoke

1. 1 unit were reclassified to deterred assets as of December 31, 1989. Recovery of these costs is anticipated through the . t . .. ratemaking process. 2) Nuclear Insurance The insurance cove!ages applicable to the nuclear p*ower units are as (l'vl,illi<;:ms of Dollars) ' Aggregate

• Maximum Coverage Retrqspective Assessment for a Single Incident !2 l Type andSource of Coverage *Public Liability:

Private / Price Anderson Assessment

! 1 l $19.7!3). Nuclear Worker Liability

!5 l Property Damage: !6 l $ 200 7,607 $7,'807(4) $ 200 $ 1.0 Peach Bottom !7 l Salem !Bl All units !9 l . $ 900 $ 900 $ . 975 I $ 2.6 $ Replacemenr Power: I) 2) 3) 4) : 5) 6) 7) 8) Nuclear Electric Insurance Limited' (NEIL)!10 l $ 3.4-$ 3.5(ll) . $ 1.8 Retrospective premium program under the Price-Anderson liability provisions of the Atomic Energy Ad of 1954 as amended by the Price-Anderson Amendments Act of I 988. Subjed td retrospective assessment with respect to loss from an incident at any licensed nuclear reador in the United States.

• The Company's share of the maximum retrospective assessment for a single incident based on the Compan)!'s ownership share of the nuclear power units. The maximum retrospective assessment of $66. I 5 miilion per nuclear reactor is subject to periodic inflation indexing.

The Company owns a joint and undivided interest in the Peach Bottom and Salem nuclear power facilities.

In the event that.all other co-owners are unable to fund thair share of the* retrospective assessment, the Company's maximum retrospedive assessment would*be $264.6 million. Limit of liability under the Price-Anderson Act for each nuclear incident.

If claims from a nuclear incident exceed the $7.8 billion limit, Congress could impose a revenue raising measure on the nuclear industry to pay claims. American Nuclear Insurers provide coverage against the potential liability from workers claiming ,exposure to the hazard of nuclear radiation.

The Company is a self insurer, to the extent of its ownership.interest, for any property loss in excess of the stated amounts. . For property damage to the Peach Bottom nuclear power facilities, the Company and have private insurance up to $900 million. For property damage to the Salem nuclear power facilities, the Cotiipany and its co-owners have $500 miilion of insurance with NuclearMutual Limited . (NML), a utility-ow11ed insurance company and $400 million with private insurers.

NML has a mai:imum retrospective assessment ofien times the annual

• premium. . . * *

• 9) All units are insuted by Insurance Limited (NEIL II) for losses in excess of $500 million. Maximum retrospective is seven and a half ii mes the annual premiums.

' 10) A mutual insurance company provides coverage against extra expense incurred in °'1htaining feplai:ement power during prolonged accidental outages of nuclear power units. * -* . .

• I I) Commencing after the first 2I weeks of an 100% of the weekly indemnity for 52 weeks, then 67% of the weekly indemnity for the next 52 weeks, and then 33 % of the weekly indemnity for t/:ze i;zext 52 weeks. 3) Other The Company is involved in certain "'Other legal .and _administrative proceedings before various courts. and governmental agencies concerning rates;* eri.virqnmerital issues, fu'el contracts, tax filings and other matters. In the opinion of management, the ultimate disposition of these proceedings will not have a material effect on the Company's financial position or resl.llts of o_perations.

44 .Delmarva Power & Light

16. Segment lnJormation Notes to Consolidated Financial Segment information with respect to electric, gas and steam.operations was as follows: ' ' ( 1) Includes plant held for use, construction work in progress and a/location of common utility property.

(2) Stated net of the respective aceumulated.provisions for depreciation.

(3) Prima;i/y assets of the subsidiaries.

See Note 17 on

46. (4) Excludes allowance for funds used during construction.

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

Delmarva Power & Light.Company 45 '

Notes to Consolid,ated Fina_.ncial Statements

17. Consolldated Condensed Financial Statements of *Subsidiaries

/ The following presents consolidated condensed financial information of the .non-regulated wholly,-owned subsidiaries, Delmarva Energy Company, Delmarva Industries, Inc. and Dehparva Capit,al In-* vestments, Inc. Delmarva*

Services, a subsidiary which leases.real estate to the Company's utility business, is excluded from these statements since its income is derived from intercompany transactions which are * . 'eliminated in consolidation. . Consolidated Condensed Subsidiary Statements of,lncome (Dollars In Thousands)

Revenues and investment-inc.ome Operating expenses Operating income/ (loss) Gairi on sale .of investment Interest expense 1 Gapitalized interest Net income/(loss) before income taxes Income tax (benefit)

Net income Contribution to Deln;arva Power & Light's earnings per share of common stock Consolidated c*ondensed Subsidiary Balance Sheets I * -' 1989. $11,399 15,431 (4,032)_ 5,605 2,280 (2,019) 1,312 (3,702) $ 5,014 $ 0.11 1988 1987

$12,502 $1,620 6,109 2,453 6,393 (833). *\ 2,967 3,955 3,426 (4,788) (1,354) (5,448) $ 4,780 / $ 660 '$ 0.10 $ 0.01 (Dollars In Thousands)

At December 31, LIABILITIES AND At 31, ASSETS 1989 1988 STOCKHOLDER'S EQUITY 1989 1988 Current Current liabilities:

Cash and Debt due within one cash equivalents

$ 9,392_ $ 14,029 year $14,504 $31,130 Marketable

'securities 16,215 33;669 Other 9,699 1,164 / Other 5,600 2,197 24,203 32,294 31,207 49,895 Noncurrent assets: Noncurrent liabilities:*

Investment in Long-term debt 241 296 leveraged leases 81;804 73,8ll' ** Deferred income-taxes 80,871 96,900 Investment in Other 6,092 138-partnerships 54,577 1 47,327 87,204 67,334 Other" property, net . 32,347 13,301 Other 307 '295 169,035 134, 734 Stockholder's Equity 88,835 85,o'Ol Total $200,242 $184,629 Total $200,242 $"184;629 Net of subsidiary increased slightly in 198_9 from 1988, despite lower income, due to a $5.6 million pretax gairi on the sale of a.partial interest in a partnership Forest Prod-. ucts), lower interest expense of capitalized interest) and the of investment tax credits on which were completed in 1989. The effective tax rate on the $5.6 pretax gain ($4.8 million after iax gain) on the sale.o(a interest in Burney Products was*reduced by a $3 .. l million capital loss carryforward.

An additional

$5.6 million pretax gain on the sale is. contingent on certain future events has been Operating uicome decreased in 1989 due to lower income. from leveraged leases, lower investment income from marketable,securities, accrual of a loss* provision on. an investment in a municipal waste water treatmen_l and losses on the start-up of.a iandfill and a . I . . wood-burning power plant with an associated sawmill. * *

• The increase iri net income of subsidiaries in 1988 over 1987 was primarily due t.o lower research and development expenses and 1987 losses on securities which. did not reoccur 46 D_elmarva Power & Ugh! Company

17. Consolidated Condensed Financial Statements of Subsidiar*

ies

• 1.8. Quarterly Financial*

Information (unaudited)

I . / \ Notes to Consolidated Financial Statements*

The subsidiarles loan funds to certain partnerships in which the subsldianes have an ownership interest.

These loans are iriduded in "Investments in partnerships" on the balance sheet and the .outstanding balances were'$i6;7o7,000 and $20,105,000 as of December 31, 1989 1988; respectively.

The loans bear interest at rates ranging from 10 1!2% to 15% and are to be repaid after the partnerships become . _ operational.

As of December 31, 1989, the subsidiaries had

$8.5 million in a partnership formed to construct and operate a 500 ton per day solid waste burning generating plant located*!n Northampton County, Pennsylvania.

A coqstruction permit for 'the project has been

qowever, certain legal must before construction can begin.The Company *cannot predict whether these legal matters will 'be successfully res_olved.

The quarterlfdata presented below reflect all,adjustments necessary in the opinion of the Company for a fair pres<:ntation

'of the interim results; data *no1:mally.

vary seasonally with temperature variations, differences between summer and winter rates, the timing of rate orders and the scheduled downtime and maintenance of electric generating units. Earnings . Earnings Average per Quarter Operating Operatillg Net to Comµion Shares 'Average Ended Revenue Income Income Stock Outstanding Share (Dollars in thousands) (In Thousands) 1989 March 31 $209,377 $ 36,383 $ 23,840 $ 22,191 46,379 $0.48 June 30 177,887 25,964 14,257 . ' 12,698 46;595 . 0.27 September 30 216,167 50,054 36,244 34,314 46;788 -0.74 December 31 _186,276 27,020 16,967 46,985 0.31 --. $789,707 $139,421 $ 91,308. $ 83,881 46,687 $1.80 1988 March 31 $200,950 $ 35,407 $25,186 $23,452 45,717 $0.51 jurie 30 172,987 25,698 14,964 13,262. 45,738 0.29 September 30 217,547 46,156 33,001 45,952 o.i2 December 31 176,838 22,233 9,844 8,117 . 46,160 0.18 $768,322 $129,494 . $84,721 $77,832 45,892 $1.70 In the .second quarter of 1989, net income was increased by $2,178,000 (4.7¢ per share) due to credit adjustments received from jointly-owned plants previously expensed spare parts. In the fourth quarter of 1989, net income was increased by a $4.8 million gain (10.2¢ per share) on the sale of a partial . . ' . '. interest in a partnership by a $1. 3 million ( 2. 7 ¢*per share) accrual of a loss provision_

on

• a non-regulated inv.estment.in a municipal waste water treatment venture. '-Net income in 1989 was decreased due to the Peach Bottom replacement power costs as follows; first quarter , -$2,248,000 (4.8¢ per share); second quarter -$3,280,000, (7.0¢ per share); third quarter -$2,273,000 (4.9¢ per share); fourth quarter -$841,000 (1.8¢ per share); or a total of $8,648,000 (18.5¢ per share). Net income in 1988 was decreased due to the Bottom replacement power costs as follows: first quarter -$1,476,000 (3.2¢ per share); second quarter -$1,Q89,ooo (2.4¢ per share); third quarter -$1,907,000 (4.1¢ per share); fourth quarter -$1)1 33,000 (3.8¢ per share); or a total of $6,205,?00 (13.5¢ per share). _Delmarva Power & Light Company 47 Oon!iolidated Statistics 10 Years of Review 1989 1988 1987 1286 Electric Revenues Residential

$_251,490

$ 247,95.0 $ 23°1,439 $ 217,393 (thousands) -Commercial 197,362 191,104 , 176,355 169,157 Industrial 133,451, 130,094 119,109. 127,900 Other utilitie's, etc .. 90,206 90,220 80,291 Miscellaneous.

revenues 5,887 ' 8,185 6,284 *. 7,499 Total electric revenues

$ 667,553. $ 612,367 $ 602,240 Electric Sales

• Residential 3,049,882 2,,944,477 2,732,018

,,2,496,099 ( 1,000 kilowatthours) .Commercial . 2,875,681 2,734,069*

2,536,39$ . 2,370,775 Industrial 3,025,653 . 2,729,409 2,611,218 . 2,753,902 . Other utilities, etc. 1,877,623 1,817,088 1,685,641 1,585,019

"./ Total electric sales 10,828,839 . . . 10,225,043 9,565,276 9;205,795 Electric Customers , Residential . 319,696 311,5'77 303,158 29,3,45i I (enq of period) Commerdal*

40,104 38,629 36,783 35,089 i. ; Industrial 853 798 825. 842 Other utilities, etc. 562 547 525 517 Total electric customers . 361,160 351,5.78 341,308 329,911 Gas Revenues Residential

$ 42,908 $ 40,303 $ 39,614 $ 43,145 (thousands)

Commercial 18,816 16,404 15,491 18,523 Industrial 17,546 12,2,08 10,941 16,995 ( , 11, 13'6. Interruptible 6,714 '8,309 11,464 Other utilities, etc. 92 66* 16'0 142 Miscellaneous revenues 666 891 I,533 Total gas revenues $ 86,742 $ 78,615 $ 78,233 $ 91;802 Gas Sales Residential 6,795 . \ 6,797 6,364 6,201 / (millio1:1 cubic feet) Cominercial 3,562 3,33'3 2,992 2,906 4,245 3,229 2,693 3,338 Interruptible 2,019 2,774 -3,320 3,471 orher utilities, etc. 33 21 42 36 \ Total sales 16,645 16,154 15,411 15,952 Gas transported 677 2 gas* sales and gas trimported 17,322 16,156 15,411 15;952 Gas Customers Residential 77,021 74,762 73,803 72,685 (end of period) Commercial 5,689 5,322:,. 5,027 4,693 Industrial 159 162 156 158 Interruptible 13 16 15 14 Other utilities, etc. l 1. 1 . ' Total gas 82,883 80,263 79;002 77,551 ,

• Steam Sei:vice Electricity delivered ( 1,000 kilowatthours) 343,698 292,688 354,842 .370,802 Steam delivered ( l,_000 pounds) 6,928,792 6,q4,946 6,627,BO 48 Delmarva Power & Light Company

\\ \' .i I 'I ,,

Statisti-cs

.1985 $ 212,254 168,957 135,141 79,399 9,830 $ 605,581 2,256,922 2,165,685

.2,606,466 1,501,447 8,530,520 1984 1983 $ 205,91(}.

$ 193,021 * '156;507 ": 140,809 128,833 126', 703 79,235 68,991 13,678 12,728

$ 584,163 . $ 542,252 2,249,270 2,073,457 2,569,572 1,415, 934 8,308,233 2,136,265 1,844,324-2,600,492 1,297,395

'7,878,476 l ,._ 283,911 275,175 267;357 30,525 ....... 949 434 33,189 31,548 893 929 49_2 / 502 ----318,485 308,154 $ 39,224 17,901 19,762 $ 40,933 18,6(?3 ' 22,940 29,9,265 $ 36,694 '16;527 '23,232 1982 '1981 $ 183,258 $ 164,919 137,434 ' 123,099 )27,441 .*.

• 129,60 1 1 *I 73,4-69 73,602 13,168 12,898 $ 534,779 $ 504,119 1980 $ 144,637 112,166 116,401 63,698 7,025 $ 443,927 2,026,398 1,996,647

' *2,046,546 . 1,729,863 2,255,673 1,237,508 7,249,442 260,371 .. 29,966' 741 434 291,512 $ 36,505 15,792 20,112 1,660,147 . 1,648,776 2,454,685 2,429,842 1;283,845

' 1,33,5,216 7,395,324 255,646 29A5*o 788 . . 434 286,318 7,460,380 . 246,887 28,162 821' 440 276,310 $ 26,525 10,344 12,404 1979 $ 115,381 91,798 98,Q23 53,782 4,682 $. 363,666 1,,968,452 1,598,299 2,624,438 1,300,611

• 1,49i,800.

242,745 27,998 874 478 272,095 $ 25,719 8,954 9,884 17,419 18,098

'$ 34;123 14,344 22,259 dl,711 61 ' ' 572 -$ 83,070 9,293 4,440 .. 130 160 820 784 ----$ 95,256 $ 101,578 5,622 2,742 3,579 3,734 31 15,708 15,708 70,804 4,417 160 15 .' 75,397 335,308 6;794,105

' ' ' ,6,213 2,971 4,245 3,769 41 17,239 '17,239 70,183 4,233 165 19 1 74,601 298,203 6,922,416 115 53 . 764 552 $ 94,358. $ 84,747 5,640 2,677' 4,378 . 3;723. 31 16,449 16,449 69,608 4,075 160 19 1 73,863 ' 309,043 6,965,904 6,062 2,768 4,108, ', 2,656 10 15,604 15,604 I 69,092 4,057 166 18 73,334 322,804 7,778,929 6,193 I 2,704 4,809 2,802 1,2 16,520 16,520 68,608 3,967 167 16 72,759' 343,063 ' 7,673,420 46 ' 55 430 270 ----$ 59,040 ' $ 49,322 6,32! 2,683 3,93'7. 2,738 14 15,693 15,693 67,784 3,846 155 16 1 . 71,802 328,420 7,570,944 6,423 2,4'15. 3,388 ' 1,720. 16 13,962 66,631 -.3,712 131 16 1 70,491 262,159 6,378,705 J Average Gompound % *Rate' of Growth . / 8.10 % 7.96 % 3.13 % 5.31 % . 2.32 % 6.43 % ,'\ *4.48 °/o 6.05 % 1.43 % 3.74 % . 3.75 % 2.79 % 3.66 % (0.91)% 1.63 % 2.87 % 5.25 % 7:71 % 5.91 % 4.22 % 5.28 % 9.45.% 5.81'% 0.56 % 3.96 % .2.28 % 1.57 % ' '7.51 %. l.77 % -% 2.18 % 1.46 % -4.36 % 1.96 % (2.05)% ._o.oo % 1.63 % 2.75 % 1.56 % . Delmarva Power & Light Company ., 49

. \ Committees and Officers.

Executive Committee

• Nevius M. Curtis, Chairperson David D. Wakefield, Vice Chairperson Howard E. Cosgtove, Sally V. H:a"wkins, James T."McKinstry AuditComniitiee

• John R. Cooper, Chairperson* . James T. McKinstry, James.a. Pippin, Jr., Lida w.

Nominating Committee Sally V. Hawkins, Chairperson Nevius M. Curtis, James o. Pippiri, Jr. Compensation Committee

• Elwood P, Blanchard, Jr., <:;hairperson David D. Wakefield, Vice. Chairperson Donald W. Mabe Investment Committee David D. Wakefield, Chaiiperson Nuclear 'oversight Committee Officers As of January 1, 1990 Nevius M. Curtis, Donald W. Mabe, James O.'Pippin, Jr. \ " . . James T. McKinsrry, Chairperson Johµ R. Cooper, Nevills M. Curtis 'Nevius M, Cunis, duiinhdn of the Board, President, and Chief Executive Officer Howard E.'Cosirove, Exfcutive Vice President

• H. Ray Executive Vici/President

,.* Roger D. Campbell, Senior Vice President and President, Delmarva Capital Investments, Inc .. Paul S. Gerritsen, Vice President and Chief Financial Officer Doriald E .. Cain, Vice President

• Wayne A. Lyoi:ls, Vice President Frank J . .Perry, Jr., Vice President Thomas s. Shaw, Jr., Vice President Donald P. Connelly, secretary Riehard H.'Evans, Vice President,.

Corporate Communications . Barbara s. Graham, TreiJsurer

• Kenneth .K. iones, Vice Planning Ralph E. Kiesius, Vice President, Eiiginee,ring

• James P. Lavin, ComptrollercCorjiorate and Chief Accounting Officer Dennis R.

Comptroller-Operating Dale G. Stoodley, Vice President and General Counsel Duane C. Tayfor; Vice President, .systems p. Wayne Yerkes, Vice President

-Northern Divisiorz

'* 50 Delmarva Power & Light . \ /

Directors as of January 1, 1990 Directors Elwood P. Blanchard, Jr. John R. Cooper Howard E. Cosgrove Nevius M. Curtis Elwood P. Blanchard, Jr. Vice Chairman of the Board of Directors and member of the Execut iv e Committee of E.I. du Pont de Nemours & Company (a diversified chemical, energy, and specialty products company) Wilmington, Delaware, Term expires in 1991 John R. Cooper Director of Environmental Affairs of E.I. du Pont de Nemours & Company (a diversified chemical, energy, and specialty products company), Wilmington, Delaware, Term expires in 1990 Howard E. Cosgrove Executive Vice President of the Company, Term expires in 1992 NeviusM. Curtis Chai rm an of the Board, President, and Chief Execut i ve Officer of the Company, Term expires in 1990 Sally Y. Hawkins H. Ray Landon Donald W. Mabe James T. McKinstry Sally Y. Hawkins Directoc President , and Chief Executive Officer of Delaware Broadcast i ng Company and President and General Manager of Station WILM (radio broadca s ting), Wilmington, Delaware, Term expires in 1991 H. Ray Landon Execut iv e Vice President of the Company, Term expires in 1991 Donald W. Mabe President and Ch i ef Exec utiv e Officer of Perdue Farms In corporated (int egrated poultry company), Salisbu r y , Maryland, Term expires in 1 990 James T. McKinstry Director and Partner, Law Firm of Richards, Layton & F i nger, Wilmington, Delaware, Term expires in 1992 James 0. Pippin, Jr. David D. Wakefield Lida W. Wells , James 0. Pippin, Jr. Director, President , and Chief Executive Officer of the Centreville Nationa l Bank of Maryland, Centreville, Maryland , Term expires in 1992 David D.*wakefield Chairman and President of Morgan Bank (De l aware), Wilmington , Delaware , Term expires in 1990 Lida W. Wells Director and President of Wells Agency , Inc. (general r eal esta t e and development agency), Milford , Delaware , Term expires in 1992 Delmarva Power & Light Company 51

, Stockholder Information Quarterly Common Stock Dividends And Price Ranges The Company's common stock is listed in the New York and Philadelphia Stock Exchanges and has unlisted trading privileges on the Cincinnati, Midwest and Pacific Stock Exchanges.

The Company had 54 , 326 holders of common stock as of December 31, 1989. Dividend Price 1989 Declared High First Quarter $.37 1 12 $17 7/s Second Quarter .37 1 12 193/s Third Quarter .37 1/2 20 Fourth Quarter .J8l!z 21 1/4 Shareholder Services Carol C. Conrad, Assistant Secretary Delmarva Power & Light Company 800 King Street, P.O. Box 231 Wilmington, Delaware 19899 Telephone (302) 429-3355.

Stock Symbol Low $17 17 1/s 18 5/s 18 Common Stock, DEW-listed on the New York and Philadelphia Stock Exchanges.

Annual Meeting The Annual Meeting will be held on April 24, 1990 at 11 :00 a.m. in the Clayton Hall, University of Delaware, Newark, Delaware.

Additional Reports To supplement information in this Annual Report, a Financial and Statistical Review ( 1979-1989) and the Form 10-K are available upon request. Please write to: Shareholder Services, Delmarva Power, 800 King Street, P.Q. Box 231, ton, Delaware 19899. First Mortgage Bond Trustee Chemical Bank, New York, New York. . Duplicate Mailings You may be receiving more than one copy of the . Annual Report because of multiple accounts within your household.

The Company is required to mail an Annual Report to each name on the holder list unless the shareholder requests that duplicate mailings be eliminated.

To eliminate duplicate mailings, please send a written 'request to Shareholder Services, at the above address, and enclose the mailing labels from the extra copies. 5 2 , Delmarva Power & Light Company Dividend Price 1988 Declared High First Quarter $.36 1 12 $19 1/4 Second Quarter .36 1 12 Third Quarter .36 1 12 Fourth Quarter .37 1 12 Transfer Agents and Registrars Preferred Stock Wilmington Trust Company Corporate Trust Division Rodney Square North Wilmington, Delaware 19890. Common Stock Wilmin_gton Trust Company Corporate Trust Division *Rodney Square North Wilmington, Delaware 19890. 19 185/s 17314 Manufacturers Hanover Trust Company Stock Transfer Department P.O. Box 24935 Church Street Station New York, New York 10249. Regulatory Commissions Federal Energy Regulatory Commission 825 North Capitol Street, N.E. Washington, D.C. 20246. Delaware Public Service Commission 1560 s. duPont Highway Dover, Delaware 19901. Maryland Public Service Commission American Building 231 East Baltimore Street Baltimore, Maryland 21201 . Virginia Corporation Commission P.O. Box 1197 Richmond, Virginia 23209. Low $17 1/s 16 1/2 16114 16 7/s Dividend Reinvestment and Common Stock Purchase Plan-More than 30 percent of the Company's common shareholders of record are now participating in the Dividend Reinvestment and Common Stock Purchase Plan. If you are not participating, you may want to consider the benefits of joining this plan. Under the plan, you can reinvest your cash djvidends and you can also invest adilitional cash, up to $25,000 per calendar year, to purchase adilitional shares of common stock without a service fee. Shares of common stock to be purchased under the plan may be either newly issued shares or shares purchased in the open market, depending on the financing needs of the Company. You may obtain a prospectus with the plan description and an enrollment authorization card by writing to Delmarva Power & Light Company, Shareholder Services, P.O. Box 23 1 , Wilmington, DE 19899. Art Direction

& DHlgn: Susan Murphy McGuane , lllu1tratlon

S h okie B ragg, Photography:

Carlos Alejandro; Additional photographs by: Lisa Goodman , Daniel Husted & Photographic House Inc.

Delmarva Power 800 King SlrHI . P.O. Box 231

• Wilmington, DE 19899 Bulk Rate U.S. Postage Paid Permit No. 68