<PAGE>
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
                                   FORM 10-K
               /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
 
             / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 FOR THE TRANSITION PERIOD FROM             TO
                         COMMISSION FILE NUMBER 1-1405
                             ---------------------
                         DELMARVA POWER & LIGHT COMPANY
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                   <C>
        DELAWARE & VIRGINIA                 51-0084283
   (States or other jurisdictions        (I.R.S. Employer
 of incorporation or organization)     Identification No.)
   800 KING STREET, P. O. BOX 231
        WILMINGTON, DELAWARE                  19899
  (Address of principal executive           (Zip Code)
              offices)
</TABLE>
 
        Registrant's telephone number, including area code: 302-429-3089
                            ------------------------
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
<TABLE>
<CAPTION>
              TITLE OF EACH CLASS                       NAME OF EACH EXCHANGE ON WHICH REGISTERED
-----------------------------------------------  --------------------------------------------------------
<S>                                              <C>
First Mortgage Bonds (Series issued prior to     New York Stock Exchange and Philadelphia Stock Exchange
 1968)
Preferred Stock, Cumulative, Par Value $100.00   Philadelphia Stock Exchange
 (Series issued prior to 1978)
Common Stock, Par Value $2.25                    New York Stock Exchange and Philadelphia Stock Exchange
</TABLE>
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
 
    Indicate  by check  mark whether  the registrant  (1) has  filed all reports
required to be filed by  Section 13 or 15(d) of  the Securities Exchange Act  of
1934  during  the preceding  12  months (or  for  such shorter  period  that the
registrant was required to file such reports), and (2) has been subject to  such
filing requirements for the past 90 days. Yes _X_ No ____
    Indicate  by check mark if disclosure  of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  registrant's  knowledge,  in  definitive  proxy  or   information
statements  incorporated  by reference  in Part  III  of this  Form 10-K  or any
amendment to this Form 10-K. /X/
 
    The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 29, 1996 was $1,341,205,862.
 
    As of February 29, 1996, there were issued and outstanding 60,761,765 shares
of the registrant's common stock, Par Value $2.25.
                            ------------------------
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
<TABLE>
<CAPTION>
 PART OF FORM 10-K                                 DOCUMENT INCORPORATED BY REFERENCE
--------------------  --------------------------------------------------------------------------------------------
<S>                   <C>
I (Item I -- Segment  Portions of the 1995 Annual Report to Stockholders of Delmarva Power & Light Company
  Information) and
 II (Items 6, 7 and
         8)
        III           Portions of the Definitive Proxy Statement for the Annual Meeting of Stockholders of
                      Delmarva Power & Light Company, to be held May 30, 1996, which Definitive Proxy Statement is
                      expected to be filed with the Securities and Exchange Commission on or about April 25, 1996
         IV           Portions of the 1995 Annual Report to Stockholders of Delmarva Power & Light Company
</TABLE>
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                                            PAGE
                                                                                                          ---------
<S>         <C>                                                                                           <C>
PART I
                                                                                                                iii
Glossary................................................................................................
 
Item 1.     Business
                The Company.............................................................................        I-1
                Segment Information.....................................................................        I-1
                Operating Statistics....................................................................        I-1
                Strategic Plans for Competition.........................................................        I-1
                Electric Operations.....................................................................        I-3
                     Installed Capacity.................................................................        I-3
                     Power Pool.........................................................................        I-3
                     Reserve Margin.....................................................................        I-4
                     Energy Supply Plan.................................................................        I-4
                Power Plants............................................................................        I-5
                     Nuclear............................................................................        I-5
                     Peach Bottom Units.................................................................        I-6
                     Salem Units........................................................................        I-7
                     Life Extensions....................................................................        I-9
                Purchased Power.........................................................................        I-9
                Cost of Output for Load.................................................................       I-10
                Fuel Supply for Electric Generation.....................................................       I-10
                     Coal...............................................................................       I-10
                     Oil................................................................................       I-10
                     Gas................................................................................       I-10
                     Nuclear............................................................................       I-11
                Gas Operations..........................................................................       I-12
                Subsidiaries............................................................................       I-13
                Regulatory and Rate Matters.............................................................       I-13
                     Base Rate Proceedings..............................................................       I-13
                     Fuel Adjustment Clauses............................................................       I-13
                     Other Regulatory Matters...........................................................       I-14
                Construction and Financing Program......................................................       I-16
                Environmental Matters...................................................................       I-17
                     Construction Expenditures..........................................................       I-17
                     Clean Air Act......................................................................       I-17
                     Salem Operating Permit.............................................................       I-18
                     Water Quality Regulations..........................................................       I-18
                     Hazardous Substances...............................................................       I-19
                     Emerging Environmental Issues......................................................       I-20
                     Subsidiaries.......................................................................       I-20
                Retail Franchises.......................................................................       I-20
                Number of Employees.....................................................................       I-21
                Executive Officers of the Registrant....................................................       I-21
</TABLE>
 
<TABLE>
<S>      <C>                                                                                              <C>
Item 2.  Properties.....................................................................................       I-23
Item 3.  Legal Proceedings..............................................................................       I-24
Item 4.  Submission of Matters to a Vote of Security Holders............................................       I-24
 
PART II
Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters..........................       II-1
Item 6.  Selected Financial Data........................................................................       II-1
</TABLE>
 
                                       i
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                                            PAGE
                                                                                                          ---------
<S>         <C>                                                                                           <C>
Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations.......       II-1
Item 8.     Financial Statements and Supplementary Data.................................................       II-1
Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........       II-1
 
PART III
Item 10.    Directors and Executive Officers of the Registrant..........................................      III-1
Item 11.    Executive Compensation......................................................................      III-1
Item 12.    Security Ownership of Certain Beneficial Owners and Management..............................      III-1
Item 13.    Certain Relationships and Related Transactions..............................................      III-1
 
PART IV
Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................       IV-1
Signatures..............................................................................................       IV-4
</TABLE>
 
                                       ii
<PAGE>
                                    GLOSSARY
 
    The following glossary lists the abbreviations used in this report.
 
<TABLE>
<CAPTION>
TERM                                                                     DEFINITION
------------------------------------------  ---------------------------------------------------------------------
<S>                                         <C>
AFUDC.....................................  Allowance For Funds Used During Construction
BWR.......................................  Boiling Water Reactor
Charter...................................  Restated Certificate and Articles of Incorporation
Clean Air Act.............................  Clean Air Act Amendments of 1990
Company...................................  Delmarva Power & Light Company
COPCO.....................................  Conowingo Power Company
CT........................................  Combustion Turbine
D&D Fund..................................  Decontamination & Decommissioning Fund
Delcap....................................  Delmarva Capital Investments, Inc.
DNREC.....................................  Delaware Department of Natural Resources and Environmental Control
DOE.......................................  United States Department of Energy
DPSC......................................  Delaware Public Service Commission
EDR.......................................  Economic Development Rate
EMF.......................................  Electric and Magnetic Fields
Energy Act................................  Energy Policy Act of 1992
EPA.......................................  United States Environmental Protection Agency
ESA.......................................  Expanded Site Assessment
FERC......................................  Federal Energy Regulatory Commission
FGD.......................................  Flue Gas Desulfurization
GE........................................  General Electric Company
ISO.......................................  Independent System Operator
kV........................................  Kilovolts
kWh.......................................  Kilowatt-hour
LLRW......................................  Low Level Radioactive Waste
Mcf.......................................  Thousand Cubic Feet
MD&A......................................  Management's Discussion and Analysis of Financial Condition and
                                              Results of Operations
MDE.......................................  Maryland Department of the Environment
Mortgage..................................  Mortgage and Deed of Trust
MOU.......................................  Memorandum of Understanding
MPSC......................................  Maryland Public Service Commission
MW........................................  Megawatt
MWh.......................................  Megawatt-hour
NCR.......................................  Negotiated Contract Rate
NJDEPE....................................  New Jersey Department of Environmental Protection and Energy
NOPR......................................  Notice of Proposed Rulemaking
NOTC......................................  Northeast Ozone Transport Commission
NOTR......................................  Northeast Ozone Transport Region
NOx.......................................  Oxides of Nitrogen
NPDES.....................................  National Pollutant Discharge Elimination System
NRC.......................................  Nuclear Regulatory Commission
NWPA......................................  Nuclear Waste Policy Act of 1982
PADEP.....................................  Pennsylvania Department of Environmental Protection
Peach Bottom..............................  Peach Bottom Atomic Power Station
PECO......................................  PECO Energy Company
Pine Grove................................  Pine Grove Landfill, Inc.
</TABLE>
 
                                      iii
<PAGE>
 
<TABLE>
<CAPTION>
TERM                                                                     DEFINITION
------------------------------------------  ---------------------------------------------------------------------
<S>                                         <C>
PJM Interconnection.......................  Pennsylvania-New Jersey-Maryland Interconnection Association
PPPP......................................  Power Plant Performance Program
PRP.......................................  Potentially Responsible Party
PSE&G.....................................  Public Service Electric and Gas Company
PURPA.....................................  Public Utility Regulatory Policies Act of 1978
PWR.......................................  Pressurized Water Nuclear Reactors
RACT......................................  Reasonably Available Control Technology
Salem.....................................  Salem Nuclear Generating Station
SALP......................................  Systematic Assessment of Licensee Performance
SEC.......................................  Securities and Exchange Commission
SIT.......................................  Special Inspection Team
SO2.......................................  Sulfur Dioxide
Star......................................  Star Enterprise
VSCC......................................  Virginia State Corporation Commission
Westinghouse..............................  Westinghouse Electric Corporation
</TABLE>
 
                                       iv
<PAGE>
                                     PART I
 
ITEM 1.  BUSINESS
THE COMPANY
 
    Delmarva Power & Light Company (the Company) was incorporated in Delaware in
1909  and in Virginia in 1979. On  June 19, 1995, the Company acquired Conowingo
Power Company (COPCO), the  Maryland retail electric  subsidiary of PECO  Energy
Company  (PECO). COPCO was merged into the  Company and is now being operated as
the Conowingo District.  For a discussion  of the Company's  purchase of  COPCO,
refer  to  Notes  4 and  12  to  the Consolidated  Financial  Statements  of the
Company's 1995 Annual Report to Stockholders filed as Exhibit 13.
 
    The Company is predominantly a public utility that provides electric and gas
service.  The  Company  provides   electric  service  to  retail   (residential,
commercial,  and industrial) and  wholesale (resale) customers  in Delaware, ten
primarily Eastern Shore  counties in  Maryland, and  the Eastern  Shore area  of
Virginia  in an area consisting of about 6,000 square miles with a population of
approximately 1.1 million. In 1995, 90% of the Company's operating revenues were
derived from the sale of electricity. The Company provides gas service to retail
and transportation customers  in an area  consisting of about  275 square  miles
with  a population of approximately 470,000  in northern Delaware, including the
City of Wilmington.
 
    In addition, the Company  and its wholly-owned  subsidiaries are engaged  in
nonutility  activities. The  Company is developing  and marketing energy-related
products and services,  as discussed  in the "Strategic  Plans For  Competition"
section  of  Management's Discussion  and  Analysis of  Financial  Condition and
Results of Operations (MD&A) of the Company's 1995 Annual Report to Stockholders
filed as Exhibit 13.  The subsidiaries, also  incorporated in Delaware,  include
Delmarva  Energy Company, Delmarva Industries,  Inc., Delmarva Services Company,
and Delmarva  Capital  Investments,  Inc.  (Delcap). For  a  discussion  of  the
Company's subsidiaries, refer to "Subsidiaries" on page I-13.
 
SEGMENT INFORMATION
 
    See  Note 19 to the Consolidated  Financial Statements of the Company's 1995
Annual Report to Stockholders filed as Exhibit 13.
 
OPERATING STATISTICS
 
    A Schedule of Operating  Statistics for the three  years ended December  31,
1995,  can be found on page IV-3.  This schedule provides electric and gas sales
and revenue data.
 
STRATEGIC PLANS FOR COMPETITION
 
    Competition exists and is expected to increase for certain electric and  gas
energy markets historically served exclusively by regulated utilities. In recent
years,  changing laws  and governmental regulations  permitting competition from
other utilities  as well  as nonregulated  energy suppliers  have prompted  some
customers  to use self-generation or alternative  sources to meet their electric
and gas needs. The transition from strictly regulated to competitive resale  and
retail  markets is changing the structure of the utility industry and the way in
which it conducts business. To address the issues of deregulation and  increased
competition,  the Company also is changing the way that it views and manages its
business.
 
    ELECTRIC RESALE BUSINESS
 
    The Public Utility Regulatory Policies  Act of 1978 (PURPA) facilitated  the
entry  of  potential competitors  into the  electric generation  business. Under
PURPA, a  utility may  be  required to  purchase  the electricity  generated  by
qualifying  facilities  at  prices  reflecting  the  utility's  avoided  cost as
determined by utility procedures or state regulatory bodies.
 
                                      I-1
<PAGE>
    The Energy Policy Act  of 1992 (the Energy  Act) enabled the Federal  Energy
Regulatory  Commission  (FERC) to  order the  provision of  transmission service
(wheeling of electricity) for resale electricity producers. The Energy Act  also
provided  for the creation of a new  category of electric power producers called
exempt wholesale generators.
 
    In March 1995, the FERC issued a Notice of Proposed Rulemaking (NOPR) which,
if adopted, would  require electric utilities  to provide open  access to  their
transmission systems under non-discriminatory tariffs available to all wholesale
sellers  and  buyers  of  electricity.  Utilities  would  be  required  to offer
transmission services comparable to the services they provide to themselves  and
to   take  transmission  services  under  the  same  tariffs  applied  to  their
transmission customers. The  NOPR also  provides that  stranded costs  resulting
from  opening retail markets are subject to the jurisdiction of state regulatory
commissions. For a discussion of the Company's actions taken in response to  the
NOPR, refer to "Power Pool" on page I-3 and "Comparable Use Transmission Tariff"
on page I-15.
 
    For  a  discussion  of  the  Company's resale  business  and  the  impact of
competition on stranded costs,  refer to the  "Strategic Plans for  Competition"
section of the MD&A of the Company's 1995 Annual Report to Stockholders filed as
Exhibit 13.
 
    ELECTRIC RETAIL BUSINESS
 
    Changes  affecting competition in  retail markets also  are occurring. Large
commercial and  industrial customers  are reducing  their energy  costs  through
self-generation  or  cogeneration, the  use of  alternate  fuel sources  such as
natural gas,  and  special  contracts  negotiated on  the  basis  of  actual  or
potential  location  or  relocation  of facilities  and  operations.  While some
states, such as Maryland, have decided that retail wheeling is not in the public
interest at this time  (refer to "Maryland  Competition and Regulatory  Policies
Inquiry" on page I-15), other state governments are considering various forms of
retail  wheeling, which would permit  other utilities and non-utility generators
to compete to serve retail customers currently served by a particular utility.
 
    In 1995, Delaware  enacted legislation that  authorizes the Delaware  Public
Service  Commission (DPSC) to deregulate the utility industry when a competitive
market exists  and implement  alternatives  to traditional  rate base,  rate  of
return  regulation (refer to "Delaware Task  Force on Regulation" on page I-14).
At the federal level, legislation was recently introduced in the U.S. Senate  to
require all states to provide for retail wheeling by the year 2010.
 
    The Company is well positioned for competition in the retail markets, partly
due  to its relatively  low prices within  the region. The  Company's prices for
large retail customers are among the lowest in the area and are competitive with
alternative sources of  energy such  as self-generation.  The Company's  average
price  for commercial customers  in 1994 was 7.01  cents per kilowatt-hour (kWh)
compared to a  regional average  of 8.67 cents  per kWh.  The Company's  average
price  for industrial  customers in 1994  was 4.48  cents per kWh  compared to a
regional average of  6.65 cents per  kWh. These regional  averages are based  on
1994 data for 27 utilities within a 300-mile radius of the Company.
 
    The  Company believes that the benefits of  a competitive market can best be
realized when addressed together by the Company, the Commissions and  customers.
In  February 1996,  the Company  presented to the  DPSC and  the Maryland Public
Service Commission (MPSC) a  proposal to enter into  a collaborative process  to
develop the transition from a regulated to a competitive energy market. For more
information  concerning this presentation and the Company's actions and plans to
manage its retail business in a competitive environment, refer to the "Strategic
Plans For Competition" section of the  MD&A of the Company's 1995 Annual  Report
to Stockholders filed as Exhibit 13.
 
    GAS BUSINESS
 
    Deregulation  and restructuring  of the  production and  interstate pipeline
segments of the gas industry began in  1985 with the Wellhead Decontrol Act  and
concluded with FERC Order No. 636 in 1993. As a result of FERC's deregulation of
the  gas industry, the  Company primarily purchases  gas directly from producers
and transports the gas through various pipelines.
 
                                      I-2
<PAGE>
    End-use customers, including  the Company's retail  gas customers, may  also
purchase  gas  directly  from producers  and  marketers, arrange  for  their own
transportation on pipelines,  and transport  gas to their  facilities using  the
Company's  gas transmission and  distribution facilities. End-use transportation
customers pay the Company a fee according to retail transportation tariffs.  The
Company has entered into a joint marketing program with Columbia Energy Services
Corporation,  an affiliate of the Columbia  Gas System, to meet this competition
by directly marketing rebundled gas supply principally to the Company's  end-use
customers.
 
    In  February 1996,  the DPSC approved  the Company's  application to provide
additional local  deregulation  for end-use  customers  (refer to  "Natural  Gas
Restructuring  Filing"  on  page I-15).  Deregulation  of the  gas  industry has
allowed the Company to achieve additional revenues by making off-system sales to
end-use customers outside the traditional service territory.
 
    Finally, the Company is participating as a member of the East Coast  Natural
Gas   Cooperative  with  seven  other  regional  distribution  companies.  These
companies are working jointly  to ensure reliability,  purchase supplies at  the
lowest  reasonable  cost,  provide  for  joint  planning,  increase  operational
efficiencies, and consider market opportunities.
 
ELECTRIC OPERATIONS
 
    INSTALLED CAPACITY
 
    The net  installed  summer electric  generating  capacity available  to  the
Company  to serve its peak load as of December 31, 1995, is presented below. The
Company's purchase of 205 megawatts (MW)  of capacity from PECO, related to  the
COPCO  acquisition,  was excluded  from the  Company's installed  capacity until
February 1, 1996,  as agreed  with PECO and  in compliance  with the  accounting
provisions  of the Pennsylvania-New  Jersey-Maryland Interconnection Association
(PJM Interconnection). For  a discussion  of the Company's  energy supply  plan,
refer to "Energy Supply Plan" on page I-4.
 
<TABLE>
<CAPTION>
                                                                                                       % OF
INSTALLED SUMMER CAPACITY                                                               MEGAWATTS      TOTAL
-------------------------------------------------------------------------------------  -----------     -----
<S>                                                                                    <C>          <C>
Coal-Fired...........................................................................       1,120           39
Oil-Fired............................................................................         586           20
Combustion Turbines/Combined Cycle...................................................         511           18
Nuclear..............................................................................         328           11
Peaking Units........................................................................         183            6
Purchased Capacity...................................................................          48            2
Customer-owned Capacity..............................................................          57            2
                                                                                            -----          ---
  Subtotal...........................................................................       2,833           98
Purchased PJM Interconnection Capacity Credits.......................................          50            2
                                                                                            -----          ---
  Total..............................................................................       2,883          100
                                                                                            -----          ---
                                                                                            -----          ---
</TABLE>
 
    The net generating capacity available for operations at any time may be less
than  the total net installed generating  capacity due to generating units being
temporarily out of service for  inspection, maintenance, repairs, or  unforeseen
circumstances.  See "Item  2 -- Properties"  on page  I-23 for a  listing of net
installed generating capacity by station.
 
    POWER POOL
 
    As a  member  of  the  PJM Interconnection,  the  Company's  generation  and
transmission  facilities are operated on an integrated basis with those of seven
other utilities  in Pennsylvania,  New  Jersey, Maryland,  and the  District  of
Columbia.  This  power  pool  was  formed  for  the  purpose  of  improving  the
reliability and operating economies of the  systems in the group and to  provide
capital  economies by permitting the sharing  of reserve requirements on a group
basis. The  Company  estimates that  its  fuel savings  associated  with  energy
transactions within the pool amounted to $12.5 million during 1995.
 
                                      I-3
<PAGE>
    The  PJM Interconnection's  installed capacity as  of December  31, 1995 was
56,098 MW. The  PJM Interconnection  peak demand during  1995 was  48,524 MW  on
August  2nd,  which resulted  in  a summer  reserve  margin of  15.3%  (based on
installed capacity of 55,962 MW on  that date). This peak replaces the  previous
all-time peak demand of 46,429 MW which was set on July 8, 1993.
 
    In  November 1995, seven PJM Interconnection member companies, including the
Company, provided a  detailed plan  to the  FERC to  modify or  replace the  PJM
Interconnection  Agreement and other existing  transmission agreements among the
current PJM Interconnection members. The detailed plan is intended, among  other
things,  to provide transmission tariffs  which comply with regulations expected
to result from the NOPR on open access transmission issued by FERC in March 1995
(refer to  "Electric Resale  Business" on  page I-1).  The sponsoring  companies
intend  to make  a comprehensive filing  with FERC by  the end of  May 1996 with
possible  implementation  of  the  basic   elements  of  the  restructured   PJM
Interconnection  pool  operations  by  year-end  1996.  The  plan  includes  the
following key elements:
 
    - Pool-wide transmission tariffs  providing comparable, open-access  service
      for all wholesale transactions throughout the PJM Interconnection;
 
    - A  regional pool energy market using  price-based dispatch that is open to
      all available wholesale buyers and sellers of power;
 
    - Establishment of an  Independent System  Operator (ISO)  to provide  daily
      management  and administration of pool  operations, the energy market, and
      the regional transmission network; and
 
    - Development of  an enhanced  pool-wide planning  function consistent  with
      Mid-Atlantic  Area Coordination principles, criteria and procedures, which
      provide for review and evaluation of plans for generation and transmission
      facilities and  other matters  relevant  to the  reliability of  the  bulk
      electric supply systems in the Mid-Atlantic area.
 
    RESERVE MARGIN
 
    The  Company's peak load in 1995 was 2,602 MW on August 4th, which surpassed
the Company's previous peak  of 2,551 MW  on July 8,  1994. By mutual  agreement
with  PECO and in compliance with PJM Interconnection accounting provisions, the
1995 peak does not include 172 MW of COPCO load, for which PECO continued to  be
responsible  until February 1, 1996.  Because adequate generation was available,
these peaks  do not  reflect full  implementation of  the Company's  demand-side
programs,  including  the  curtailment  of  large  interruptible  customers. The
Company's PJM Interconnection capacity  obligation, including a reserve  margin,
is based on normal weather conditions and full implementation of its demand-side
programs,  which the Company estimates would have resulted in a peak of 2,364 MW
in 1995. Based upon this estimated  peak and the Company's installed  generating
capacity of 2,829 MW at the time of the peak, the Company's reserve margin would
have  been 19.7%. The Company's reserve obligation varies from year to year, but
typically is around 18%.
 
    ENERGY SUPPLY PLAN
 
    The objective of the Company's energy supply plan is to provide an adequate,
reliable, and competitively  priced supply  of electricity to  customers with  a
minimal adverse effect on the environment. This plan, which is updated annually,
is  based on forecasts  of demand for  electricity in the  service territory and
reserve requirements of the PJM Interconnection. The plan emphasizes balance and
flexibility, and may be accelerated, slowed, or altered in response to  changing
energy  demands, fluctuating  fuel prices,  and emerging  technologies. The plan
considers  customer-oriented   load   management   and   conservation   programs
("demand-side"  alternatives) along  with long- and  short-term power contracts,
and new  or  renovated  power  plants  ("supply-side"  alternatives).  The  plan
currently  matches  customers' energy  requirements and  does not  require large
investments for new resources. For further discussion of the energy supply plan,
refer to the "Energy Supply"  section of the MD&A  of the Company's 1995  Annual
Report to Stockholders filed as Exhibit 13.
 
                                      I-4
<PAGE>
    As  of the end of 1995, the Company had enrolled in its demand-side programs
about 88,600 residential  customers and  about 1,600  commercial and  industrial
customers,  who in aggregate provide the Company  with the ability to reduce its
peak by approximately 243 MW. On October 3, 1995, the Company filed to close its
existing demand-side  programs to  new participants  in Delaware  and  Maryland,
while it reexamined the design and efficacy of these programs and considered the
possible  implementation  of  other  cost-effective  and  otherwise  appropriate
programs. The Company took this step because analysis indicated that its current
and other  potential demand-side  programs are  not appropriate,  cost-effective
resources for meeting the incremental needs of the Company's customers.
 
    As part of the supply-side portion of the energy supply plan, the Company is
purchasing  48 MW of  peaking capacity through  May 2018 from  the Delaware City
Power Plant owned by Star Enterprise (Star). In conjunction with its acquisition
of COPCO,  the Company  is purchasing  base-load capacity  from PECO  that  will
increase  from 205 MW  in 1996 to 279  MW when the contract  expires in 2006. In
addition, short-term  purchases  are being  considered  to meet  continuing  PJM
Interconnection  capacity obligations  from 1997  to 2000.  As further discussed
under "Life  Extensions"  on  page I-9,  the  Company  also has  a  power  plant
life-extension  program  to extend  the  operating lives  of  certain generating
units.
 
    The table  below summarizes  the peak  load and  capacity forecast  for  the
current  and next five PJM  Interconnection planning periods, beginning annually
on June 1. The Company periodically reviews and updates its forecast to  reflect
changes in peak load and capacity estimates.
 
<TABLE>
<CAPTION>
                                           PEAK LOAD (MW)                  CAPACITY (MW)
                PJM                  ---------------------------   -----------------------------
             PLANNING                 GROSS                NET                 TOTAL
               YEAR                  SUMMER     TOTAL    SUMMER      TOTAL     OWNED     TOTAL     RESERVE
             BEGINNING               COMPANY   DEMAND-   COMPANY   PURCHASED   POWER   INSTALLED   MARGIN
              JUNE 1                  PEAK      SIDE      PEAK       POWER     PLANTS  CAPACITY      (%)
-----------------------------------  -------   -------   -------   ---------   -----   ---------   -------
<S>                                  <C>       <C>       <C>       <C>         <C>     <C>         <C>
1995...............................   2607       243      2364         48      2781      2829       19.7
1996...............................   2849       243      2606        253      2786      3039       16.6
1997...............................   2877       243      2634        335      2786      3121       18.5
1998...............................   2867       243      2624        310      2786      3096       18.0
1999...............................   2926       243      2683        367      2786      3153       17.5
2000...............................   2985       243      2742        423      2786      3209       17.0
</TABLE>
 
POWER PLANTS
 
    NUCLEAR
 
    The  Company's nuclear  capacity is  provided by  Peach Bottom  Atomic Power
Station (Peach Bottom)  Units 2 and  3 and by  Salem Nuclear Generating  Station
(Salem)  Units 1  and 2.  The Company  jointly owns  these units,  as tenants in
common, with PECO, Atlantic City  Electric Company, and Public Service  Electric
and  Gas Company (PSE&G). The Peach Bottom units are operated by PECO and have a
combined summer capacity of 2,186 MW, of which the Company is entitled to 164 MW
(7.51%). The  Salem units  are operated  by  PSE&G and  have a  combined  summer
capacity of 2,212 MW, of which the Company is entitled to 164 MW (7.41%).
 
    The  operation  of  nuclear generating  units  is regulated  by  the Nuclear
Regulatory Commission (NRC). Such regulation requires that all aspects of  plant
operation   be  conducted  in  accordance  with  NRC  safety  and  environmental
requirements and that continuous  demonstrations be made to  the NRC that  plant
operations  meet applicable requirements. The NRC  has the ultimate authority to
determine whether any nuclear generating unit may operate.
 
    For a discussion  of the  Company's funding of  its share  of the  estimated
future  cost of  decommissioning the  Peach Bottom  and Salem  nuclear reactors,
refer to Note 7 to the  Consolidated Financial Statements of the Company's  1995
Annual Report to Stockholders filed as Exhibit 13.
 
                                      I-5
<PAGE>
    As  by-products of their operations, nuclear generating units, including the
Peach Bottom and Salem units, produce  low level radioactive waste (LLRW).  Such
waste   includes  paper,  plastics,   protective  clothing,  water  purification
materials and other materials which must be disposed of properly. Prior to  July
1994,  PECO  and  PSE&G  disposed  of such  materials  at  a  federally licensed
permanent disposal  facility  in Barnwell,  South  Carolina. At  that  time,  in
accordance  with the  Low Level  Radioactive Waste  Policy Act,  as amended, the
facility exercised its  authority to stop  accepting waste from  New Jersey  and
Pennsylvania,  which states are not members  of the regional compact under which
the facility is operated.  Peach Bottom and Salem  stored the waste  temporarily
on-site  until the South Carolina site allowed  the units to resume shipments in
July 1995. The on-site facilities at PECO  and PSE&G have capacity for at  least
five years of temporary storage. PECO has informed the Company that Pennsylvania
is  pursuing its own  LLRW site development  via state-selected candidate sites,
along with a volunteer plan option. PSE&G also has informed the Company that New
Jersey has introduced a  volunteer siting process to  establish a LLRW  disposal
facility by the year 2000. To date, no volunteers have been identified.
 
    PEACH BOTTOM UNITS
 
    PECO  has informed the Company that, on December 5, 1995, the NRC issued its
periodic Systematic  Assessment of  Licensee Performance  (SALP) Report  on  the
performance  of activities at Peach Bottom for the period May 1, 1994 to October
15, 1995.  SALP reports  rate  licensee performance  in four  assessment  areas:
Operations,  Maintenance, Engineering  and Plant  Support. Ratings  range from a
high of "1" to a low of "3". Peach Bottom received a rating of "1" in the  areas
of  Operations, Maintenance, and Plant Support, and "2" in Engineering. PECO has
informed the Company that the NRC observed excellent performance at Peach Bottom
during the assessment  period. Station  management oversight,  effective use  of
performance  enhancement at all levels of the organization and other measures in
identifying and evaluating issues contributed to the strong performance. The NRC
noted  performance  improvements  in  all  assessment  areas,  particularly   in
Maintenance and Plant Support. Although the NRC noted that excellent performance
often  was displayed  in the Engineering  area, errors in  modification work, in
addition to some other  lapses, indicated inconsistent engineering  performance.
PECO has informed the Company that it is taking actions to further improve Peach
Bottom performance.
 
    PECO  has informed the Company that, by a letter dated October 18, 1994, the
NRC approved PECO's request to rerate the authorized maximum reactor-core  power
levels  of each Peach Bottom unit by 5%  to 1,093 MW. The amendment of the Peach
Bottom Unit 2 facility operating license was effective upon the date of the  NRC
approval  letter and the  associated hardware changes  were completed during the
Peach Bottom Unit  2 refueling outage  in the  fall of 1994.  The amendment  for
Peach  Bottom Unit 3 was issued  by the NRC on July  18, 1995 and the associated
hardware changes  were implemented  during  the Peach  Bottom Unit  3  refueling
outage in the fall of 1995.
 
    On  August 2, 1995,  the NRC held an  enforcement conference regarding three
alleged violations identified  by the  NRC at Peach  Bottom. In  a letter  dated
August  17, 1995, the NRC stated that  the inadequate design control and testing
which  led  to  the  degradation  of  emergency  diesel  generator  capabilities
constituted  a Level III violation; however, because PECO identified the issues,
conducted a  detailed  root-cause  evaluation and  took  appropriate  corrective
actions, no civil penalty was proposed.
 
    PECO  has  informed  the Company  that,  in October  1990,  General Electric
Company (GE) reported that crack indications were discovered near the seam welds
of the core shroud assembly in a GE Boiling Water Reactor (BWR). As a result, GE
issued a  letter  requesting that  the  owners of  GE  BWR plants  take  interim
corrective  actions,  including  a  review  of  fabrication  records  and visual
examinations of accessible  areas of the  core shroud seam  welds. Peach  Bottom
Unit  3 was initially examined during its  refueling outage in the fall of 1993.
Although crack indications were identified at two locations, PECO presented  its
finding  to the NRC and provided  justification for continued operation of Peach
Bottom Unit 3 for a two-year cycle.  Peach Bottom Unit 3 was re-examined  during
its last
 
                                      I-6
<PAGE>
refueling  outage in the fall of 1995  and the extent of cracking identified was
determined to be within industry-established guidelines. In a letter to the  NRC
dated  November 3, 1995, PECO  concluded that there is  a substantial margin for
each core shroud weld to allow for  continued operation of Peach Bottom Unit  3.
Peach  Bottom Unit  2 was  examined in  October 1994  during its  last refueling
outage and the inspection revealed a minimal number of flaws. In a letter  dated
November  7,  1994,  PECO  submitted  its  findings  to  the  NRC  and  provided
justification  for  continued  operation  of  Peach  Bottom  Unit  2.  PECO   is
participating in a GE BWR Owners Group to develop long-term corrective actions.
 
    SALEM UNITS
 
    Due  to operational problems  and maintenance concerns, Salem  Units 1 and 2
were removed  from  operation  by PSE&G  on  May  16, 1995  and  June  7,  1995,
respectively.  PSE&G has  informed the Company  that since that  time, PSE&G has
been engaged in an  assessment of each  unit to identify  and complete the  work
necessary to achieve safe, sustained, reliable and economic operation. PSE&G has
stated  that it will keep each unit off line until it is satisfied that the unit
is ready to return to service and to operate reliably over the long term and the
NRC has agreed that  the unit is  sufficiently prepared to  restart. On June  9,
1995,  the NRC issued a Confirmatory Action Letter documenting these commitments
of PSE&G.
 
    PSE&G has informed the Company that,  on December 11, 1995, PSE&G  presented
its  restart plan for both units to the NRC at a public meeting. On February 13,
1996, the NRC staff issued  a letter to PSE&G  indicating that it had  concluded
that PSE&G's overall restart plan, if implemented effectively, should adequately
address  the  numerous  Salem  issues  to  support  a  safe  plant  restart, and
describing further  actions  the NRC  will  undertake to  confirm  that  PSE&G's
actions  have resulted in the necessary performance improvements to support safe
plant restart.
 
    PSE&G also has stated that, as a  part of PSE&G's review, an examination  is
being performed on the steam generators, which are large heat exchangers used to
produce  steam to drive  the turbines. Within  the industry, certain pressurized
water nuclear reactors  (PWR) other than  Salem have experienced  cracking in  a
sufficient  number of the steam generator tubes to require various modifications
to these tubes and replacement of the steam generators in some cases. Until  the
current  outage, regular periodic  inspections of the  steam generators for each
Salem unit have resulted in repairs of  a small number of tubes well within  NRC
limits.  As a result of the experience of other utilities with cracking in steam
generator tubes, in April 1995 the NRC issued a generic letter to all  utilities
with PWRs to conduct steam generator examinations with more sensitive inspection
devices  capable  of  detecting  evidence  of  degradation.  Subsequently, PSE&G
conducted steam  generator  inspections of  the  Salem units  using  the  latest
technology  available,  including a  new, more  sensitive, eddy  current testing
device.
 
    In addition, PSE&G has informed the Company that, with respect to Salem Unit
1, the  most recent  inspection of  the steam  generators is  not complete,  but
partial  results from eddy  current inspections in February  1996 using this new
technology show indications of degradation in a significant number of tubes. The
inspections are continuing  and PSE&G has  decided to remove  several tubes  for
laboratory examination to confirm the results of the inspections. Removal of the
tubes  should be completed in March and  preliminary results of the state of the
Salem Unit 1 tubes from the  subsequent laboratory examinations should be  known
in  April.  However, based  on the  results  of inspections  to date,  PSE&G has
concluded that the Salem Unit  1 outage, which was  expected to be completed  in
the  second quarter of 1996,  will be required to  be extended for a substantial
additional period  to  evaluate  the  state  of  the  steam  generators  and  to
subsequently  determine an  appropriate course  of action.  Degradation of steam
generators in PWRs has  become an increasing concern  for the nuclear  industry.
Nationally  and internationally, utilities have  undertaken actions to repair or
replace steam generators. In  the extreme, degradation  of steam generators  has
contributed  to the retirement of several American nuclear power reactors. After
the Salem Unit 1 tubes  are fully examined, PSE&G will  be able to evaluate  its
course of action in light of NRC and other industry requirements.
 
                                      I-7
<PAGE>
    According to PSE&G, the examination of the Salem Unit 2 steam generators was
completed  in January 1996 using  the same testing device  used in Salem Unit 1.
The results of the Salem Unit 2  inspection are being reviewed again to  confirm
their results in light of the experience with Salem Unit 1. Although this review
has not yet been completed, results to date appear to confirm that the condition
of  the Salem  Unit 2 steam  generators is  within current repair  limits at the
present time.  PSE&G  also  will  remove  tubes from  the  Salem  Unit  2  steam
generators  for  laboratory  analysis to  further  confirm the  results  of this
testing.
 
    Also, PSE&G had  planned to return  Salem Unit  1 to service  in the  second
quarter  of 1996 and Salem Unit  2 in the third quarter  of 1996. As a result of
the extent of  the recently  discovered degradation in  the Salem  Unit 1  steam
generators,  PSE&G is  focusing its  efforts on  the return  of Salem  Unit 2 to
service in the  third quarter.  The conduct  of the  additional steam  generator
inspections  and testing on Salem Unit 2 is not expected to adversely affect the
timing of  its  restart.  However, the  timing  of  the restart  is  subject  to
completion  of the requirements of the restart plan to the satisfaction of PSE&G
and the  NRC as  well as  to the  normal uncertainties  associated with  such  a
substantial  review and improvement of  the systems of a  large nuclear unit, so
that no assurance can be given that the projected return date will be met.
 
    According to PSE&G,  on January  3, 1995, the  NRC provided  PSE&G with  its
latest SALP report on Salem for the period between June 20, 1993 and November 5,
1994.  Salem  received ratings  of  "3", the  lowest  acceptable rating,  in the
Operations and Maintenance areas, "2" in Engineering, and "1" in Plant  Support.
The NRC noted an overall decline in performance and evidenced particular concern
with  plant and operator challenges caused  by repetitive equipment problems and
personnel errors. The NRC also noted  that although PSE&G has initiated  several
comprehensive  actions within  the past year  to improve  plant performance, and
some recent  incremental  gains  have  been made,  these  efforts  have  yet  to
noticeably change overall performance at Salem.
 
    On  March 21, 1995, representatives of the  NRC Staff met with the Boards of
Directors of Public Service  Enterprise Group, Inc. and  PSE&G to reiterate  the
previously  expressed concerns with regard to  Salem's operations. The NRC staff
acknowledged  that  PSE&G  had  made  efforts  to  improve  Salem's  operations,
including  making  senior management  changes,  but indicated  that demonstrated
sustained results have not yet been achieved.
 
    PSE&G also has informed the Company  that an NRC enforcement conference  was
held  on July  28, 1995,  related to certain  violations of  NRC requirements at
Salem not related  to the present  outage. The violations  included valves  that
were  incorrectly  positioned  following  a  plant  modification  in  May  1993,
non-conservatisms in setpoints for a pressurizer overpressure protection  system
and  several examples of inadequate root  cause determination of events, leading
to insufficient  corrective  actions.  On  October 16,  1995,  the  NRC  imposed
cumulative civil penalties related to these violations of $600,000, of which the
Company's share is 7.41%. PSE&G did not contest the penalties.
 
    On  October  5, 1995,  plant operators  at  Salem Unit  1 declared  an alert
because the  overhead annunciator  panels located  in the  control room  stopped
functioning.  The panels were  declared fully operable  after testing later that
day, and the alert was  terminated. On November 13,  1995, the NRC conducted  an
exit  meeting to review NRC Special Inspection Team (SIT) findings regarding the
loss of the overhead annunciator panels. The SIT noted two potential  violations
and  two  unresolved  items.  The  items  were  all  associated  with  Emergency
Preparedness.
 
    PSE&G has informed  the Company  that PSE&G's  own assessments,  as well  as
those  by the NRC and  the Institute of Nuclear  Power Operations, indicate that
additional efforts are  required to  further improve  operating performance,  as
reflected  in the restart  plans referred to previously.  PSE&G has informed the
Company that  PSE&G is  committed to  taking the  necessary actions  to  address
Salem's  performance  needs. It  is anticipated  that the  NRC will  continue to
maintain a close watch on Salem's restart activities and subsequent  operational
performance. No assurance can be given as to what, if any, further or additional
actions may be taken or required by the NRC to improve Salem's performance.
 
                                      I-8
<PAGE>
    The  Company's operation and  maintenance costs and  replacement power costs
related to the current outage are discussed in the "Salem Outage" section of the
MD&A and Note 16 to the Consolidated Financial Statements of the Company's  1995
Annual Report to Stockholders filed as Exhibit 13.
 
    On February 27, 1996, the co-owners of Salem, including the Company, filed a
complaint   in  the  United  States  District   Court  for  New  Jersey  against
Westinghouse Electric Corporation (Westinghouse), the designer and  manufacturer
of  the  Salem steam  generators.  The complaint,  which  seeks to  recover from
Westinghouse the  costs  associated  with replacing  Salem's  steam  generators,
alleges  violations of federal  and New Jersey  Racketeer Influenced and Corrupt
Organizations Acts, fraud, negligent  misrepresentation and breach of  contract.
The  Salem co-owners  contend that  the recently  discovered degradation  of the
steam generators will prevent the steam  generators from operating for a  design
life of 40 years. The lawsuit asserts that the Salem steam generators ultimately
will require replacement and these costs should be borne by Westinghouse and not
the  customers  and  shareholders of  the  Salem co-owners.  The  Company cannot
predict the outcome of this lawsuit.
 
    On March 5,  1996, the  Company and  PECO filed  a complaint  in the  United
States  District Court for  the Eastern District  of Pennsylvania against Public
Service Enterprise Group,  Inc. and PSE&G,  the operator of  Salem. The  lawsuit
alleges  that the defendants failed to respond adequately to numerous citations,
warnings, notices  of  violations and  fines  by the  NRC  as well  as  repeated
warnings  from  the Institute  of  Nuclear Power  Operations  about performance,
safety, and management problems at Salem. Further, the defendants failed to take
appropriate corrective  action. The  suit contends  that as  a result  of  these
actions  and omissions, the defendants were forced to shut down both Salem units
in 1995. The suit asks for compensatory  damages for breach of contract and  for
the  defendants' "gross negligence, willful,  wanton and reckless misconduct and
misfeasance in performance of  the Owners' Agreement"  and punitive damages,  in
amounts  to  be  determined. The  Company  cannot  predict the  outcome  of this
lawsuit.
 
    See page I-18  for a discussion  on the  status of the  operating permit  at
Salem.
 
    LIFE EXTENSIONS
 
    The   Company  is  conducting  a  life   extension  program  on  its  older,
wholly-owned generating units  to extend the  operating life of  each unit by  a
minimum  of  20 years  beyond  the normal  unit  30-year design  life. Continued
operation of these units  will defer the construction  of new capacity and  will
help  to meet PJM Interconnection generating reserve margin obligations. Surveys
of Indian  River Units  1, 2,  and 3  and  Edge Moor  Units 3  and 4  have  been
completed. Projects identified during the surveys have been completed to date or
will  be implemented during scheduled maintenance  outages. Edge Moor Unit 5 and
Vienna Unit 8  will undergo surveys  beginning in 1996  and 1997,  respectively.
Construction  expenditures on these projects  for the five-year period 1996-2000
are expected to total approximately  $31 million, excluding allowance for  funds
used during construction (AFUDC).
 
PURCHASED POWER
 
    The  Company makes  short-term energy purchases  from several  sources in an
effort to replace higher-cost generation. During 1995, purchases were made  from
Allegheny  Power  System,  PECO,  and  several  power  marketers.  The Company's
estimated fuel savings from these  transactions amounted to $3.4 million  during
1995.
 
    The  Company also purchases 48 MW of long-term capacity from Star Enterprise
and has entered into  a power purchase agreement  with PECO associated with  the
Company's  acquisition of COPCO as discussed  under "Energy Supply Plan" on page
I-4.
 
                                      I-9
<PAGE>
COST OF OUTPUT FOR LOAD
 
    The following table sets forth the Company's annual generation output,  fuel
cost  per megawatt  hour (MWh),  and generation  mix by  unit fuel  type for all
Company-owned facilities. Coal is the Company's predominant fuel.  Corresponding
values  for purchased power and for net  interchange (purchases less sales) as a
member of the PJM Interconnection are also listed.
<TABLE>
<CAPTION>
                                       1995                             1994                             1993
                          -------------------------------  -------------------------------  -------------------------------
GENERATION                  1,000       $/                   1,000       $/                   1,000       $/
UNIT FUEL TYPE               MWH        MWH         %         MWH        MWH         %         MWH        MWH         %
------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                       <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Coal-fired..............      5,086         18         40      5,499         18         42      6,028         18         47
Oil-fired...............      1,191         28          9      1,998         27         15      2,343         24         18
Nuclear.................      1,567          8         12      2,052          8         16      1,883          7         14
Natural Gas.............      2,953         20         23      2,033         19         15      1,010         23          8
                          ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
  Total Company
   Generation...........     10,797         18         84     11,582         18         88     11,264         18         87
 
<CAPTION>
PURCHASES/ INTERCHANGE
------------------------
<S>                       <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Purchases...............      3,156         21         24      2,873         23         22      3,200         22         25
Net Interchange.........     (1,040)       (29)        (8)    (1,328)       (32)       (10)    (1,568)       (30)       (12)
                          ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
  Total Output for
   Load.................     12,913         18        100     13,127         17        100     12,896         18        100
                          ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                          ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
</TABLE>
 
FUEL SUPPLY FOR ELECTRIC GENERATION
 
    The Company's  electric generating  capacity  by fuel  type is  shown  under
"Electric  Operations --  Installed Capacity,"  on page  I-3. To  facilitate the
purchase of adequate amounts of fuel at reasonable prices, the Company contracts
with various  suppliers of  coal,  oil, and  natural gas  on  both a  long-  and
short-term  basis.  The  Company's long-term  coal  contracts  generally contain
provisions for periodic and limited price adjustments which are based on current
market prices. Oil and natural gas contracts generally are of shorter term  with
prices determined by market-based indices.
 
    COAL
 
    Edge  Moor  Units 3  and 4,  and  the Indian  River, Keystone  and Conemaugh
generating stations are coal-fired. During 1995, 5% of the Company's coal supply
was purchased  under short-term  contracts (less  than three  years), 77%  under
long-term contracts (up to ten years), and the balance on the spot market. As of
December  31, 1995,  a maximum  of 79% of  the Company's  coal requirements were
under supply  contracts.  The Company  does  not anticipate  any  difficulty  in
obtaining adequate amounts of coal at reasonable prices.
 
    OIL
 
    From  75% to 100% of the residual oil  used in Edge Moor Unit 5 currently is
being supplied under a two-year contract which expires in 1996. Any amount  over
75%  of requirements may be purchased in the spot market. The Company expects to
negotiate a new  contract in 1996  with similar terms.  Natural gas is  utilized
when  economically feasible. The fuel supply  contract for the Vienna Generating
Station, which expires  in 1997,  provides from 90%  to 100%  of that  station's
requirements.  Any amount over 90% of requirements  may be purchased in the spot
market.
 
    GAS
 
    Natural gas, which  is the primary  fuel for the  three combustion  turbines
(CTs)  at the Company's Hay Road site and  a secondary fuel at Edge Moor Unit 5,
is supplied partly through  contracts described under  "Gas Operations" on  page
I-12.  Additional natural gas is purchased on a firm or interruptible basis from
one of the Company's pipeline suppliers. The secondary fuel for the Hay Road CTs
is kerosene, which is purchased on the spot market.
 
                                      I-10
<PAGE>
    NUCLEAR
 
    The cycle of  production and  use of nuclear  fuel involves  the mining  and
milling  of  uranium  ore  to uranium  concentrate,  conversion  of  the uranium
concentrate to uranium hexaflouride gas,  enrichment of that gas, conversion  of
the  enriched  gas to  fuel  pellets, fabrication  of  fuel assemblies  from the
pellets, and the use of the  fuel assemblies in the generating station  reactor.
After  spent fuel is removed  from a nuclear reactor,  it is placed in temporary
storage for  cooling in  a spent  fuel pool  at the  nuclear station  site.  The
Federal  Government  has  an  obligation  for  the  transportation  and ultimate
disposal of the spent fuel, as discussed below.
 
    PECO has informed the Company that it has contracts for uranium concentrates
that will  satisfy  the fuel  requirements  of  Peach Bottom  through  2002.  In
February  1995, two  companies that  supply uranium  concentrates to  PECO filed
petitions for  bankruptcy under  Chapter  11 of  the  Bankruptcy Code.  The  two
companies  supply approximately  half of PECO's  1995 and  1996 requirements for
uranium concentrates. In  addition, one of  the companies is  under contract  to
supply  approximately  25% of  PECO's uranium  concentrate requirements  for the
period 1997 to 2002. PECO has made alternative arrangements with other suppliers
to satisfy its short-term  requirements for uranium  concentrates. PECO also  is
finalizing  arrangements with another supplier to satisfy its longer-term needs.
PECO does  not anticipate  any difficulties  in obtaining  its requirements  for
uranium concentrates. PECO's contracts for uranium concentrates are allocated to
Peach  Bottom on an as-needed basis. PSE&G also has informed the Company that it
has contracts for uranium concentrates which will satisfy the fuel  requirements
of  Salem fully through 2000  and, thereafter, 60% through  2002. PSE&G does not
anticipate  any  difficulties   in  obtaining  its   requirements  for   uranium
concentrates.  The table below summarizes the years through which PECO and PSE&G
have contracted for the other segments of the nuclear fuel supply cycle.
 
<TABLE>
<CAPTION>
                                                                               CONVERSION      ENRICHMENT      FABRICATION
                                                                              -------------  ---------------  -------------
<S>                                                                           <C>            <C>              <C>
Peach Bottom Unit 2.........................................................           (1)             (2)           1999
Peach Bottom Unit 3.........................................................           (1)             (2)           1998
Salem Unit 1................................................................         2000              (3)           2004
Salem Unit 2................................................................         2000              (3)           2005
</TABLE>
 
------------------------
(1) PECO has commitments for  100% of its conversion  services for Peach  Bottom
    through  1997. Approximately 40% of the conversion services requirements are
    covered through 2001. PECO does not anticipate any difficulties in obtaining
    necessary conversion services for Peach Bottom.
 
(2) PECO has commitments for enrichment services for Peach Bottom under contract
    with the  United States  Enrichment Corporation.  The commitments  represent
    100%  of the enrichment requirements through 1998 and 70% through 1999. PECO
    does not  anticipate  any  difficulties in  obtaining  necessary  enrichment
    services for Peach Bottom.
 
(3) 100%  coverage through  1998; approximately  50% coverage  through 2002; and
    approximately 30%  coverage  through 2004.  PSE&G  does not  anticipate  any
    difficulties in obtaining necessary enrichment services for Salem.
 
    In  conformity with the  Nuclear Waste Policy  Act of 1982  (NWPA), PECO and
PSE&G have entered into  contracts with the United  States Department of  Energy
(DOE)  on behalf of the joint owners providing that the Federal Government shall
for a fee take title to, transport,  and dispose of spent nuclear fuel and  high
level radioactive waste from the Salem and Peach Bottom reactors. The Company is
collecting  one-tenth of one cent  per kWh of nuclear  generation net of station
use from electric customers through fuel rates to provide for the future cost of
spent nuclear fuel disposal and is paying  such amounts to the DOE. The DOE  may
revise  this charge as  necessary to ensure  full cost recovery  of nuclear fuel
disposal. Under  the  NWPA,  the DOE  was  to  begin accepting  spent  fuel  for
permanent  off-site storage no later than 1998. However, the DOE has stated that
it would  not be  able to  open a  permanent, high-level  nuclear waste  storage
facility until 2015, at the earliest.
 
                                      I-11
<PAGE>
    In  June 1994, a number of utilities  and state agencies, including the PUC,
filed a  lawsuit against  the DOE  seeking a  determination of  the DOE's  legal
obligation  to accept fuel by  1998. In April 1995,  the DOE published its final
interpretation on the nuclear waste acceptance issues and stated that it had  no
legal  obligation  to begin  waste  acceptance in  1998,  in the  absence  of an
operational repository or other storage facility. PSE&G has informed the Company
that, along  with 24  other utilities  and  a combination  of 48  states,  state
regulatory  agencies and municipal power agencies,  PSE&G has filed a lawsuit in
the United States District Court of Appeals for the District of Columbia Circuit
against the DOE to protect its contractual rights. The Company is not a party to
either of the above lawsuits. The Company cannot predict when the  DOE-sponsored
temporary or permanent storage sites will become available.
 
    In 1990, the NRC determined that spent nuclear fuel generated in any reactor
can  be stored  safely and without  significant environmental  impact in reactor
facility  storage  pools   or  in   independent  spent   nuclear  fuel   storage
installations located at or away from reactor sites for at least 30 years beyond
the  licensed life  for operation (which  may include  the term of  a revised or
renewed license). PECO has  advised the Company that  Peach Bottom has  adequate
on-site temporary spent-fuel storage capability until 2000 for Peach Bottom Unit
2  and 2001 for Peach  Bottom Unit 3. Options  for expansion of storage capacity
beyond the  pertinent dates  are  being investigated  by  PECO. PSE&G  also  has
advised  the Company  that, as a  result of replacing  the existing high-density
racks  in  the  spent-fuel   storage  pools  of  Salem   Units  1  and  2   with
maximum-density  racks, the availability of adequate spent fuel storage capacity
is conservatively estimated  through 2008 for  Salem Unit 1  and 2012 for  Salem
Unit 2.
 
    The  Energy Act provided for creation of a Decontamination & Decommissioning
(D&D) Fund to pay  for the future clean-up  of DOE gaseous diffusion  enrichment
facilities.  Domestic utilities and the federal  government are required to make
payments to the  D&D fund  until 2008 or  $2.25 billion,  adjusted annually  for
inflation,  is collected. The liability for the  Company's share of the D&D fund
was $6.8 million as of  December 31, 1995. The  Company is recovering this  cost
through fuel adjustment clause revenues which are discussed on page I-13.
 
GAS OPERATIONS
 
    During  1995, the  average production  cost of  all gas  sold was  $2.95 per
thousand cubic feet (Mcf),  compared with $3.06  and $3.22 per  Mcf in 1994  and
1993,  respectively.  Gas capacity  requirements  are purchased  primarily under
contracts with three pipeline suppliers.  The Company also purchases gas  supply
from  marketers and producers, primarily under one- to five-year agreements. The
Company's peak shaving plant for  liquefaction, storage, and re-gasification  of
natural gas provides supplemental gas.
 
    As   shown  in  the  table  below,  the  Company's  maximum  24-hour  system
capability, including natural gas purchases, storage deliveries, and the maximum
planned sendout of its peak shaving plant, is 158,669 Mcf.
 
<TABLE>
<CAPTION>
                                                                                NUMBER OF      EXPIRATION     DAILY
                                                                                CONTRACTS        DATES         MCF
                                                                             ---------------  ------------  ---------
<S>                                                                          <C>              <C>           <C>
Supply.....................................................................             4      1996-2004       31,442
Transportation.............................................................             3         2004         59,795
Storage....................................................................             4      1996-2004       42,432
Local Peak Shaving.........................................................        --              --          25,000
                                                                                                            ---------
  Total....................................................................                                   158,669
                                                                                                            ---------
                                                                                                            ---------
</TABLE>
 
    The Company's peak shaving plant has an emergency peak shaving capability of
45,000 Mcf  per day,  which  increases the  maximum  daily sendout  capacity  to
178,669  Mcf. The Company experienced a new  all-time peak daily firm sendout of
158,512 Mcf on January 19, 1994, during extreme weather conditions. The  maximum
daily  firm sendout  experienced to date  during the 1995/96  winter was 144,125
Mcf.
 
                                      I-12
<PAGE>
SUBSIDIARIES
 
    Delcap is  a wholly-owned  subsidiary  of the  Company  that is  engaged  in
landfill  and waste-hauling operations, the ownership, operation and maintenance
of energy-related projects, real estate  sales and development, and  investments
in leveraged equipment leases. A Delcap subsidiary operates and maintains Star's
Delaware  City Power Plant from which the Company purchases capacity and energy.
As of December 31, 1995, Delcap's stockholder's equity was $36.8 million.
 
    Delmarva Services Company, a wholly-owned subsidiary of the Company,  leases
an  office building to the  Company. As of December  31, 1995, its stockholder's
equity was $6.0 million.
 
    Delmarva Energy  Company  and  Delmarva Industries,  Inc.  are  wholly-owned
subsidiaries  of  the Company  and are  partners  in joint  venture oil  and gas
exploration and development programs in New York, Ohio and Pennsylvania.  During
1995, Delmarva Energy and Delmarva Industries made dividend payments of $600,000
and  $400,000,  respectively, to  the Company.  As of  December 31,  1995, their
combined stockholder's equity was $1.1 million.
 
    For  a  further   discussion  of   the  Company's   subsidiaries  refer   to
"Environmental Matters -- Subsidiaries" on page I-20, as well as the "Nonutility
Subsidiaries"  section  of the  MD&A  and Notes  1  and 18  to  the Consolidated
Financial Statements of the 1995 Annual Report to Stockholders filed as  Exhibit
13.
 
REGULATORY AND RATE MATTERS
 
    The  Company is  subject to regulation  with respect to  its retail electric
sales by  the DPSC,  the MPSC,  and the  Virginia State  Corporation  Commission
(VSCC), each of which have broad jurisdiction over rate matters, accounting, and
terms  of service. Gas sales  are subject to regulation  by the DPSC. In limited
respects concerning properties  and operations in  New Jersey and  Pennsylvania,
the Company is subject to regulation by the utility commissions in those states.
The FERC exercises jurisdiction with respect to the Company's accounting systems
and   policies,  the  transmission   of  electricity,  the   wholesale  sale  of
electricity, and  interchange  and  other purchases  and  sales  of  electricity
involving  other utilities. The FERC also regulates the price and other terms of
transportation of  natural  gas purchased  by  the Company.  The  percentage  of
combined   electric  and  gas  utility  operating  revenues  regulated  by  each
Commission for the year ended December 31,  1995 was as follows: DPSC 64%;  MPSC
27%; VSCC 3%; and FERC 6%.
 
BASE RATE PROCEEDINGS
 
    For  information concerning  the Company's  base rate  proceedings, refer to
Note 2 to  the Consolidated Financial  Statements in the  1995 Annual Report  to
Stockholders, which is filed as Exhibit 13.
 
FUEL ADJUSTMENT CLAUSES
 
    The  Company's tariffs generally include fuel adjustment clauses that permit
the collection  of the  costs of  fuel  burned in  generating stations  and  the
variable  (energy)  costs  of  purchased  and  net  interchange  power  from the
Company's retail and  resale electric customers,  and the costs  of natural  gas
from its gas customers. Fuel costs are deferred and charged to operations on the
basis  of fuel costs included in  customer billings under the Company's tariffs.
For the Delaware, Virginia  and FERC jurisdictional  customers, the clauses  are
based  upon  estimated  annual  fuel  costs.  For  the  Maryland  jurisdictional
customers, the clause is based on historical average costs. Supporting data  are
filed  with and audited by the various  commissions and formal hearings are held
at periodic  intervals as  required  by law.  Fixed  costs (capacity  or  demand
charges)   associated  with  purchased  power   transactions  entered  into  for
reliability reasons generally  are subject  to base rate  recovery. The  present
status  or results of  significant fuel rate  issues are discussed  below. As of
December 31,  1995, the  Company  had accrued  fuel disallowance  reserves  that
adequately  provide for any disallowances of fuel costs and penalties related to
the issues discussed below.
 
    Both Delaware and Maryland have programs that assess the overall performance
of the  Company's  15 major  generating  units.  Under the  DPSC's  Power  Plant
Performance Program (PPPP), the
 
                                      I-13
<PAGE>
Company  can receive  financial rewards or  penalties, which will  not exceed an
estimated cap of $1.6 million in 1996. The 1994 and projected 1995 PPPP  results
are  not material to the Company's  financial position or results of operations.
If the  Company does  not meet  an overall  system performance  standard set  by
Maryland's  Generating Unit Performance  Program, the MPSC  can disallow certain
fuel costs of units that operated below their individual performance  standards.
The 1994 results indicated that the overall system performance standard was met.
The 1995 standards are in the process of being set.
 
    In  September 1995, the  DPSC issued an order  concerning the Company's 1995
retail fuel  adjustment  filing and  disallowed  approximately $800,000  of  net
replacement power costs associated with a Salem Unit 1 outage that occurred from
April  7, 1994  to June 4,  1994. The  order excluded the  outage in determining
performance under the PPPP.
 
    In December 1995,  the DPSC issued  an order concerning  the Company's  1996
retail  fuel  adjustment filing  and permitted  the Company  to retain  the fuel
adjustments in effect at  that time, pending  the Company's supplemental  filing
sometime  in  1996, which  is  expected to  include  a request  for  recovery of
replacement  power  costs  associated  with  the  current  Salem  outages.   For
additional  discussion  regarding the  current  Salem outages,  refer  to "Salem
Units" on page I-7 and the "Salem Outage" section of the MD&A and Note 16 to the
Consolidated Financial  Statements  of  the  Company's  1995  Annual  Report  to
Stockholders filed as Exhibit 13.
 
    In  May 1993, the  Company's municipal customers filed  a complaint with the
FERC, seeking a $5.3  million refund of alleged  excessive fuel and  replacement
power  costs related to coal procurement practices and the operating performance
of certain electric  power plants.  In September  1995, the  FERC dismissed  all
issues  except for the limited issue of  whether the Company should have pursued
legal remedies against PSE&G for the outage  that occurred at Salem Unit 2  from
November  9, 1991 to May 10, 1992.  In January 1996, the FERC administrative law
judge issued  an  initial  decision  dismissing  the  remaining  complaint.  The
municipal  customers filed an application for rehearing, which was denied by the
FERC on February 28, 1996, and the Docket was terminated. The Municipals have 60
days to file an appeal.
 
OTHER REGULATORY MATTERS
 
    ELECTRIC COLLABORATIVE PROPOSAL
 
    For a discussion  of the  electric collaborative proposal  presented to  the
DPSC and the MPSC, refer to the "Strategic Plans for Competition" section of the
MD&A of the Company's 1995 Annual Report to Stockholders filed as Exhibit 13.
 
    DELAWARE TASK FORCE ON REGULATION
 
    In  1993, the  Governor of Delaware  convened the  Public Utility Regulatory
Task Force, and on June 12,  1995, the Governor signed legislation  implementing
the following key recommendations of the task force.
 
    - The  DPSC  is  authorized  to (a)  deregulate  utility  businesses  when a
      competitive  market  exists  and   (b)  implement  alternative  forms   of
      regulation  which  depart  from  traditional  rate  base,  rate  of return
      regulation;
 
    - The DPSC can  authorize special rates  for economic development  purposes,
      such  as  attracting new  customers and  preventing  the loss  of existing
      customers;
 
    - The process through which  the DPSC approves  a public utility's  proposed
      issuances of debt and equity securities has been streamlined;
 
    - The  DPSC is authorized to conduct rate proceedings in which the number or
      type of issues are limited; and
 
    - The DPSC is encouraged to resolve issues through the use of settlements.
 
                                      I-14
<PAGE>
    SPECIAL CONTRACT RATE TARIFFS
 
    With respect  to  its  electric  business, the  Company  filed  an  Economic
Development  Rate (EDR) Tariff and a  Negotiated Contract Rate (NCR) Tariff with
the DPSC in August  1995 and with  the MPSC in November  1995. New and  existing
business operations that make a substantial capital investment and/or create new
jobs  would  be eligible  for  the EDR,  which  reflects the  guidelines  of the
Delaware regulatory reform legislation described previously. These tariffs  also
would  allow  the Company  to compete  nationally. The  proposed EDR  provides a
discount which is set at  a level such that  revenues are sufficient to  recover
all variable costs and contribute towards fixed costs. The NCR addresses special
business  needs and opportunities which cannot  otherwise be accommodated by the
Company's standard tariffs or  EDR. The Company  proposed that the  stockholders
and  ratepayers share 20%  and 80%, respectively,  in Delaware and  30% and 70%,
respectively, in Maryland  of the value  of the EDR  discounts. In both  states,
stockholders and ratepayers would share equally the amount of the NCR discounts.
Various  modifications, dealing primarily  with the discount  sharing, are being
considered in settlement discussions with parties in Delaware. Maryland's  rates
were approved in March 1996.
 
    MARYLAND COMPETITION AND REGULATORY POLICIES INQUIRY
 
    In  August 1995,  the MPSC  determined that  retail wheeling  is not  in the
public interest  at this  time.  The MPSC  decided  that resale  competition  in
combination  with  competitive  bidding  for  new  supply-side  and  demand-side
resources, special contracts, and utility specific performance-based  regulation
can  achieve most of the benefits  expected from retail wheeling without harming
reliability.
 
    COMPARABLE USE TRANSMISSION TARIFF
 
    In November 1994, the Company submitted a comparable use transmission tariff
as part of its filing with the FERC  for approval of the purchase of COPCO.  The
tariff  became effective, subject to  refund, in June 1995.  On August 28, 1995,
the Company filed a revised  tariff to be consistent  with the pro forma  tariff
described  in  the  FERC NOPR  on  open  access transmission.  In  light  of the
anticipated filing by  the PJM Interconnection  of a tariff  that would lead  to
necessary  revisions  of the  Company's  proposed revised  tariff,  the Company,
intervenors, and FERC staff filed a joint motion in January 1996 for  suspension
of  the  procedural schedule  in  this docket.  On  February 1,  1996,  the FERC
Administrative Law  Judge approved  the request  for suspension.  For a  further
discussion of the PJM Interconnection filing, refer to "Power Pool" on page I-3.
 
    NATURAL GAS RESTRUCTURING FILING
 
    In March 1995, the Company filed an application with the DPSC to restructure
its natural gas pricing and service options. In February 1996, the DPSC approved
an uncontested settlement which becomes effective on April 1, 1996. The redesign
of  gas rates and modification of  the gas cost adjustment mechanism reallocates
revenues among firm  customer classes in  order to reflect  more accurately  the
cost   of  serving  these  customers.  The  reallocation  increases  prices  for
residential and low volume  commercial customers and  decreases prices for  most
other commercial and industrial customers.
 
    The  settlement  unbundles and  separately prices  several services  so that
large and medium volume commercial and industrial customers can elect to use and
pay for only the services that they need. The DPSC also approved new riders  and
services,   including   a  Flexibly   Priced   Gas  Sales   Service,  Quasi-Firm
Transportation Service, Peak Management Rider, and a Negotiated Contract Rate. A
one-year notice is required for firm sales customers switching to transportation
or non-firm service.
 
    The settlement authorizes the Company to provide "nonjurisdictional merchant
sales  service,"   including   off-system  sales,   transportation   nomination,
scheduling  and coordination services,  fuel management services,  gas supply or
transportation hedging services, and  supply imbalance management services.  The
settlement  also allows the  Company's stockholders to retain  20% of the margin
(revenues net  of  fuel costs)  earned  from "nonjurisdictional  merchant  sales
services,"  non-firm sales  and non-firm transportation  services. The remaining
80% will reduce fuel rates charged  to firm customers. Currently, 100% of  these
margins reduce fuel rates for firm customers.
 
                                      I-15
<PAGE>
CONSTRUCTION AND FINANCING PROGRAM
 
    Utility  construction expenditures  for the period  1993-1995, excluding $17
million of AFUDC, and estimated utility construction expenditures for the period
1996-2000, excluding $19 million of AFUDC, are shown in the following table:
 
<TABLE>
<CAPTION>
                                                                    CALENDAR YEAR
                                     ----------------------------------------------------------------------------
                                                                                                         1998-
                                        1993         1994         1995         1996         1997         2000
                                     -----------  -----------  -----------  -----------  -----------  -----------
                                                                (Dollars in Thousands)
<S>                                  <C>          <C>          <C>          <C>          <C>          <C>
Electric Facilities:
  Production.......................  $    69,100  $    54,300  $    45,900  $    38,600  $    41,000  $   123,200
  Transmission.....................       17,300       26,400       11,300       16,100       29,000       50,300
  Distribution.....................       40,300       37,800       38,800       37,200       45,900      141,900
Gas Facilities.....................       17,000       19,400       15,600       19,400       18,600       58,800
General Facilities.................       16,300       16,200       24,000       23,100       25,000       73,800
                                     -----------  -----------  -----------  -----------  -----------  -----------
                                     $   160,000  $   154,100  $   135,600  $   134,400  $   159,500  $   448,000
                                     -----------  -----------  -----------  -----------  -----------  -----------
                                     -----------  -----------  -----------  -----------  -----------  -----------
</TABLE>
 
    Capital requirements  for the  period  1996-1997 are  estimated to  be  $324
million,  including $25 million for maturity of First Mortgage Bonds in 1997 and
$294 million for utility construction, excluding AFUDC. The Company  anticipates
that  $283 million will  be generated internally during  1996-1997, net of power
purchase commitments. This represents 87% of estimated capital requirements  and
96%  of  estimated  utility  construction expenditures.  During  this  period no
long-term external financings are presently planned.
 
    Capital requirements  for the  period  1998-2000 are  estimated to  be  $549
million,  including $448 million for  utility construction, excluding AFUDC, and
$65 million for  the maturity of  long-term debt. The  Company anticipates  that
during  the period  1998-2000 $467 million  will be  generated internally, which
represents 85% of estimated capital  requirements and 104% of estimated  utility
construction  expenditures. A portion of the balance of the capital requirements
for 1998-2000 is  expected to be  provided by  the sale of  long-term debt.  The
Company  anticipates that it will be able to obtain these amounts in the capital
markets on competitive terms.
 
    Since the  Company's future  construction  program, internal  generation  of
funds, and need for outside capital will be affected by such matters as customer
demand,  inflation, competition,  and rate  regulation, future  results may vary
from the  foregoing  estimates. In  addition,  the ultimate  resolution  of  the
problems  at Salem,  as discussed  in "Salem  Units" on  page I-7,  may increase
future capital requirements.
 
    The issuance  of unsecured  debt is  limited by  certain provisions  in  the
Company's  Restated Certificate and  Articles of Incorporation,  as amended (the
Charter), to 20% of the Company's total capitalization excluding unsecured debt.
As of December 31,  1995, these provisions would  have permitted the Company  to
issue approximately $93 million of additional unsecured debt.
 
    The issuance of First Mortgage Bonds by the Company is limited by a covenant
in  its Mortgage and  Deed of Trust  dated October 1,  1943, as supplemented and
amended (the Mortgage),  with Chemical  Bank (Trustee) requiring  the pro  forma
ratio  of  consolidated earnings  to interest  on First  Mortgage Bonds  for any
twelve consecutive months within the  fifteen months preceding such issuance  to
be  not less than 2.00. This ratio for the twelve months ended December 31, 1995
was 6.09. The issuance of First Mortgage  Bonds also is limited by the  Mortgage
to 60% of the bondable value of property additions.
 
    Certain  provisions in the Company's Charter limit the issuance of preferred
stock. The most  restrictive of  these provisions  requires that  the pro  forma
ratio  of consolidated  earnings to fixed  charges and  preferred stock dividend
requirements combined  for  any twelve  consecutive  months within  the  fifteen
months preceding such issuance of preferred stock be 1.50 or greater. This ratio
was 2.27 for the twelve months ended December 31, 1995.
 
                                      I-16
<PAGE>
    The  Company's ratios  of earnings  to fixed  charges and  earnings to fixed
charges and preferred  dividends under  the Securities  and Exchange  Commission
(SEC) Methods for 1991-1995 are shown below.
 
<TABLE>
<CAPTION>
                                                                                             YEAR ENDED DECEMBER 31,
                                                                              -----------------------------------------------------
                                                                                1995       1994       1993       1992       1991
                                                                              ---------  ---------  ---------  ---------  ---------
<S>                                                                           <C>        <C>        <C>        <C>        <C>
Ratio of Earnings to Fixed Charges (SEC Method).............................       3.54       3.49       3.47       3.03       2.58
Ratio of Earnings to Fixed Charges (SEC Method), as Adjusted (1)............     --           3.74     --           2.78     --
Ratio of Earnings to Fixed Charges and Preferred Dividends (SEC Method).....       2.92       2.85       2.88       2.51       2.24
Ratio of Earnings to Fixed Charges and Preferred Dividends (SEC Method), as
 Adjusted (1)...............................................................     --           3.05     --           2.30     --
</TABLE>
 
------------------------
(1) Adjusted  ratios  reflect  the  following  pre-tax  amounts:  for  1994, the
    exclusion of an  early retirement  offer charge  of $17.5  million; and  for
    1992,  the exclusion of  the gain from  the Company's share  of a settlement
    reached in the lawsuit against PECO in connection with the shutdown of Peach
    Bottom of $18.5 million.
 
    Under the  SEC Method,  earnings,  including AFUDC,  have been  computed  by
adding income taxes and fixed charges to net income. Fixed charges include gross
interest  expense and the estimated interest component of rentals. For the ratio
of earnings  to  fixed  charges and  preferred  dividends,  preferred  dividends
represent  annualized preferred  dividend requirements  multiplied by  the ratio
that pre-tax income bears to net income. Net income and income taxes related  to
the  cumulative effect of a change  in accounting for unbilled revenues recorded
in 1991 are excluded from the computation of these ratios.
 
    For further  information on  the Company's  financing activities,  refer  to
Notes  10 through 12 to the Consolidated Financial Statements and the "Liquidity
and Capital  Resources"  section  of the  MD&A  of  the 1995  Annual  Report  to
Stockholders filed as Exhibit 13.
 
ENVIRONMENTAL MATTERS
 
    The  Company  is subject  to regulation  with  respect to  the environmental
effects of  its  operations,  including  air  and  water  quality  control,  oil
pollution  control, solid and  hazardous waste disposal,  and limitation on land
use by  various federal,  regional, state,  and local  authorities. Permits  are
required  for the Company's  construction projects and  existing facilities. The
Company has incurred, and expects to continue to incur, capital expenditures and
operating costs because  of environmental considerations  and requirements.  The
Company  is  engaged  in a  continuing  program  to assure  compliance  with the
environmental standards adopted by various regulatory authorities.
 
    CONSTRUCTION EXPENDITURES
 
    Construction expenditures  for  compliance with  environmental  regulations,
primarily  the  Clean  Air Act  Amendments  of  1990 (The  Clean  Air  Act), are
estimated at  $53  million (excluding  AFUDC)  for the  years  1996-2000.  These
amounts  are  included  in  the  Company's  estimates  of  utility  construction
expenditures under "Construction and Financing Program" on page I-16.
 
    CLEAN AIR ACT
 
    The Clean Air Act requires  utilities and other industries to  significantly
reduce  emissions of air pollutants  such as sulfur dioxide  (SO2) and oxides of
nitrogen (NOx).  Title  IV of  the  Clean Air  Act,  the acid  rain  provisions,
established  a  two-phase  program  which mandated  reductions  of  SO2  and NOx
emissions from  certain utility  units  by 1995  (Phase  I) and  required  other
utility  units to begin reducing  SO2 and NOx emissions  in the year 2000 (Phase
II). Emission reductions at  the jointly-owned Conemaugh  Power Plant, the  only
units  required to  comply with  Title IV  in 1995,  have been  achieved through
installation and  operation  of  flue gas  desulfurization  (FGD)  systems.  The
remainder of the
 
                                      I-17
<PAGE>
Company's wholly- and jointly-owned fossil fuel fired units are expected to meet
Phase  II  emission  limits  through  a  combination  of  fuel  switching,  FGD,
environmental dispatch and SO2 allowance trading.
 
    In addition to complying with Title  IV, as major sources of NOx  emissions,
Company  facilities must  comply with Title  I of  the Clean Air  Act, the ozone
nonattainment  provisions,  which  require   states  to  promulgate   Reasonably
Available  Control Technology  (RACT) regulations  for existing  sources located
within ozone nonattainment areas or within the Northeast Ozone Transport  Region
(NOTR).  The Company's facilities in Delaware and  Maryland are in the NOTR. The
Company has decided to comply with the RACT requirements by undertaking  certain
operating  changes  and  installing  low NOx  burner  technology.  The Company's
Delaware  and  Maryland  RACT  proposals  have  not  received  final  regulatory
approval.  Consequently, costs,  in addition to  those already  budgeted, may be
incurred at these facilities in order to comply with the RACT regulations.
 
    Additional "post-RACT"  NOx  emission  limitations are  being  discussed  by
several entities, including the Northeast Ozone Transport Commission (NOTC). One
such  proposal, recognized by a Memorandum of Understanding (MOU) signed by NOTR
member states, would require sources to meet certain emission limitations or  to
reduce  NOx emissions up to 65% below 1990 levels by 1999. Under the MOU, states
would be required to propose further NOx reductions by 2003, if necessary. While
the special  provisions  of the  MOU  have not  been  adopted by  regulation  in
Delaware   or  Maryland,  the  Company  likely   will  be  required  to  install
post-combustion NOx control  equipment on  some or  all of  the Company's  major
generating  units.  At this  time, the  Company  cannot determine  the potential
operating  impacts  and  anticipated  costs  associated  with  this   particular
"post-RACT" initiative.
 
    To  help attain air quality  standards, the Clean Air  Act mandates that the
emission of certain air  pollutants by new sources  or increased emissions  from
existing  facilities be offset by reductions  in similar emissions from existing
sources.  Such  requirements  may  affect  the  Company's  ability  to   locate,
construct, and expand generating facilities in the future.
 
    SALEM OPERATING PERMIT
 
    PSE&G  has informed the Company that it has settled all challenges raised by
the State of Delaware and other parties to the final five-year operating  permit
for  the  Salem  units issued  by  the  New Jersey  Department  of Environmental
Protection and Energy (NJDEPE).  The estimated capital  cost of compliance  with
the  final permit is approximately $100 million, of which the Company's share is
7.41%. A settlement  with challenging  parties, other  than Delaware,  precludes
these  parties  from arguing  that modifications  to  the plant's  cooling water
intake system or cooling  water system discharge are  necessary prior to  August
31, 1999. This settlement requires PSE&G to work with the challenging parties to
evaluate   intake  structure  impingement   and  entrainment  technologies,  and
authorizes the  challenging  parties  to  recommend  independent  scientists  to
participate on NJDEPE advisory committees regarding plant operations.
 
    PSE&G  has  informed the  Company  that it  is  in the  process  of securing
additional permits required to implement the operating permit. No assurances can
be given as to the receipt of  these additional permits, but PSE&G has  reported
that it does not foresee any insurmountable obstacles.
 
    WATER QUALITY REGULATIONS
 
    The  Delaware  Department  of Natural  Resources  and  Environmental Control
(DNREC) and the Maryland Department  of the Environment (MDE) promulgated  major
changes  to water quality regulations in  1993 which emphasize increased control
of toxic pollutants and signal a shift away from technology-based standards.  In
developing the regulations, one wastewater discharge from the Indian River Power
Plant  was included on a Delaware  list of suspected toxic pollutant discharges.
In addition, one discharge from the Vienna Power Plant was added to the Maryland
toxic discharge list by the United States Environmental Protection Agency (EPA).
National Pollutant Discharge Elimination System (NPDES) permit modifications for
each   plant    are    expected    in   1996.    The    costs    of    complying
 
                                      I-18
<PAGE>
with  the final  modified Delaware  and Maryland  regulations and  the resultant
NPDES permit modifications  are not expected  to have a  material effect on  the
Company's financial position or results of operations.
 
    The  Clean Water  Act requires that  the cooling water  intake and discharge
systems at  the  Edge  Moor  and Indian  River  Power  Plants  minimize  adverse
environmental   impact.  In  addition,  in  1993,  DNREC  promulgated  increased
restrictions on thermal discharge. Between  1976 and 1979 the Company  submitted
to  DNREC  the  results  of  environmental  impact  studies  which  demonstrated
compliance with the Clean Water  Act. DNREC is in  the process of requiring  the
Company to update these studies to determine if the intake and discharge systems
continue to be in compliance. The studies are expected to take one to two years.
If it should be determined that the systems are not in compliance with the Clean
Water  Act and/or the revised Delaware thermal limits, construction expenditures
to modify the systems could cost up to $47 million.
 
    HAZARDOUS SUBSTANCES
 
    The disposal of Company-generated hazardous  substances can result in  costs
to  clean up facilities found to be contaminated due to past disposal practices.
Federal and state statutes authorize governmental agencies to compel responsible
parties to clean up certain abandoned or uncontrolled hazardous waste sites. The
Company's exposure  is minimized  by adherence  to environmental  standards  for
Company-owned  facilities and through a  waste disposal contractor screening and
audit process.
 
    The Company currently is  a potentially responsible  party (PRP) at  federal
superfund  sites in  Philadelphia, Pennsylvania  (the Metal  Bank/Cottman Avenue
site); Elkton, Maryland  (Galaxy/Spectron site); and  Jamestown, North  Carolina
(the  Seaboard Chemical site); and is alleged to be a third-party contributor at
two other federal superfund sites (the  Bridgeport Rental and Oil Services  site
in  Logan Township, New  Jersey and the Berks  Associates site in Douglassville,
Pennsylvania). Because the Company's imputed share of the potential  liabilities
at  these  sites  is  small,  the  Company does  not  expect  its  share  of the
investigation  and  clean-up  costs  at   these  sites,  either  separately   or
cumulatively,  to have a material effect  on the Company's financial position or
results of operations.
 
    The Company  also  has  two  former  coal  gasification  sites  in  Delaware
(Wilmington  and New Castle)  and one former coal  gasification site in Maryland
(Cambridge), each of which is a state superfund site.
 
    The Company completed an investigation and risk assessment of the Wilmington
Coal Gasification Site in 1987.  Based on the results  of that study, which  was
submitted to DNREC, the Company determined that the site posed a minimal risk to
human  health  and the  environment. At  DNREC's request,  in 1994,  the Company
completed an updated  facility evaluation and  risk assessment which  reaffirmed
the  conclusions  of  the  original  study  and  indicated  that  there  may  be
contamination at the site.  To gain additional information  about the site,  the
Company,  under Delaware's Voluntary Cleanup Program,  has agreed to undertake a
remedial investigation/feasibility study on the northern section of the site and
a feasibility study  on the southern  section. The completion  of these  studies
will   enable  the  Company  to  assess  the  extent  of  contamination,  review
remediation alternatives, and estimate the cost of cleanup or containment.
 
    In 1994, the 3-acre New Castle site was investigated by DNREC as part of  an
investigation  of  a  41-acre  marsh.  Low  levels  of  contaminants  were found
throughout the marsh. These contaminants could have originated from a number  of
sources  within the marsh area or from surface runoff from adjacent areas. While
DNREC has indicated that additional investigation of this coal gasification site
may be  warranted,  it  has  not  directed the  Company  to  undertake  such  an
investigation.
 
    The  Cambridge,  Maryland coal  gasification site  was  placed on  the state
superfund list in 1984.  Although the EPA recommended  the site for "no  further
action" in 1990, the MDE requested and received funding to undertake an expanded
site assessment (ESA) which was conducted in December 1995 and included sampling
of   the   adjacent  creek   and  adjacent   property.   The  MDE's   report  of
 
                                      I-19
<PAGE>
findings is scheduled  for completion  in October  1996. At  MDE's request,  the
Company  plans to assess site conditions further in 1996. When the MDE report is
available and the Company's investigation is completed, the Company will be able
to estimate clean-up costs, if any.
 
    The Company has  accrued a liability  of $2 million  for clean-up and  other
potential  costs related  to the  above federal  and state  superfund sites. The
Company does not  expect such  future costs  to have  a material  effect on  the
Company's financial position or results of operations.
 
    EMERGING ENVIRONMENTAL ISSUES
 
    An  environmental issue that  could affect the  electric utility industry is
that of potential health risks associated with exposure to electric and magnetic
fields (EMF)  from electric  transmission lines  and other  facilities.  Studies
present  conflicting evidence and inconclusive  results. Although no direct link
between EMF and human health has  been identified, the Company supports  further
research.  The  outcome  of  future studies  may  affect  the  Company's design,
location, and cost  of electric  power facilities. However,  the Company  cannot
predict the outcome of this issue.
 
    Another  environmental issue with  potential impact on  the electric utility
industry is the emission  of "greenhouse gases"  from generating facilities,  in
particular  the  release of  carbon dioxide  that has  been associated  with the
potential for global warming. Despite scientific uncertainties and disagreements
regarding the effects of global warming, the Company is exploring cost-effective
ways to reduce emissions  of greenhouse gases,  while satisfying its  customers'
growing  demand  for  energy.  Specific  actions  include  supporting scientific
research, continuing  the  Company's balanced  environmental  stewardship/energy
resource  plans (refer to the "Energy Supply  Plan" on page I-4), use of natural
gas, coal  ash recycling,  and  enhanced energy  conservation in  the  Company's
operations.  As  part  of  President  Clinton's  climate  challenge  action plan
introduced in October  1993, a  climate challenge program  was developed.  Under
this  program, the DOE and  electric utilities will explore  and promote ways in
which  electric  utilities  can  voluntarily  reduce,  limit,  avoid  or  offset
emissions of carbon dioxide and other greenhouse gases. On February 3, 1995, the
Company  signed the  Climate Challenge Participation  Accord with  the U.S. DOE.
Should mandatory  emissions  limitations  or  a "carbon  tax"  be  imposed,  the
Company's  operations could be affected. The  Company cannot predict the outcome
of this issue.
 
    SUBSIDIARIES
 
    Certain of the Company's subsidiaries  are also subject to regulations  with
respect  to the  environmental effects  of their  operations, including  air and
water quality  control, solid  waste disposal,  and limitation  on land  use  by
various  federal, regional, state, and local  authorities. In March 1995, one of
the Company's indirect  subsidiaries, Pine  Grove Landfill,  Inc. (Pine  Grove),
which owns and operates a solid waste disposal facility in Pennsylvania, entered
into  a  consent  order  and  agreement  with  the  Pennsylvania  Department  of
Environmental Protection  (PADEP), which  addressed alleged  past violations  of
state  solid waste management and air quality regulations due to odors emanating
from its  disposal facility.  Pursuant to  the terms  of the  consent order  and
agreement,  Pine Grove  paid a  $22,000 civil penalty  and the  costs of certain
environmental  services  and  facility  enhancements.  Pine  Grove's  management
believes  it  has corrected  the  odor problem  at  the disposal  facility. Pine
Grove's management cannot predict the nature of any actions which PADEP may take
in the event of future odor emissions.  PADEP has the authority to impose  fines
and/or close, limit expansion, or order changes in the business practices at the
disposal facility. The Company believes that its subsidiaries are in substantial
compliance with all environmental regulations.
 
RETAIL FRANCHISES
 
    The  franchises discussed below  could be impacted  by legislation mandating
the retail wheeling of electricity. For a further discussion on the  development
of  competition in retail  markets, refer to "Electric  Retail Business" on page
I-2 and  the  "Strategic Plans  for  Competition" section  of  the MD&A  of  the
Company's 1995 Annual Report to Stockholders filed as Exhibit 13.
 
                                      I-20
<PAGE>
    The Company holds franchises, which for the most part are perpetual, for the
rendition  of retail  electric and gas  service in certain  designated areas and
municipalities in the State of  Delaware, pursuant to legislative enactments  of
the  General Assembly and  to consents, orders, and  permits from various public
bodies and municipal authorities.
 
    The Company holds franchises, which for the most part are perpetual, for the
rendition of retail electric service in  all of its assigned territories in  the
State of Maryland, pursuant to Maryland law and appropriate orders of the MPSC.
 
    The  Company holds perpetual franchises for the rendition of retail electric
service in certain designated areas of the Commonwealth of Virginia, pursuant to
appropriate orders of the VSCC under the Virginia Public Utility Facilities Act.
It also has franchises for the rendition of retail electric service within other
municipalities which are not perpetual, but which are expected to be renewed  at
their expiration dates.
 
    In  Pennsylvania, the Company holds  certificates of public convenience from
the Pennsylvania  Public Utility  Commission  to own  and exercise  rights  with
respect   to  its  interests   in  certain  electric   generating  stations  and
transmission lines located in the state.
 
NUMBER OF EMPLOYEES
 
    The number of full time  employees of the Company  at December 31, 1995  was
2,527.
 
    A  total of 1,457 employees are represented by the International Brotherhood
of Electrical Workers Locals 1238 (Northern) and 1307 (Southern) whose contracts
with the Company expire on December 15, 1996 and June 25, 1997, respectively.
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
    The names,  ages, and  positions of  all of  the executive  officers of  the
Company  as of  December 31,  1995 are listed  below, along  with their business
experiences during the  past five years.  Officers are elected  annually by  the
Board  of Directors at the meeting of directors immediately following the Annual
Meeting of Stockholders. There are no family relationships among these officers,
nor any arrangement or  understanding between any officer  and any other  person
pursuant to which the officer was selected.
 
                                      I-21
<PAGE>
                      EXECUTIVE OFFICERS OF THE REGISTRANT
                           (AS OF DECEMBER 31, 1995)
 
<TABLE>
<CAPTION>
NAME, AGE AND POSITION                                            BUSINESS EXPERIENCE DURING PAST 5 YEARS
--------------------------------------------------------  --------------------------------------------------------
<S>                                                       <C>
Howard E. Cosgrove, 52..................................  Elected 1992. President and Chief Operating
  Chairman of the Board, President, and                   Officer from 1991 to 1992.
  Chief Executive Officer and Director
Joseph W. Ford, 49......................................  Elected 1995. Director, Corporate Re-
  Senior Vice President                                   Engineering, Sales & Marketing Worldwide, Digital
                                                          Corporation, Boston, Massachusetts, from 1993 to 1994.
                                                          Director Business Development United States, Digital
                                                          Corporation, Boston, Massachusetts from 1992 to 1993.
                                                          Vice President, Sales and Marketing, Asia Region,
                                                          Digital Corporation, Hong Kong, from 1991 to 1992.
Barbara S. Graham, 47...................................  Elected 1995. Vice President and Chief
  Senior Vice President, Treasurer, and Chief Financial   Financial Officer from 1992 to 1994. Treasurer from 1987
  Officer                                                 to 1992.
Ralph E. Klesius, 53....................................  Elected 1992. Vice President, Engineering from
  Senior Vice President and Environmental Compliance      1988 to 1992.
  Officer
Thomas S. Shaw, 48......................................  Elected 1992. Vice President/President,
  Senior Vice President/President, Delmarva Capital       Delmarva Capital Investments, Inc. from 1991 to 1992.
  Investments, Inc.
Donald E. Cain, 50......................................  Elected 1988.
  Vice President, Administration
Paul S. Gerritsen, 50...................................  Elected 1993. Vice President and Chief
  Vice President                                          Financial Officer from 1987 to 1992.
Wayne A. Lyons, 56......................................  Elected 1990.
  Vice President
Frank J. Perry Jr., 52..................................  Elected 1990.
  Vice President, Production
Jack Urban, 52..........................................  Elected 1991.
  Vice President, Gas Division
James P. Lavin, 48......................................  Elected 1993. Comptroller-Corporate and Chief
  Comptroller and Chief Accounting Officer                Accounting Officer from 1989 to 1993.
</TABLE>
 
                                      I-22
<PAGE>
ITEM 2.  PROPERTIES
 
    Substantially  all utility plants and properties  of the Company are subject
to the lien of the Mortgage under  which the Company's First Mortgage Bonds  are
issued.
 
    The  Company's  electric  properties  are  located  in  Delaware,  Maryland,
Virginia, Pennsylvania, and New Jersey. The  following table sets forth the  net
installed  summer electric generating capacity available to the Company to serve
its peak load as of December 31, 1995.
 
<TABLE>
<CAPTION>
                                                                                                   NET INSTALLED
                                                                                                      CAPACITY
STATION                                          LOCATION                                              (KWH)
-----------------------------------------------  -----------------------------------------------  ----------------
<S>                                              <C>                                              <C>
COAL-FIRED
  Edge Moor....................................  Wilmington, DE.................................       251,000
  Indian River.................................  Millsboro, DE..................................       743,000
  Conemaugh....................................  New Florence, PA...............................        63,000(A)
  Keystone.....................................  Shelocta, PA...................................        63,000(A)
                                                                                                  ----------------
                                                                                                     1,120,000
                                                                                                  ----------------
OIL-FIRED
  Edge Moor....................................  Wilmington, DE.................................       435,000
  Vienna.......................................  Vienna, MD.....................................       151,000
                                                                                                  ----------------
                                                                                                       586,000
                                                                                                  ----------------
COMBUSTION TURBINES/COMBINED CYCLE
  Hay Road.....................................  Wilmington, DE.................................       511,000
                                                                                                  ----------------
NUCLEAR
  Peach Bottom.................................  Peach Bottom Twp., PA..........................       164,000(A)
  Salem........................................  Lower Alloways Creek Twp., NJ..................       164,000(A)
                                                                                                  ----------------
                                                                                                       328,000
                                                                                                  ----------------
PEAKING UNITS
  Christiana...................................  Wilmington, DE.................................        45,000
  Edge Moor....................................  Wilmington, DE.................................        13,000
  Madison Street...............................  Wilmington, DE.................................        11,000
  West.........................................  Marshallton, DE................................        14,000
  Delaware City................................  Delaware City, DE..............................        14,000
  Indian River.................................  Millsboro, DE..................................        17,000
  Vienna.......................................  Vienna, MD.....................................        17,000
  Tasley.......................................  Tasley, VA.....................................        26,000
  Salem........................................  Lower Alloways Creek Twp., NJ..................         3,000(A)
  Crisfield....................................  Crisfield, MD..................................        10,000
  Bayview......................................  Bayview, VA....................................        12,000
  Keystone.....................................  Shelocta, PA...................................           400(A)
  Conemaugh....................................  New Florence, PA...............................           400(A)
                                                                                                  ----------------
                                                                                                       182,800
                                                                                                  ----------------
PURCHASED CAPACITY.............................  Delaware City, DE..............................        48,000
CUSTOMER-OWNED CAPACITY........................  Delaware City, DE..............................        57,000(B)
                                                                                                  ----------------
    Subtotal....................................................................................     2,832,800
                                                                                                  ----------------
PURCHASED PJM INTERCONNECTION CAPACITY CREDITS..................................................        50,000
                                                                                                  ----------------
    Total.......................................................................................     2,882,800
                                                                                                  ----------------
                                                                                                  ----------------
</TABLE>
 
------------------------
(A) Company portion of jointly-owned plants.
 
(B) Represents capacity owned by a refinery  customer which is available to  the
    Company to serve its peak load.
 
                                      I-23
<PAGE>
    Major  transmission  and  distribution lines  owned  and in  service  are as
follows:
 
<TABLE>
<CAPTION>
VOLTAGE                                                       CIRCUIT MILES
------------------------------------------------------------  -------------
<S>                                                           <C>
Transmission:
  500 kilovolts (kV)........................................           16
  230 kV....................................................          326
  138 kV....................................................          447
   69 kV....................................................          716
Distribution:
  34 kV.....................................................          604
  25 kV and below...........................................        8,985
</TABLE>
 
    The Company's electric transmission  and distribution system includes  1,391
transmission  poleline miles  of overhead lines,  5 transmission  cable miles of
underground cables, 7,123  distribution poleline  miles of  overhead lines,  and
5,268 distribution cable miles of underground cables.
 
    The  Company  has  a  liquefied natural  gas  plant  located  in Wilmington,
Delaware with a storage capacity of 3.045 million gallons and a maximum  planned
daily sendout capacity of 25,000 Mcf per day.
 
    The  Company  also  owns four  natural  gas  city gate  stations  at various
locations in its  gas service  territory. These  stations have  a total  sendout
capacity of 125,000 Mcf per day.
 
    The following table sets forth the Company's gas pipeline miles:
 
<TABLE>
<S>                                                  <C>
Transmission Mains.................................        107*
Distribution Mains.................................      1,487
Service Lines......................................      1,069
</TABLE>
 
* Includes  11 miles of joint-use gas pipeline that  is used 10% for gas and 90%
  for electric.
 
    The Company owns and occupies office buildings in Wilmington and Christiana,
Delaware and Salisbury, Maryland, and also owns elsewhere in its service area  a
number of properties that are used for office, service, and other purposes.
 
ITEM 3.  LEGAL PROCEEDINGS
 
    As  previously reported, in June 1993,  the Delaware Coastal Zone Industrial
Control Board adopted regulations (the  Regulations) under the Delaware  Coastal
Zone  Act  which would  have, among  other things,  prohibited the  Company from
constructing new power-generating  facilities or expanding  any of its  existing
power-generating  facilities outside  a designated  boundary. The  Company filed
proceedings in  the Delaware  Superior  Court, and  joined with  other  affected
parties  to file a complaint in the Delaware Chancery Court, seeking to have the
Regulations declared null and  void. On May 19,  1994, the Chancery Court  found
for  the Company and the other plaintiffs  by declaring the Regulations null and
void on procedural grounds.  The proceedings in the  Superior Court, which  were
suspended  pending  the  outcome  in  the Chancery  Court,  are  expected  to be
dismissed.
 
    For a discussion  of the  Company's lawsuit against  Westinghouse, refer  to
"Salem Units" on page I-7.
 
    For  a discussion of the Company's lawsuit against Public Service Enterprise
Group, Inc. and PSE&G, refer to "Salem Units" on page I-7.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    No matter was submitted during the fourth quarter of the fiscal year covered
by this  report to  a vote  of  security holders,  through the  solicitation  of
proxies or otherwise.
 
                                      I-24
<PAGE>
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    The  Company's common stock is listed on the New York and Philadelphia Stock
Exchanges and has unlisted  trading privileges on  the Cincinnati, Midwest,  and
Pacific  Stock Exchanges and  had the following  dividends declared and high/low
prices by quarter for the years 1995 and 1994.
 
<TABLE>
<CAPTION>
                                                                         1995                               1994
                                                           ---------------------------------  ---------------------------------
                                                                               PRICE                              PRICE
                                                            DIVIDEND    --------------------   DIVIDEND    --------------------
                                                            DECLARED      HIGH        LOW      DECLARED      HIGH        LOW
                                                           -----------  ---------  ---------  -----------  ---------  ---------
<S>                                                        <C>          <C>        <C>        <C>          <C>        <C>
First Quarter............................................   $ .38 1/2   $      20  $  17 7/8   $ .38 1/2   $  23 5/8  $  20 1/2
Second Quarter...........................................   $ .38 1/2   $  21 1/4  $  19 1/8   $ .38 1/2   $      21  $  16 7/8
Third Quarter............................................   $ .38 1/2   $      23  $  19 1/2   $ .38 1/2   $      20  $  17 3/4
Fourth Quarter...........................................   $ .38 1/2   $  23 5/8  $  21 7/8   $ .38 1/2   $  19 1/4  $  17 5/8
</TABLE>
 
    The Company had 56,646 registered holders of common stock as of December 31,
1995.
 
    While the Board  of Directors  intends to  continue the  practice of  paying
dividends quarterly, amounts and dates of such dividends as may be declared will
necessarily   be  dependent  upon  the   Company's  future  earnings,  financial
requirements, and other factors. For a further discussion of dividends, refer to
the "Dividends" section of  the MD&A of the  1995 Annual Report to  Stockholders
filed  herein  as Exhibit  13, which  portion  of such  Annual Report  is hereby
incorporated by reference herein.
 
ITEM 6.  SELECTED FINANCIAL DATA
 
    This information  is contained  on page  20  of the  1995 Annual  Report  to
Stockholders  filed herein as Exhibit 13, which portion of such Annual Report is
hereby incorporated by reference herein.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
    This information is  contained on  pages 21 through  28 of  the 1995  Annual
Report  to Stockholders filed herein as Exhibit 13, which portion of such Annual
Report is hereby incorporated by reference herein.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    The consolidated financial  statements, notes 1  through 20 to  consolidated
financial  statements, and related  report thereon of  Coopers & Lybrand L.L.P.,
independent accountants, appear on pages 29 through 47 of the 1995 Annual Report
to Stockholders filed herein as Exhibit 13, which portion of such Annual  Report
is hereby incorporated by reference herein.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
    None.
 
                                      II-1
<PAGE>
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    "Proposal  No.  1 --  Election of  Directors"  is incorporated  by reference
herein from the Definitive Proxy Statement which  is expected to be filed on  or
about  April  25, 1996,  and  information about  the  executive officers  of the
registrant is included under Item 1.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
    "Executive Compensation"  is  incorporated  by  reference  herein  from  the
Definitive  Proxy Statement which is expected to  be filed on or about April 25,
1996.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    "Proposal No.  1 --  Election  of Directors"  is incorporated  by  reference
herein  from the Definitive Proxy Statement which  is expected to be filed on or
about April 25, 1996.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    None.
 
                                     III-1
<PAGE>
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
    (a) The following documents are filed as part of this report:
 
        1.    Financial Statements  --  The following  financial  statements are
    contained in  the Company's  1995  Annual Report  to Stockholders  filed  as
    Exhibit 13 hereto and incorporated herein by reference.
 
<TABLE>
<CAPTION>
                                                                                                         1995
                                                                                                     ANNUAL REPORT
                                       FINANCIAL STATEMENTS                                             (PAGE)
---------------------------------------------------------------------------------------------------  -------------
<S>                                                                                                  <C>
Consolidated Statements of Income for the three years ended December 31, 1995......................       30
Consolidated Statements of Cash Flows for the three years ended December 31, 1995..................       31
Consolidated Balance Sheets as of December 31, 1995 and 1994.......................................    32 and 33
Consolidated Statements of Capitalization as of December 31, 1995 and 1994.........................       34
Consolidated Statements of Changes in Common Stockholders' Equity for the three years ended
 December 31, 1995.................................................................................       35
Notes to Consolidated Financial Statements.........................................................    36 to 47
</TABLE>
 
        2.   Financial Statement  Schedules -- No  financial statement schedules
    have been filed  since the required  information is not  present in  amounts
    sufficient  to require submission of the schedule or because the information
    required is included  in the  respective financial statements  or the  notes
    thereto.
 
        3.   Schedule of Operating Statistics for the three years ended December
    31, 1995 can be found on page IV-3 of this report.
 
        4.  Exhibits
 
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER
-----------
<C>          <S>
       2     Stock Purchase Agreement between PECO Energy Company and  Delmarva Power & Light Company related to  the
             acquisition of Conowingo Power Company. (Filed with Form 10-K for the year ended December 31, 1994, File
             No. 1-1405.)
       3-A   Copy  of the Restated Certificate and  Articles of Incorporation effective as  of April 12, 1990. (Filed
             with Registration Statement No. 33-50453.)
       3-B   Copy of the  Company's Certificate  of Designation  and Articles of  Amendment establishing  the 7  3/4%
             Preferred Stock -- $25 Par. (Filed with Registration Statement No. 33-50453.)
       3-C   Copy  of the  Company's Certificate  of Designation and  Articles of  Amendment establishing  the 6 3/4%
             Preferred Stock. (Filed with Registration Statement No. 33-53855.)
       3-D   Copy of the Company's By-Laws as  amended September 30, 1993. (Filed with  Form 10-K for the year  ended
             December 31, 1993, File No. 1-1405.)
       4-A   Copy  of the Mortgage and Deed of Trust of Delaware Power & Light Company to the New York Trust Company,
             Trustee, (Chemical Bank, successor Trustee) dated as of October 1, 1943 and copies of the First  through
             Sixty-Eighth Supplemental Indentures thereto. (Filed with Registration Statement No. 33-1763.)
       4-B   Copy of the Sixty-Ninth Supplemental Indenture. (Filed with Registration Statement No. 33-39756.)
       4-C   Copies  of  the  Seventieth through  Seventy-Fourth  Supplemental Indentures.  (Filed  with Registration
             Statement No. 33-24955.)
       4-D   Copies  of  the  Seventy-Fifth  through   the  Seventy-Seventh  Supplemental  Indentures.  (Filed   with
             Registration Statement No. 33-39756.)
       4-E   Copies  of  the  Seventy-Eighth  and Seventy-Ninth  Supplemental  Indentures.  (Filed  with Registration
             Statement No. 33-46892.)
       4-F   Copy of the Eightieth Supplemental Indenture. (Filed with Registration Statement No. 33-49750.)
</TABLE>
 
                                      IV-1
<PAGE>
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER
-----------
       4-G   Copy of the Eighty-First Supplemental Indenture. (Filed with Registration Statement No. 33-57652.)
<C>          <S>
       4-H   Copy of the Eighty-Second Supplemental Indenture. (Filed with Registration Statement No. 33-63582.)
       4-I   Copy of the Eighty-Third Supplemental Indenture. (Filed with Registration Statement No. 33-50453.)
       4-J   Copies of  the Eighty-Fourth  through Eighty-Eighth  Supplemental Indentures.  (Filed with  Registration
             Statement No. 33-53855.)
       4-K   Copies of the Eighty-Ninth and Ninetieth Supplemental Indentures. (Filed with Registration Statement No.
             333-00505.)
      10-A   Copy  of the Management Incentive Compensation  Plan amended and restated as  of January 1, 1992. (Filed
             with Form 10-K for the year ended December 31, 1991, File No. 1-1405.)
      10-B   Copy of an amendment to the Management Incentive Compensation Plan adopted by the Board of Directors  on
             January 28, 1993, effective as of January 1, 1993. (Filed with Form 10-K for the year ended December 31,
             1992, File No. 1-1405.)
      10-C   Copy  of the Supplemental  Executive Retirement Plan, revised  as of October 29,  1991. (Filed with Form
             10-K for the year ended December 31, 1992, File No. 1-1405.)
      10-D   Copies of  amendments to  the  Supplemental Executive  Retirement Plan,  effective  June 15,  1994,  and
             November 1, 1994. (Filed with Form 10-K for the year ended December 31, 1994, File No. 1-1405.)
      10-E   Copy  of the Long Term Incentive Plan amended and restated  as of January 1, 1992. (Filed with Form 10-K
             for the year ended December 31, 1991, File No. 1-1405.)
      10-F   Copy of an amendment to the  Long Term Incentive Plan adopted by  the Board of Directors on January  28,
             1993,  effective as of January 1, 1993. (Filed with Form 10-K for the year ended December 31, 1992, File
             No. 1-1405.)
      10-G   Copy of the severance  agreement with members of  management. (Filed with Form  10-K for the year  ended
             December 31, 1994, File No. 1-1405.)
      10-H   Copy of the current listing of members of management who have signed the severance agreement.
      10-I   Copy  of the Management Life Insurance Plan amended and restated as of January 1, 1992. (Filed with Form
             10-K for the year ended December 31, 1991, File No. 1-1405.)
      10-J   Copy of the Deferred Compensation Plan, effective as of January 1, 1996.
      12-A   Computation of ratio of earnings to fixed charges.
      12-B   Computation of ratio of earnings to fixed charges and preferred dividends.
      13     Certain portions of the 1995 Annual Report to  Stockholders which are incorporated by reference in  this
             Form 10-K.
      23     Consent of Independent Accountants.
      27     Financial Data Schedule.
</TABLE>
 
    (b) Reports on Form 8-K (filed during the reporting period):
 
    A  Report on Form  8-K dated October  20, 1995, updating  matters related to
Salem Units 1 and 2 previously reported, was filed with the Commission.
 
    A Report on Form  8-K dated December 15,  1995, updating matters related  to
Salem Units 1 and 2 previously reported, was filed with the Commission.
 
    A  Report on Form 8-K  dated February 22, 1996,  updating matters related to
Salem Units 1 and 2 previously reported, was filed with the Commission.
 
                                      IV-2
<PAGE>
                         DELMARVA POWER & LIGHT COMPANY
 
                        SCHEDULE OF OPERATING STATISTICS
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1995
 
    The  table below sets forth selected  financial and operating statistics for
the electric and gas divisions for the three years ended December 31, 1995.
 
<TABLE>
<CAPTION>
                                                                              1995         1994         1993
                                                                           -----------  -----------  -----------
<S>                                                                        <C>          <C>          <C>
ELECTRIC:
  Electricity generated and purchased (MWh):
    Generated............................................................   10,797,547   11,581,929   11,264,540
    Purchased............................................................    3,977,867    3,766,169    3,857,133
    Interchange deliveries...............................................   (1,862,467)  (2,220,898)  (2,225,384)
                                                                           -----------  -----------  -----------
      Total output for load..............................................   12,912,947   13,127,200   12,896,289
                                                                           -----------  -----------  -----------
                                                                           -----------  -----------  -----------
  Electric sales (MWh):
    Residential..........................................................    3,829,807    3,578,743    3,499,387
    Commercial...........................................................    3,744,879    3,461,058    3,336,847
    Industrial...........................................................    3,351,834    3,248,131    3,232,233
    Resale...............................................................    1,213,459    2,166,154    2,131,920
    Other sales (1)......................................................      170,942       50,996       79,843
                                                                           -----------  -----------  -----------
      Total sales........................................................   12,310,921   12,505,082   12,280,230
  Losses and miscellaneous system uses...................................      602,026      622,118      616,059
                                                                           -----------  -----------  -----------
    Total disposition of energy..........................................   12,912,947   13,127,200   12,896,289
                                                                           -----------  -----------  -----------
                                                                           -----------  -----------  -----------
  Operating revenue (thousands):
    Residential..........................................................     $344,351     $312,224     $305,446
    Commercial...........................................................      267,239      242,506      237,785
    Industrial...........................................................      155,108      145,594      150,178
    Resale...............................................................       58,680      105,350      104,983
    Other sales revenues (2).............................................       14,211        6,816        9,716
    Interchange deliveries...............................................       47,271       62,388       61,437
    Miscellaneous revenues...............................................       12,802        8,237        6,118
                                                                           -----------  -----------  -----------
      Total revenues.....................................................     $899,662     $883,115     $875,663
                                                                           -----------  -----------  -----------
                                                                           -----------  -----------  -----------
  Number of customers (end of period):
    Residential..........................................................      386,948      347,997      342,710
    Commercial...........................................................       48,345       44,060       43,324
    Industrial...........................................................          704          699          715
    Resale...............................................................           12           12           12
    Other................................................................          641          604          593
                                                                           -----------  -----------  -----------
      Total customers....................................................      436,650      393,372      387,354
                                                                           -----------  -----------  -----------
                                                                           -----------  -----------  -----------
  Average annual use per residential customer (kWh) (3)..................       10,365       10,359       10,336
  Average annual revenue per residential customer (3)....................      $931.95      $903.74      $902.14
  Average revenue per kWh (cents):
    Residential..........................................................          9.0          8.7          8.7
    Commercial...........................................................          7.1          7.0          7.1
    Industrial...........................................................          4.6          4.5          4.7
GAS:
  Gas sales (Mcf)........................................................       18,478       18,087       18,066
  Gas transported (Mcf)..................................................        2,893        2,255        1,539
  Gas revenue (thousands)................................................      $95,441     $107,906      $94,944
  Number of customers (end of period):
    Residential..........................................................       90,890       88,518       86,027
    Commercial...........................................................        7,369        6,982        6,751
    Industrial...........................................................          146          150          150
    Interruptible and other..............................................           12           12           12
                                                                           -----------  -----------  -----------
      Total customers....................................................       98,417       95,662       92,940
                                                                           -----------  -----------  -----------
                                                                           -----------  -----------  -----------
  Residential gas service:
    Average annual use per customer (Mcf) (3)............................        81.75        88.55        86.85
    Average annual revenue per customer (3)..............................      $525.87      $632.11      $558.59
    Average revenue per Mcf..............................................        $6.43        $7.14        $6.43
</TABLE>
 
------------------------------
(1)  Includes unbilled sales.
(2)  Includes unbilled revenues.
(3)  Based on average number of customers during period.
 
                                      IV-3
<PAGE>
                                   SIGNATURES
 
    Pursuant to  the requirements  of  Section 13  or  15(d) of  the  Securities
Exchange  Act of 1934 the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
<TABLE>
<S>                                          <C>        <C>
                                                         DELMARVA POWER & LIGHT COMPANY
                                                                  (REGISTRANT)
 
Dated: March 26, 1996                        By                    /s/BARBARA S. GRAHAM
                                                         -----------------------------------------
                                                        (BARBARA S. GRAHAM, SENIOR VICE PRESIDENT,
                                                          TREASURER, AND CHIEF FINANCIAL OFFICER)
</TABLE>
 
    Pursuant to the requirements  of the Securities Exchange  Act of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the date indicated.
 
<TABLE>
<C>                                                     <S>                                    <C>
                      SIGNATURE                                         TITLE                         DATE
------------------------------------------------------  -------------------------------------  ------------------
 
                /s/ HOWARD E. COSGROVE                  Chairman of the Board, President,
     -------------------------------------------         Chief Executive Officer, and            March 26, 1996
                 (HOWARD E. COSGROVE)                    Director
 
                /s/ BARBARA S. GRAHAM
     -------------------------------------------        Senior Vice President, Treasurer, and    March 26, 1996
                 (BARBARA S. GRAHAM)                     Chief Financial Officer
 
                  /s/ JAMES P. LAVIN
     -------------------------------------------        Comptroller and Chief Accounting         March 26, 1996
                   (JAMES P. LAVIN)                      Officer
 
              /s/ MICHAEL G. ABERCROMBIE
     -------------------------------------------        Director                                 March 26, 1996
               (MICHAEL G. ABERCROMBIE)
 
               /s/ R. FRANKLIN BALOTTI
     -------------------------------------------        Director                                 March 26, 1996
                (R. FRANKLIN BALOTTI)
 
                 /s/ ROBERT D. BURRIS
     -------------------------------------------        Director                                 March 26, 1996
                  (ROBERT D. BURRIS)
 
               /s/ AUDREY K. DOBERSTEIN
     -------------------------------------------        Director                                 March 26, 1996
                (AUDREY K. DOBERSTEIN)
 
                   /s/ M. B. EMERY
     -------------------------------------------        Director                                 March 26, 1996
                  (MICHAEL B. EMERY)
 
                /s/ J. H. GILLIAM, JR.
     -------------------------------------------        Director                                 March 26, 1996
               (JAMES H. GILLIAM, JR.)
 
                  /s/ SARAH I. GORE
     -------------------------------------------        Director                                 March 26, 1996
                   (SARAH I. GORE)
 
     -------------------------------------------        Director
                  (JAMES C. JOHNSON)
 
                /s/ WESTON E. NELLIUS
     -------------------------------------------        Director                                 March 26, 1996
                 (WESTON E. NELLIUS)
</TABLE>
 
                                      IV-4
<PAGE>
                         DELMARVA POWER & LIGHT COMPANY
                        1995 ANNUAL REPORT ON FORM 10-K
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                                   DESCRIPTION
-----------  --------------------------------------------------------------------------------------------------------
<S>          <C>
      10-H   Copy of the current listing of members of management who have signed the severance agreement.
      10-J   Copy of the Deferred Compensation Plan.
      12-A   Computation of ratio of earnings to fixed charges.
      12-B   Computation of ratio of earnings to fixed charges and preferred dividends.
        13   Certain portions of the 1995 Annual Report to Stockholders which are incorporated by reference in this
              Form 10-K.
        23   Consent of Independent Accountants.
        27   Financial Data Schedule.
</TABLE>