ML18100A391

PECO Annual Rept,1992.

ML18100A391
Person / Time
Site:	Salem, Hope Creek
Issue date:	12/31/1992
From:	Corbin McNeil, Paquette J PECO ENERGY CO., (FORMERLY PHILADELPHIA ELECTRIC
To:
Shared Package
ML18100A389	List: ML18100A388 ML18100A390 ML18100A391
References
NUDOCS 9306020093
Download: ML18100A391 (50)

Text

sen ice in southeastern Penns\ h ania. T11 o subsidiaries 0\\

Philadelphia Elecrric Compan;. is an operating utilit: 11*hich prm*idcs electric :111d gas n, and a third subsidiar:

B A opcratcs, the ( ono11 ingo I lnlroelectric Project, and one distribution subsidian*

c I D E

pro,*ides electric sen ice in rno counties in northeastern :-,[an-land.

F The total area sen ed by the Company and subsidiaries e<n-ers 2,-+7 5 square miles.

G

,____ H I Elcctric scn*icc is supplied in an area or 2,340 square miles "ith a population or abour J

K I L 3,700,000, including l,600,000 in the Cit;. of Philadelphia .. \ppro:-..im:nel;. 95 percent of the e lectri c sen ice area and 63 percent orkilo11anhour sales arc in the Ph iladelphia A TRANSMISSION TOWER AL.ONG THE NEW CECIL*COL.ORA LINE IN suburbs and in northeastern .'.\laryland, and 5 pcrccnt of the sen*ice area and 3 7 percent MARYLAND of such sales arc in the C:it~' of Philadelphia. :\atural gas sen* icc is supplied to B PHILADELPHIA Fooo DISTRIBUTION CENTER a population of about 1,900,000 in a 1,-+7 5-squarc-milc area of southeastern Penns~*h ania adjaccnt to Philadelphia.

c IMPROVED CREDIT AND COLLECTION PROCEDURES INSTITUTED 0 NATURAL GAS ADDED AS A F"UEL AT CROMBY GENERATING STATION E TREE TRIMMING F'OR RELIABLE SERVICE F' PHILADELPHIA SKYLINE G STOCKHOLDERS RECEIVE HIGHER COMMON STOCK DIVIDENDS H WIRE INSTALL.ED BY HELICOPTER LIMERICK GENERATING STATION COOLING TOWERS J NATURAL GAS INSTALLED AT SIMPSON PAPER MILL K SCHOOL PROGRAM AT MUDDY RUN RECREATION PARK L T URBINE BLADE INSPECTION AT EDDYSTONE GENERATING STATION DELAWARE NEW JERSEY MARYLAND THIS REPORT IS PRINTED ON RECYCLED ANO RECYCLABLE PAPER .

.I II II II {/ I II I'/' (} ,. I I y y2 2

• LETTER TO Operating Re\*enues Operatin g Expe nses

$3,962,469,000 $4 ,01 8, 5 86,000 ( l.-J. o/c)

SHAREHOLDERS $2,929,093,000 $2,937,l 96 ,000 ((J.3 %)

Taxes C harged to Ope rati ons $546,3 51,000 $583, 506 ,000 (6 .4 %)

4 REPORT OF" 1 992 Operatin g Income $1,033,376,000 $ l ,08l, 190,000 ( 4.4 ~c)

OPER A TIONS Earnin gs ,\pplicablc to C o mmo n Stock $418,210,000 $468,576,000 ( l 0 . 7c,()

1 7 MANAGEMENT ' S Earnin gs pe r A\ crage Co mmo n Share $ 1.90 $ 2. l 5 ( 11.6~()

DISCUSSION ANO C ash Di\*idcnd s Paid pe r Common Share $ 1.325 sl. 22 5 8.2%

ANALYSIS OF A \'eragc Sh ares o f Commo n Stock Omsra nding 220,24 5 ,000 2 18, 234 ,000 0 .9%

FINANCIAL Co nstru ctio n Expenditures $563,546 ,000 $49 1,470 ,000 14.7o/c CONDITION AND T o tal Assets $12,578,227,000 $ 12,523,460,000 0.4o/c RESULTS OF" OPERATIONS 2 1 CONSOL I DATED FINANCIAL STATEMENTS 0 fJllars P t'r .Sh,, rt*

26 NOTES TO s2 so SOLIOATED NC I AL 2 00 I f, ti f II i 11 gs STATEMENTS I S0 Pt'r ~hare 4 1 REPORT OF" I 00 INDEPENDENT ACCOUNTANTS .S0 Di .1dn1dJ Paid Per 42 F I NANCI A L

.\h11u STATISTICS BB B9 90 9 1 92 43 OPERATING STATISTICS 45 OFFICERS AND II illio11 Dollar*

D I RECTOR S SI 2SO 47 SHAR E HOLDER I. 000 INFORMAT I ON Co11Jtr11ct1011 7SO I ,-pe11di111 r1*s soo 2SO I nt t' r 11a I

\ 0 II I" ( t' J BB 8 9 90 91 92 93* *JJutlgn p h i I ii d t' Ip h I (/ l' I l' ( ' ,- I ( ( () })/ p (/ II )

Ta a UR s H A R E H a L a E R s During 1992, Philadelphia Electric Company continued its financial recovery from the adverse 1990 Limerick Unit No. 2 ele e case decision and also made significant progress in preparing for the uncertain future facing the utility industry.

1 992 RESULTS Due primarily to the effects of the settlement of the Peach Bottom co-owners' lawsuits as described below and to an unusually cool summer, earnings per share decreased to $1. 90 per share from $2.1 5 per share recorded in 1991. Despite reduced earnings caused by these one-time events, the Company's overall financial condition improved in 1992 as evidenced by increased shareholder equity, lower debt outstanding, continued strong cash flow and higher security ratings. As a result, the Board of Directors increased the quarterly common stock dividend by 83 effective with the December 1992 payment. In addition, the stock market reacted to these positive trends as the market price of the Company's common stock continued to outperform the Dow-Jones Utility Average by closing at $26-1 / 8 per share on December 3 1, the highest year-end level since 1968.

The settlement of the Peach Bottom co-owners' litigation resulted in a one-time charge of $0.2 7 per share in the first quarter of 1992. The settlement removed a major financial uncertainty and enabled the Company to avoid the possibility of a significantly larger charge with a trial.

For 1992, electric retail sales decreased 2.53 due to the mild summer compared with the extremely hot summer of 1991. After adjusting for the effects of weather, electric usage increased approximately 13 over last year. Gas sales benefitted from the cooler weather in 1992 and registered a strong gain of 9 .43.

During 1992, our customers benefitted again from rate reductions. As of January 1, 1993, PECO electric bills are almost 83 lower than a year ago, while gas bills have been reduced by 103 since 1990. These rate reductions will not impact shareholder earnings.

Our base-load generating plants performed well in 1992. Our nuclear units generated 583 of our total electric production-* 2, with Limerick Unit No. 2 setting a world record for the longest continuous run of any commercial light-water reactor. This ly strong nuclear performance has been noted by the Nuclear Regulatory Commission in its most recent Systematic Assessm t of Licensee Performance (SALP) evaluations for both Limerick and Peach Bottom.

During 1992, progress was made on a number of initiatives which will enhance the value of our foss il and hydro generating units.

Cromby Unit No. 2 was successfully converted to burn natural gas as well as oil to take advantage of competitive fuel markets. In August, work began on a $54 million modernization project at Eddystone Station Unit No. 2 which will enable the 32-year old, coal-fired unit, already equipped with flue-gas scrubbers, to operate for another 20 years. Finally, a $32 million life-extension program was begun at the Conowingo Hydroelectric Station which will increase its output by 53 to 103. These projects will enable the Company to delay adding any new generating capacity for at least 10 years and to continue our excell ent record of environmental protection for decades to come.

In December, an unusually fierce winter storm, the fifth worst ever, hit the Company's service territory, resulting in interruptions to almost 200,000 customers. Aided by contractor crews, our employees were able to restore service to most customers within 48 hours5.555556e-4 days <br />0.0133 hours <br />7.936508e-5 weeks <br />1.8264e-5 months <br />. The Compa ny is in the middle of a major tree-trimming and vegetation -management program which shou ld reduce the potential impact of such storms in the future.

PREPARING FOR AN UNCERTAIN FUTURE As the utility industry approaches the mid- l 990's, there are many uncertainties clouding its future-such as those related to implementation of the 1990 Clean Air Act and the 1992 National Energy Policy Act and the externa l pressure to relax regulation of the industry. In many ways, PECO is well prepared for the future, but much effort is still needed to meet the coming changes. Thus, a great deal of our corporate focus in 1992 and the immediate years ahead is to better position PECO for these challenges.

Because of the Company's significant investment in nuclear power and the early installation of flue-gas scrubbers on i lly owned coal-fired facilities, its electric rates are relatively high within the utility industry. As a result, in order to im ur competitive position, we have placed significant emphasis on cost control with the goal of reducing costs through early retirement Ph1/adelph1a Flettrir Compan)

• Corbin A. M cNeill, fr.,

P resident and Chief Opera ting Officer f oseph F. Paquette, f r.,

Chairm an of the Board and Chief Execu tive Officer incentives, implementation of Quality Management throughout the Company, modification of our salary structure, improved credit and collection procedures, res tru cturing of our Nuclear Group, reduction in contract labor and reduced financing costs through the refunding and refinancing of high-cost securities. Our 1991 division reorganization, which decentralized electric, gas and customer service operations, has yielded many positive results, such as improved customer focus and satisfaction, as well as cost accountability.

In 1992, further steps were taken to strengthen the Company's senior management by adding two highly skilled executives with considerable experience outside of the utility industry. In February, William L. Bardeen, 54, became Senior Vice President and Chief Financial Officer. Mr. Bardeen was formerly Vice President-Finance and Controller for Bell Atlantic Corporation and had spent 18 years in financial operations at General Electric Company. In September, Gwendolyn S. King, 5 2, was elected Senior Vice President, Corporate and Public Affairs. Mrs. King had been Commissioner of the U.S. Social Security Administration and was responsible for managing an organization with 65,000 employees and an operating budget of $4.5 billion. vVe are very fortunate to be able to attract

• -11 als with such outstanding backgrounds to these important positions within the Company. Their skill s will be extremely helpful u sing the challenges ahead.

ational Energy Policy Act ( TEPA) enhances the ability of independent power producers to become sources of electric generation for utilities and requires utilities to provide them with access to their transmission systems under specified conditions. The full impact of NEPA remains to be seen; however, it opens the possibility for a significant restructuring of the utility industry and requires the rethinking of business approaches and the development of new strategies.

PECO has recognized the need to prepare for doing business in an evolving, less-regulated environment through the many initiatives discussed in this report. We have also sharpened the focus of our strategic planning efforts to perform comprehensive analyses of the various energy markets and develop improved marketing techniques which will be used to respond to increased competition .

In addition to these initiatives, much more must be done to meet the challenges ahead . Success in the '90s and beyond will require both innovation and effort, but I believe we have a distinct edge: the energy and imagination of PECO's more than 9,700 employees.

vVe are now being challenged as never before to react to the marketplace, improve our productivity and serve our customers. It has been proven time and again that the people who actually perform the work best understand their jobs and know how to make them more productive. I believe the electric and gas utility industry is no different. This is wh y our Quality Management process promotes employee teamwork, empowerment and individual initiative.

With the continued hard work and dedication of our skilled employee body, I am confident we will succeed in a less-regulated environment and will find new opportunities to excel and prosper as we achieve our goal of becoming a premier regional energy service company that achieves superior customer satisfaction and shareholder value.

Thank you for your continued support. We pledge our efforts to successfully meet the challenges of the future .

• CHAIRMAN OF" THE

.J. F.

BO ARD PA~UETTE, FEBRUARY Philadelphia AND 1

.JR.

CHIEF" 1 l 993 J;'lectric EXECUTIVE Company O FFICER

HIGHLIGHTS Moderni z ation of the Food Distribution Center in South Philadelphia begins.

Major construction projects to support the new division reorganization begin .

PECO goes smoke free on March I .

Gas conversion completed at Simpson Paper Mill in Miquon, PA .

Excellence in operation at Limerick Generating Station is recogniz ed by a Pennsylvania Senate Resolution and two industry awards .

Limerick Training Center is expanded.

Eddystone Station maintenance training facility begins operation.

The Company enrolls customers in a new "Touch Documents" service for PHILADELPHIA 'S the blind and visually impaired. F"OOD DISTRIBUTION

• e CENTER BEGAN A e F"IVE-YEAR, $ 1 7 MILLION RENOVATION

• e PROJECT IN SOUTH William L. Bardeen, PHILADELPHIA. THE e Senior Vice Preside11t, Fina11ce CENTER GENERATES

• e and Chief Financial Officer, ANNUAL SALES joi11ed the Company in OF" $2 BILLION 1

• e February 1992. He formerly EMPLOYS MORE THAN 6,000 PEOPLE AND

• e was f 'ice President-Finance PROVIDES OVER $2 and Controller for MILLION IN ANNUAL e Bell Atlantic Corporation *e ELECTRIC REVENUE and also spent 18 ;ears in FDR THE COMPANY.

financial operations at General Electric Company.

• F"IN ... N<!IAL A SLJLT Common stock earnings for 199 2 were $1. 90 per share as compared to $2 . 15 in 1991. Earnings were lower than heat, and more than 1,050 residential customers converted to gas heat. As a result, more than 9, 100 additional customers now use the Company's clean and efficient energy for heating their homes.

PEACH BOTTOM Co*OwNERs' SETTLr-MENT anticipated primarily due to the coolest summer since 1960 which was in sharp contrast to the summer of 1991-one of the In April, the Company and the other co-owners of Peach Bottom warmest ever experienced. Unfavorable weather in 1992 reached a settlement of the lawsuits related to the 1987 reduced earnings by $0. 35 per share compared with 1991 and by shutdown of Peach Bottom by the Nuclear Regulatory

$0.25 per share compared with normal weather. Also Commission.

contributing to the earnings decline was the one-time $0.27 per Pursuant to the settlement, which was approved by the U.S.

share charge against earnings due to the settlement of the District Court, the Company paid the other three co-owners a lawsuits brought by the co-owners of the Peach Bottom Atomic total of $131 million. The settlement also resolved Power Station. In addition, in December, the Company counterclaims made by the Company which sought compensation established a provision of $0.05 per share to provide for early from Public Service Electric and Gas Company (PSE&G) for retirement incentives and termination payments for up to 600 certain costs incurred by the Company as a result of events at the employees in its Nuclear Group. This action was taken in Salem Generating Station, which is co-owned by the same four anticipation of a major restructuring of the Company's nuclear companies and operated by PSE&G.

operations, which will occur over the next two years, in order to The settlement eliminated the uncertainty and financial risk contain future operating and maintenance costs. The decline in that the Company faced with a trial. It also saved the Company 199. ings was partially offset by increased sales exclusive of millions of dollars in expert witness costs, attorneys' fees and we* avings resulting from the Company's ongoing debt and hours of unproductive time of employees that would have been preferred stock refinancing program and lower income taxes. spent supporting the case. The lawsuits were settled through a In light of the Company's continued financial improvement, process known as alternative dispute resolution in which the Board of Directors in October increased the quarterly attorneys and the chief executive officers of the four co-owning common stock dividend by 8%, from $0.325 per share to $0.35 companies met with a mediator to reach a satisfactory resolution.

per share ($1.40 on an annualized basis), beginning with the As part of the settlement, the four co-owners are engaging in December 1992 payment. This was the second consecutive year good-faith negotiations to amend the Peach Bottom and Salem that the dividend was increased by 8%. owners' agreements to, among other things, clarify the provisions relating to the liability of the plant operator to the A IS:S RESULTS other co-owners.

Primarily because of the cool summer weather, electric retail IMPROVED CREDIT AND COLLECTION PROCESS sales decreased 3% for the year. Sales to other utilities increased 2 3%, helping to offset the decline in retail sales. In an effort to reduce accounts receivable delinquencies and Total gas sales, including transported gas, increased 9%. Gas resulting write-offs, in April, the Company instituted changes heating sales were up 13% due to colder weather during 1992 throughout its credit and collection process. The Company's and the addition of more than 7, 300 new customers. Gas new strategy focuses on earlier and more forceful collection transported for others increased 10% due to favorable rates and activity for customers who can afford to pay their bills, but an increase in the number of gas transportation customers. choose not to. The changes include a new credit application Nearly 8,000 new residential units were connected in 1992, process, revised field procedures, improved customer an 8% increase from 1991. Electric space heating was installed communications and other collection enhancements.

in - f these units and gas heat in %, for a total market While the Company is instituting more stringent collection peIJ1 n of 9 3 % of new residential units. Also, practices, it is making every effort to assist those customers who approx mately 650 residential customers converted to electric cannot afford to pay. The Company operates an outreach Philadelphia Electric Company

ILL COUNTY CONVERTED ITS BOILERS SO THAT IT COULD BURN NATURAL GAS AS WELL AS OIL.

THE LIMERICK TRAINING CENTER WAS EXPANDED BY 20,000 SQUARE FEET TO CONSOLIDATE NUCLEAR TRAINING AT ONE LOCATION *

p. to direct these customers to funding sources such as securities' ratings. Standard & Poor's Corporation, Duff and the federally funded Low Income Home Energy Assistance Phelps, Inc., Moody's Investors Service and Fitch Investors Program and the Company's Customer Assistance Program. Service, Inc. upgraded the Company's ratings. See page 44 for As a result of this aggressive new program, delinquent a summary of the current ratings.

accounts receivable decreased by $41 million or 2 I 3 in 199 2.

g T,,. MArrEFts The favorable turnaround in the second half of 1992 is expected to produce further improvements in 199 3. While total On April 1, 1992, the Company implemented electric rate uncollectible accounts expense increased $20 million during reductions through its Energy Cost Adjustment and its State 1992, decreasing earnings by $0.05 per share, the increase was Tax Adjustment, providing for an average decrease of 33 in experienced early in 1992 before the new collection procedures customers' monthly electric bills. The rate reductions, were fully effective. combined with a base rate reduction of 53 which took effect on January 1, 1993, have resulted in an overall reduction in customers' electric bills of nearly 83, helping to improve the During 1992, to refinance high-cost debt and preferred stock, Company's competitive position. These rate reductions have the Company sold more than $1.5 billion of new securities as no impact on the Company's earnings. In part due to the summarized below: excellent performance of the Company's nuclear units during MILLIONS CF' 1992, the Company expects to pass on to customers fuel savings SECURITY 0CLL4RB of approximately $80 million beginning April I, 199 3, which will further reduce electric rates by approximately 23.

February Mortgage Bonds due 1999@ 7-1 / 23 $250 In September, the Company filed a request with the Ar, : Mortgage Bonds due 2002 @ 8% 200 Pennsylvania Public Utility Commission (PUC) for a 1. 53 Mortgage Bonds due 2022@ 8-3/43 1SO electric base-rate increase designed to recover $50 million of Medium -Term Notes due 1994@ 5.733 65 costs associated with the implementation in I 99 3 of Statement June Tax-exempt Bonds due 2022 @ 6-5/ 83 30 of Financial Accounting Standards (SF AS) No. I 06, Mortgage Bonds due 2022@ 8-5/ 83 125 "Employers' Accounting for Postretirement Benefits Other July Mortgage Bonds due 2002@ 7-1123 100 Than Pensions." SF AS No. I 06 requires that corporations September Mortgage Bonds due 2022@ 8-1 / 43 250 accrue the liability for expected non-pension postretirement Mortgage Bonds due 2002@ 7-1 / 83 200 benefits over an employee's work career, rather than on a pay-October $ 7. 96 Series Cumulative Preferred as-you-go basis. In October, the PUC suspended this request Stock: 5.6 million Depositary Shares, to May I 0, 199 3 in order to conduct an investigation.

$2 5/share, $1. 99 dividend rate 140 The National Energy Policy Act of 1992 requires, among TOTAL $1,510 other things, state regulatory commissions to consider new regulatory standards that allow a utility's investments in energy conservation and energy efficiency resources to be at least as These refinancings, together with the redemption of $169 profitable (giving consideration to income lost from reduced million of securities with internally generated funds, result in sales due to investments in conservation and efficiency) as its annualized savings of approximately $50 million or $0.15 per investments in generation, transmission and distribution share. facilities. In February 1991, PECO proposed a set of demand-In addition, 2.6 million shares of common stock were side management (DSM) programs with an annual budget of purchased in the open market at an average price of $2 5. 9 5 with $19 million. The PUC held hearings in 1992 regarding the the proceeds from reinvested dividends in the Company's need for and form of a ratemaking mechanism to recover the Div* Reinvestment and Stock Purchase Plan. costs of DSM programs. Approximately one-half of the states

'ttiement of the Peach Bottom co-owners' lawsuits have adopted incentive ratemaking mechanisms for DSM. The re -a a major uncertainty facing the Company and PUC is expected to issue a final ruling on a DSM cost recovery contributed in part to the upgrading of the Company's and incentive mechanism in 199 3.

Philadelphia Electric Company

James W Durham, Senior Vice President and General Counsel, joined the Company in 198 A11 attorney, Mr.

was formerly HIGHLIGHTS Senior Vice President, General Cou11sel and A new bi/I-collection process is Secretary of Portland instituted to reduce customer General Electric Company payment delinquencies. and Portland General Corporation in Oregon.

230,000-Volt Cecil-Colora transmission line is energized in Maryland.

The Company and the other Peach Bottom co-owners settle lawsuits. A NEw i 6.5-MILE e 230-KV TRANSMISSION

• e Architectural lighting enhances LINE WAS ENERGIZED

• e downtown Philadelphia buildings. IN MAY, CONNECTING

• e

• CECIL SUBSTATION IN PECO lauded for American Shad ELKTON, MD TD

• e restoration program at Conowingo COLDRA SUBSTATION

• e Dam by Maryland governor. NEAR RISING SUN, MD

• Cromby Generating Station is converted, allowing it to burn natural gas as well as oil.

A new emergency response center to support Peach Bottom and Limerick is opened in Coatesvi!!e.

PECO's natural gas vehicle fleet and a refueling station are expanded.

THE COMPANY INSTITUTED MANY CHANGES IN ITS CREDIT ANO COLLECTION PROCESS IN 1 992 TD REDUCE DELINQUENT CUSTOMER BILLS.

• MANY NEW CENTER

• CITY BUILDINGS

• INCORPORATE

• ARCHITECTURAL

• LIGHTING

• THE COMPANY OBTAINED SEVERAL OF THE FIRST VEHICLES PRODUCED

• • • • • • • • • • • • • • • COMMERCIALLY IN CROMBY GENERATING THE UNITED STATES STATION UNIT NO, 2 F"OR EXCLUSIVE USE CF WAS CONVERTED TO NATURAL GAS, BURN NATURAL GAS CARL P. OVERTURF, AS WELL AS OIL.

TRANSPORTATION, ROBERT 0. MURPHY ,

REFUELS A NEW PICK~up GAS OPERATIONS , *

• TRUCK, COORDINATED THE GAS SUPPLY PORTION OF THE

$14 MILLION PROJECT ,

Gwendolyn S. King, Senior Vice President, Corporate and Public Affairs, joined the Company i11 October 199 2. She was previously HIGHLIGHTS Commissioner of the Ground wire and fiber-optic cable are U.S. Social Security installed from a helicopter. Administration,

• an organization with 230,000-Volt Woodbourne-Heaton 65,000 employees.

transmission line in Bucks and Montgomery Counties is completed and tested.

Eddystone Generating Station launches $ 54 million project to extend the operation of Unit No. 2 into the next century.

A new enzergency telephone service to handle up to 12,000 calls per hour is implemented.

A 1. 5% single-issue electric rate increase request is filed to recover non-pension postretirenzent benefits costs.

A new Gas Operations Control Center is completed at West Conshohocken.

MUDDY RUN

• e RECREATION PARK

• e CONTINUED OFFER TO INTERESTING GROUND WIRE IS STUDENT PROGRAMS, REPLACED TO PROTECT SUCH AS THIS THE WIRES BENEATH e AQUATIC LESSON.

FROM LIGHTNING STRIKES, REPLACEMENT MID-AIR SAVES BOTH TIME ANO MONEY.

plant and that the Company's approach to the operation of the facility, the safety of the 11 orkcrs and the protection of the The Com pan) 's ca pi cal expenditures increased to $5 64 million health and safety of the public was conscrrnti1-e and utilized a in 1992, compan.:d to $491 million in 1991. The Company's strong root-cause analysis program.

capital oudays for I 99 3 are budgeted to be $59 3 million, all of ln December, the :-\RC: released its latest S.-\LP assessment

\\ hich are expected to be pro\*ided by internally generated funds.

of Peach Botrom and found "broad based performance

\ \'ith su Cficienr generating capacity into the next decade, annual imprO\emcnts." The :\'RC evaluation found that "management construction expenditures ha\*e declined about 50Cic since I 989, continued to maintain a strong saf'ct) perspectil'e through the the last year of Limerick Unit :\o. 2 construction.

assessment period (.\ugust, 1991 - October, 1992).

..Ianagement fostered broad-based performance impro\ ements that led to stronger programs in most functional areas. l\lany or the programmatic 11*eaknesses identified during the previous The Company has agreements with other utilities to sell 799 assessment period ha1-e either been eliminated or performance mega\\'atts (m \ \ ') of energy of which 400 m \ \ ' arc also sold as has been impro\*ed." Ilo\\'c1*er , the SALP report also installed generating capacit). 0\ er $12 7 million of reYenue net i de nti fi ed se1*eral wca k ne sses 1\ a rran ting continued of fuel expense, equi\ alent to $0. 3 3 per share of common stock management attention. \mong the areas identified for earnings, \\ere generated by these sales of energy and capacity to impro\*emcnt \\ere plant performance monitoring and other utilities during 1992. Also, the Company realized eng111ecring and technical support.

approximately $45 million of sa1 ings through the normal The Company has an O\\ nership interest in six nuclear units purch e and sale of economical po\\'er through its membership - mo units each at Limerick (100%), Peach Bottom (42.49%)

ll1 nnsyh'ania - New Jersey - l\1aryland Interconnection and ~alem (42.59%) - which produced 58% of the Company's d the continuation of its long-standing agreement to total electric output in 1992, cquil'alent tO burning 41 million purchase lo\\ er-cost, coal-fired po\\'er from s~stems outside barrels of oil and saving 01 er $5 20 million in fuel costs for PJ:.L These latter sa\*ings are passed on to cusromers as lower customers. The Company\ O\-crall nuclear capacity factor was fuel charges through the Energy Cost [\djustment. 7 I lfc for I 992.

Limerick Generating Station Unit No. 2 set a new world record \ se1 ere December storm \\'ith hea1*v rams accompanied by of 5 3 3 days for the longest continuous run of any commercial high \\'inds \\as the fifth-11 orst storm to hit the Company's light-water nuclear reactor, eclipsing the former record of 502 scffice terriror:-. ".\early 192,000 cusromers experienced days. Unit No. 2 operated continuously from June 5, 1991, pm1 er interruptions. Three hundred cre\vs \\ orkecl more than

\\hen it returned from a 7 5-day refueling outage, until 2 5,000 manhours to speed the restoration effort.

-\member 20, when it \1*as remored briefly from sen ice to repair an oil leak in a non-nuclear portion of the plant. During its record run, the unit operated at 97% of full capacity and The Compa!1\* has a comprchensi1 e tree-trimming and generated more than I 3 billion kilO\\*atthours of clean, reliable, Ycgetation-management program for the more than one million lo\1 -fuel-cost electricity for PECO customers. That is enough trees gro\\*ing under or adjacent to aerial lines. In I 99 2, the electricity ro supply the entire city ol Philadelphia for one year. Compan: increased its tree trimming budget hy 22% to S19 Jn June, the C.S. :--.;uclear Regulatory Commission (:\'RC) million in a major effort to reduce the number and duration of released a "iystcmatic .-\ssessment of Licensee Performance tree-related power outages, and similar amounts arc expected

(~. \LP ) report of the :\'RC's latest operations assessment or to be spent during the next rn o years. lmpro1-cmcnrs in The rcpon stated that the Company's management sen ice reliability to electric customers, especially during

\\a. iined ro operating a safe and rcliablc nuclear pm1 er summer storms, arc anticipated.

p /. i I {/ d t' I p h I ll l I l' ( I F ! ( ( f) Ill p (/ JJ )

EDDYSTONE GENERATING STATION HAS BEGUN A

$54 MILL.ION RENCVATICN PRCGRAM 1 THE MCST EXTENSIVE IN ITS 32*YEAR HISTCRY 1 TC EXTEND SERVICE INTC THE NEXT CENTURY . MARIO SALCEDO, TURBINE* GEN ER ATC R GROUP (LEFT).

RICHARD 0 . CL.ARK, I I ,

TUR Bl NE* GENERATOR GROUP (BEL.aw).

EXPANDED CF'"F"ICE e FACILITIES AND A NEW e GAS SYSTEM CCNTRCL.

e ROOM WERE COMPLETED AT THE WEST

• e CONSHCHCCKEN GAB PL.ANT. ALL.AN L . CHEW, GAS OPERATIONS

• e (STANDING),

• e ANGELO F". MICAL.IZZl 1 GAS e OPERATIONS (SEATED) .

• e

. e r to contain tree-trimming costs, the Company has introduced the "Plant Right" program which provides A stalled national economy, general corporate downsizings and assistance to property owners in the selection of the proper tight credit limited regional business activity in 1992.

species of trees for planting under or near utility power lines.

Nevertheless, there are some positive economic developments "Plant Right" is one of the most complete sources of tree in the region. The region's pharmaceutical, health care and information in Pennsylvania. It provides comprehensi\*e data biotechnology industries are expanding and adding employees on more than 12 5 species of trees suited to various planting to their workforces. Business Week magazine and other conditions found in Pennsylvania. In several easy steps, financial publications are trumpeting greater Philadelphia's customers can obtain a list and description of trees suited to "Medical Mile," its "biotech boomlet," and top-flight medical their particular sites.

schools and research institutions.

To capitalize on the Philadelphia region's strengths, the Company launched a major campaign to attract health product The largest and most comprehensive outage at one of the businesses, as well as advanced technology companies in Company's non-nuclear generating facilities began in August at electronics, telecommunications, environmental science, Eddystone Generating Station. The work on Unit No. 2, one chemicals, medical instruments and information technology.

of the two, 32-year-old, 350-m\V coal-fired units, will cost $54

\Vorking closely with the Pennsylvania Department of million, last eight months and involve 200 Company and more Commerce and economic development agencies in suburban than 300 contract employees. This major project will extend Philadelphia and northeastern Maryland, the Company provided the unit's operating life approximately 20 years.

locational assistance to more than 17 companies that established new facilities in our service territory. As a result, 2,800 jobs were created in 1992.

In he Company completed the conversion of Cromby Generating Station Unit No. 2 to natural gas, thereby allowing the unit to burn either oil or gas. The conversion, completed at Since 1989, the International Brotherhood of Electrical a cost of $14 million, is expected to save electric customers

\Vorkers (!BEW) has been attempting to organize Company approximately $2 million annually in fuel costs, reduce sulfur employees. In 1991, the IBEW petitioned the National Labor dioxide emissions by 2,000 tons per year and generate more Relations Board (NLRB) to hold a certification election for than $1 million in additional gas revenue per year.

approximately one-half of the Company's workforce to determine whether those employees want the IBEW to represent them. In February 1992, the Independent Group

\Vith the implementation of the 1990 Clean Air Act and the Association (IGA) also petitioned the NLRB to represent a passage of the National Energy Policy Act of 1992, the outlook slightly larger group of employees. The IGA is an employee for the development of natural gas vehicles (NGVs) has never association that has represented non-management employees for been more positive. PECO had 70 NGVs operating at the end SO years; however, it has never sought to negotiate a legally of 1992 and plans to have 300 operating by the end of 1994.

enforceable collective-bargaining agreement. It is likely that a Last year marked the first time that major automobile vote will be scheduled by the NLRB in I 99 3. The Company manufacturers produced NGVs for sale to the general public.

believes that establishing a union is not in the best interest of The Company is also promoting the use of NGV s by area fleet either the Company or the employees and strongly opposes operators. The goal is to communicate the benefits of NGVs establishing any union. A union-free environment better to fleet operators as they prepare to comply with the Clean Air enables the Company and its employees to move forward and and National Energy Policy Acts. In June, the Company deal with the challenges of Jess regulation and increased spo a regional NGV symposium which attracted over competition that lie ahead.

40 es and featured the national introduction of a line of natural gas pick-up trucks.

Ph1/adrlphia Electric Company

HIGHLIGHTS World record of 5 3 3 days of continuous operation is established by Limerick Un i t No. 2.

PECO, along with the Philadelphia Fire Department, distributes smoke detectors .

Common stock dividend is increased.

Early retirement program is offered to Nuclear Group employees.

A 1 % gas rate decrease, reflecting the lower cost of natural gas, is effective December 1.

Liquid propane tanks are installed at Chester gas plant to meet peak demands.

Fifth worst storm in history strikes PECO territory .

Major tree- trimming program to increase reliability commences.

L IME R ICK U NIT Electric base rates decrease 4. 6%,

• NO . 2 SET A reflecting the end of the WORLD RECORD phase-in portion of the Limerick Unit OF 533 DAYS No. 2 rate case settlement.

FOR T H E L O NGEST

• CONTINUOUS RUN OF ANY COMMERC I AL

............. LIGHT-WATER NUCLEAR REACTOR.

THE COMPANY ASSISTED THE PHILADELPHIA FIRE DEPARTMENT'S DISTRIBUTION OF SMOKE DETECTORS TO LOW-INCOME PHILADELPHI A R ES IDEN TS,

Dickinson .If. Smith, Senior J'ice Preside111,

.Yue/ear, joined the Company in 1987 as the plant manager of Peach Bottom.

He formerly ser*ved as a Rear .ldmiral in the [;. S. .\'a~) and u:as Chief of Staff of the ,I/lied .1 t!antit Command of.\'. 1TO.

ELEVEN NEW 90,000-GALLON STORAGE TANKS WERE INSTALLED AT THE COMPANY'S TILGHMAN STREET GAS PLANT IN CHESTER, PA TO HOLD LIQUID PROPANE TO MEET PEAK HEATING DEMANDS, THE COMMON STOCK DIVIDEND WAS INCREASED AGAIN IN 1 992 .

William /. Kaschub, Senior Vice President, Human Resources, joined the Company in June 1991 .

He was previously TH E F IF' T H -W ORST Vice President, STOR M I N THE Human Resources for COMP A N Y' S HISTOR Y STRUC K ON GTE North and had D E CEMBER 1 1 , been with the GTE AF'FECTING SER V ICE organization since 1973.

TD 1 92,000 CUSTOMERS .

PECO IS WORKING TD REDUCE THE NUMBER AND DURATION OF TREE-RELATED POW.

OUTAGES WITH TIMELY TREE-TRIMMING AND VEGETATION M AN AGEMENT .

Philadelphia Electric Company and Subsidiary Companies M ANAGEME T'S DI SCUSS I ON AND A ALYS I S O F FI NANC I A L C o DI T I ON AN D R ESULTS OF O PE R ATIONS EARNINGS AND DIVIDENDS industrial. Revenue also increased due to higher sales associated with the hotter summer weather.

Earnings per common share in 1992 were $1.90 compared to $2.15 Effective April 20, I 991, the ECA was changed from a credit value in 1991. The decline in earnings was primarily due to unfavorable of ~.744 mills per kWh to a credit value of 1.867 mills per kWh, 1992 weather which reduced earnings by $0. 35 per share and to the which represents an increase in annual revenue of approximately$ 59

$0.2 7 per share charge for the settlement of the co-owners' litigation million.

concerning the 1987 shutdown of Peach Bottom Atomic Power Gas revenues decreased by approximately $29 million, or 7.5%,

Station (Peach Bottom). These decreases were partially offset by a in 19~ I compared to 1990 primarily due to lower sales compared to

$0.19 per share increase resulting from reduced financing costs

~he pn~r year and the substantial curtailment of purchases by a major associated with the refinancing of high-cost, long-term debt and industrial customer during 1991 .

preferred stock and the reduction in total debt, and a $0. l 7 per share increase resulting from increased sales, exclusive of weather effects, FUEL AND ENERGY INTERCHANGE and other factors. EXPENSE As a result ofits improved financial condition, as evidenced by the 1992vs 1991 upgrading ofits securities' ratings, the Company increased its annual Fuel and energy interchange costs decreased $70 million in 1992 dividend per share by 8% to $1.40, effective with the dividend compared to 1991 primarily due to lower fuel costs and to slightly payable in December 1992.

lower output.

OPERATING REVENUES 1991vs1990 Electric Revenue (Decrease) Increase Fuel and energy interchange costs decreased $15 million in 1991 (M ii/ions of Doi/ors) '92 VS '91 '91 VS '90 compared to 1990 primarily due to lower fuel costs, partially offset s~i *******************************************************$(io3.)*******$**39 by increased output.

Ra ases 80 OTHER OPERATING AND MAINTENANCE T stment Revenues 48 44 EXPENSES Fuel Adjustment Revenue (22) 31 1992vs 1991 Energy and Capacity Sales 12 67 Other operating and maintenance expenses increased $8 5 million in

$ (65) $261 1992 compared to 1991, primarily due to higher charges for uncollectible accounts, non-recurring maintenance expenditures in-1992vs 1991 curred at the Company's nuclear generating facilities, the charge for Electric revenues decreased by approximately $65 million, or 1.8%,

the Nuclear Group Voluntary Early Retirement Program and Volun-in 199 2 compared to 1991 primarily as a result of lower sales to tary Separation Package, higher environmental-related charges and residential customers and to large commercial and industrial custom- increases in other administrative and general expenses.

ers, which were partially offset by increased sales to house-heating 1991vs1990 customers and small commercial and industrial customers. The Other operating and maintenance expenses decreased $2 7 3 million unusually cool summer of 1992 was the major reason for decreased in 1991 compared to 1990, primarily due to the elimination of the residential sales. Total electric customers increased in 1992 by 0.6%.

costs associated with the Company's one-time Early Retirement Plan Effective April 1, 1992, the Energy Cost Adjustment (ECA) was initiated in 1990 and the implementation of the cost-containment changed from a credit value of 1.867 mills per kilowatthour (kWh) program in 1991.

to a credit value of 3. 764 mills perkWh, which represents a decrease in annual revenue of approximately $59 million. DEPRECIATION EXPENSE Gas revenues increased by approximately $9 million, or 2.6%, in 1992vs 1991 1992 compared to 1991 primarily as a result of higher sales to house-Depreciation expense increased in 1992 compared to 1991 primarily heating customers due to the cooler weather and an increase in house-due to additions to plant in service.

heating customers.

1991vs1990 1991vs1990 Electric revenues increased nearly $261 million, or 7. 7%, in 1991 J?epreciatio~ exp~nse increased in 1991 compared to 1990 prima-coml lo 199? primarily du~ to the full-year effectof the Limerick nly due to Limenck Unit o. 2 being placed in rate base in April Un rate increase and higher kWh sales to other utilities, as 1990.

we! all classes of customers except large commercial and Philad elphia Electric Company

P hiladelphia Electric Co11lpany and Su b s i dia r y Co11lpanies MANAGEMENT'S DI SCUSS I ON AND ANALYS I S OF F I NA C I AL Co D I T I ON AND R ESULTS OF O PERATIONS C ONTINUED ALLOWANCE FOR FUNDS USED DURING by the increased service charges resulting from the sale of additional CONSTRUCTION accounts receivable in January 1991.

1992 vs 1991 PREFERRED STOCK DIVIDENDS Allowance for Funds Used During Construction (AFUDC) de-1992vs 1991 creased in 1992 compared to 1991 primarily due to a decrease in the Preferred stock dividends decreased in 1992 compared to 1991 due 1992 AFUDC rate.

to the reduced number of preferred shares outstanding and the 1991vs1990 refunding of high-cost preferred stock.

AFUDC decreased in 1991 compared to 1990 primarily due to 1991vs1990 Limerick Unit No. 2 being placed into commercial operation on Preferred stock dividends decreased in 1991 compared to 1990 due January 8, 1990. Capitalized Limerick Costs were not incurred after to the reduced number of preferred shares outstanding.

April 20, 1990 due to the inclusion of Limerick Unit No. 2 in rate base as of that date. Ll"1UIDITY AND CAPITAL RESOURCES INCOME TAXES The Company's capital requirements are primarily for capital expen-ditures for its construction program and for debt service. Capital As discussed further in note 11 of Notes to Consolidated Financial resources available to meet these requirements and dividend pay-Statements, the Financial Accounting Standards Board (FASE) issued ments are funded from cash provided by utility operations and, to the Statement of Financial Accounting Standards (SFAS) No. 109, extent necessary, external financing.

"Accounting for Income Taxes," which must be adopted by the first The Company meets its short-term liquidity requirements prima-quarter of 1993. Adoption of SFAS No. 109 is not expec:ed to have rily through bank lines of credit, which were $291 millio~ at a material effect upon the Company's results of operanons as the December 31, 1992, against which $110. 5 million was outstanding, Company expects to receive recovery for taxes when paid.

and through a $100 million commercial paper program. No nts 1992vs 1991 were outstanding at year end under the commercial pape m.

Income taxes charged to operations and to other income decreased in The Company believes these sources of short-term liq 1992 compared to 1991 primarily due to lower pre-tax income and adequate.

the cost associated with the settlement of the Peach Bottom co-The reduction in the Company's level of capital expenditures as owners' litigation.

a result of the completion of its nuclear construction program has 1991vs1990 improved the Company's financial condition. Also contributing. to Income taxes charged to operations and to other income increased in this improvement were the effects of the Company's cost-contam-1991 compared to 1990 due to higher operating income and reduced ment program, an aggressive bill collection program, revenues fr?m expenses, primarily the costs associated with th_e Ea~ly Ret~rement sales of capacity and energy to other utilities and the 1990 reducnon Plan and the disallowances resulting from the L1menck Unit No. 2 in the common stock dividend.

rate order in 1990.

During 1992 and 1991, the Company met its capital requirements OTHER TAXES with cash generated through operations. Net cash provided by operating activities for 199 2 was $1. 2 billion, representing a 3 3. 7%

1992vs 1991 increase over the 1989 level, which was the year prior to the last Other taxes increased in 1992 compared to 1991 primarily due to the electric base rate increase. For 1993 through 1996, the Company refunds in 1991 of prior years' real estate tax over-collections.

expects that substantially all of its capital needs will be provided 1991vs1990 through internally generated funds.

Other taxes increased in 1991 compared to 1990 primarily due to Construction program expenditures for 1992 were $564 million increased Pennsylvania tax rates associated with capital stock and real and are estimated to be $593 million in 1993 and $1.6 billion from estate taxes and an increase in gross receipts tax due to higher revenue.

1994 to 1996. The estimated expenditures include the Company's INTEREST CHARGES share of the installation of flue-gas desulfurization equipment (scrub-bers), but do not include any amounts for cool~ng towers a~ the Salem 1992vs 1991 Generating Station (Salem) that may be reqUlred for environmental Interest charges decreased in 1992 compared to 1991 primarily _due reasons. The Company does not presently anticipate that construction to the Company's on-going program to refinance and refund h1gh-of the Salem cooling towers will be required; however, ifmi n lthe interest long-term debt, lower levels of total debt outstanding and estimated cost to the Company is in the range of$230 mi

• 00 lower interest rates on bank borrowings.

million and may require external sources offinancing. Certai . ties 1991vs1990 under construction and to be constructed may require permits and Interest charges decreased in 1991 compared to 1990 due to reduc-licenses which the Company has no assurance will be granted.

tions in total debt outstanding and lower interest rates, partially offset Philadelphia Electric Co11lpany

Philad e lph ia Ele c tr i c C o mpa n y and Sub si diar y C ompa n ies MANAGEMENT'S DISCUSSION A o A ALY SIS

• 0 F F I ANCIAL c 0 OITJO Influenced by the favorable financial market conditions, the Company has continued its aggressive refinancing program. During 1992, $1. 5 billion of high-cost, long-term debt and preferred stock A

CONTINUED 0 RESULTS 0 F 0PERATIO s to 799 megawatts (mW) of installed generating capacity and / or energy. At December 3 I, I 992, the Company had agreements to sell 400 mW of capacity and 200 mW of energy with terms expiring were replaced with debt and preferred stock carrying significantly through June 1994. In addition, the Company had weekly contracts reduced rates of interest and dividends. Also during 1992, the to sell 599 mW of energy. In 1993, the Company expects to sell over Company utilized internally generated cash to repay $149 million of $120 million of capacity and energy through these agreements.

debt and to redeem $20 million of preferred stock. These transac- As part of the settlement of the Limerick Unit o. 2 rate case, the tions resulted in a reduction of approximately $41 million in annual- Company agreed not to file an electric base rate increase prior to April ized interest and $9 million in annualized preferred stock dividends. 1994 except for single-issue rate filings to recover substantial in-The Company's improved securities' ratings and coverage ratios creases in costs associated with legislative or regulatory changes.

have enhanced its ability to access the capital markets to take Pursuant to this exception, on September 11, 1992, the Company advantage of refinancing opportunities. The ratios under the filed with the Pennsylvania Public Utility Commission (PUC) a Company's mortgage indenture and Articles of Incorporation at request for a 1.53 electric base rate increase designed to recover December 31, 1992 were 3. 31 and 2.00 times, respectively, com- $50.2 million of costs that would be charged to electric operations pared with minimum issuance requirements of 2.00 and 1.50. associated with the implementation of SFAS No. 106, "Employers' As a result of its improved financial position, the Company Accounting for Postretirement Benefits Other Than Pensions" (see satisfied all of its 1992 Dividend Reinvestment and Stock Purchase note 2 ofNotes to Consolidated Financial Statements). The adoption Plan (DRIP) requirements with the purchase of shares of common of SFAS No. I 06 in the first quarter of 199 3 will result in a transition stock on the open market. Prior to 1992, the Company issued new liability of approximately $ 572 million (which the Company expects shares of common stock to meet the DRIP requirements, thereby to amortize over an allowed 20-year period) and in recognition of an increasing the total number of common shares outstanding. Depend- annual accrual of $89 million (including the amortization of the in e Company's specific requirements, the Company will transition liability), which is $65 million more than the current de ther to use new unissued shares or purchase shares on the annually recognized cost. Non-pension postretirement benefits costs open rket in the future. traditionally have been allowed for ratemaking on a pay-as-you-go The Company's capital structure as of December 3 I, 1992 was basis. Unless the PUC permits recovery of the additional non-common equity, 40. 73 ; preferred stock, 6.63 ; and long-term debt, pension postretirement benefits costs through the ratemaking pro-

52. 73; compared to its capital structure as of December 3 I, 1991 of cess, the Company's earnings will be adversely affected by the common equity, 38.83 ; preferred stock, 7.33; and long-term debt, adoption of SFAS No. I 06.

5 3. 93. The Company anticipates that its improved financial condi- In ovember 1992, the FASB issued SFAS No. 112, "Employers' tion will allow it to further strengthen its balance sheet. Accounting for Postemployment Benefits," which must be adopted by the first quarter of 1994. Adoption of SFAS o. 112 is not OUTLOOK expected to have a material effect upon the Company's results of Continued improvement of the Company's financial condition and operations. The Company expects to adopt SFAS No. 112 in the first its future operating results are dependent on a number of factors quarter of 1994 and is currently evaluating the method of adoption.

affecting the Company and the utility industry generally. These The Company has no present plans to file for a general increase factors include the regulation and operation of nuclear generating in base rates in the foreseeable future. Growth in revenues from retail facilities, which represent 4 53 of the Company's generating capac- sales is therefore dependent on the rate of growth of the economy in ity, the future effects of increased competition, regulatory and the Company's service territory.

accounting changes and compliance with environmental regulations. During 1992, the final segment of the combined Limerick Unit During 1992, the Company's nuclear plants operated at 71 3 No. 1 and Unit No. 2 phase-in plans was completed. As a result, capacity and produced 583 of the Company's generation. In addition electric rates were reduced by 4.63 on January 1, 199 3. Additionally, to permitting the Company to meet the needs of its customers and the Company's continued strong nuclear performance will contrib-commitments for off-system sales, continued successful operation of ute to an electric rate reduction of approximately 23 in April 199 3 the nuclear plants is necessary to avoid penalties under the ECA. as energy cost rate adjustments reflect the fuel economy of nuclear The 1991 settlement of all appeals arising from the Limerick Unit plant operations. These rate reductions do not affect earnings but, in No. 2 rate case affords the Company the opportunity, through sales the case of the reduction related to the phase-in plans, will reduce

'lities and the efficient operation of Limerick, to increase internally generated cash.

ngs without increasing base rates. See note 2 of Notes to Inflation impacts the Company through increased operating costs ated Financial Statements for the description of the terms of and increased replacement costs of utility plant. The Company the settlement. expects that it would recover any increased operating costs, but in The Company has agreements with neighboring utilities to sell up times of high inflation, the Company could be adversely impacted by P h i l adelph ia El ec tr i c Com p any

Phila d tl p hia E l ec tri c C o mpa ny and Sub1idiar y CompanitJ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION the regulatory lag in reflecting these increased costs in rates. In addition, the replacement cost of the Company's utility plant is C 0 significantly higher than the historical cost reflected in the financial AND N T I N U E D RESULTS OF 0PERATIO s The Company's budgeted capital expenditures through 1996 include its share of the costs of scrubbers being installed at the Conemaugh Generating Station. This is the only investment required ,

statements. by the Company to comply with the Phase I sulfur dioxide limitations The National Energy Policy Act ofl 99 2 (Energy Act) is designed, of the Amendments to the Clean Air Act of! 990 (Clean Air Act). The among other things, to promote competition among utility and non- Company's two service-area coal-fired plants, Eddystone and Cromby, utility generators by amending the Public Utility Holding Company are equipped with scrubbers. The Company will be required to Act of 19 3 5 ( 19 35 Act) to exempt a new class of independent power comply with the nitrogen oxides (NOx) emission limitations of the producers (exempt wholesale generators) which are not subject to Clean Air Act by May 3 1, 199 5 at its service-area generating units, regulation under the 19 35 Act. The Energy Act also amends the all of which are in an ozone nonattainment area. The Company Federal Power Act to allow the Federal Energy Regulatory Commis- estimates that installing low-NOx burners, which is one of the sion (FERC) to order wholesale wheeling to provide utilities and possible technologies and the lowest in cost, on all of its oil and gas non-utility generators with access to utility transmission facilities; sources would require a capital expenditure of$2 l million. The cost however, retail wheeling is prohibited. The provisions direct FERC of compliance could be less if the Company is not required to make to set prices for wheeling to allow utilities to recover all legitimate, modifications to all ofits units or implements a system which permits verifiable and economic costs for providing wheeling services, credits or averaging among sources. If, however, further technologi-including the cost of expanding their transmission facilities to cal improvements are required, the cost of compliance could be accommodate required transmission access. The costs are to be substantially higher. As a result of its prior investments in scrubbers recovered from the company whose electricity is being wheeled for Eddystone and Cromby and its investment in nuclear generating rather than from the utilities' native-load retail customers. In addi- capacity, the Company believes that compliance with the Clean Air tion, the Energy Act restricts FERC's ability to order wheeling if it Act will have less impact on the Company's electric rates than on the would impair the ability of a utility to provide reliable power to its rates of other Pennsylvania utilities which are more dep on existing customers. coal-fired generation.

The Energy Act also provides that utilities with nuclear reactors An evaluation of all Company sites for potential enviro ental must pay for the decommissioning and decontamination of the U.S. clean-up liability is currently in progress, including approximately 20 Department of Energy's (DOE) nuclear fuel enrichment facilities. sites where manufactured gas plant activities may have resulted in site The total costs are estimated to be $15 0 million per year for 15 years, contamination. Past activities at several sites have resulted in actual of which the Company's share is $6. 38 million per year. The Energy site contamination. The Company is presently engaged in perform-Act provides that these costs are to be recoverable in the same manner ing detailed evaluations of these sites to define the nature and extent as other fuel costs. The Company has recorded the liability and a of the contamination and to determine the necessity of remediation related regulatory asset of $9 5. 7 million for such costs at December and to identify possible remediation alternatives. The Company has 31, 1992. The Company will seek recovery of these costs through accrued the $11 million of remediation costs that currently can be the ECA as mandated by the Energy Act, although such recovery is reasonably estimated. The Company cannot currently predict whether not assured. The Company cannot predict what other effect, if any, it will incur other significant liabilities for any additional remediation the Energy Act will have on the Company's operations. costs at these or additional sites identified by environmental agencies The Company expects its level of capital investment in utility plant or others.

to remain relatively stable since it has sufficient electric generating The Company would ultimately seek to recover through the capacity to meet the anticipated needs of its service territory well ratemaking process all capital costs and any increased operating costs, into the next decade. Because of the Company's substantial invest- including those associated with NRC regulation of the Company's ment in and reliance on its nuclear generating units, any changes in nuclear generating stations and environme.gtal compliance and regulations by the Nuclear Regulatory Commission (NRC) requiring remediation, although such recovery is not assured.

additional investments or resulting in increased operating costs of For a discussion of other contingencies, see notes 2 and 3 of Notes nuclear generating units could adversely affect the Company. to Consolidated Financial Statements.

Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies Co , S OLID A TED ST A T E M ENTS OF I NCOME For the Years Ended Decem ber 31 (Thousands of Dollars) 1992 1991 1990

• • OPERATING REVENUES Electric $3,597,141 $3,662,573 $3,401,644 Gas 365,328 356,013 385,029 TOTAL OPERATING REVENUES 3,962,469 4,018,586 3,786,673 OPERATING EXPENSES Fuel and Energy Interchange 709,115 778,674 793,432 Other Operating 906,346 842,375 858,913 Early Retirement Plan 249,252 Maintenance 353,502 3 32,269 339,650 Depreciation 413,779 400,572 357 ,540 Income Taxes 264,483 308,945 181,320 Other Taxes 281,868 274,561 238,852 TOTAL OPERATING EXPENSES 2,929,093 2,937,396 3,018,959 OPERATING INCOME 1,033,376 1,081,190 767,714 OTHER INCOME AND DEDUCTIONS Allowance for Other Funds Used During Construction 10,461 10,619 27,184 Capitalized Limerick Costs 80,325 Adjustment to Limerick Plant Costs (263,860)

Settlement of Peach Bottom Litigation (103,078)

In axes 40,160 (16,442) 86,869 0 3,392 28,696 (9,735)

TOTAL OTHER INCOME AND DEDUCTIONS (49,065) 22,873 (79,217)

INCOME BEF"ORE INTEREST CHARGES 984,311 1,104,063 688,497 INTEREST CHARGES Long-Term Debt 484,153 545,488 579,837 Short-Term Debt 31,419 36,360 31,034 TOTAL INTEREST CHARGES 515,572 581,848 610,871 Allowance for Borrowed Funds Used During Construction (10,202) (12,465) (28,151)

NET INTEREST CHARGES 505,370 569,383 582,720 Income before cumulative effect of accounting change 478,941 5 34,680 105,777 Cumulative effect as ofJanuary 1, 1990 of accounting change for unbilled operating revenues (Note 4) 108,413 Net Income 478,941 5 34,680 214,190 Preferred Stock Dividends 60,731 66,104 90,319

$ 418,210 EARNINGS APPLICABLE TO COMMON STOCK $.......

468,576

.. ..... ~---~~~!~.'..1.

Average Shares of Common Stock Outstanding (Thousands) 220,245 218,234 214,356 Earnings per average common share before cumulative effect of accounting change (Dollars) $ 1.90 $ 2.15 $ 0.07 Cumulative effect as of January 1, 1990 of accounting change for unbilled operating s (Dollars) 0.51 ARNINGS PER AVERAGE COMMON SHARE (DOLLARS) $ 1.90 $ 2.15 DIVIDENDS PER COMMON SHARE (DOLLARS)

$".... "i:3"i5" $..... .i:2T5 See N otes to Consolidated Financial Statements.

Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies CO::SSOL I DATED B A L A1'CE SH EE T S ASSETS December (Thousands of Dollars) 1992 1991 UTILITY PLANT , AT ORIGINAL COST Electric $12,797,389 $12,451,374 Gas 781,708 717,293 Common 1621061 158,835 13,741,158 13,327,502 Less Accumulated Provision for Depreciation 315871317 3,267,188 10,153,841 10,060,314 uclear Fuel, Net 188,609 189,566 Construction Work in Progress 348,792 348,533 Leased Property, Net 2092994 223,749 NET UTILITY PLANT 101901 1236 10,822,162 CURRENT ASSETS Cash and Temporary Cash Investments 50,369 97,061 Accounts Receivable, Net Customers 138,880 215,353 Other 62,571 68,249 Inventories, at Average Cost Fossil Fuel 63,688 16 Materials and Supplies 156,706 ,973 Deferred Income Taxes 39,285 (34,918)

U nrecovered Phase-In Plan Revenue, et 142,267 Other 38,466 73,361 TOTAL CURRENT ASSETS 5491965 783,162 DEFERRED DEBITS AND OTHER ASSETS Deferred Limerick Costs 455,161 476,932 Investments 202,422 169,653 Loss on Reacquired Debt 273,120 187,740 Other 196,323 8 3,811 TOTAL DEFERRED DEBITS AND OTHER ASSETS 111271026 918,136 TOTAL $12,578,227 $12,523,460 See Notes to Consolidated Financial Statements.

Philadtlphia Electric Company

Philad elphia Electric Company and Subs i diary Companies CONSOLIDAT E D B A L ANCE SH EETS CAP ALIZATION ANO LIABILITIES December 31 (Thousands of Dollars) 1992 1991

• • CAPITALIZATION Common Shareholders' Equity Common Stock $ 3,459,131 $ 3,446,666 Other Paid-In Capital 1,214 1,214 Retained Earnings 561,824 444,399 4,022,169 3,892,279 Preferred and Preference Stock Without Mandatory Redemption 422,472 422,472 With Mandatory Redemption 231,130 315,592 Long-Term Debt 5,203,961 5,415,584 TOTAL CAPITALIZATION 9,879,732 10,045,927 CURRENT LIABILITIES Notes Payable, Bank 110,500 Long-Term Debt Due Within One Year 98,998 22,712 Capital Lease Obligations Due Within One Year 58,998 56,114 Accounts Payable 241,462 288,865 Taxes Accrued 24,334 163,193 De Energy Costs 72,999 20,040 In ccrued 115,923 126,457 Di s Payable 19,459 36,066 Other 87,887 110,016 TOTAL CURRENT LIABILITIES 830,560 823,463 DEFERRED CREDITS AND OTHER LIABILITIES Capital Lease Obligations 150,996 167,635 Deferred Income Taxes 1,001,939 844,084 Unamortized Investment Tax Credits 302,508 302,8 32 Pension Obligation for Early Retirement Plan 141,675 145,092 Other 270,817 194,427 TOTAL DEFERRED CREDITS AND OTHER LIABILITIES 1,867,935 1,654,070 c 0 M M IT M E N T s A N D c 0 N T I N G E N c I E s ( Otes 2 and 3)

TOTAL $12,578,227 $12,523,460 See Notes to Consolidated Financial Statements .

Philadelph ia Electric Company

Philadelphia Electric Company and Su b 1idiary CompanitJ CONSOL I DATED STATEMENTS OF CAS H FLOWS (Thou1and1 of Dollars) 1992 1991 1990 CASH FLOWS FROM OPERA T ING ACTIVITIES Net Income $ 478,941 $ 5 34,680 $ 214,190 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Early Retirement Plan 211,380 Adjustment to Limerick Plant Costs 263,860 Cumulative Effect of Accounting Change (1 08,413)

Depreciation and Amortization 512,957 521,291 451,997 Deferred Income Taxes 81,943 77,836 (57,713)

Capitalized Limerick Costs (8 0,325)

Unrecovered Phase-In Plan Revenue 142,267 96,705 42,020 Deferred Energy Costs 52,959 16,593 42,690 Sale of Accounts Receivable 125,000 Amortization of Leased Property 54,600 59,400 70,100 Changes in Working Capital:

Accounts Receivable 82,151 (7 0,907 ) 32,166 Inventories 1,395 (26,926) (5,084)

Accounts Payable (47,403) 36,326 (13 ,659)

Other Current Assets and Liabilities (136,627) 54,63 3 1,368 Other Items Affecting Operations (2 7 ,693) 21,102 69,124 Net Cash Flows Provided by Operating Activities 1,195,490 1,445,733 01 CASH FLOWS FROM INVESTING ACTIVITIES Investment in Plant (594,476) (496,093) (514,006)

Increase in Investments (322769) (43,827) (17,574) et Cash Flows Used by Investing Activities (627,245) (5 39,920) (531,580)

CASH FLOWS FROM FINANCING ACTIVITIES Change in Short-Term Debt 110,500 (68,500) (43,500)

Issuance of Common Stock 12,465 66,453 84,828 Issuance of Preferred Stock 140,000 Retirement of Preferred Stock (224,462) (15,330) (224,219)

Issuance of Long-Term Debt 1,369,540 278,000 205,000 Retirement of Long-Term Debt (1,504,87 7) (692,867) (131,678)

Loss on Reacquired Debt (85,380) (58,419) 7,950 Dividends on Preferred and Common Stock (349,856) (33 3,319) (3 98,192)

Change in Dividends Payable (16,607) 8,57 5 (13,598)

Expenses oflssuing Long-Term Debt and Preferred Stock (11,660) (68 ) (16,941)

Capital Lease Payments (542600) (59,400) (7 0, 100)

Net Cash Flows from Financing Activities (6142937) (87 4,87 5) (600,450)

(Decrease) Increase in Cash and Cash Equivalents (46,692) 30,938 1,671 Cash and Cash Equivalents at beginning of period 97,061 66,123 64,452 Cash and Cash Equivalents at end of period $ 50,369 $ 97,061 $ 66, 12 3 See Notes to Consolidated Financial Statements.

l Philadelphia Electric Company

Phi ladelphia Electric Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY AND PREFERRED STOCK Other Common Stock Paid-In Retained Preferred Stock (All Amounts in Thousands) Shares Amount Capital Earnings Shares Amount Balance, January 1, 1990 211,976 $3,295,385 $5,311 $444,049 9,735 $973,516 Net Income 214,190 Cash Dividends Declared Preferred Stock (at specified annual rates) (87,920)

Common Stock ($1.45 per share) (310,272)

Expenses of Capital Stock Issues (16,941)

Issuance of Stock Dividend Reinvestment and Stock Purchase Plan 4,977 84,828 Redemptions (4,097) (2,201) (220,122)

Balance, December 31, 1990 216,9 5 3 3,380,213 1,214 243,106 7,534 7 5 3,394 Net Income 534,680 Cash Dividends Declared Preferred Stock (at specified annual rates) (65,966) n Stock ($1.225 per share) (267 ,35 3)

Ex f Capital Stock Issues (68)

Issuance of Stock Dividend Reinvestment and Stock Purchase Plan 2,925 63,207 Long-Term Incentive Plan 152 3,246 Redemptions (15 3) (15,330)

Balance, December 31, 1991 220,030 3,446,666 1,214 444,399 7,381 738,064 Net Income 478,941 Cash Dividends Declared Preferred Stock (at specified annual rates) (58,021)

Common Stock ($1.325 per share) (291,835)

Expenses of Capital Stock Issues (11,660)

Issuance of Stock Long-Term Incentive Plan 504 12,465 Issuances 1,400 140,000 Redemptions (2,245) (224,462)

Balance, December 3 1, 1992 220,534 $3,459,131 $1,214 $561,824 6,536 $65 3,602 See Consolidated Financial Statements.

Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companits NOTES TO CONSOL I DATED f I .' ANCIAL STATEMENTS I . Significant Accounting Policies whether the Company's system nuclear capacity factor exceeds or falls below a specified range (see note 2).

GENERAL The Company recovers, through a separate PUC clause, 90% of The consolidated financial statements of Philadelphia Electric Com- take-or-pay costs billed to the Company by its interstate pipeline pany (Company) include the accounts ofits utility subsidiary compa- suppliers.

nies, all of which are wholly owned. Non-utility subsidiaries are not NUC L EAR FUEL material and are accounted for on the equity method. Accounting policies are in accordance with those prescribed by the regulatory Nuclear fuel is capitalized and charged to fuel expense on the unit of authorities having jurisdiction, principally the Pennsylvania Public production method. Estimated costs of nuclear fuel disposal are Utility Commission (PUC) and the Federal Energy Regulatory charged to fuel expense as the related fuel is consumed. The Company's Commission (FERC). share of nuclear fuel at Peach Bottom Atomic Power Station (Peach Bottom) and Salem Generating Station (Salem) is accounted for as REVENUES capital leases. Nuclear fuel at Limerick Generating Station (Limer-In 1991, the FERC issued Accounting Release 14 (AR-14) which ick) is owned.

requires the Company to classify interchange sales as electric oper-DEPRECIATION AND DECOMMISSIONING ating revenues. Previously, interchange sales were credited to fuel and energy interchange expense. The Company adopted the provi- For financial reporting purposes, depreciation is provided over the sions of AR-14, effective January 1, 1992, and has reclassified the estimated service lives of plant on the straight-line method and, for prior years to conform to the new requirements. Electric revenues tax purposes, generally over shorter lives on accelerated methods.

and fuel and energy interchange expenses increased by $4 3 million Annual depreciation provisions for financial reporting purposes, and $82 million for 1991 and 1990, respectively, as a result of expressed as a percent of average depreciable utility plant in ser-adoption of AR-14. vice, were approximately 2.7 5% in 1992, 2.74% in 1991 9%

The Company records revenues for services provided but not yet in 1990.

billed (see note 4 ). The Company's ownership portion of the estimate for On June 2 7, 1989, the final phase of the electric rate increase decommissioning nuclear generating stations, based on site-specific approved by the PUC in its June 27, 1986 order became effective. studies, as approved for ratemaking purposes by the PUC, is $643 This final phase was designed to recover, over approximately a three- million expressed in 1990 dollars. The associated annual expense year period, the unrecovered revenue under the Company's 1986 currently is being charged to operations consistent with amounts phase-in plan. Pursuant to a phase-in plan approved by the PUC in its approved for ratemaking purposes. The amounts recovered from electric rate order dated April 19, 1990, the Company recorded customers are deposited in escrow and trust accounts and invested for revenue equal to the full amount of the rate increase approved, based funding of future costs (see note 3).

on kilowatthours rendered to customers. On April 5, 1991, that plan INCOME TAXES was amended by the PUC as part of the settlement of all appeals arising from the Limerick Unit No. 2 rate proceeding to permit Deferred income tax provisions are made for differences between recovery of the remaining unrecovered revenue by December 31, book and taxable income to the extent approved for ratemaking 1992 (see note 2). As of December 31, 1992, the Company had no purposes. In addition, the effects of the Alternative Minimum Tax Unrecovered Phase-In Plan Revenue. (AMT) are normalized. Investment Tax Credit (ITC) is deferred and amortized to income over the estimated useful lives of the related FUEL AND ENERGY COST utility plant. ITC related to plant in service, not included in rate base, ADJUSTMENT CLAUSES is accounted for on the flow-through method.

The Company's classes of service are subject to fuel adjustment ALLOWANCE FOR FUNDS USED DURING clauses designed to recover or refund the differences between actual CONSTRUCTION CAFUDCl costs of fuel, energy interchange, purchased power and gas and the amounts of such costs included in base rates. Differences between the AFUDC is the cost, during the period of construction, of debt and amounts billed to customers and the actual costs recoverable are equity funds used to finance construction projects. AFUDC is deferred and recovered or refunded in future periods by means of recorded as a charge to Construction Work in Progress, and the prospective adjustments to rates. Generally, such rates are adjusted credits are to Interest Charges for the pre-tax cost ofbor- ds every twelve months. In addition to reconciling fuel costs and and to Other Income and Deductions for the rema* the revenues, the Company's Energy Cost Adjustment (ECA), estab- allowance for other funds. The rates used for capitalizing DC, lished by the PUC, incorporates a nuclear performance standard which averaged 10.61%in1992, I0.88 %in 1991 and9.01%in1990, which allows for financial bonuses or penalties depending upon are computed under a method prescribed by the regulatory authori-Philadelphia Electric Company

Philad el phia El ec tri c C o mpa ny and S u b s idi a r y Com p anie s

~ 0 T E S T 0 C 0 '\ S 0 L l D A T E 0 F I :-.; A . C I .\ L S T ,\ T E C\1 E -..; T S ties. The 199 2 and I 991 rates are pre-tax and the I 990 rate is net depreciation associated with 50% of Limerick common facilities.

after-tax. AFUDC is not included in regular taxable income and the These costs are included in rate base and are being recovered over the depreciation of capitalized AFUDC is not tax deductible. life of Limerick. The PUC also approved recovery of $13 7 million of Limerick Unit No. 1 costs which had previously been deferred NUCLEAR OUTAGE COSTS pursuant to a Declaratory Order dated September 28, 1984. These Incremental nuclear maintenance and refueling outage costs are costs are being recovered over a ten-year period without a return on accrued over the unit operating cycle of approximately 18 months. investment.

For each unit, an accrual for incremental nuclear maintenance and On April 5, 1991, the PUC approved the settlement of all appeals refueling outage expense is estimated based upon the latest planned arising from the Limerick Unit No. 2 rate order. Under the terms of outage schedule and estimated costs for the outage. Differences the settlement, the Company is allowed to retain for shareholders any between the accrued and actual expense for the outage are recorded proceeds above the average energy cost for sales of up to 399 mW of when such differences are known (see note 4). capacity and/ or associated energy'. Beginning on April 1, 1994, the settlement provides for the Company to share in the benefits which CAPITALIZED SOFTWARE COSTS result from the operation of both Limerick Unit No. 1 and Unit No.

Software projects which exceed $5 million are capitalized. 2 through the retention of 16.5% of the energy savings. Through At December 31, 1992 and 1991, capitalized software costs totalled 1994, the Company's potential benefit from the sale of up to

$40 million (net of $1 million accumulated amortization) and $19 399 mW of capacity/ energy and the retained Limerick energy million, respectively. Such capitalized amounts are amortized ratably savings is limited to $106 million per year, with any excess accruing over the expected life of the projects when they become operational, to customers. Beginning in 199 5, in addition to retaining the first not to exceed 10 years. $106 million, the Company will share in any excess above $106 million with the Company's share of the excess being l 0% in 199 5, GAINS AND LOSSES ON 20% in 1996 and 30% in 1997 and thereafter. During 1992 and REAC('1UIRED DEBT 1991, the Company recorded as revenue, net of fuel costs, $ 34 nd losses on reacquired debt are deferred and amortized to million and $2 5 million, respectively, as a result of the sale of the interest expense over the period approved for ratemaking purposes. 399 mW of capacity and/ or associated energy.

As a part of the settlement, the Company agreed not to file an RECLASSIFICATIONS electric base rate increase before April 1994, except as allowed by the Certain prior year amounts have been reclassified for comparative PUC or under terms of the agreement. This does not preclude purposes. These reclassifications had no effect on net income. emergency or single-issue rate filings (e.g., a substantial change in costs associated with new legislation or regulations). The Company

2. Rate .Hatters also agreed to consolidate previously authorized Limerick Unit No.

l and Unit No. 2 phase-in plans and levelize the associated rate LIMERICK UNIT No. 2 ELECTRIC increases between May 1, 1991 and December 31, 1992.

RATE ORDER SINGLE-ISSUE ELECTRIC BASE By its order dated April 19, 1990, the PUC approved a $242 million RATE INCREASE FILED annual electric increase to be phased in over approximately three years principally to recover costs associated with Limerick Unit No. On September 11, 1992, the Company filed with the PUC a request 2 and associated common facilities. ew tariffs implementing the for a 1.5 % electric base rate increase designed to recover $50.2 PUC order became effective on April 20, 1990. The Company was million of costs associated with the implementation of Statement of denied recovery of certain plant costs and a return on deferred Financial Accounting Standards (SFAS) No. 106, "Employers' Ac-Limerick costs, resulting in a pre-tax charge of$264 million. Also, as counting for Postretirement Benefits Other Than Pensions," which part of the rate order, the Company was denied recovery of other requires that the expected costs of the benefits be charged to expense costs deferred pending regulatory approval, resulti ng in an additional during the years employees render service, but not later than the date pre-tax loss of$ 32 million. eligible for retirement. This is a significant change from the Company's The PUC order also reduced the Company's requested increase current policy of recognizing the costs of these benefits as they are by $106 million resulting from a disallowance of a return on common paid. The filing was made on the basis of the single-issue rate filing eql lr 399 megawatts (mW) of Limerick Unit No. 2 and exception to the base rate increase moratorium agreed to in the as common facilities, finding that the Company had 399 mW Limerick settlement agreement. Under the Company's proposal, the of r erm excess capacity. additional revenue received from the requested rate increase would As part of the PUC order, the PUC approved recovery of $28 5 be segregated in trust funds and reserved solely for payment of non-million of deferred Limerick costs representing carrying charges and pension postretirement benefits. On October 22, 1992, the PUC Phil a delphia El ec tric C ompa n y

Phi l adelphia Electric C ompa ny and Sub1idiar y C ompaniu NOTES TO CONSOL I DATED FINANCIAL STATEMENTS C 0 N T I N U E 0 suspended the Company's electric base rate increase request to May 10, estimates are reviewed and revised periodically to reflect changes in 199 3 in order to conduct an investigation. Non-pension economic conditions, revised load forecasts and other appropriate postretirement benefits costs tradi~ionally have been allowed for factors. Certain facilities under construction and to be constructed ratemaking on a pay-as-you-go basis. Unless the PUC permits may require permits and licenses which the Company has no assur-recovery of the additional non-pension postretirement benefits ance will be granted.

costs through the ratemaking process, the Company's earnings The Company's operations have in the past and may in the future will be adversely affected by the adoption of SFAS No. 106. require substantial capital expenditures in order to comply with environmental laws. The Company expects that any capital expendi-LIMERICK UNIT Na. 2 tures to construct facilities for compliance with environmental laws DECLARATORY ORDER and the operating costs of such facilities would be recoverable Pursuant to a Declaratory Order of the PUC, the Company deferred through the ratemaking process, although such recovery is not assured.

the operating and maintenance expenses, depreciation and accrued PEACH BOTTOM LIT I GATION carrying charges on its capital investment in Limerick Unit No. 2 and 50% of Limerick common facilities during the period from January On April 2, 199 2, the United States District Court for the District 8, 1990, the commercial operation date of Limerick Unit No. 2, until of New Jersey approved a settlement of the lawsuits filed against the April 20, 1990, the effective date of the Limerick Unit No. 2 rate Company by the other co-owners of Peach Bottom concerning the order. At December 31, 1992, such costs included in Deferred 1987 shutdown of Peach Bottom ordered by the Nuclear Regulatory Limerick Costs totalled approximately $91 million. Recovery of such Commission (NRC). As part of the settlement, the Company paid costs deferred pursuant to the Declaratory Order will be addressed $1 31 million to the other co-owners on October 1, 199 2 and the by the PUC in a subsequent electric base rate case, although such Company recognized a charge against income ($76 million, net of recovery is not assured. Any amounts not recovered would be taxes) in the first quarter of 1992.

charged against income. The settlement also resolved counterclaims asserte e Company which sought compensation from Public Servi 1c ENERGY COST ADJUSTMENT and Gas Company (PSE&G) for costs incurred by the Com y as The Company is subject to a PUC-established electric ECA which, a result of certain events at Salem, which is operated by PSE&G and in addition to reconciling fuel costs and revenues, incorporates a 42. 59% owned by the Company. As part of the settlement, the co-nuclear performance standard which allows for financial bonuses owners are engaging in good-faith negotiations to amend the Peach or penalties depending on whether the Company's system nuclear Bottom and Salem owners agreements to, among other things, clarify capacity factor exceeds or falls below a specified range. The the provisions relating to liability of the plant operator to the bonuses or penalties are based upon average system replacement other co-owners.

energy costs. If the capacity factor is within the range of 60-70%, In 1990, the Company received net proceeds of $28 million there is no bonus or penalty. If the capacity factor exceeds the ($16 million, net of taxes) in settlement of a shareholders' deriva-specified range, progressive incremental bonuses are earned and, if tive suit in connection with the 1987 Peach Bottom shutdown.

the capacity factor falls below the specified range, progressive incre- Recognition of the $28 million had been deferred pending the mental penalties are incurred. resolution of the co-owners' litigation. As a result of the settlement For the year ended December 31, 1992, the Company's nuclear of the co-owners' litigation, the $28 million was recognized as capacity factor was 71 %. This resulted in the Company earning a other income in the first quarter of 1992 and reported as an offset bonus of approximately $1 million, which is reflected in 1992 against the amount of the above-mentioned charge relating to the income. For the year ended December 31, 1991, the Company's settlement of the co-owners' litigation. The Company had sought nuclear capacity factor was 7 5%. This entitled the Company to a an additional $9 million from one of the Company's officer liability bonus of approximately $ 5 million, which is reflected in 1991 insurance carriers related to an insurance coverage issue; but, after income. For the year ended December 31, 1990, the Company arbitration did not receive any additional monies.

neither earned a bonus nor incurred a penalty.

NUCLEAR INSURANCE

3. Commitments and Contingencies The Price-Anderson Act,"as amended (Price-Anderson Act), sets the limit of liability of approximately $7 .8 billion for claims that could CONSTRUCTION EXPENDITURES arise from an incident involving any licensed nuclear faci

• he Construction expenditures are estimated to be$ 59 3 million for 199 3 nation. The limit is subject to increase to reflect the effects n and $ 1.6 billion for 1994-1996. For 1993-1996, the Company and changes in the number of licensed reactors. All utilities with expects that substantially all of its capital needs will be provided nuclear generating units, including the Company, have obtained through internally generated funds. These construction expenditure coverage for these potential claims through a combination of private Philadelphia Electric Company

Philadelphia Electric Company and Suh1idiary C ompanie1 NOTES TO C ONSOL I DATED F I NANC I AL STATEMENTS C ONTINU E D insurances of$200 million and mandatory participation in a financial construction of a temporary storage facility which would accept protection pool. Under the Price-Anderson Act, all nuclear reactor spent nuclear fuel from utilities in 1998 or soon thereafter. Although licensees can be assessed up to $6 3 million per reactor per incident, progress is being made at Yucca Mountain and several communities payable at $10 *million per reactor per incident per year. This have expressed interest in providing a temporary storage site, the assessment is subject to inflation and an additional surcharge of 53 if Company cannot predict when the temporary and permanent federal the total amount of claims and legal costs exceeds the basic assessment. storage facilities will become available.

Ifthe damages from an incident at a licensed nuclear facility exceed Peach Bottom and Limerick have on-site storage facilities with

$7.8 billion, the President of the United States is to submit to the capacity to store spent fuel discharged from the units through the Congress a plan for providing additional compensation to the injured late- l 990's and, by further modifying spent fuel storage facilities, parties. Congress could impose further revenue-raising measures on capacity could be provided to approximately 2010. Salem has spent the nuclear industry to pay claims. The Price-Anderson Act and the fuel storage capacity through 1998 for Unit No. 1 and 2002 for Unit extensive regulation of nuclear safety by the NRC do not preempt No. 2. PSE&G is planning expansion of the fuel storage capacity claims under state law for personal, property or punitive damages of Salem.

related to radiation hazards. The ational Energy Policy Act of 1992 (Energy Act) states, The Company maintains property insurance, including decon- among other things, that utilities with nuclear reactors must pay for tamination expense coverage and premature decommissioning the decommissioning and decontamination of the DOE nuclear fuel coverage, for loss or damage to its nuclear facilities . Although it is not enrichment facilities. The total costs are estimated to be $150 million possible to determine the total amount of the loss that may result from per year for 15 years, of which the Company's share is $6. 38 million an occurrence at these facilities, the Company maintains its propor- per year. The Energy Act provides that these costs are to be tionate share of $2.625 billion of insurance for each station. Under recoverable in the same manner as other fuel costs. The Company has the terms of the various insurance agreements, the Company could be recorded the liability and a related regulatory asset of $9 5. 7 million as up to $ 35 million for losses incurred at any plant insured by for such costs at December 31, 1992. The Company will seek nee companies. The Company is self-insured to the extent recovery of those costs through the ECA.

osses may exceed the amount of insurance maintained. Any The Company believes that the ultimate costs of decommission-such losses, if not recovered through the ratemaking process, could ing, spent fuel disposal and the assessment under the Energy Act will have a material adverse effect on the Company's financial condition. be recoverable through rates, although such recovery is not assured.

The Company is a member of an industry mutual insurance ENVIRONMENTAL CONCERNS company which provides replacement power cost insurance in the event of a major outage at a nuclear station. The premium for this Under federal and state environmental laws, the Company is gener-coverage is subject to an assessment for adverse loss experience. The ally liable for the costs of remediating environmental contamination Company's maximum share ofany assessment is $1 7 million per year. of property now or formerly owned by the Company, or of property contaminated by hazardous waste generated by the Company. The NUCLEAR DECOMMISSIONING AND Company owns or leases a substantial number of real estate parcels, SPENT FUEL STORAGE including parcels on which its operations or the operations of others In conjunction with the Company's April 19, 1990 electric rate may have resulted in contamination of these areas by substances order, the PUC recognized a revised decommissioning cost estimate which are considered hazardous under the environmental laws. The based upon total cost. The Company's share of this revised cost is Company is currently involved in a number of proceedings relating

$64 3 million expressed in 1990 dollars. to sites where hazardous waste has been deposited and may be subject Under a contract with the U.S. Department of Energy (DOE), the to such additional proceedings in the future. An evaluation of all DOE is obligated ultimately to take possession of all spent nuclear Company sites for potential environmental clean-up liability is in fuel generated by the Company's nuclear units for long-term storage progress, including approximately 20 sites where manufactured gas by no later than 1998. The contract currently requires that a spent fuel plant activities may have resulted in site contamination. Past activities disposal fee ofone mill ($.001) per netkilowatthour generated be paid at several sites have resulted in actual site contamination. The to the DOE. The fee may be adjusted prospectively in order to ensure Company is presently engaged in performing detailed evaluations of full cost recovery. The DOE has stated that it will not be able to open these sites to define the nature and extent of the contamination and a permanent, high-level nuclear waste storage facility until 2010, at to determine the necessity of remediation and to identify possible th t. The DOE stated that the delay was a result ofits seeking remediation alternatives. The Company has accrued the $11 million bout the suitability of the proposed storage facility site at of remediation costs that currently can be reasonably estimated. The ountain, Nevada, opposition to this location for the reposi- Company cannot currently predict whether it will incur other tory and the DO E's revision of its civilian nuclear waste program. significant liabilities for additional remediation costs at these or The DOE stated that it would seek legislation from Congress for the additional sites identified by environmental agencies or others or Philadelph i a E l ec tri c C o m pa ny

P hiladelphia Elec tri c Com pan y and Sub s idiar y Co mpa n ies OTE TO CONSOL I DATED FI ANC I AL STATEMENTS CONT I N U ED whether any such costs will be recoverable through rates or from third complaint is the findings and conclusions contained in the Credit and parties. Collections section of the May 1991 PUC Management Audit Report prepared by Ernst & Young. The plaintiffs seek, among other OTHER LITIGAT I ON things, an unspecified amount of damages and the awarding to the On April 11, 1991, 33 former employees of the Company filed an plaintiffs of the costs and disbursements of the action, including amended class action suit against the Company in the United States attorneys' fees. On December 4, 1992, the Company filed prelimi-District Court for the Eastern District of Pennsylvania (Eastern nary objections asking that the action be dismissed because of the District Court) on behalf of approximately 141 persons who retired plaintiffs' failure to first serve a demand on the Company's Board of from the Company between January and April 1990. The lawsuit, Directors. Any monetary damages which may be recovered, net of filed under the Employee Retirement Income Security Act (ERISA), expenses, would be paid to the Company because the lawsuit is alleges that the Company fraudulently and/or negligently misrepre- brought derivatively by shareholders on behalf of the Company.

sented or concealed facts concerning the Company's one-time Early The Company is involved in various other litigation matters, the Retirement Plan initiated in 1990 and thus induced the plaintiffs to ultimate outcomes of which, while uncertain, are not expected to retire or not to defer retirement immediately before the initiation of have a material adverse effect on the Company's financial condition.

the Early Retirement Plan, thereby depriving the plaintiffs of sub-stantial pension and salary benefits. On June 6, 1991, the plaintiffs 4. Changes in Accounting filed amended complaints adding additional plaintiffs. The lawsuit names the Company, the Company's Service Annuity Plan (SAP) and In 1990, the Company began recording operating revenues for two Company officers as defendants. The plaintiffs seek approxi- services provided but not yet billed to more closely match revenues mately $20 million in damages representing, among other things, with expenses. Previously, the Company recognized operating rev-increased pension benefits and nine-months salary pursuant to the enues when services were billed. The cumulative effect of the change terms of the Early Retirement Plan, as well as punitive damages. On on the periods prior to January l, 1990, was $108 million, net of July 29, 1992, the Eastern District Court granted the Company's income tax effects of$2 million, or $0. 51 per share. Thee e motion for summary judgment and entered judgment in favor of the change upon net income for 1990 was not material. The r er Company. On August 13, 1992, the plaintiffs filed an appeal with the of the income tax expense applicable to the aforementioned un illed United States Court of Appeals for the Third Circuit (Appeals operating revenues was recorded in the years reported for tax Court). The ultimate outcome of this matter is not expected to have purposes in accordance with the ratemaking treatment.

a material adverse effect on the Company's financial condition. Also in 1990, the Company adopted an accounting policy to On May 2, 1991, 37 former employees of the Company filed an accrue for incremental nuclear maintenance and refueling outage amended class action suit against the Company, the SAP and three costs for nuclear plants over the period of the unit operating cycle, former Company officers in the Eastern District Court on behalf of which is approximately 18 months. Previously, the Company recog-14 7 former employees who retired from the Company from January nized such costs as incurred during the outage period. The after-tax through June 1987. The lawsuit was filed under ERISAandconcerns effect of this accounting change decreased 1990 net income by $1 7 the August l, 1987 amendment to the SAP. The plaintiffs claim that million, or $0.08 per share, which includes the cumulative effect on the Company concealed or misrepresented the fact that the amend- periods prior to January l, 1990.

ment to the SAP was planned to increase retirement benefits and, as a consequence, they retired prior to the amendment to the SAP and 5. R etirement Benefits were deprived of significant retirement benefits. The complaint does The Company and its subsidiaries have non-contributory trusteed not specify any dollar amount of damages. On July 29, 1992, the retirement plans applicable to all regular employees. The benefits are Eastern District Court granted the Company's motion for summary based primarily upon employees' years of service and average earn-judgment and entered judgment in favor of the Company. On August ings prior to retirement. The Company's funding policy is to 13, 1992, the plaintiffs filed an appeal with the Appeals Court. The contribute, at a minimum, amounts sufficient to meet ERISA require-ultimate outcome of this matter is not expected to have a material ments. Approximately 78%, 79% and 86% of pension costs were adverse effect on the Company's financial condition. charged to operations in 1992, 1991 and 1990, respectively, and the On August 4, 1992, attorneys on behalf of two shareholders filed remainder, associated with construction labor, to the cost of new a shareholder derivative action against several of the Company's utility plant.

present and former officers alleging mismanagement, waste of Pension costs were $26,042,000 in 1992, $22,340,00. 91 corporate assets and breach of fiduciary duty in connection with and $12 ,206,000 in 1990. Pension costs for 1992, 1991 0 the Company's credit and collections practices. The basis of the Philadelphia Electric Company

Phil adelph ia Electric Company and Sub1idiary Companie!

NOTES TO Co SOL I DATED FINANC I AL STATEMENTS C ONT I NU E D included the following components: Prior service cost is amortized on a straight-line basis over the average remaining service period of employees expected to receive (Thousands of Dollars) 1992 1991 1990 benefits under the plan. The funded status of the plan at December Service cost - benefits earned 3 1, 199 2 and 1991 is summarized as follows:

during the period $ 30,191 $ 23,692 $ 30,365 (Thousands of Dollars} 1992 1991 Interest cost on projected ... .. .. .. ........ ..... .................... .... .... .... .... ....... .. .... ... .......

benefit obligations 129,000 121,826 99,554 Actuarial present value Actual return on plan assets (122,869) (345,677) (24,735) of accumulated plan Amortization of transition asset (4,539) (4,539) (4,5 39) benefit obligations:

Amortization and deferral (5,741) 227,038 (88,439) Vested benefit obligations $( 1,315 ,292) $(1,302,564)

Net pension cost $ 26,042 .... $ 22,340 $ 12,206 Accumulated benefit obligation $(1,410,77 7) $(1,388,328)

Projected benefit obligation for CHANGE IN NET PERIODIC services rendered to date $(1 ,740,013 ) $(1,655,806)

PENSION COST Plan assets at fair value 1,709,802 1,649,700 The change in net periodic pension cost in 199 2, 1991 and 1990 was Funded status (30,211 ) (6, 106) accounted for as follows: Unrecognized transition asset (58,402) (62,941)

Unrecognized prior service costs 101 ,955 108,193 (Thousands of Dollars} 1992 1991 1990 Unrecognized net gain (183 ,820) (221,072)

Change in number, characteristics Pension liability $ (170,478) $ (181,926) and salary levels of participants et actuarial gain $ (840) $ 3,402 $ (3,996) On May 2 5, 1990, the Company's Board of Directors approved Ch plan provisions 1,978 799 a one-time Early Retirement Plan for employees who were fifty Change m actuarial assumptions 4,542 4,754 7,871 years of age or older and had five or more years of credited service as of December 31, 1990. The estimated costs associated with the et change $ 3,702 $10,134 $ 4,674 program of $249 million ($150 million, net of taxes) were recog-Plan assets consist principally ofcommon stock, U.S. government nized in the third quarter of 1990.

obligations and other fixed-income instruments. In determining In December 1992, the Company's Board of Directors approved pension costs, the assumed long-term rate of return on assets was a Voluntary Early Retirement Program and Voluntary Separation 9.5% for 1992, 1991and1990. Package for Nuclear Group employees who are fifty years of age or The weighted-average discount rate used in determining the older and have five or more years of credited service with the actuarial present value of the projected benefit obligation was 7. 7 5% Company as of March 31, 199 3. The estimated costs associated with at December 31, 1992 and 1991, and 8.25% at December 31, 1990. the program of $18. 5 million ($10.8 million, net of taxes) were The average rate of increase in future compensation levels ranged recognized in the fourth quarter of 1992.

from4.5 % to6.5%atDecember 31, 1992, 1991and1990. In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees.

Substantially all of the Com parry' s employees will become eligible for these benefits if they reach retirement age while still working for the Company. These benefits and similar benefits for active employees are provided by an insurance company whose premiums are based upon the benefits paid during the year. The Company recognizes the cost of providing these benefits by charging the annual insurance premiums to expense. The cost of providing these benefits for approximately 6,000 retirees during the years 1992 and 1991, and 5,200 retirees during 1990, and for approximately 9,800, 9,700 and I 0, 500 active employees forche same periods, respectively, amounted to $ 56 million for 1992 and 1991 and $ 54 million for 1990.

Phil adelphia Electric Company

Philadelphia Electr i c Company and Subsidia r y Companiu NOTES TO CONSOL I DATED F I NANC I AL STATEME T S CO NT I N U ED In December 1990, the Financial Accounting Standards Board 7. Common Stock (FASB) issued SFAS No. 106. The Company will adopt the provi-At ~ecember 31, 1992 and 1991, common stock without par value sions of SFAS No. 106 in the first quarter of 199 3 and expects to consISted of 500,000,000 shares authorized and 220 ,5 34 '048 and amortize the transition liability over an allowed 20-year period. SFAS 220,030,400 shares outstanding, respectively. At December 31, 1992, No. 106 will significantly increase non-pension postretirement there were 5,800,841 shares reserved for issuance under stock benefits expense recognition. The Company's liability under SFAS purchase plans.

• No. 106 is $572 million as of January 1, 1993. The annual accrual The Company maintains a Long-Term Incentive Plan (LTIP) for for non-pension postretirement benefits costs (including amortiza-certain full-time salaried employees of the Company. The types of tion of the transition liability) is approximately $89 million. The long-term incentive awards which may be granted under the LTIP Company's comparable pay-as-you-go costs for these benefits, which are non-qualified options to purchase shares of the Company's are currently being recovered in base rates, were approximately $24 common stock, dividend equivalents and shares of restricted com-million in 1992 (see note 2).

mon stock. Pursuant to the LTIP, 2,44 5,8 3 3 shares ofcommon stock were reserved for issuance.

6. Accounts Receivable The following table summarizes option activity during 1992, Accounts receivable at December 31, 1992 and 1991 included 1991 and 1990:

unbilled operating revenues of $111.2 million and $120. 5 million, 1992 1991 1990 respectively. Accounts receivable at December 31, 1992 and 1991 were net of an allowance for uncollectible accounts of $18 million s~i~~~~- ~~"j~~~~ry

• i............ i",656;i*44 ... i","i :26;6*75*..... 93*8;6oci and $30 million, respectively. Options granted 1,380,000 1,018,500 274,177 The Company is party to an agreement with a financial institution Options exercised 504,411 151,996 whereby it can sell on a daily basis and with limited recourse an Options cancelled 86,000 3 36, 9 35 undivided interest in up to $ 32 5 million of designated accounts Balance at December 31 2,445,833 1,656,244 receivable for a five-year period ending January 24, 1996. At December 31, 1992 and 1991, the Company had sold a $325 million Exercisable at December 31 1,162,833 800,744 884,000 interest in accounts receivable under this agreement. The Company The options were exercised at an average option price of $24.7 3 retains the servicing responsibility for these receivables. The service per share and $21. 35 per share in 1992 and 1991, respectively. The charges for accounts receivable sold under this agreement were average exercise price of shares under option are $ 2 3.18 per share, included as interest charges and were approximately $15 million, $2 2

$20. 34 per share and $21.18 per share at December 31, 1992, 1991 million and $18 million in 1992, 1991 and 1990, respectively.

and 1990, respectively.

By terms of this agreement, under certain circumstances, up to

$ 3 5 million of deferred Limerick costs could be included in the pool of eligible receivables. At December 31, 1992, $ 30 million of such costs were included in the pool of eligible receivables.

Philadelphia Electric Company

P h i ladelph i a E lect ri c Company and Sub1idia r y Compan i e!

OTES T O C ONSOL ID ATED F I NANC I AL STATEMENTS

• 8. Preferred and P reference Stock At December 31, 1992 and 1991, Series Preference Stock consisted of 100,000,000 shares authorized, of which no shares were outstanding.

At December 3 1, 1992 and 1991, cumulative Preferred Stock, no par value, consisted of I 5,000,000 shares authorized.

Current Shares Amount Redemption Outstanding (Thousands of Dollars)

Price (a) 1992 1991 1992 1991 Series (without mandatory redemption)

$10.75(b) (b) 500,000 500,000 $ 50,000 $ 50,000

$9.50 750,000 7 5,000

$8 .75 650,000 65,000

$7.85 $101.00 500,000 500,000 50,000 50,000

$7.80 101.00 750,000 750,000 75,000 75,000

$7.75 101.00 200,000 200,000 20,000 20,000

$4.68 104.00 150,000 150,000 15,000 15,000

$4.40 112.50 274,720 274,720 27,472 27,472

$4.30 102.00 150,000 150,000 15,000 15,000

$3 .80 106.00 300,000 300,000 30,000 30,000

$7. 96(c) (d) 1,400,000 140,000 4,224,720 4,224,720 422,472 422,472 Se. with mandatory redemption)(e)

$ 200,000 20,000

$ 500,000 50,000

$9.87 5 105.00 650,000 650,000 65 ,000 65,000

$9.52 101.00 200,000 236,321 20,000 23,632

$9.50 1986 Series 106.33 675,000 720,000 67,500 72,000

$8. 7 5 197 8 Series 101.54 200,300 233,600 20,030 23,360

$7. 32 5 101.75 330,000 360,000 33,000 36,000

$7.00 101.00 256,000 256,000 25,600 25,600 2,311,300 3,155,921 231,130 315,592 Total Preferred Stock 6,536,020 7,380,641 $65 3,602 $7 38,064 (a) Redeemable, at the option of the Company, at the indicated dollar On any dividend payment date with respect to a short-term period, amounts per share, plus accrued dividends. units are redeemable, in whole or in part, at the option of the (b) The dividend rate through April 30, 1993 is $ 10. 7 5 per annum, Company at a price of $100,000 per unit, plus an amount equal to and the rate for each subsequent dividend period, either a long-term accrued and unpaid dividends to the redemption date.

period (1-10 years) or a short-term period (49 days), will be estab- (c) Ownership of this series of preferred stock is evidenced by lished by an auction held on the business day next preceding the depositary receipts, each representing one-fourth of a share of beginning of each such period. The issue is redeemable during any preferred stock.

long-term period only on the last day of the period or following an (d) None of the shares of this series are subject to redemption prior unsuccessful auction, in an aggregate number which constitutes one to October 1, 1997.

or more units (1,000 shares), at a price of$100 per share, plus accrued (e) Sinking fund requirements ($100 per share) in the period 199 3-and unpaid dividends to the redemption date on the shares redeemed. 1997 are $2 5,8 80,000 annually.

P hiladelph i a Elec t r i c Company

Philadelphia Electric Company and Sub1idiary Companiu NOTES TO CONSOL I DATED F I A 1 CIAL STATEMENTS CONTI NU E D

9. Long-Term Debt At December 31 (Thousands of Dollars) Series Due 1992 1991 First and Refunding Mortgage Bonds (a) 14% 1992 $ 11,000 6'h% - 14% 1993 $ 60,000 71,000 4 'h% - 14% 1994 170,000 181,000 9%-10%% 1995 51,200 202,800 8V.% 1996 80,000 80,000 Mfs% - 11 % 1997 75,000 27 5,000 7'h% - 11 % 1998-2002 1,430,200 714,499 6% - lOV.% 2003-2007 359,437 463,500 9 1/s% 2008-2012 100,000 100,000 8%% - 12Vs% 2013-2017 379,900 784,440 6%% - 11 % 2018-2022 1,3071130 827,590 Total First and Refunding Mortgage Bonds 4,012,867 3,710,829 otes Payable - Banks (b) 1993-1996 372,000 422,000 Revolving Credit and Term Loan Agreements (c) 1995-1997 525,000 525,000 Pollution Control otes 5'h%-13% 1997-2012 173 ,700 173,700

_.)

Debentures 9.85 % -11% 1993-2011 87,000 537,000 Medium-Term Notes (d) 1994-2005 150,000 85,000 Sinking Fund Debentures -

Philadelphia Electric Power Company, a Subsidiary 4'h% 1995 11,350 Unamortized Debt Discount and Premium, Net (28,958)

Total Long-Term Debt 5,302,959 5,438,296 Due Within One Year (e) 981998 221712 Long-Term Debt included in Capitalization (f) $5,203,961 $5,415,584 (a) Utility Plant is subject to the lien of the Company's mortgage. ment was 3.84% at December 31, 1992. The Company also has a (b) The Company has entered into interest rate swap agreements to $15 0 million revolving credit and term loan agreement with .a group reduce the impact of changes in interest rates on certain of these of banks. The revolving credit agreement converts into a term loan notes. At December 3 1, 199 2 and 1991, the Company had outstand- in July 1994 and the commitment terminates in 1996. There is an ing three interest rate swap agreements with commercial banks, for annual commitment fee of 0.2 % on the unused amount. At December a total notional principal amount of$242 million. These agreements 31, 1992 and 1991, no amount was outstanding under this agreement.

are subject to performance by the commercial banks, which are (d) The Company has a program for the issuance of up to $200 counterparties to the interest rate swap. However, the Company does million medium-term notes collateralized by mortgage bonds. The not anticipate nonperformance by the counterparties. The annual notes are offered from time-to-time at varying maturities and interest interest rate for these notes, giving effect to the interest rate swaps, rates set at the time of sale. As of December 31, 1992 and 1991, was 10.28% at December 31, 1992. respectively, the Company had outstanding $150 million and $8 5 (c) The Company has a $ 52 5 million revolving credit and term loan million under this program at an average coupon rate of 7.61 % and agreement with a group of banks. The revolving credit arrangement 9.05%.

converts into a term loan in November 1994. The borrowings are due (e) Long-term debt maturities, including mandatory sinking in six semi-annual installments with the first payment due six months fund requirements, in the period 1994-1997 are as follows:

after the conversion into the term loan. Interest on outstanding 1994-$261,398,000; 199 5-$25 6, 748,000; 1996-$480, 998,000; borrowings is based on specific formulas selected by the Company 1997-$281,498,000.

involving yields on several types of debt instruments. There is an (f) Theannualizedinterestonlong-termdebtatDecember 31, 1992, annual commitment fee of0.15% on the unused amount. At Decem- was $426.7 million, of which $352.4 million was associ- ith ber 31, 1992 and 1991, $525 million was outstanding under this mortgage bonds and $74.3 million was associated with o g-agreement. The annual interest rate for this revolving credit agree- term debt.

Philadelphia Electric Company

Philadelphia Electric Company and Subsidiary Companies N 0 T E s T 0 c 0 N s 0 L I D A T E D F I N A N c I A L s r A r I \I I " I s CO N T I N U E D I 0. Short-Term Debt (Thousands of Dollars) 19 9 2 1991 1990 Average Borrowings $ 50, 161 $13,493 $ 60,344 Average Interest Rates, Computed on Daily Basis 3.723 6. 17% 8.85%

Maximum Borrowings Outstanding $ 25 5,500 $81,000 $187,000 Average Interest Rates at December 31 3.723 8.98%

At December 31, 1992, the Company had formal and informal lines of credit with banks aggregating approximately $291 million against which

$110. 5 million of short-term debt was outstanding. The Company does not have formal compensating balance arrangements with these banks.

The Company has a $100 million commercial paper program and at December 31, 1992, there was no commercial paper outstanding.

11 . I ncome Taxes (Thousands of Dollars) 1992 1991 1990 INCLUDED IN OPERATING INCOME :

Federal Current $ 13 1,0 54 $120,646 $137,554 Deferred 66 ,281 67,914 15,884 Investment Tax Credit, Net (3,495) 58,078 15 ,6 38 State Cu 78,5 46 71,5 16 44,347 (7,90 3) (9,209) (32,102)

IN OTHER INCOME AND DEDUCTIONS:

Federal Current (4 5,295) (1,957) (23,150)

Deferred 20,23 7 16,483 (42,096)

Investment Tax Credit, Net (10,146)

State Current (18,43 0 ) (7 32) (12,078)

Deferred 3, 328 2,648 601 Income Tax Effect of Cumulative Effect of Accounting Change for Unbilled Operating Revenues (1,888)

$224,323 $325,387 $ 92,564 TOTAL ............ .. .... .. ... . ... ..... ....

Investment tax and other general business credits reduced federal For the years 1987 through 1990, the Company's tax liability income taxes currently payable by $41 million, $71 million and $31 was determined under the AMT method resulting in a cumulative million in 1992, 1991and1990,respectively. UndertheTaxReform tax credit of $176 million which can be utilized in future years Act of 1986, ITC was repealed effective January l, 1986 with the when regular tax liability exceeds AMT liability.

exception of transition property. The Company believes that Lim- The Company uses accelerated depreciation for income tax erick Unit No. 2 qualifies as transition property eligible for ITC. purposes and straight-line depreciation for financial reporting pur-Approximately $94 million of additional business credits gener- poses. Deferred taxes are recorded only on those timing differences ated from 19 86 through 1991 have not been utilized due to limitations normalized for ratemaking. The cumulative net amount of such based on taxable income. These credits, which expire between 200 l timing differences for which deferred taxes were not recorded was and 2006, may be used to reduce federal income taxes in future years. approximately $877 million at December 31, 1992. Since the Com-Th ternal Revenue Service (IRS) has completed its examina- pany expects to charge customers for taxes when the timing differ-tion ompany's federal income tax returns through 1986. In ences reverse, the tax effect ofsuch timing differences is not recorded 199 mpany recognized as income $24. 5 million, or $0.11 per currently.

share, as a result of the favorable settlement of the Company's 1984- In February 1992, the FASB issued SFAS No. 109, "Accounting 1986 federal income tax returns. for Income Taxes," which requires an asset and liability approach for Philadelphia Electric Company

P hiladelphia Electric Company and S ubs i d i ary C ompa ni es NOTES TO CONSOL I DATED F I NANC I AL STATEMENTS financial accounting and reporting for income taxes. The provisions of SF AS No. 109 may be applied cumulatively in the year of adoption or may be applied retroactively by restating previously issued finan-cial statements. Adoption of SFAS No. 109 is required by the first Company's results of operations as the Company expects to receive recovery for taxes when paid. The Company expects to adopt SFAS No. 109 in 1993 using the cumulative adoption provisions of the statement. The Company expects that the adoption of SFAS No. 109 quarter of 199 3 and is not expected to have a material effect upon the will increase total assets and liabilities by approximately $1 .9 billion.

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

(Tho usands of D ollars) 1992 1991 1990 Depreciation and Amortization $ 93,469 $ 89,760 $119,943 Deferred Energy Costs (18,033) (19,916) (13,761)

Precommercial Operation of Limerick Unit No. 2 (1,221)

Deferred Limerick Unit No. 2 Costs 8,547 Early Retirement Plan 1,865 16,024 (83,588) 1 Incremental Nuclear Maintenance and Refueling Outage Costs (1,627) (5 ,629) (1 1,5 74):

Uncollectible Accounts (2,629) (7,7 50) (15,813) I Reacquired Debt 39,123 18,688 (4,526) I U nrecovered Revenue (56,050) (43,983) (24,939)

Alternative Minimum Tax 6,3 31 (20,478)

Limerick Plant Disallowances and Phase-In Plan 15 , 118 16,634 (7,283)

Other 10,707 7,677 (3 ,020)

TOTAL $ 81,943

............. J?.'.1~.~~ -~~?.'. ?!.~ _3)

The total income tax provisions differed from amounts computed by applying the federal statutory tax rate to income and adjusted inc ore income taxes as shown below:

(Tho usands of D ollars) 1992 1991 1990 et Income $478,941 $534,680 $2 14,190 Total Income Tax Provisions 224,323 325,387 92,564 Income Before Income Taxes 703,264 860,067 306,754 Deduct: Allowance for Funds Used During Construction 20,663 23,084 55,335 Limerick Carrying Charges 80,325 AoJUSTEO INCOME BEFORE INCOME TAXES $682,601 $836,983 $17 1,094 Income Taxes on Adjusted Income at Federal Statutory Rate of 34% $232,084 $284,574 $ 58,172 Increase (Decrease) due to:

Depreciation Timing Differences N ot Normalized 10,427 15 ,258 20,647 Limerick Plant Disallowances and Phase-In Plan 2,159 3,490 69,284 Cumulative Effect of Accounting Change for Unbilled Operating Revenues (37,910)

Unbilled Revenues Not Normalized (5,766) 5,620 8,769 State Income Taxes, Net of Federal Income Tax Benefits 36,657 42,387 507 Amortization oflnvestment Tax Credits (24,624) (17,030) (20, 320)

Prior Period Income Tax Settlements (20,65 5) (13,227) (9, 124)

Other, Net (5,959) 4,315 2,5 39 I TOTAL INCOME TAX PROVISIONS $224,323 $325,387 ,564 I Provisions for Income Taxes as a Percent of: I Income Before Income T axes 31.9% 37.8% .2% I Adjusted Income Before Income T axes 32.9% 38.9% 54.1 %

Philadelphia Electric Company

Ph iladelph ia El ec t ric Company and Sub1id i ary Compan i eJ NOTES TO CONSOL I DATED FI NANC I AL STATEMENTS C O NTIN U ED 12 . Taxes, Other Than I ncome-Operating (Thousands of Dollars) 1992 1991 1990 Gross Receipts $158,314 $ 158,719 $148,274 Capital Stock 28,013 34,924 21,817 Real Estate 63,593 43,023 33,632 Payroll 29,410 31,439 30,854 Other 2,538 6,456 4,275 TOTAL $281 ,868 $274,56[ $238,852 I 3. Leases Leased property included in Utility Plant at December 3 l (Thousands of Dollars) 1992 1991 Nuclear Fuel $471,276 $4 79,771 Electric Plant 2,234 2,271 Gross Leased Property 473,510 482,042 Accumulated Amortization (263,516) (258,293 )

et Leased Property $209,994 $223,749 T fuel obligation is amortized as the fuel is consumed. Amortization of leased property totaled $ 54.6 million, $ 59.4 million and $ 70. 1 million for ended December 31, 1992, 1991 and 1990, respectively. Other operating expenses included interest on capital lease obligations of $7 .1 million, $9. 9 million and $15. 7 million in 1992, 1991 and 1990, respectively. Minimum future lease payments as of December 3 1, 1992 were as follows:

Year Ending December 3 1 (Thousands of Dollars} Capital Leases Operating Leases Total 1993 $ 68,05 3 $ 93,885 $ 161,938 1994 65,852 92,934 158,786 1995 60,322 91,832 152,154 1996 40,835 55,569 96,404 1997 92 54,661 54,753 Remaining Years 1,272 629,589 6 30,861 Total Minimum Future Lease Payments 236,426 $..1,01 8,470 $........

1,254,896 Imputed Interest (rates ranging from 6.5% to 17.0%) (26,432 )

Present Value of Net Minimum Future Lease Payments $209,994 Rental expense under operating leases totaled $9 3.8 million, $88.6 million and $8 7. 5 million in 1992, 1991 and 1990, respectivel y.

P h i ladelphia E lec t ric Company

Philadelphia Ele ctric Company and Subsidiary Compan i es NOTES TO CONSOL ID ATE D FI NANC I A L S TA TEM EN T S CONTINU E D 1-f.. Jointly Owned Electric Utility P lant The Company's ownership interests in jointly owned electric utility plant at December 31, 1992 were as follows:

Transmission and Production Plants Other Plant Peach Bottom Salem Keystone Conemaugh Operator Philadelphia Public Service Pennsylvania Pennsylvania Various Electric Electric and Electric Electric Companies ComEany Gas ComEany ComEany ComEany Participating Interest 42.49% 42.59% 20.99% 20.72% 21 % to43%

Company's share of (Thousands of Dollars)

Utility Plant $694,65 3 $1,100,546 $84,793 $85,382 $87,135 Accumulated Depreciation 233,409 331,320 39,937 40,297 25,029 Construction Work In Progress 16,959 49,476 5,396 25,7 57 1,068 The Company's participating interests are financed with Company funds and, when placed in service, all operations are accounted for as if such participating interests were wholly owned facilities.

15. Segment I nformation (Thousands of Dollars) 1992 1991 1990 ELECTRIC OPERATIONS Operating Revenues $ 3,597,141 $ 3,662,573 $ 3,401,644 Operating Expenses, excluding Depreciation 2,236,907 2,253,159 2,325,25 5 Depreciation 390,846 379,607 337,715 Operating Income $ 969,388 $ 1,029,807 $ 738,674 Utility Plant Additions $ 461,407 $ 422,780 $ 430,179 GA s OPERATIONS Operating Revenues $ 365,328 $ 356,013 $ 385,029 Operating Expenses, excluding Depreciation 278,407 283,665 336,164 Depreciation 22,933 20,965 19,825 Operating Income $ 63,988 $ 51,383 $ 29,040 Utility Plant Additions $ 74,858 55,098 51,07 3 Identifiable Assets*

Electric $10,393,449 $10,213,296 $ 10,510,639 Gas 658,825 590,151 542,917 Nonallocable Assets 1,525,953 1,720,013 1,512,395 TOTAL ASSETS $12,578,227 $12,523,460 $12,565,951

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

Philadelphia Electric Company

Ph i lad e lphi a E le c t ric C o m pa ny and Sub s idiar y Co m pa n i es NOTES TO CO SOLIDATED FI ANCIAL STATEMENTS CONTINUED

16. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The following disclosures are supplementary to the accompanying Statements of Cash Flows:

(Thousands of Dollars) 1992 1991 1990 Cash Paid During the Year:

Interest (net of amount capitalized) $515,696 $5 51,944 $597,603 Income taxes (net of refunds) 224,3 52 193,340 97 ,621 oncash Investing and Financing:

Capital Lease Obligations Incurred 40,757 41,905 30,845

17. Investments December 31 (Thousands ~f Dollars) 1992 1991 Trusts and Escrow Accounts for Decommissioning Nuclear Plants $125,703 $ 98,693 Real Estate Developments and Other Ventures 48,273 41,076 No "lity Property 23,141 23,763 G ration and Development ] oint Ventures 5,026 5,842 Ot 279 279 TOTAL $202,422 $169,653

18. Financial Instruments In December 1991, the FASB issued SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," effective for the Company for the year ended December 3 1, 199 2. SFAS No. 107 requires additional disclosure about the fair value of financial instruments, including liabilities, for which it is practicable to estimate fair value.

Fair values are estimated based on quoted market prices for the same or similar issues. The carrying amounts and fair values of the Company's financial instruments as of December 3 l, 199 2 are as follows:

Carrying Fair (Tho usands of Dollars) Amount Value Cash and temporary cash investments $ 50,369 $ 50,369 Long-term debt (including amounts due within one year) 5,302,959 5,546,896 Trusts and Escrow Accounts for Decommissioning Nuclear Plants 125,703 131,138 Financial instruments which potentially subject the Company to Federal Depository Insurance Corporation limit. Concentrations of concentrations of credit risk consist principally of temporary cash credit risk with respect to customer accounts receivable are limited mv ts and customer accounts receivable. The Company places due to the Company's large number ofcustomers and their dispersion its ry cash investments with high credit, quality fmancial across many industries.

ns. At times, such investments may be in excess of the Ph iladelphia E l ectric Company

Philadelphia Electric Company and Sub1idiary Companiu NOTES TO CONSOL ID ATE D FI NANC I AL S TATEME TS CONT I NUED 19 . Quarterly Data (Unaudited)

The data shown below include all adjustments which the Company considers necessary for a fair presentation of such amounts.

Operating Revenues Operating Income Net Income Quarter Ended 1992 1991 1992 1991 1992 1991 (Thou1ands of Dollars)

March 31 $1,079,890 $1,008,325 $2 74,580 $286,871 $ 88,401 $143,846 June 30 903,245 964,137 222,426 262,893 94,325 125,038 September 30 996,138 1,077,526 268,699 312,162 142,338 173,402 December 31 983,196 968,598 267 ,671 219,264 153 ,877 92,394 Earnings Applicable Average Shares Earnings to Common Stock Outstanding Per Average Share Quarter Ended 1992 1991 1992 1991 1992 1991 (Thousands of Dollars) (Thousands) (Dollars)

March 31 $ 72,013 $127,044 220,068 217,014 $0.33 $0.58 June 30 78,207 108,512 220,170 217,812 0.35 0.50 September 30 128,754 157,014 220,327 218,611 0.59 0.72 December 31 139,236 76,006 220,411 219,467 0.63 0.35 1991 operating revenues have been reclassified to reflect the adop- Peach Bottom (see note 3).

tion of AR-14 (see note 1). 1992 fourth quarter results included a net benefit of$24 n, 1992 firs't quarter results included a net charge of approximately or $0.11 per share, as a result of the settlement of the 's

$103 million ($60 million, net of taxes), or $0.27 per share, as a result 1984-1986 federal income tax returns.

of the settlement of the litigation concerning the 1987 shutdown of Philadelphia Electric Company

P hi l a d elp hia Elect ri c Com p any a nd Subsidiary Companies REPORT OF" INOEPENOENT ACCOUNTANTS T o the Shareholders and Board of Directors Philadelphia Electric Company:

We have audited the accompanying consolidated balance sheets of Philadelphia Electric Company and Subsidiary Companies as of December 31, 199 2 and 1991, and the related consolidated statements of income, cash flows, and changes in common shareholders' equity and preferred stock for each of the three years in the period ended December 31, 1992. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Philadelphia Electric Company and Subsidiary Companies as of December 31, 199 2 and 1991, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1992, in conformity with generally accepted accounting principles.

As discussed in Note 4 to the consolidated financial statements, the Company changed its methods of accounting forunbilled operating revenues T

an- cremental nuclear maintenance and refueling outage costs in 1990.

24- enPennCenter Philadelphia, Pennsylvania ~

~

February 1, 199 3 COMMON STOCK PRICE RETURN ON AVERAGE VS. BOOK VALUE COMMON STOCK EQUITY D ollars P er Share P ercen t S30 15%

25 20 .1. *1*.

. I0 15 I Hi g h C lo s i ng P r i ce I0 I L ow Book Value a t Year-End 0 BB B9 90 9, 92 BB B9 90 9, 92 P hiladelphia Electric Company

Philad tlphia Elec tric Company and Sub1idiary Companie1 F I NANC I AL S TATIST I CS

SUMMARY

OF" For the Year Ended EARNINGS ANO FINANCIAL CONDITION (Million1 of Do/Ian) 1992 1991 1990 1989 1988 Operating Revenues Operating Income

$ 3,962.5 1,033.4

$ 4,018.6 1,081.2

$ 3,786.7 767.7

$ 3,473.8 809.3

$ 3,246.3 742.6

• 1987

$ 3,213.0 717.1 Income from Continuing Operations 478.9 534.7 105.8 590.5 566.0 540.6 Net Income 478.9 534.7 214.2 590.5 566.0 542.4 Earnings Applicable to Common Stock 418.2 468.6 123.9 493.9 468.8 448.2 Earnings Per Average Common Share From Continuing Operations (Dollars) 1.90 2.15 0.07 2.36 2.33 2.33 Earnings Per Average Common Share (Dollars) 1.90 2.15 0.58 2.36 2.3 3 2.33 Dividends Per Common Share (Dollars) 1.325 1.225 1.45 2.20 2.20 2.20 Common Stock Equity (Per Share) 18.24 17.69 16.71 17.67 17.39 17.20 Average Shares of Common Stock Outstanding (Millions) 220.2 218.2 214.4 208.9 201.5 192.5 At December 31 Net Utility Plant, at Original Cost $10,691.2 $10,598.4 $10,591.3 $10,720.8 $10,048.5 $ 9,471.8 Leased Property, Net 210.0 223.8 241.3 273.5 287.5 287.2 Total Current Assets 550.0 783.2 745 .0 655.0 502.5 650.3 Total Deferred Debits and Other Assets 1,127 .0 918.1 938.6 972.8 953.9 791.5 Total Assets $ 12,578.2 $12,523 .5 $12,516.2 $12,622.l $11,792.4 $11,200.8 Common Shareholders' Equity $ 4,022.2 $ 3,892. 3 $ 3,624.5 $ 3,744.8 $ 3,592.6 .9 Preferred and Preference Stock Without Mandatory Redemption 422.5 422.5 422.5 622.4 622.4 With Mandatory Redemption 231.1 315.6 330.9 351.l 368.1 389.1 Long-Term Debt 5,203.9 5,415.6 5,830.8 5,762.7 5,219.5 4,870.7 Total Capitalization 9,879.7 10,046.0 10,208.7 10,481.0 9,802.6 9,219.2 Total Current Liabilities 830.6 823.4 783.8 790.5 662.4 7 51.8 Total Deferred Credits and Other Liabilities 1,867.9 1,654.1 1,523.7 1,350.6 1,327.4 1,229.8

$12,578.2 Total Capitalization and Liabilities

$12,523 .5 $12,516.2

............. ............. $12,622.1

............. $11,200.8

............. $11,792.4 .............

GAS SALES &

ELECTRIC SALES TRANSPORTED GAS Billion Kilo watt ho ur1 Billion1 of Cubic Feet 40 . . . . . . . . . . . . . . . . .. . ID D ******.**** * *. *. *******

BO 3D ***

SD 20 . . .

40 ID **

• Sain 20 to Othtr Utilitie1 BB B9 90 91 92 BB 89 90 91 92 Philadelphia Eltctric Company

Philadelphia Electric Company and Sub1idiary Companie1 OP E R A TI NG S TA TI ST I CS RIC OPERATIONS 1992 1991 1990 1989 1988 1987 o u T Pu T (Millions ofKilowatthours)

Fossil 8,082 7,376 7,913 10,470 10,225 9,835 uclear 24,428 25,735 23,715 12,890 12,328 11,8 5 3 Hydro 1,803 1,388 2,266 1,743 1,307 1,590 Pumped Storage Output 1,597 1,65 3 1,437 1,354 1,515 1,25 1 Pumped Storage Input (2,217) (2,35 5) (2,059) (1,937) (2,163) (1,787)

Purchase and Interchange 8,675 8,603 5,787 11,192 11,802 10,428 Internal Combustion 29 79 152 348 285 232 Other 180 1,063 TOTAL ELECTRIC OUTPUT 42,397 42,479 39,391 37,123 35,299 33,402 s ALE s (Millions ofKilowatthours)

Residential 9,894 10, 311 9,815 9,974 10,058 9,441 Small Commercial and Industrial 5,367 5,284 5,066 4,921 4,666 4,341 Large Commercial and Industrial 15,770 16,177 16,554 16,749 16,516 15,789 Other 962 1,029 1,010 1,031 999 974 Service Territory 31,993 32,801 32,445 32,67 5 32,239 30,545 Interchange Sales 1,231 1,612 2,7 51 2,027 435 622 Sales to Other Utilities 6,699 5,445 1,865 TOTAL ELECTRIC SALES 39,923 39,858 37,061 34,702 32,674 31,167 N . R OF CUSTOMERS, DECEMBER 31 R 1,333,926 1,324,795 1,320,126 1,309,717 1,296,784 1,280,297 Sma ommercial and Industrial 141,253 140,901 140,305 138,244 13 5,274 131,279 Large Commercial and Industrial 3,972 4,162 4,344 4,449 4,520 4,589 Other 857 840 817 775 779 771 TOTAL ELECTRIC CUSTOMERS 1,480,008 1,470,698 1,465,592 1,453,185 1,437,357 1,416,936 OPERATING REVENUES (MillionsofDollars)

Residential $ 1,304.5 $ 1,342.3 $ 1,229.8 $ 1,157.0 $ 1,127.8 $ 1,092.6 Small Commercial and Industrial 669.8 641.0 595.2 5 37.1 489.4 471.7 Large Commercial and Industrial 1,223.2 1,278.9 1,247.1 1,182.0 1,089.3 1,103.3 Other 168.0 170.4 166.9 143.9 143.8 142.l Service Territory 3,365.5 3,432.6 3,239.0 3,020.0 2,850.3 2,809.7 Interchange Sales 32.l 42.8 81.5 68.2 17.6 31.5 Sales to Other Utilities 199.5 187.2 81.1 TOTAL ELECTRIC REVENUES $ 3,597.l $ 3,662.6 $ 3,401.6 $ 3,088.2 $ 2,867.9 $ 2,841.2 0 PE RATING EXPENSES (MillionsofD o/lars)

Operating Expenses, excluding Depreciation $ 2,236.9 $ 2,253.2 $ 2,325.2 $ 2,077.4 $ 1,931.3 $ 1,926.6 Depreciation 390.8 379.6 337.7 257.4 245 .5 234.9 TOTAL OPERATING EXPENSES $ 2,627.7 $ 2,632.8 $ 2,662.9 $ 2,334.8 $ 2,176.8 $ 2,161.5 E LE CTR I c 0 PE RATING IN c 0 ME (Millions ofDollars) .~ ...... ?~?. ~ ~ ... ~??.~?. ~ ~ ..... ?.~~. ? ~ ..... ?.~~ . ~ ~ .... .?.~~ . .1. ~.. ....??.?:?.

Average Use per Residential Customer (kilowatthours)

Without Electric Heating 6,259 6,707 6,376 6,488 6,667 6,431 With Electric Heating 16,288 16,201 16,038 17 ,250 17,738 16,824 Total 7,443 7,801 7,464 7,655 7,807 7,427 El eak Load, Demand (thousands ofkilowatts) 6,617 7,096 6,7 55 6,467 6,826 6,547 N ic Generating Capacity -

Year-End Summer Rating (thousands ofkilowatts) 8,766 8,766 8,766 7,759 7,762 7,762 Cost of Fuel per Million Btu $0.82 $0.92 $1.13 $1.37 $1.19 $1.35 Btu per et Kilowatthour Generated 10,657 10,849 10,844 10,894 10,881 10,879 Philadelphia Electric Company

Philadelphia E lectr i c Company and S ub s idiar y Co mpan ie s 0 PE R AT I G S TAT I ST I CS GAS OPERATIONS 1992 1991 1990 1989 1988 1987 s ALE s (Millions ofCubic Feet)

Residential 1,819 1,746 1,778 1,951 1,933 1,854 House Heating 29,750 26,423 25,303 28,301 28, 112 26,010 Commercial and Industrial 21,497 20,492 23,228 30,038 39,073 38,170 Other 618 534 1,567 2,344 2,228 1,541 TO T AL GAS SALES 53,684 49,195 51,876 62,634 71,346 67 ,57 5 Gas Transported for Customers 23,588 21,414 24,413 18,033 9,272 7,374 TOTAL GAS SALES & TRANSPORTED 77,272 70,609 76,289 80,667 80,618 74,949 NUMBER OF CUSTOMERS, DECEMBER 3 1 Residential 59,859 62,444 63,267 65,544 66,599 67,688 House Heating 269,577 260,473 254,564 246,273 239,022 231,618 Commercial and Industrial 30,956 30,204 29,456 28,369 27,119 26,021 TOTAL GAS CUSTOMERS 360,392 353,121 347,287 340,186 332,740 325,327 OPERATING REVENUES (Mi!lionsofDollars)

Residential $ 16.4 $ 17.0 $ 18.1 $ 18.0 $ 17.0 $ 16.7 House Heating 201.9 192.4 200.8 195.8 180.6 17 5.7 Commercial and Industrial 121.1 123.6 144.7 152.5 165.1 167.5 Other 2.0 2.2 5.6 7.3 6.6 4.4 Subtotal $341.4 $3 3 5.2 $369.2 $373.6 $369.3 64.3 Other Revenues (including Transported for Customers) 23.9 20.8 15.8 12.1 9.1 .5 TOTAL GAS REVENUES

$365.3 $356.0 $385.0 $385.7 $378.4 .8 0 PE RATING E XPE N s ES (MiflionsofDoflars)

Operating Expenses, excluding Depreciation $278.4 $283.7 $3 36.2 $310.2 $308.3 $317.4 Depreciation 22.9 21.0 19.8 19.6 18.6 17.0 TOTAL OPERATING EXPENSES $301.3 $304.7 $356.0 $329.8 $326.9 $334.4 GAS OPERATING INCOME (MillionsofDollars) $ 64.0 $ 51.3 $ 29.0 $ 55 .9 $ 51.5 $ 37.4 SECURITIES STATISTICS Ratings on Philadelphia Electric Company's Securities Mortgage Bonds Debentures Preferred Stock Agency Rating Date Established Rating Date Established Rating Date Established Duff and Phelps, Inc. BBB+ 4/ 92 BBB 4/ 92 BBB- 8/ 91 Fitch Investors Service, Inc. A- 9/ 92 BBB+ 9/ 92 BBB+ 9/ 92 Moody's Investors Service Baal 4/ 92 Baa2 4/ 92 baa2 4/ 92 Standard & Poor's Corporation BBB+ 4/ 92 BBB 4/ 92 BBB 4/ 92 NYSE-COMPOSITE COMMON STOCK PR I CES, EARNINGS AND DIVIDENDS BY "1UARTER (PER SHARE) 1992 1991 Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter High Price $26-3 / 4 $26-3 / 4 $26-5 / 8 $26 $26 $22-7/ 8 $21 18 Low Price $25 $25 $23-5 / 8 $22-5/ 8 $22-1/8 $19-7 / 8 $19-1/2 /2 Close $26-118 $26-3 / 8 $26-3 / 8 $24-5/ 8 $25-7/ 8 $22-5/ 8 $20-1 / 8 Earnings 63¢ 59¢ 35¢ 33¢ 3 5<!: 72¢ 50¢ 58¢ Dividends 35¢ 32.5¢ 32.5¢ 32.5¢ 32. 5<!: 30¢ 30¢ 30¢ Philadelphia Electric Company

Philadelphia Electric Company and Sub1idiary Compa11ie1 O FF I CE R S JOSEPH F. PAQUETTE, JR. (SB) DAVID R. HELWIG (41) ALBERT J. SOLECKI (521 Chairman and Chief Executive Officer Vice President, Limerick Vice President, Information Systems CORBIN A. MCNEILL, JR. (53)

Generating Station and General Services President and Chief Operating Officer THOMAS P. HILL, JR. (44) ALVIN J. WEIGAND (541 WILLIAM L. BARDEEN (54)

Vice President and Controller Vice President, Transmission and Senior Vice President, Finance and KENNETH G. LAWRENCE (45)

Distribution Services Chief Financial Officer Vice President, Gas Operations LUCY S. BINDER (55)

JAMES W. DURHAM (55) JOHN M. MADARA, JR. (49)

Secretary Senior Vice President and Vice President, Production J. BARRY MITCHELL (45)

General Counsel ALBERT G. MIKALAUSKAS (56)

Assistant Treasurer and Director WILLIAM J. KASCHUB (50) Vice President, Customer and of Financial Operations Senior Vice President, Marketing Services JAMES F. HOHENSTEIN (49)

Human Resources DONALD B. MILLER, JR. (5 1)

Assistant Treasurer GWENDOLYN S. KING (52) Vice President, Peach Bottom Atomic M. DOROTHY LYONS ( 5 1)

Senior Vice President, Corporate Power Station Assistant Secretary and Public Affairs GERALD R. RAINEY (43) TODD D. CUTLER (32)

DICKINSON M. SMITH (59) Vice President, Nuclear Services Assistant Secretary Senior Vice President, Nuclear MORTON W. RIMERMAN (63)

Vice President, Finance and Treasurer WILLIAM H. SMITH , Ill (44)

Vice President, Planning and Performance MANAGEMENT CHANGES William L. Bardeen was elected Senior Vice President, Finance Gerald R. Rainey was elected Vice President, Nuclear Services, and Chief Financial Officer, effective February 18, 1992. effective July 20, 1992.

Raymond F. Holman retired as Senior Vice President, Planning Todd D. Cutler was elected Assistant Secretary, effective and Performance, effective May 1, 1992. July 27, 1992.

William H. Smith, III, was elected Vice President, Planning and Graham M. Leitch retired as Vice President, Limerick Generating Performance, effective May 1, 1992. Station, effective August 1, 1992.

Nicholas DeBenedictis resigned as Senior Vice President, Gwendolyn S. King was elected Senior Vice President, Corporate Corporate and Public Affairs, effective June 30, 1992. and Public Affairs, effective October 1, 1992.

David R. Helwig was elected Vice President, Limerick Generating Station, effective July 20, 1992.

Philadelphia Electric Co111pany

Ph iladtlphia E l e c tri c C o m p any a n d Su b s i d i ary Com pa nies BOARD OF D IRECTO R S SUSAN W, CATHERWOOD (49) JAMES A. HAGEN * (60) JOSEPH J, MCLAUGHLIN * (64)

Chairman, Trustee Board, Chairman, President and Chief President and Chief Executive Officer, The University of Pennsylvania Executive Officer, Consolidated Beneficial Mutual Savings Bank Medical Center Rail Corporation C::ORBIN A. MCNEILL, JR. (53)

M. WALTER D'ALESSIO ( 59 ) NELSON G. HARRIS ( 66 ) President and Chief Operating Officer President and Chief Executive Officer, Chairman of the Executive Committee, of the Company Latimer & Buck, Inc. (Mortgage Tasty Baking Company JOHN M. PALMS , PHO. ( 57 )

banking and real estate ROBERT 0. HARRISON ( 69 ) President, University of South Carolina development) Management and marketing consultant JOSEPH F . PAQUETTE , JR. * ( 58 RICHARD G. GILMORE * ( 65 )

JOSEPH C::. LADD ( 66 ) Chairman and Chief Executive Former Senior Vice President, Finance Former Chairman, Officer of the Company and Chief Financial Officer of the The Fidelity Mutual Life RONALD RUBIN ( 6 1)

Company Insurance Company General Partner, Richard I. Rubin & Co.

RICHARD H. GLANTON ,

EDITHE J. LEVIT, M.O. * ( 66 ) (Real estate development and management)

ESQU I RE ( 46 )

President Emeritus and Life Member Partner of the law firm Reed Smith Shaw of the Board, National Board of Medical

&McClay Examiners ADMIRAL KINNA I RD R.

MCKEE * ( 63 )

Director Emeritus, U.S. Navy Nuclear Propulsion

• M ember of Execu tive Committee Philadelphia Ele c tric Company

Philadelphia Jlettr1t" {,1Jmpt11!) 1111il \uhrid i ar ) <. o mpafli t>*

!\lost Company securities arc listed on the !'\cw \' ork Stock Ex-change and the Philadelphia Srock Exchange. Philadelphia Elccffic The Company had 2 30, 748 common swck shareholders of record as of December 3 l, 1992.

Power Company Dcbemurcs arc listed on the Philadelphia Stock Exchange.

P1111 .\DJ JPJ JL\ El.Et 11m Co~JP. \ ' ' -

Preferred and Common Stocks The Company has paid di\*idends on ics common stock continuall~ Registrar & Transfer Agent:

since 1902. The Board of Directors normally considers common First Chicago Trust Company of"Ncw York scock dividends for paymem in lvlarch, Junc, September and 30 \V . Broadway, NY, NY I0007 December. The Company estimates that the $1. 32 5 per share dividend paid co common shareholders in 1992 is fully taxable as P1JJL\DELPJ11A ELECTRIC Co~JJ'.\~ \ -

di\*idcnd income for federal income tax purposes. First and Refunding Mortgage Bonds Shareholders may use their di\*idends to purchase additional Trustee:

shares of common stock through the Company's Di1*idend Rein- Fidelity Bank, National ,\ssociation 1cstmem and Stock Purchase Plan (Plan). The Company pays all Corporate Trust Operations brokerage and service fees for Plan purchases. ,\II shareholders ha\*e Broad & \ \' aJnut Sts., Phi la., PA 19109 the opportunity w im*est additional Cunds in common stock of the  :\e11 \' ork . \gent:

Company, whether or nor the~* ha1*e their di 1*idcnds reinvesced-also ~!organ Guaranty Trust Co. of NY with all purchasing fees borne by d1e Company. Corporate Trust Department In I 992, 01*er 48% of the Company's common shareholders 30 \V. Broadway, NY, NY I 0007

• ticipants in the Plan. Information concerning the Plan may nee! from: First Chicago Trust Company of New York, P1111 .\DFLPJ JJA ELECTRIC Cm1P,\:-\Y-Debentures P.O. Box 3506, Church Street Station, l'\ew York, NY 10008-3 506. P1 JJL\DJ LPJ IL\ ELEC m1c Pmn RCo~IP.\"

(.\ Subsidiary)-Debentures Trustee:

The Company is always pleased to answer questions and prOl*ide CoreStates Bank, N.A.

information. Please address your comments tO Mrs. L. S. Binder, Corporate Trust Department Sccrctar), Philadelphia Electric Company, 2 30 I l1arket Street, P.O. P.O. Box 7907 Box 8699, Philadelphia, PA 19 l 0 I. Philadelphia, PA I 9101-7907 Inquiries relating w shareholder accounting records, stock trans- l'\ew York , \gent:

fer and change of address should be directed to: First Chicago Trust t\larine Midland Bank Company of "New York, P.O. Box 398 l, Church Street Station, Corporate Trust Departmem New York, l'\Y 10008-3981. 140 Broadway Operations Le1*e! A

\Y, ~y l 00 I 5 Toll-free telephone lines arc arnilablc to the Company's shareholders for inquiries concerning their stock Oll'ncrship. Calls should be made to 1-800-626-8729. 2301 ;\larket Street, P.O. Box 8699, Philadelphia, PA 19101; (215) 841-4000.

The ,\nnual t\leeting of Shareholders oC th<.: Com pan) ll'ill be held on ,\pril 14, 199 3. The record date for rnting at the shareholders' In July l 992, the Company surveyed a random sample of 2,500 meeting is February 24, 199 3. Notice of the meeting, proxy state- common smck shareholders to c1*aluate the Company's ,\nnual ment and pro.\ y '"ill be mailed under separate co1*er. Prompt return Report. They gave their opinions on all aspects of the report,

o. ,;,, w;IJ be 'Pl"";'.'~I. including their clear preference for a standard report with photogra-phy instead of a plain report 11 ithout photograph~ . They expressed a desire to use more recycled paper, ll"hich we ha1*e done with this Form 0-K, the annual report filed with the Securities and report (I 00% recycled). The length of the report was judged to be Exchange Commission, is available, without charge, to sh are- satisfactory. 0\*er 773 of the respondcms \"iewed the 199 L report as holders upon written request to Philadelphia Electric Company, "ab01*e <ll'erage" or "outstanding."\.\ ' e wish to extend our apprecia-2301 Market Street, P.O. Box 8699, Philadelphia, PA 1910 1, tion to all of the shareholders ll'ho panicipated in the sun*ey.

Attention: Financial Division, S2 1-1.

I