United States
Securities and Exchange Commission
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Registrant; State of Incorporation; IRS Employer
Number Address; and Telephone No. Identification No.
1-11459 PP&L Resources, Inc. 23-2758192
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
1-905 Pennsylvania Power & Light Company 23-0959590
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
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.
PP&L Resources, Inc. Yes X No
PP&L Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
PP&L Resources, Inc. Common stock, $.01 par value,
162,280,159 shares outstanding at
October 31, 1996
Pennsylvania Power & Light Co. Common stock, no par value,
157,300,382, shares outstanding and
all held by PP&L Resources, Inc. at
October 31, 1996
PP&L RESOURCES, INC.
AND
PENNSYLVANIA POWER & LIGHT COMPANY
FORM 10-Q
FOR THE QUARTER ENDED September 30, 1996
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PP&L Resources, Inc.
Consolidated Statements of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Pennsylvania Power & Light Company
Consolidated Statements of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to Financial Statements
PP&L Resources, Inc. and Pennsylvania
Power & Light Company
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PP&L Resources, Inc. and Pennsylvania Power
& Light Company
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
GLOSSARY OF TERMS AND ABBREVIATIONS
SIGNATURES
PP&L RESOURCES, INC. AND SUBSIDIARIES
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
In the opinion of PP&L Resources, Inc. (PP&L Resources), the unaudited
financial statements, included herein, reflect all adjustments necessary to present
fairly the Consolidated Balance Sheet as of September 30, 1996 and the Consolidated
Statements of Income and Consolidated Statement of Cash Flows for the periods ended
September 30, 1996 and 1995. PP&L Resources is the parent holding company
of Pennsylvania Power & Light Company (PP&L), Power Markets Development Company
(PMDC) and Spectrum Energy Services Corporation (Spectrum). PP&L comprises
substantially all of PP&L Resources' assets, revenues and earnings. All nonutility
operating transactions are included in "Other Income and (Deductions) - Net"
in PP&L Resources' Consolidated Statements of Income.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars, except per share data)
Three Months
Ended September 30,
1996 1995
Operating Revenues ............................... $715 $682
Operating Expenses
Operation
Fuel......................................... 124 130
Power purchases.............................. 84 66
Other........................................ 138 107
Maintenance..................................... 40 39
Depreciation (including amortized depreciation). 91 87
Income taxes.................................... 52 92
Taxes, other than income........................ 50 48
Voluntary early retirement program......................... (66)
579 503
Operating Income .................................. 136 179
Other Income and (Deductions) - Net 6 (28)
Income Before Interest Charges & Dividends on Preferred
Stock ........................................... 142 151
Interest Charges
Long-term debt.................................. 52 53
Short-term debt and other....................... 4 4
56 57
Preferred Stock Dividend Requirements.............. 7 7
Net Income......................................... $79 $87
Earnings Per Share of Common Stock (a) ............ $0.49 $0.55
Average Number of Shares Outstanding
(thousands)....................................... 161,360 158,131
Dividends Declared Per Share of Common
Stock............................................. $0.4175 $0.4175
<FN>
(a) Based on average number of shares outstanding.
See accompanying Notes to Financial Statements.
PP&L RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars, except per share data)
Nine Months
Ended September 30,
1996 1995
Operating Revenues ............................... $2,173 $2,018
Operating Expenses
Operation
Fuel......................................... 349 336
Power purchases.............................. 249 214
Other........................................ 387 345
Maintenance..................................... 136 124
Depreciation (including amortized depreciation) 272 262
Income taxes.................................... 193 210
Taxes, other than income........................ 156 149
Voluntary early retirement program......................... (66)
1,742 1,574
Operating Income .................................. 431 444
Other Income and (Deductions) - Net 10 (21)
Income Before Interest Charges & Dividends on Preferred
Stock ........................................... 441 423
Interest Charges
Long-term debt.................................. 155 161
Short-term debt and other....................... 9 8
164 169
Preferred Stock Dividend Requirements.............. 21 21
Net Income......................................... $256 $233
Earnings Per Share of Common Stock (a) ............ $1.60 $1.48
Average Number of Shares Outstanding
(thousands)....................................... 160,650 157,187
Dividends Declared Per Share of Common
Stock............................................. $1.2525 $1.2525
<FN>
(a) Based on average number of shares outstanding.
See accompanying Notes to Financial Statements.
PP&L RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
September 30, December 31,
1996 1995
(Unaudited) (Audited)
ASSETS
Property, Plant and Equipment
Electric utility plant in service -
at original cost........................... $9,772 $9,637
Accumulated depreciation .................. (3,299) (3,113)
Deferred depreciation ..................... 158 209
6,631 6,733
Construction work in progress - at cost...... 183 170
Nuclear fuel owned and leased - net
of amortization ........................... 151 134
Other leased property - net of amortization . 79 85
Electric utility plant - net............... 7,044 7,122
Other property - (net of depreciation,
amortization and depletion 1996, $58;
1995, $56).................................. 56 57
7,100 7,179
Investments
Affiliated companies - at equity ............ 227 29
Nuclear plant decommissioning trust fund .... 120 109
Financial investments........................ 138 142
Other - at cost or less ..................... 16 9
501 289
Current Assets
Cash and cash equivalents ................... 100 20
Current financial investments ............... 110 96
Accounts receivable (less reserve: 1996, $37;
1995, $35)................................. 188 211
Unbilled revenues............................ 79 92
Fuel - at average cost....................... 81 82
Materials and supplies - at average cost..... 106 108
Prepayments.................................. 29 11
Deferred income taxes ....................... 40 42
Other........................................ 25 31
758 693
Deferred Debits
Taxes recoverable through future rates....... 976 1,003
Other ....................................... 292 328
1,268 1,331
$9,627 $9,492
See accompanying Notes to Financial Statements.
PP&L RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
September 30, December 31,
1996 1995
(Unaudited) (Audited)
LIABILITIES
Capitalization
Common equity
Common stock............................... $2 $2
Capital in excess of par value ............ 1,566 1,513
Earnings reinvested ....................... 1,138 1,083
Capital stock expense and other ........... (3) (1)
2,703 2,597
Preferred stock
With sinking fund requirements............. 295 295
Without sinking fund requirements.......... 171 171
Long-term debt............................... 2,832 2,829
6,001 5,892
Current Liabilities
Commercial paper ................................ 68
Bank loans .................................. 219 21
Long-term debt due within one year............... 30
Capital lease obligations due within one year 80 81
Accounts payable............................. 126 128
Taxes accrued................................ 38 47
Interest accrued............................. 62 66
Dividends payable............................ 74 74
Other........................................ 78 86
677 601
Deferred Credits and Other Noncurrent Liabilities
Deferred investment tax credits ............. 212 219
Deferred income taxes ....................... 2,049 2,106
Capital lease obligations ................... 134 139
Other ....................................... 554 535
2,949 2,999
Commitments and Contingent Liabilities
(See Note 5).....................................
$9,627 $9,492
See accompanying Notes to Financial Statements.
PP&L RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
Nine Months
Ended September 30,
1996 1995
Cash Flows From Operating Activities
Net income............................................ $256 $233
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation....................................... 274 264
Amortization of property under capital leases...... 63 61
Voluntary early retirement program......................... (66)
Change in current assets and current liabilities 5 14
Other operating activities - net................... 34 33
Net cash provided by operating activities....... 632 539
Cash Flows From Investing Activities
Property, plant and equipment expenditures............ (250) (318)
Purchases of available-for-sale securities............ (405) (248)
Sales and maturities of available-for-sale securities. 392 243
Net purchases and sales of other financial investments (203) (9)
Other investing activities - net...................... 45 48
Net cash used in investing activities........... (421) (284)
Cash Flows From Financing Activities
Issuance of long-term debt............................ 116 55
Issuance of common stock.............................. 53 57
Retirement of long-term debt.......................... (145) (140)
Payments on capital lease obligations................. (63) (61)
Common and preferred dividends paid................... (221) (217)
Net increase in short-term debt....................... 130 61
Other financing activities - net...................... (1) (11)
Net cash used in financing activities........... (131) (256)
Net Increase(Decrease) In Cash and Cash Equivalents ... 80 (1)
Cash and Cash Equivalents at Beginning of Period ...... 20 10
Cash and Cash Equivalents at End of Period ............ $100 $9
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for
Interest (net of amount capitalized)................. $156 $162
Income taxes......................................... $224 $196
See accompanying Notes to Financial Statements.
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES
In the opinion of Pennsylvania Power & Light Company (PP&L), the unaudited
financial statements, included herein, reflect all adjustments necessary to
present fairly the Consolidated Balance Sheet as of September 30, 1996 and
the Consolidated Statements of Income and Consolidated Statement of Cash Flows
for the periods ended September 30, 1996 and 1995. All nonutility operating transactions
are included in "Other Income and (Deductions) - Net" in PP&L's Consolidated
Statements of Income.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars)
Three Months
Ended September 30,
1996 1995
Operating Revenues ............................... $715 $682
Operating Expenses
Operation
Fuel......................................... 124 130
Power purchases.............................. 84 66
Other........................................ 138 107
Maintenance..................................... 40 39
Depreciation (including amortized depreciation) 91 87
Income taxes.................................... 52 92
Taxes, other than income........................ 50 48
Voluntary early retirement program......................... (66)
579 503
Operating Income .................................. 136 179
Other Income and (Deductions) - Net 3 (28)
Income Before Interest Charges..................... 139 151
Interest Charges
Long-term debt.................................. 52 53
Short-term debt and other....................... 1 3
53 56
Net Income......................................... 86 95
Dividends on Preferred Stock....................... 7 7
Earnings Available to PP&L Resources, Inc. ....... $79 $88
See accompanying Notes to Financial Statements.
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars)
Nine Months
Ended September 30,
1996 1995
Operating Revenues ............................... $2,173 $2,018
Operating Expenses
Operation
Fuel......................................... 349 336
Power purchases.............................. 249 214
Other........................................ 387 345
Maintenance..................................... 136 124
Depreciation (including amortized depreciation) 272 262
Income taxes.................................... 193 210
Taxes, other than income........................ 156 149
Voluntary early retirement program......................... (66)
1,742 1,574
Operating Income .................................. 431 444
Other Income and (Deductions) - Net 9 (20)
Income Before Interest Charges..................... 440 424
Interest Charges
Long-term debt.................................. 155 161
Short-term debt and other....................... 5 8
160 169
Net Income......................................... 280 255
Dividends on Preferred Stock....................... 21 21
Earnings Available to PP&L Resources, Inc. ........ $259 $234
See accompanying Notes to Financial Statements.
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
September 30, December 31,
1996 1995
(Unaudited) (Audited)
ASSETS
Property, Plant and Equipment
Electric utility plant in service................ $9,772 $9,637
Accumulated depreciation....................... (3,299) (3,113)
Deferred depreciation.......................... 158 209
6,631 6,733
Construction work in progress.................... 183 170
Nuclear fuel owned and leased - net
of amortization................................ 151 134
Other leased property - net of amortization ..... 79 85
Electric utility plant - net................... 7,044 7,122
Other property - net of depreciation,
amortization and depletion (1996, $58;
1995, $56) .................................... 56 57
7,100 7,179
Investments
Affiliated company - at equity................... 17 17
Nuclear plant decommissioning trust fund ........ 120 110
Financial investments............................ 130 132
Other - at cost or less.......................... 10 9
277 268
Current Assets
Cash and cash equivalents........................ 96 15
Current financial investments ................... 52 55
Accounts receivable (less reserve: 1996, $37;
1995, $35)..................................... 187 210
Unbilled revenues................................ 79 92
Fuel - at average cost........................... 81 82
Materials and supplies - at average cost......... 106 108
Prepayments...................................... 29 11
Deferred income taxes............................ 40 42
Other............................................ 25 31
695 646
Deferred Debits
Taxes recoverable through future rates........... 976 1,003
Other............................................ 292 328
1,268 1,331
$9,340 $9,424
See accompanying Notes to Financial Statements.
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
September 30, December 31,
1996 1995
(Unaudited) (Audited)
LIABILITIES
Capitalization
Common equity
Common stock................................ $1,476 $1,476
Additional paid-in capital ................. 48 25
Earnings reinvested......................... 1,091 1,034
Capital stock expense and other ............ (10) (7)
2,605 2,528
Preferred stock
With sinking fund requirements.............. 295 295
Without sinking fund requirements........... 171 171
Long-term debt................................ 2,832 2,829
5,903 5,823
Current Liabilities
Commercial paper................................... 68
Bank loans.................................... 30 21
Long-term debt due within one year................. 30
Capital lease obligations due within one year. 80 81
Accounts payable.............................. 126 128
Taxes accrued................................. 39 48
Interest accrued.............................. 62 66
Dividends payable............................. 74 74
Other......................................... 78 86
489 602
Deferred Credits and Other Noncurrent Liabilities
Deferred investment tax credits............... 212 219
Deferred income taxes......................... 2,048 2,106
Capital lease obligations..................... 134 139
Other......................................... 554 535
2,948 2,999
Commitments and Contingent Liabilities
(See Note 5).......................................
$9,340 $9,424
See accompanying Notes to Financial Statements.
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
Nine Months
Ended September 30,
1996 1995
Cash Flows From Operating Activities
Net income............................................ $280 $255
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation....................................... 274 264
Amortization of property under capital leases...... 63 61
Voluntary early retirement program............................ (66)
Change in current assets and current liabilities 5 14
Other operating activities - net................... 12 12
Net cash provided by operating activities....... 634 540
Cash Flows From Investing Activities
Property, plant and equipment expenditures............ (250) (318)
Purchases of available-for-sale securities............ (84) (67)
Sales and maturities of available-for-sale securities. 87 65
Other investing activities - net...................... 45 49
Net cash used in investing activities........... (202) (271)
Cash Flows From Financing Activities
Issuance of long-term debt............................ 116 55
Retirement of long-term debt.......................... (145) (140)
Payments on capital lease obligations................. (63) (61)
Common and preferred dividends paid................... (221) (217)
Net increase(decrease) in short-term debt............. (59) 61
Other financing activities - net...................... 21 28
Net cash used in financing activities........... (351) (274)
Net Increase(Decrease) In Cash and Cash Equivalents ... 81 (5)
Cash and Cash Equivalents at Beginning of Period ...... 15 9
Cash and Cash Equivalents at End of Period ............ $96 $4
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for
Interest (net of amount capitalized)................. $156 $162
Income taxes......................................... $226 $197
See accompanying Notes to Financial Statements.
PP&L Resources, Inc. and Pennsylvania Power & Light Company
Notes to Financial Statements
Terms and abbreviations appearing in Notes to Financial Statements are
explained in the glossary on page 28.
1. Interim Financial Statements
Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted in this Form 10-Q
pursuant to the rules and regulations of the SEC. These financial
statements should be read in conjunction with the financial statements and
notes included in PP&L Resources' and PP&L's Annual Report to the SEC on
Form 10-K for the year ended December 31, 1995.
Certain amounts from prior periods' financial statements have been
reclassified to conform to the presentation in the September 30, 1996
financial statements.
2. Rate Matters - PP&L
Appeal of Base Rate Case
Reference is made to PP&L Resources' and PP&L's Annual Report to the
SEC on Form 10-K for the year ended December 31, 1995 regarding the PUC
Decision. The OCA has appealed certain aspects of the PUC Decision to the
Commonwealth Court. PP&L cannot predict the final outcome of this matter.
Energy Cost Rate Issues
In March 1996, the PUC approved PP&L's 1996-97 ECR, effective April 1,
1996. The ECR reflects a $42 million decrease in energy costs from the
previous ECR. This is largely due to lower coal prices, only one nuclear
refueling outage, the start of gas and oil dual fuel capability at Martins
Creek Units 3 and 4, and the end of a settlement adjustment charge for
replacement power costs.
3. Sales to Other Major Electric Utilities - PP&L
In March 1996, the New Jersey Board of Public Utilities approved an
agreement between PP&L and JCP&L, under which PP&L will provide JCP&L with
150,000 kilowatts of capacity credits and energy from June 1997 through May
1998, 200,000 kilowatts from June 1998 through May 1999 and 300,000
kilowatts from June 1999 through May 2004. Prices under the new agreement
are based on a predetermined reservation rate that escalates over time,
plus an energy component based on PP&L's actual fuel-related costs. PP&L
filed the agreement for FERC review and acceptance in October 1996.
In September 1996, PP&L made installed capacity credit sales for up to
300,000 kilowatts to GPU Energy which will continue through the first half
of 1997.
4. Credit Arrangements and Financing Activity - PP&L Resources/PP&L
During the third quarter of 1996, 763,810 shares of PP&L Resources'
common stock ($18 million) were issued through the DRIP. In October 1996,
PP&L Resources issued an additional 686,615 shares of common stock ($15
million) through the DRIP. As of September 30, 1996, 161,593,544 shares of
PP&L Resources common stock were outstanding.
During the second quarter, PP&L Resources established a revolving
credit facility in the amount of $300 million. At the option of PP&L
Resources, interest rates can be based on Eurodollar deposit rates or the
prime rate. Any loans made under this credit arrangement would mature, and
the facility will terminate, on May 29, 1997. PP&L Resources used
borrowings under this revolving credit facility for the funding of a PMDC
subsidiary's indirect acquisition of a 25 percent interest in SWEB. In
July 1996, the PMDC subsidiary obtained an ownership interest in SWEB for
$189 million through the purchase of a 25 percent interest in SIUKH, a
holding company for Southern Investments UK, which is the sole shareholder
of SWEB. Borrowings of $190 million were outstanding under this credit
facility at September 30, 1996. PP&L Resources expects to replace this
revolving credit borrowing by the end of May 1997 with about one-half
common equity and one-half long-term debt.
PP&L has a $250 million revolving credit arrangement with a group of
banks. Any loans made under this credit arrangement would mature in
September 1999 and, at the option of PP&L, interest rates would be based
upon certificate of deposit rates, Eurodollar deposit rates or the prime
rate. PP&L has additional credit arrangements with another group of banks.
The banks have committed to lend PP&L up to $45 million under these credit
arrangements, which mature in May 1997, at interest rates based upon
Eurodollar deposit rates or the prime rate. These credit arrangements
produce a total of $295 million of lines of credit to provide back-up for
PP&L's commercial paper and short-term borrowings of certain subsidiaries.
No borrowings were outstanding at September 30, 1996 under these credit
arrangements.
PP&L retired $30 million principal amount of First Mortgage Bonds, 5-
5/8% Series that matured on June 1, 1996. In March 1996, PP&L issued $116
million principal amount of unsecured promissory notes which mature in
March 2001. At the option of PP&L, interest rates can be based on
Eurodollar deposit rates or the prime rate. The proceeds from the issuance
of these notes were used for the redemption in March 1996 of $115 million
principal amount of First Mortgage Bonds ($40 million principal amount of
the 8-1/8 Series due 1999 and $75 million principal amount of the 7-5/8%
Series due 2002) pursuant to the maintenance and replacement fund
provisions of PP&L's Mortgage.
5. Commitments and Contingent Liabilities - PP&L Resources/PP&L
There have been no material changes related to PP&L Resources' or
PP&L's commitments and contingent liabilities since the companies filed
their joint 1995 Form 10-K, except for the discussion below regarding
environmental matters.
For discussion pertaining to PP&L Resources' and PP&L's financing
matters, see Management's Discussion and Analysis of Financial Condition
and Results of Operations under the caption "Financial Condition -
Financing Programs."
Nuclear Insurance
PP&L is a member of certain insurance programs which provide coverage
for property damage to members' nuclear generating stations. Facilities at
the Susquehanna station are insured against property damage losses up to
$2.75 billion under these programs. PP&L is also a member of an insurance
program which provides insurance coverage for the cost of replacement power
during prolonged outages of nuclear units caused by certain specified
conditions. Under the property and replacement power insurance programs,
PP&L could be assessed retroactive premiums in the event of the insurers'
adverse loss experience. The maximum amount PP&L could be assessed under
these programs at September 30, 1996 was about $40 million.
PP&L's public liability for claims resulting from a nuclear incident
at the Susquehanna station is limited to about $8.9 billion under
provisions of The Price Anderson Amendments Act of 1988. PP&L is protected
against this liability by a combination of commercial insurance and an
industry assessment program. In the event of a nuclear incident at any of
the reactors covered by The Price Anderson Amendments Act of 1988, PP&L
could be assessed up to $151 million per incident, payable at a rate of $20
million per year, plus an additional 5% surcharge, if applicable.
Environmental Matters
Air
The Clean Air Act deals, in part, with acid rain, attainment of
federal ambient ozone standards and toxic air emissions. PP&L has complied
with the Phase I acid rain provisions required to be implemented by 1995 by
installing continuous emission monitors on all units, burning lower sulfur
coal and installing low nitrogen oxide burners on certain units. To comply
with the year 2000 acid rain provisions, PP&L plans to purchase lower
sulfur coal and use banked or purchased emission allowances instead of
installing FGD on its wholly-owned units.
PP&L has met the initial ambient ozone requirements identified in
Title I of the Clean Air Act by reducing nitrogen oxide emissions by 40%
through the use of low nitrogen oxide burners. Further nitrogen oxide
reductions to 55% and 75% of pre-Clean Air Act levels are specified under
the Northeast Ozone Transport Region's Memorandum of Understanding for 1999
and 2003, respectively.
The Clean Air Act requires EPA to study the health effects of
hazardous air emission and fine particulates from power plants and other
sources. Adverse findings could cause the EPA to mandate further emission
reductions from PP&L's power plants.
Expenditures to meet the year 1999 requirements are included in the
table of projected construction expenditures in the Management's Discussion
and Analysis of Financial Condition and Results of Operations under the
caption "Financial Condition - PP&L's Capital Expenditure Requirements".
PP&L currently estimates that additional capital expenditures and operating
costs for environmental compliance under the Clean Air Act will be incurred
beyond 2000 in amounts which are not now determinable but could be
material.
Water and Residual Waste
DEP residual waste regulations require PP&L to permit existing ash
basins at all of its coal-fired generating stations as disposal facilities.
Ash basins that cannot be permitted are required to close by July 1997.
Any groundwater contamination caused by the basins must also be addressed.
Any new ash disposal facility must meet the rigid siting and design
standards set forth in the regulations.
To address the DEP regulations, PP&L is moving forward with its plan
to install dry fly ash handling systems at its power stations.
Groundwater degradation related to fuel oil leakage from underground
facilities and seepage from coal refuse disposal areas and coal storage
piles has been identified at several PP&L generating stations. Remedial
work is substantially completed at two generating stations. At this time,
there is no indication that remedial work will be required at other PP&L
generating stations.
The current Montour station NPDES permit contains stringent limits for
certain toxic metals and increased monitoring requirements. Depending on
the results of toxic reduction studies in progress, additional water
treatment facilities may be needed at the Montour station. DEP may require
similar toxic reduction studies at the Holtwood station, which may indicate
the need for additional water treatment facilities at Holtwood as well.
Capital expenditures through year 2000 to comply with the residual
waste regulations, correct groundwater degradation at fossil-fueled
generating stations, and address waste water control at PP&L facilities are
included in the table of construction expenditures in the Management's
Discussion and Analysis of Financial Condition and Results of Operations
under the caption "Financial Condition - PP&L's Capital Expenditure
Requirements". PP&L currently estimates that $11 million of additional
capital expenditures may be required in the next four years and $68 million
of additional capital expenditures could be required in year 2001 and
beyond. Actions taken to correct groundwater degradation, to comply with
the DEP's regulations and to address waste water control are also expected
to result in increased operating costs in amounts which are not now
determinable but could be material.
Superfund and Other Remediation
PP&L has signed a consent order with the DEP to address a number of
sites where PP&L may be liable for remediation of contamination. This may
include potential PCB contamination at certain of PP&L's substations and
pole sites; potential contamination at a number of coal gas manufacturing
facilities formerly owned and operated by PP&L; and oil or other
contamination which may exist at some of PP&L's former generating
facilities.
At September 30, 1996, PP&L had accrued $11 million, representing the
amount PP&L can reasonably estimate it will have to spend to remediate
sites involving the removal of hazardous or toxic substances including
those covered by the consent order mentioned above. Future cleanup or
remediation work at sites currently under review, or at sites not currently
identified, may result in material additional operating costs which PP&L
cannot estimate at this time. In addition, certain federal and state
statutes, including Superfund and the Pennsylvania Hazardous Sites Cleanup
Act, empower certain governmental agencies, such as the EPA and the DEP, to
seek compensation from the responsible parties for the lost value of
damaged natural resources. The EPA and the DEP may file such compensation
claims against the parties, including PP&L, held responsible for cleanup of
such sites. Such natural resource damage claims against PP&L could result
in material additional liabilities.
Subsidiary Issues
In June 1995, the DEP ordered a PP&L subsidiary to abate seepage
allegedly discharged from a mine formerly operated by that subsidiary.
Based on new information suggesting a connection between the seeps and
water from the mine, the subsidiary has withdrawn its appeal of the order.
The Company does not expect the costs of complying with the order to be
material.
Other Environmental Matters
In addition to the issues discussed above, PP&L may be required to
modify, replace or cease operating certain of its facilities to comply with
other statutes, regulations and actions by regulatory bodies or courts
involving environmental matters, including the areas of water and air
quality, hazardous and solid waste handling and disposal, toxic substances
and electric and magnetic fields. In this regard, PP&L also may incur
material capital expenditures, operating expenses and other costs in
amounts which are not now determinable.
For additional information relating to Environmental Matters, see Note
15 in PP&L Resources' and PP&L's Annual Report to the SEC on Form 10-K for
the year ended December 31, 1995.
PP&L Resources, Inc. and Pennsylvania Power & Light Company
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The financial condition and results of operations of PP&L are
currently the principal factors affecting the financial condition and
results of operations of PP&L Resources. All nonutility operating
transactions are included in "Other Income and Deductions - Net" on the
Consolidated Statements of Income. This discussion should be read in
conjunction with the section entitled "Review of the Financial Condition
and Results of Operations of PP&L Resources, Inc. and Pennsylvania Power &
Light Company" in PP&L Resources' and PP&L's Annual Report to the SEC on
Form 10-K for the year ended December 31, 1995.
Terms and abbreviations appearing in Management's Discussion and
Analysis of Financial Condition and Results of Operations are explained in
the glossary on page 28.
Results of Operations
The following explains material changes in principal items on the
Consolidated Statements of Income comparing the three months and nine
months ended September 30, 1996 to the comparable periods ended September
30, 1995.
The Consolidated Statements of Income reflect the results of past
operations and are not intended as any representation of the results of
future operations. Future results of operations will necessarily be
affected by various and diverse factors and developments. Because results
for interim periods can be disproportionately influenced by various factors
and developments and by seasonal variations, the results of operations for
interim periods are not necessarily indicative of results or trends for the
year.
Earnings - PP&L Resources
Comparison of Earnings-September 30
Three Months Ended Nine Months Ended
1996 1995 1996 1995
Earnings per share - excluding
weather variances and other
adjustments referred to below $.53 $.39 $1.59 $1.34
Weather variances (.02) .05 .04 (.01)
Workforce reductions (.02) (.07) (.03) (.07)
One-time adjustments:
Related to PUC Decision .21 .21
Recognition of deferred tax
liability related to
undeveloped coal reserves (.03) (.03)
Recovery of purchased
power costs .04
Earnings per share - reported $.49 $.55 $1.60 $1.48
Earnings per share, excluding weather variances and certain other
adjustments referred to above, improved by $.14 for the three months ended
September 30, 1996 and by $.25 for the first nine months of 1996, when
compared with the same periods in 1995. Earnings improvement for these
periods, excluding the effects of weather, was primarily due to sales
growth in all major customer sectors, the impact of the PUC Decision and
certain income tax adjustments recorded in the third quarter of 1996. A
reduction in PP&L's contractual bulk power sales to JCP&L reduced earnings
by 5 cents per share during the nine-month period ended September 30, 1996.
Electric Energy Sales - PP&L
The increases (decreases) in PP&L's electric energy sales were
attributable to the following:
Sept 30, 1996 vs. Sept 30, 1995
Three Months Nine Months
Ended Ended
(Millions of Kwh)
Electric energy sales
Residential (165) 457
Commercial (17) 245
Industrial 84 38
Other (including UGI) (17) 18
System sales (115) 758
Sales to other utilities 732 2,912
PJM energy sales (425) (683)
Total 192 2,987
System, or service area, sales were 8.0 billion kwh for the three
months ended September 30, 1996. This was a 1.4% decrease over the
comparable period in 1995. The decrease was primarily due to milder than
normal weather during 1996 as compared to 1995. If normal weather had been
experienced in the third quarter of both 1995 and 1996, system sales would
have been 3.3% higher.
System sales were 25.4 billion kwh for the nine months ended
September 30, 1996, which was a 3.1% increase over the first nine months of
1995. The primary cause of this increase was a colder winter in 1996 as
compared to 1995. Under normal weather conditions in both periods, the
growth in system sales would have been 2.0%. Assuming normal weather
conditions for the rest of the year, system sales for 1996 are expected to
total 33.7 billion kwh or 3.1% higher than 1995.
Sales to other utilities for the three months ended September 30,
1996, increased 31.7% as compared to the same period in 1995. For the nine
months ended September 30, 1996, the increase in sales to other utilities
was 50.5%. These increases were primarily the result of PP&L's one-year
contract to supply energy to PSE&G and increased sales to other utilities.
Sales to PJM for the three months ended September 30, 1996 decreased
by 46.5% over the comparable period in 1995. For the nine months ended
September 30, 1996, PJM sales decreased 36.0%. These lower PJM sales are
primarily the result of an increase in direct sales to other utilities such
as the contract with PSE&G referenced above.
Operating Revenues - PP&L
The increase in total operating revenues was attributable to the
following:
September 30, 1996 vs. September 30, 1995
Three Months Nine Months
Ended Ended
(Millions of Dollars)
Base rate revenues:
Rate increase - PUC Decision $22 $ 71
Sales volume/mix 21 35
Weather (26) 18
Energy revenue 16 11
Sales to other utilities & PJM (2) 23
Other, net 2 (3)
$33 $155
Operating revenues increased by $33 million, or 4.7%, during the three
months ended September 30, 1996, when compared with the same period in
1995. Base rate revenues were enhanced by the PUC Decision, which
increased PUC jurisdictional rates by about 3.8%, and by strong sales
growth in the industrial and commercial sectors. These revenues were
partially offset by unfavorable weather impacts. The summer months of 1995
were warmer than normal, but these same months in 1996 were cooler than
normal. Energy revenues were also higher, reflecting the recovery of the
higher costs of power purchases in the ECR. Power purchases were higher
during the three months ended September 30, 1996 when compared with the
comparable period in 1995, primarily due to forced outages at fossil and
nuclear units, as well as the nuclear refueling outage.
For the first nine months of 1996, revenues increased by $155 million,
or 7.6%, from the same period in 1995. The growth in base rate revenues
was also attributable to the impact of the PUC Decision and strong sales
growth in the residential and commercial sectors. In addition, weather
provided a favorable impact when comparing the first nine months of 1996
and 1995. This is a result of the extremely cold weather during the first
quarter of 1996 compared to milder weather during the first quarter of
1995. The strong sales growth, due to real growth and weather, also
resulted in higher energy revenues. Revenues from sales to other utilities
were also higher during the nine months ended September 30, 1996 compared
with the same period in 1995. The increase is attributable to the
agreement to supply energy to PSE&G and higher sales to other utilities.
These increases were partially offset by a loss of revenue due to the
phasing out of the capacity sales agreement with JCP&L.
Rate Matters - PP&L
Reference is made to PP&L Resources' and PP&L's Annual Report to the
SEC on Form 10-K for the year ended December 31, 1995 regarding the PUC
Decision. The OCA has appealed certain aspects of the PUC Decision to the
Commonwealth Court. PP&L cannot predict the final outcome of this matter.
In March 1996, the PUC approved PP&L's 1996-97 ECR, effective April 1,
1996. The ECR reflects a $42 million decrease in energy costs from the
previous ECR. This is largely due to lower coal prices, only one nuclear
refueling outage, the start of gas and oil dual fuel capability at Martins
Creek Units 3 and 4, and the end of a settlement adjustment charge for
replacement power costs.
Power Purchases
For the three months ended September 30, 1996 power purchases
increased $18 million, or 27.3%, over the comparable period in 1995
primarily due to forced outages of fossil and nuclear units as well as a
nuclear refueling outage. For the nine months ended September 30, 1996,
power purchases increased $35 million, or 16.6%, over the comparable period
in 1995. This was primarily due to higher energy sales coupled with forced
outages at both coal and nuclear units.
Other Operating Expenses - PP&L
Other operating expenses, excluding PUC Decision related items,
decreased $1 million for the three months ended September 30, 1996 and $7
million for the nine months ended September 30, 1996 as compared to the
same periods in 1995. The decrease for both periods was primarily due to
workforce reductions and ongoing initiatives to reduce costs.
Income Taxes - PP&L Resources/PP&L
For the three months ended September 30, 1996, income tax expense
decreased by $48 million, or 48.3% from the comparable period in 1995.
This is primarily due to a decrease in PP&L Resources' pre-tax book income
of $57 million, and the use of research and experimental tax credits of $5
million. Also, during 1995 there were one-time tax increases for expensing
deferred tax benefits of $11 million as a result of the PUC Decision and
recognizing deferred tax liabilities of $4 million relative to undeveloped
coal reserves.
For the nine months ended September 30, 1996, income tax expense
decreased by $25 million, or 11.3%, from the comparable period in 1995.
This results primarily from research and experimental tax credits and the
one-time adjustments in 1995 related to the PUC Decision and undeveloped
coal reserves described above.
Financial Condition
Capital Expenditure Requirements - PP&L
The schedule below shows PP&L's current capital expenditure
projections for the years 1996-2000.
PP&L's Capital Expenditure Requirements (a)
-------------Projected-------------
1996 1997 1998 1999 2000
(Millions of Dollars)
Construction expenditures
Generating facilities $ 92 $ 65 $ 81 $ 53 $ 76
Transmission and
distribution facilities 126 120 126 123 147
Environmental 13 16 21 34 3
Other 50 57 44 20 17
281 258 272 230 243
Nuclear fuel owned and
leased 96 68 71 67 71
Other leased property 20 24 22 22 22
Total $397 $350 $365 $319 $336
(a) Construction expenditures include AFUDC which is expected to be less
than $12 million in each of the years 1996-2000.
Capital expenditure plans are revised from time to time to reflect
changes in conditions. PP&L's current capital expenditures projections for
the years 1996-2000 total about $1.8 billion which is an $85 million
increase over previously budgeted amounts for the same period. The change
is due to a $107 million increase in projected "other leased property" and
"nuclear fuel owned and leased" expenditures partially offset by a $22
million reduction in construction expenditures. Reductions in construction
expenditures for transmission and distribution facilities and environmental
expenditures are partially offset by increases in other expenditures.
Financing Programs - PP&L Resources/PP&L
From January through October 1996, PP&L Resources obtained $68 million
from sales of common equity through the DRIP.
During the second quarter, PP&L Resources obtained a commitment from
certain banks to provide loans under an unsecured revolving credit facility
up to an aggregate $300 million. See Financial Note 4 for additional
information on the use of this revolving credit facility.
PP&L retired $30 million principal amount of First Mortgage Bonds, 5-
5/8% Series that matured on June 1, 1996. In March 1996, PP&L issued $116
million principal amount of unsecured promissory notes which mature in
March 2001. At the option of PP&L, interest rates can be based on
Eurodollar deposit rates or the prime rate. The proceeds from the issuance
of the notes were used for the redemption in March 1996 of $115 million
principal amount of First Mortgage Bonds ($40 million principal amount of
the 8-1/8 Series due 1999 and $75 million principal amount of the 7-5/8%
Series due 2002) pursuant to the maintenance and replacement fund
provisions of PP&L's Mortgage.
PP&L's projected internally generated funds would be sufficient to
permit PP&L to retire $775 million of its long-term debt during 1996-2000,
which would reduce interest charges by approximately $60 million by 2000.
Outside financing, in amounts not currently determinable, or the
liquidation of certain financial investments, may be required over the next
five years to finance investment opportunities in worldwide power projects
by PMDC.
Financial Indicators - PP&L Resources
The ratio of pre-tax income to interest charges was 3.6 and 3.5,
respectively, for the nine months ended September 30, 1996 and 1995. The
annual per share dividend rate on common stock remained unchanged at $1.67
per share. The ratio of the market price to book value of common stock was
131% at September 30, 1996 compared with 145% at September 30, 1995.
Commitments and Contingent Liabilities - PP&L Resources/PP&L
There have been no material changes related to PP&L Resources' or
PP&L's commitments and contingent liabilities since the companies filed
their joint 1995 Form 10-K, except for the discussions in Financial Note 5
- -- "Commitments and Contingent Liabilities" regarding environmental
matters.
Increasing Competition
Background
The electric utility industry has experienced and will continue to
experience a significant increase in the level of competition in the energy
supply market. PP&L has publicly expressed its support for full customer
choice of electricity suppliers for all customer classes. PP&L is actively
involved in efforts at both the state and federal levels to encourage a
smooth transition to full competition. PP&L believes that this transition
to full competition should provide for the recovery of a utility's stranded
investments, which are those costs incurred by a utility because of federal
or state regulatory requirements and, also, any portion of prudent
investments made in generating facilities which would not be recoverable in
a competitive market.
Pennsylvania Activities
In April 1996, legislation was introduced in both the Pennsylvania
House and Senate aimed at ensuring that all customers enjoy the benefits of
increased competition in the electricity generation market. In general,
the bills would open up the generation portion of the electric utility
business to full competition while maintaining FERC regulation of the
transmission portion of the business and PUC regulation of distribution.
At the request of the Governor, the PUC recently held a series of
meetings with major stakeholders to attempt to reach consensus on many of
the issues in the industry restructuring legislation. These issues include
(i) stranded cost recovery and the mechanism for such recovery; (ii)
universal service and the obligation to serve; (iii) rate caps or freezes;
(iv) market power remediation; and (v) the role of cooperatives and
municipalities that own electrical distribution systems. In addition,
legislative provisions have been developed which should ensure that state
tax revenues received by the Commonwealth will not be reduced as a result
of restructuring the electric utility industry.
With respect to the mechanism for stranded cost recovery, the
legislation may provide for the issuance of "transition bonds" to pay the
stranded costs. This procedure has been approved in California and is
currently being considered in New York. The major elements include (i) the
sale or transfer by the utility of the right to recover a portion of its
stranded costs to a financing entity -- for a lump-sum payment of cash --
that could be used to retire the utility's debt and equity; (ii) the
issuance by the financing entity of "transition bonds"; (iii) the
collection by the utility of "transition charges" on customers' bills; and
(iv) the transfer of these customer payments to the financing entity to pay
the principal and interest and other related costs of issuing the
transition bonds. Customer savings may be achieved because the interest
rate on the transition bonds should be lower than the utility's pre-tax
overall rate of return used to calculate the transition charges.
The PUC would issue an order approving the collection of the
transition charges which by law could not be subsequently reduced. This
commitment by the state would protect the cash flow stream that would be
used to repay the transition bonds.
Restructuring legislation could be enacted in Pennsylvania this year.
PP&L cannot predict the ultimate content of this legislation or its effect
on the Company.
In addition, in July 1996 the PUC issued to the Governor and General
Assembly the report of its investigation on competition in Pennsylvania's
electric utility industry. Major elements of the PUC report include: (i)
a five-year transition period (which could be shorter or longer depending
on the progress of the transition), during which time utilities would adopt
specific plans to achieve retail competition; (ii) a request that each
utility submit to the PUC by April 1997 a tentative restructuring proposal
describing these specific plans; (iii) a four-year phase-in period for
customer choice (2001 to 2004), after which time all customers would have
retail access; (iv) an opportunity for utilities to recover their net,
unmitigated stranded costs; (v) a recommendation that utilities file
voluntary pilot programs for retail access, pending legislative action to
require such programs; and (vi) a schedule of milestone PUC reviews on the
progress made toward full retail competition.
In response to the PUC Report, the Company on October 1, 1996 became
the first Pennsylvania utility to file for PUC approval of its retail pilot
program. Under this program, approximately 54,000 PP&L residential,
commercial, and industrial customers -- representing approximately 5% of
PP&L's average peak load -- will have an opportunity to purchase energy
from alternative suppliers. The Company is requesting that the program
become effective on April 1, 1997 and remain in effect for 21 months
through December 31, 1998, to coincide with PP&L's proposed commencement
date of January 1, 1999 for full retail competition.
Under the pilot program, PP&L initially will provide capacity, all
back-up services and customer service. Other utilities may participate in
PP&L's program as suppliers if they offer this same opportunity for PP&L to
participate in their programs.
PP&L currently is preparing to respond to the other requirements of
the PUC report.
Federal Activities
Legislation has been introduced in the U.S. Congress that would give
all retail customers the right to choose among competitive suppliers of
electricity as early as 2000.
In addition, in April 1996 the FERC adopted rules on competition in
the wholesale electricity market primarily dealing with open access to
transmission lines and recovery of stranded costs (FERC Orders 888 and
889). These rules, which were effective on July 9, 1996, require all
electric utilities to file open access transmission tariffs available to
all wholesale sellers and buyers of electricity. The tariffs must offer
point-to-point and network services, as well as ancillary services. A
utility must offer these services to all eligible wholesale customers on a
basis comparable to the services the utility provides to itself. A utility
must take service under its open access transmission tariff for its own
wholesale sales and purchases. The rules do not abrogate existing
transmission agreements.
The rules also provide that utilities are entitled to recover from
their wholesale customers all "legitimate, verifiable, prudently incurred
stranded costs." The FERC has provided recovery mechanisms for wholesale
stranded costs, including stranded costs resulting from municipalization.
Wholesale contracts signed after July 11, 1994 must contain explicit
provisions addressing recovery of stranded costs. For contracts signed
before this date, a utility may seek recovery if it can show that it had a
reasonable expectation of continuing to serve the customer after the
contract term. Under the new rules, 16 small utilities which have
contracts with PP&L signed before July 11, 1994, requested and were
provided with PP&L's current estimate of its stranded costs aplicable to
these customers after these contracts terminate in 1999. Based upon a
formula set forth in FERC Order 888 and applicable only to PP&L's wholesale
customers, and based upon data unique to the contracts between PP&L and
these customers, PP&L estimated that the stranded costs associated with
service to these wholesale customers are approximately $95 million. As a
result of a protest by these parties against such recovery, the FERC has
ordered hearings regarding PP&L's right to recover these stranded costs.
The rules also require that plans for restructuring of transactions
within power pools and bilateral coordination agreements be filed by
December 31, 1996 and implemented by March 1, 1997. In addition, utilities
must separate their transmission and power marketing functions, and they
must implement an electronic bulletin board for transmission capacity
information by January 3, 1997.
In July 1996, PP&L filed the open access transmission tariff required
by FERC Order 888. Under the new FERC rules, that tariff became effective
on July 9, 1996. Several parties, including the small utilities, moved to
intervene and protested the new rates. PP&L currently expects these
matters to be set for hearing by the FERC.
In addition, PP&L has made the required informational filing which
showed unbundled generation and transmission components of its billing to
existing wholesale customers. The FERC is currently reviewing this
information.
On a related matter, on July 24, 1996, all of the PJM companies,
except PECO, submitted a comprehensive filing for FERC approval of changes
to the PJM Power Pool to accommodate greater competition and broader
participation, with proposed implementation of the new structure by the end
of 1996. The filing would (i) establish pool-wide transmission service
tariffs to provide comparable, open-access service for all wholesale
transactions throughout PJM; (ii) establish a price-based bidding system,
with the resulting regional energy market open to all wholesale buyers and
sellers of power; (iii) create a not-for-profit corporate entity in the
form of an ISO responsible for impartial daily management and
administration of the energy market and the transmission system; and (iv)
develop an enhanced pool-wide planning function to be administered by the
ISO.
The sponsoring PJM Companies propose to enter into three pool
participation agreements to define the relationships among the signatories
and the ISO: (i) a Reserve Sharing Agreement among all entities that serve
end-use customers within the new power pool; (ii) a Transmission Owners
Agreement among entities that own bulk power transmission facilities; and
(iii) a Market Operations Agreement to establish a spot energy market open
to all wholesale entities that wish to participate in the new pool. In
August 1996, PECO filed a separate PJM restructuring proposal with the
FERC, which differs significantly from the other companies' filing.
Unregulated Investments
PMDC continues to pursue opportunities to develop and acquire electric
generation, transmission and distribution facilities in the United States
and abroad.
As of September 30, 1996, PMDC had either investments or commitments
in the amount of $258 million in distribution, transmission and generation
facilities throughout the world, including the United Kingdom, Bolivia,
Peru, Argentina, Spain and Portugal. The principal investment to date is a
25 percent interest in SWEB, a British regional electric utility company,
for approximately $189 million. See Financial Note 4 for additional
information on PP&L Resources' financing of SWEB.
PP&L RESOURCES, INC. AND
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Notes to Financial Statements for information
concerning rate matters.
In April 1991, the U.S. Department of Labor through its Mine Safety
and Health Administration (MSHA) issued citations to one of PP&L's coal-
mining subsidiaries for alleged coal-dust sample tampering at one of the
subsidiary's mines. The MSHA at the same time issued similar citations to
more than 500 other coal-mine operators. Based on a review of its dust
sampling procedures, the subsidiary is contesting all of the citations. It
is belived at this time, based on the information available, that the MSHA
allegations are without merit. Citations were also issued against the
independent operator of another subsidiary mine, who is also contesting the
citations issued with respect to that mine. The Administrative Law Judge
(Judge) assigned to the proceedings ordered that one case be tried against
a single mine operator unrelated to PP&L to determine whether the MSHA
could prove its general allegations regarding sample tampering. In April
1994, the Judge ruled in favor of the mine operator and vacated the 75
citations against it. The MSHA appealed the Judge's decision to the Mine
Safety and Health Review Commission. In November 1995, the Commission
affirmed the Judge's rulings in favor of the operator. Although it
initially appeared that the Secretary of Labor intended to vacate all the
citations in this matter, that office instead has decided to pursue an
appeal of the Commission's decision in the United States Court of Appeals
for the District of Columbia Circuit. PP&L cannot predict the outcome of
these proceedings.
On July 25, 1994, Mon Valley Steel Company, Inc. (Mon Valley) filed
suit in the Court of Common Pleas of Fayette County, Pennsylvania, against
PP&L and two of its subsidiaries, claiming that PP&L and those subsidiaries
made fraudulent misrepresentations during negotiations for the 1992 sale to
Mon Valley of Tunnelton Mining Company (Tunnelton). Tunnelton was a coal-
mining operation formerly owned by PP&L's subsidiary, Pennsylvania Mines
Corporation. Specifically, Mon Valley alleges that PP&L and those
subsidiaries misrepresented Tunnelton's capability to produce coal, as well
as the amount of funding Tunnelton would receive for mine closing costs.
Mon Valley is claiming about $6 million to cover mine closing costs as well
as punitive damages in an unspecified amount. In July 1994, PP&L and those
subsidiaries filed a legal action in the Court of Common Pleas of Allegheny
County, Pennsylvania, requesting a judicial determination that they had not
breached any of their contractual obligations to Mon Valley. While these
matters were pending, Mon Valley was forced into involuntary bankruptcy by
its creditors and, accordingly, in August 1996 PP&L removed the Fayette
County action to Federal Bankruptcy Court. The Allegheny County action by
PP&L has been stayed pending the Bankruptcy Court's determination. PP&L
cannot predict the outcome of these proceedings.
As a result of its ongoing cost reduction efforts, PP&L expects
further reductions in the number of full-time employees. In this regard,
PP&L and Local Union No. 1600 -- which represents approximately 4,000 PP&L
employees -- have agreed to submit to arbitration under their collective
bargaining agreement the issue of whether PP&L can eliminate bargaining
unit positions while utilizing outside contractors for certain functions.
In a series of rulings, the arbitrator has held that PP&L may not layoff
employees if they would have work but for the use of contractors. As a
result, PP&L is proceeding to offer certain contractor jobs to bargaining
unit employees but expects to layoff a number of employees at the end of
this process. Local 1600 continues to challenge the number of contractor
jobs made available, and further hearings will take place in early 1997.
PP&L cannot predict the outcome of these hearings or the effect they may
have on the continuing workforce reduction effort.
In June 1995, the DEP ordered a PP&L subsidiary to abate seepage
allegedly discharged from a mine formerly operated by that subsidiary.
Based on new information suggesting a connection between the seeps and
water from the mine, the subsidiary has withdrawn its appeal of the order.
The Company does not expect that the costs of complying with the order will
be material.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 - $300,000,000 Revolving Credit Agreement among PP&L
Resources, Inc., Chemical Bank and Citibank, N.A., dated May 30, 1996.
27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
Glossary of Terms and Abbreviations
Clean Air Act (Federal Clean Air Act Amendments of 1990) - legislation
passed by Congress to address environmental issues including acid rain,
ozone and toxic air emissions.
DEP - Pennsylvania Department of Environmental Protection
DRIP (Dividend Reinvestment Plan) - program available to shareowners of
Resources' common stock and PP&L preferred stock to reinvest dividends in
Resources' common stock instead of receiving dividend checks.
ECR (Energy Cost Rate) - a tariff applied to PUC-jurisdictional customers
to recover fuel and other energy costs. Differences between actual and
estimated amounts are collected or refunded to customers.
EPA - Environmental Protection Agency
FGD - Flue gas desulfurization equipment installed at coal-fired power
plants to reduce sulfur dioxide emissions.
FERC (Federal Energy Regulatory Commission) - government agency that
regulates interstate transmission and sale of electricity and related
matters.
ISO - Independent System Operator
JCP&L - Jersey Central Power & Light Company
NPDES - National Pollutant Discharge Elimination System
OCA - Pennsylvania Office of Consumer Advocate
PCB (Polychlorinated Biphenyl) - additive to oil used in certain
electrical equipment up to the late 1970s. Now classified as a hazardous
chemical.
PECO - PECO Energy Company (the former Philadelphia Electric Company)
PJM (Pennsylvania - New Jersey - Maryland Interconnection Association) -
Mid-Atlantic power pool consisting of 11 operating electric utilities,
including PP&L.
PMDC (Power Markets Development Company) - Resources' unregulated
subsidiary formed to invest in and develop world-wide power markets.
PP&L - Pennsylvania Power & Light Company
PP&L Resources (PP&L Resources, Inc.) - parent holding company of PP&L,
PMDC and Spectrum.
PP&L's Mortgage - Pennsylvania Power & Light Company's Mortgage and Deed
of Trust dated October 1, 1945
PSE&G - Public Service Electric & Gas Company
PUC (Pennsylvania Public Utility Commission) - agency that regulates
certain ratemaking, accounting, and operations of Pennsylvania utilities.
PUC Decision - final order issued by the PUC on September 27, 1995
pertaining to PP&L's base rate case filed in December 1994.
SEC - Securities and Exchange Commission
SIUKH - Southern Investments UK Holdings Limited
Small utilities - utilities subject to FERC jurisdiction whose billings
include base rate charges and a supplemental charge or credit for fuel
costs over or under the levels included in base rates.
Superfund - Federal and state legislation that addresses remediation of
contaminated sites.
SWEB - South Western Electricity plc, a British regional electric utility
company.
UGI - UGI Corporation
SIGNATURE
Pursuant to the requirements 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. The signature for each
undersigned company shall be deemed to relate only to matters having
reference to such company or its subsidiary.
PP&L Resources, Inc.
(Registrant)
Pennsylvania Power & Light Company
(Registrant)
Date: November 13, 1996 /s/ R. E. Hill
R. E. Hill
Senior Vice President-Financial
(PP&L Resources, Inc. and
Pennsylvania Power & Light Company)
/s/ J. J. McCabe
J. J. McCabe
Vice President & Controller (PP&L
Resources, Inc. and Pennsylvania
Power & Light Company)