(PP&L LOGO
APPEARS HERE)
PP&L Resources, Inc.
Pennsylvania Power & Light Company
FORM 10 - K
Annual Report
to the Securities
and Exchange
Commission
For the Year Ended
December 31, 1996
UNITED STATES
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 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to ___________
Commission File Registrant;State of Incorporation; IRS Employer
Number Address and Telephone Number Identification No.
1-11459 PP&L Resources, Inc. 23-2758192
(Exact name of Registrant as
specified in its charter)
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock New York & Philadelphia Stock Exchanges
Securities registered pursuant to Section 12(g) of the Act: None
Commission File Registrant;State of Incorporation; IRS Employer
Number Address and Telephone Number Identification No.
1-905 PENNSYLVANIA POWER & LIGHT COMPANY 23-0959590
(Exact name of Registrant as
specified in its charter)
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Preferred Stock
4-1/2% New York & Philadelphia Stock Exchanges
3.35% Series Philadelphia Stock Exchange
4.40% Series New York & Philadelphia Stock Exchanges
4.60% Series Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 Registrants' 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.
PP&L Resources, Inc. [ ]
Pennsylvania Power & Light Company [ X ]
Indicate by check mark whether the Registrants (1) have 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 Registrants were required to file
such reports), and (2) have been subject to such filing requirements
for the past 90 days.
PP&L Resources, Inc. Yes X No
Pennsylvania Power & Light Company Yes X No
The aggregate market value of the voting common stock held by non-
affiliates of PP&L Resources, Inc. at January 31, 1997 was
$3,715,517,738. PP&L Resources, Inc. held all 157,300,382
outstanding common shares, no par value,of Pennsylvania Power & Light
Company. The aggregate market value of the voting preferred stock
held by non-affiliates of Pennsylvania Power & Light Company at
January 31, 1997 was $435,250,434.
The number of shares of PP&L Resources, Inc. Common Stock, $.01 par
value, outstanding on January 31, 1997 was 163,319,461.
Documents incorporated by reference:
Registrants have incorporated herein by reference certain
sections of their 1997 Notices of Annual Meetings and Proxy
Statements which will be filed with the Securities and Exchange
Commission not later than 120 days after December 31, 1996. Such
Proxy Statements will provide the information required by Part III of
this Report.
PP&L RESOURCES, INC.
PENNSYLVANIA POWER & LIGHT COMPANY
FORM 10-K ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
This combined Form 10-K is separately filed by PP&L
Resources, Inc. and Pennsylvania Power & Light Company. Prior
to the filing of the combined Form 10-Q for the quarter ended
June 30, 1995, PP&L Resources, Inc. was not a reporting company
for the purposes of the Securities Exchange Act of 1934 and
Pennsylvania Power & Light Company filed its own separate reports
on Form 10-K. Information contained herein relating to
Pennsylvania Power & Light Company is filed by PP&L Resources,
Inc. and separately by Pennsylvania Power & Light Company on its
own behalf. Pennsylvania Power & Light Company makes no
representation as to information relating to PP&L Resources, Inc.
or its subsidiaries, except as it may relate to Pennsylvania
Power & Light Company.
Item Page
PART I
1. Business ............................................. 1
2. Properties ........................................... 14
3. Legal Proceedings .................................... 14
4. Submission of Matters to a Vote of Security Holders .. 18
Executive Officers of the Registrants ................ 19
PART II
5. Market for the Registrants' Common Equity and Related
Stockholder Matters .................................. 21
6. Selected Financial Data .............................. 21
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 21
8. Financial Statements and Supplementary Data .......... 22
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................. 23
PART III
10. Directors and Executive Officers of the Registrants .. 87
11. Executive Compensation ............................... 87
12. Security Ownership of Certain Beneficial
Owners and Management ................................ 87
13. Certain Relationships and Related Transactions ....... 88
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K .................................. 89
Signatures ........................................... 91
Exhibit Index ........................................ 92
Computation of Ratio of Earnings to Fixed Charges .... 105
Glossary of Terms and Abbreviations
AFUDC (Allowance for Funds Used During Construction) - the cost of equity
and debt funds used to finance construction projects that is capitalized as
part of construction cost.
Atlantic - Atlantic City Electric Company
BG&E - Baltimore Gas & Electric Company
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
District Court - United States District Court for the Eastern District of
Pennsylvania
DOE - Department of Energy
DRIP (Dividend Reinvestment Plan) - program available to shareowners of
PP&L Resources' common stock and PP&L preferred stock to reinvest dividends
in PP&L 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. The ECR was
terminated effective December 1996.
EMF - Electric and Magnetic Fields
Energy Act (Energy Policy Act of 1992) - legislation passed by Congress to
promote competition in the electric energy market for bulk power.
EPA - Environmental Protection Agency
ESOP - Employee Stock Ownership Plan
FASB (Financial Accounting Standards Board) - a rulemaking organization
that establishes financial accounting and reporting standards.
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.
IBEW - International Brotherhood of Electrical Workers
IEC (Interstate Energy Company) - a subsidiary of PP&L that operates an oil
and gas pipeline.
ISO - Independent System Operator
JCP&L - Jersey Central Power & Light Company
Major utilities - Atlantic, BG&E and JCP&L
MSHA - Mine Safety and Health Administration
NJDEP - New Jersey Department of Environmental Protection
NPDES - National Pollutant Discharge Elimination System
NRC - Nuclear Regulatory Commission
NUG (Non-Utility Generator) - generating plant not owned by regulated
utilities. If the NUG meets certain criteria, its electrical output must
be purchased by public utilities as required by PURPA.
OCA - Pennsylvania Office of Consumer Advocate
OSM - United States Office of Surface Mining
Pa. CNI - Pennsylvania Corporate Net Income Tax
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
PJM (Pennsylvania - New Jersey - Maryland Interconnection Association) -
Mid-Atlantic power pool consisting of 11 operating electric utilities,
including PP&L.
Plan - PP&L's noncontributory defined benefit pension plan.
PMDC (Power Markets Development Company) - PP&L 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.
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.
PURPA (Public Utility Regulatory Policies Act of 1978) - legislation passed
by Congress to encourage energy conservation, efficient use of resources,
and equitable rates.
RCRA - 1976 Resource Conservation and Recovery Act
SBRCA - Special Base Rate Credit Adjustment
SEC - Securities and Exchange Commission
SER - Schuylkill Energy Resources, Inc.
SFAS (Statement of Financial Accounting Standards) - accounting and
financial reporting rules issued by the FASB.
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.
Spectrum (Spectrum Energy Services Corporation) - PP&L Resources'
unregulated subsidiary formed to offer energy related products and
services.
STAS (State Tax Adjustment Surcharge) - rate adjustment mechanism to
customer bills for changes in certain state taxes.
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
VEBA (Voluntary Employee Benefit Association Trust) - trust accounts for
health and welfare plans for future payments to employees, retirees or
their beneficiaries.
VERP - Voluntary Early Retirement Program
PART I
ITEM 1. BUSINESS
Terms and abbreviations appearing in "BUSINESS" are explained in
the glossary.
BACKGROUND
To take advantage of new business opportunities, both
domestically and in foreign countries, PP&L formed a holding company
structure in April 1995. As a result of this restructuring, PP&L
became a direct subsidiary of PP&L Resources. PP&L Resources is the
parent company of PP&L, PMDC and Spectrum.
PP&L is an operating electric utility, incorporated under the
laws of the Commonwealth of Pennsylvania in 1920.
In 1995, PP&L Resources also became the parent holding company
of PMDC. PMDC engages in unregulated business activities through
investments in electric energy projects. See "Increasing
Competition" in the Review of the Financial Condition and Results of
Operations and Financial Note 9 for additional information regarding
PMDC.
In 1995, PP&L Resources formed Spectrum, an unregulated
subsidiary, which offers energy-related products and services to
PP&L's existing customers and to others outside of PP&L's service
territory. Other subsidiaries may be formed by PP&L Resources to
take advantage of new business opportunities.
PP&L is PP&L Resources' principal subsidiary (approximately 97%
of consolidated assets as of December 31, 1996), and the financial
condition and results of operation of PP&L are currently the
principal factors affecting the financial condition and results of
operations of PP&L Resources.
The electric utility industry, including PP&L, has experienced
and will continue to experience a significant increase in the level
of competition in the energy supply market. The Energy Act amended
the PUHCA to create a new class of independent power producers, and
amended the Federal Power Act to provide open access to electric
transmission systems for wholesale transactions. In addition, in
December 1996 legislation was enacted in Pennsylvania to restructure
the state's electric utility industry in order to create retail
access to a competitive market for the generation of electricity.
PP&L has announced its support for full customer choice of their
energy supplier for all customer classes. See "Pennsylvania
Restructuring Legislation" on page 27 and "Increasing Competition" on
page 36 for a discussion of pending PUC and FERC proceedings on
industry competition and PP&L's involvement in those proceedings.
PP&L is subject to regulation as a public utility by the PUC and
is subject in certain of its activities to the jurisdiction of the
FERC under Parts I, II and III of the Federal Power Act. PP&L
Resources and PP&L have been exempted by the SEC from the provisions
of PUHCA applicable to them as holding companies.
PP&L is subject to the jurisdiction of the NRC in connection
with the operation of the two nuclear-fueled generating units at
PP&L's Susquehanna station. PP&L owns a 90% undivided interest in
each of the Susquehanna units and Allegheny Electric Cooperative,
Inc. owns a 10% undivided interest in each of those units.
PP&L is also subject to the jurisdiction of certain federal,
regional, state and local regulatory agencies with respect to air and
water quality, land use and other environmental matters. The
operations of PP&L are subject to the Occupational Safety and Health
Act of 1970, and the coal cleaning and loading operations of a PP&L
subsidiary are subject to the Federal Mine Safety and Health Act of
1977.
PP&L serves approximately 1.2 million customers in a 10,000
square mile territory in 29 counties of central eastern Pennsylvania
(see Map on page 13), with a population of approximately 2.6 million
persons. This service area has 129 communities with populations over
5,000, the largest cities of which are Allentown, Bethlehem,
Harrisburg, Hazleton, Lancaster, Scranton, Wilkes-Barre and
Williamsport.
During 1996, about 98% of total operating revenue was derived
from electric energy sales, with 35% coming from residential
customers, 28% from commercial customers, 20% from industrial
customers, 14% from other major utilities and the PJM and 3% from
others.
Wholly-owned subsidiary companies of PP&L principally are
engaged in oil and gas pipeline operations and passive financial
investing.
PP&L operates its generation and transmission facilities as part
of the PJM. The PJM, one of the world's largest power pools,
includes 11 companies serving about 22 million people in a 50,000
square mile territory covering all or part of Pennsylvania, New
Jersey, Maryland, Delaware, Virginia and Washington, D.C.
In July 1996, all of the PJM companies, except PECO, submitted a
comprehensive filing for FERC approval of changes to the PJM to
accommodate greater competition and broader participation. 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. In August 1996, PECO filed a
separate PJM restructuring proposal with the FERC, which differed
significantly in several areas from the other companies' filing.
In November 1996, the FERC rejected both proposals for
restructuring the PJM for several reasons, the principal one being
its view that the ISO was not sufficiently independent. FERC ordered
the PJM companies to file a pool-wide tariff and modified
coordination agreements reflecting the removal of provisions which
FERC considered discriminatory against non-PJM members. In December
1996, all members of PJM submitted an interim compliance filing with
the FERC, which proposed a pool-wide pro forma transmission tariff
and a revised interconnection agreement and transmission owners
agreement designed to accommodate open, non-discriminatory
participation in the pool. The PJM companies currently are working
with multiple stakeholders to develop a consensus package for the
comprehensive restructuring of the PJM, which is expected to be filed
with the FERC in May 1997.
FINANCIAL CONDITION
See "Earnings", "Electric Energy Sales", and "Financial Indicators"
in the Review of the Financial Condition and Results of Operations
for this information.
CAPITAL EXPENDITURE REQUIREMENTS AND FINANCING
See "Financial Condition - Capital Expenditure Requirements" on
page 32 for information concerning PP&L's estimated capital
expenditure requirements for the years 1997-2001. See "Environmental
Matters" on page 34 and Note 14 to Financial Statements for
information concerning PP&L's estimate of the cost to comply with the
federal clean air legislation enacted in 1990, to address groundwater
degradation and waste water control at PP&L facilities and to comply
with solid waste disposal regulations adopted by the DEP.
See "Financing and Liquidity" on page 32 for information
concerning the 1997 financing plans for PP&L Resources and PP&L.
POWER SUPPLY
PP&L's system capacity (winter rating) at December 31, 1996 was
as follows:
Net
Kilowatt
Plant Capacity
Nuclear-fueled steam station
Susquehanna 1,995,000 (a)
Coal-fired steam stations
Montour 1,525,000
Brunner Island 1,469,000
Sunbury 389,000
Martins Creek 300,000
Keystone 210,000 (b)
Conemaugh 194,000 (c)
Holtwood 73,000
Total coal-fired 4,160,000
Oil-fired steam station
Martins Creek 1,592,000
Combustion turbines and diesels 364,000
Hydroelectric 146,000
Total generating capacity 8,257,000
Firm purchases
Hydroelectric 139,000 (d)
Qualifying facilities 474,000 (e)
Total firm purchases 613,000
Total system capacity 8,870,000
_____________________________
(a) PP&L's 90% undivided interest.
(b) PP&L's 12.34% undivided interest.
(c) PP&L's 11.39% undivided interest.
(d) From Safe Harbor Water Power Corporation.
(e) From NUG companies. Effective January 1, 1997,
an additional 5,000 kilowatts of NUG capacity
were added.
The system capacity shown in the preceding tabulation does not
reflect: (i) sales of capacity and energy to Atlantic; (ii) sales
of capacity and energy to BG&E; (iii) sales of capacity and energy to
JCP&L; or (iv) sales of capacity credits to GPU Service Corporation
and Delmarva Power & Light Company for PJM installed capacity
accounting purposes only, which capacity credit sales aggregated
284,000 kilowatts at December 31, 1996. Giving effect to the sales
to Atlantic (129,000 kilowatts), BG&E (132,000 kilowatts), and JCP&L
(756,000 kilowatts), PP&L's net system capacity at December 31, 1996
was 7,853,000 kilowatts.
The capacity of generating units is based upon a number of
factors, including the operating experience and physical condition of
the units, and may be revised from time to time to reflect changed
circumstances.
During 1996, PP&L produced about 39.4 billion kwh in plants it
owned. PP&L purchased 7.8 billion kwh under purchase agreements and
received 1.7 billion kwh as power pool interchange. During the year,
PP&L delivered about 1.3 billion kwh as pool interchange and about
6.3 billion kwh under purchase agreements.
During 1996, 57% of the energy generated by PP&L's plants came
from coal-fired stations, 38.5% from nuclear operations at the
Susquehanna station, 2.5% from the Martins Creek oil-fired steam
station and 2.0% from hydroelectric stations.
The maximum one-hour demand recorded on PP&L's system is
6,607,000 kilowatts, which occurred on February 6, 1996. The maximum
recorded one-hour summer demand is 6,021,000 kilowatts, which
occurred on August 2, 1995. The peak demands do not include energy
sold to Atlantic, BG&E or JCP&L.
PP&L purchases energy from other utilities and FERC-certified
power marketers when it is economically desirable to do so. From
time to time, PP&L purchases energy from systems outside the PJM on a
daily, weekly or monthly basis, at advantageous prices. The amount
of energy purchased depends on a number of factors, including cost
and the import capability of the transmission network.
Under a compliance tariff filed with the FERC in July 1996, PP&L
has been providing open access of available capability on its
transmission system for use by wholesale entities on a basis that is
comparable with PP&L's own use of its transmission facilities.
In 1995, the FERC accepted a PP&L wholesale generating services
tariff. This tariff enables PP&L to sell to other utilities and
marketers reservations of output from PP&L's generating units during
certain periods, with the option to purchase energy from these units.
As of the end of 1996, about 60 utilities and marketers have signed
service agreements under the tariff. Typically, a reciprocal
agreement will enable PP&L to purchase energy from these same
utilities and marketers. Transactions under these agreements will
continue to allow PP&L to make more efficient use of its generating
resources and provide benefits to both PP&L and the other utilities.
At the end of 1996, PP&L filed with FERC for revisions to this tariff
to unbundle transmission costs which are now part of its open access
tariff. PP&L also sought FERC approval to sell power purchased from
third parties, in addition to power from its own system resources.
This "buy-for-resale" provision would increase PP&L's capabilities in
making profitable wholesale transactions.
See Note 4 to Financial Statements for additional information
concerning the sale of capacity and energy to Atlantic, BG&E and
JCP&L, the sale of capacity credits (but not energy) to other
electric utilities in the PJM and the sale of transmission
entitlements and the reservation of output from the Martins Creek
units.
In addition to the 474,000 kilowatts of non-utility generation
shown in the preceding tabulation, PP&L is purchasing about 10,000
kilowatts of output from various other non-utility generating
companies. The payments made to non-utility generating companies,
all of whose facilities are located in PP&L's service area, are
recovered from customers through base rate charges applicable to PUC-
and FERC-jurisdictional customers.
The PJM companies had 57.3 million kilowatts of installed
generating capacity at December 31, 1996, and transmission line
connections with neighboring power pools have the capability of
transferring an additional 4 to 5 million kilowatts between the PJM
and neighboring power pools. Through December 31, 1996, the maximum
one-hour demand recorded on the PJM was approximately 48.5 million
kilowatts, which occurred on August 2, 1995. PP&L is also a party to
the Mid-Atlantic Area Coordination Agreement, which provides for the
coordinated planning of generation and transmission facilities by the
companies included in the PJM.
PP&L has completed the conversion of the two oil-fired
generating units at Martins Creek Steam Electric Station to burn both
natural gas and oil. Dual fuel operation began in the second quarter
of 1996. The IEC transmission facilities were converted to transport
natural gas and oil through the existing oil pipeline. In November
1996, the Commonwealth Court of PA ruled against another party's
appeal of the PUC's approval of IEC's application for gas
transmission service.
FUEL SUPPLY
Coal
During 1996, PP&L's generating stations burned about 8.4 million
tons of bituminous coal and about 1.1 million tons of anthracite and
petroleum coke.
During 1996, 66% of the coal delivered to PP&L's generating
stations was purchased under contracts and 34% was obtained through
open market purchases.
The amount of bituminous coal carried in inventory at PP&L's
generating stations varies from time to time depending on market
conditions and plant operations. As of December 31, 1996, PP&L's
bituminous coal supply was sufficient for about 39 days of
operations.
Contracts with non-affiliated coal producers provided PP&L with
about 4.4 million tons of bituminous coal in 1996 and are expected to
provide PP&L with about 4.5 million tons in both 1997 and 1998.
The coal burned in PP&L's generating stations contains both
organic and pyritic sulfur. Mechanical cleaning processes are
utilized to reduce the pyritic sulfur content of the coal. The
reduction of the pyritic sulfur content by either mechanical cleaning
or blending has lowered the total sulfur content of the coal burned
to levels which permit compliance with current sulfur dioxide
emission regulations established by the DEP. For information
concerning PP&L's plans to achieve compliance with the federal clean
air legislation enacted in 1990, see "Environmental Matters" on page
34 and Note 14 to Financial Statements.
PP&L owns a 12.34% undivided interest in the Keystone station
and an 11.39% undivided interest in the Conemaugh station, both of
which are generating stations located in western Pennsylvania. The
owners of the Keystone station have a long-term contract with a coal
supplier to provide at least two-thirds of that station's
requirements through 1999 and declining amounts thereafter until the
contract expires at the end of 2004. The balance of the Keystone
station requirements are purchased in the open market. The coal
supply requirements for the Conemaugh station are being met from
several sources through a blend of long-term and short-term contracts
and spot market purchases.
At December 31, 1996, PP&L's inventory of anthracite was about
3.6 million tons. PP&L's requirements for petroleum coke and any
additional anthracite that may be required over the remainder of the
expected useful lives of PP&L's anthracite-fired generating stations
are expected to be obtained by contract and market purchases.
Natural Gas
During 1996, PP&L's Martins Creek Steam Electric Station
consumed about 2,000,000 mcf of natural gas. All of this natural gas
was purchased and transported under short-term agreements that were
one month or less in duration. PP&L does not have any long-term
agreements to purchase gas or gas transportation.
Oil
As of December 31, 1996, PP&L has an agreement with one supplier
under which it can purchase up to 75% of the oil requirements for the
Martins Creek units. The balance is purchased in the spot market.
However, if there are price advantages to be realized from purchasing
oil in the spot market, the contract permits PP&L to acquire up to
75% of its expected oil requirements for the Martins Creek units in
that manner. The current agreement expires in mid-1997.
During 1996, approximately 87% of the oil requirements for the
Martins Creek units was purchased under PP&L's oil contracts and the
balance was purchased on the spot market.
Nuclear
The nuclear fuel cycle consists of the mining of uranium ore and
its milling to produce uranium concentrates; the conversion of
uranium concentrates to uranium hexafluoride; the enrichment of
uranium hexafluoride; the fabrication of fuel assemblies; the
utilization of the fuel assemblies in the reactor; the temporary
storage of spent fuel; and the permanent disposal of spent fuel.
PP&L has entered into uranium supply agreements that satisfy
100% of the uranium concentrate requirements for the Susquehanna
units through 1997 and approximately 50% of the requirements for the
period 1998-1999. Deliveries under these agreements are expected to
provide sufficient quantities of uranium concentrates to permit Unit
1 to operate into the first quarter of 2000 and Unit 2 to operate
into the first quarter of 1999.
PP&L has entered into agreements that satisfy 100% of its
conversion requirements through 1997 and approximately 50% of its
conversion requirements for the period 1998-1999.
PP&L also has entered into agreements for other segments of the
nuclear fuel cycle. Based upon the current operating plans for each
of the Susquehanna units, the following table shows the years through
which contracts, including options to extend, could provide the
indicated segments of the nuclear fuel cycle:
Enrichment 2014
Fabrication 2006
PP&L has elected to cancel all or a portion of potential
deliveries under its existing enrichment contract during the period
1999 through 2002, and is currently evaluating its options for
satisfying these requirements through 2004. Additional arrangements
will be necessary to satisfy the remaining fuel requirements of the
Susquehanna units over their anticipated useful lives.
PP&L estimates that there is sufficient storage capability in
the spent fuel pools at Susquehanna to accommodate the fuel that is
expected to be discharged through the end of 1997. Federal law
requires the federal government to provide for the permanent disposal
of commercial spent nuclear fuel. Pursuant to the requirements of
that law, DOE has initiated an analysis of a site in Nevada for a
permanent nuclear waste repository. Progress on characterization of
a proposed disposal facility has been slow, and the repository is not
expected to be operational before 2010. Congress is considering new
legislation designed to re-establish a schedule for the spent fuel
disposal program. This legislation would authorize an above-ground
interim storage facility, along with the permanent disposal facility,
as part of an integrated disposal program. Even if this legislation
is enacted and DOE is successful in building and operating the
interim storage facility, it is unlikely that any spent fuel will be
shipped from Susquehanna until well after the year 2005 because of
the large volume of other utilities' spent fuel that is scheduled to
be shipped before PP&L's spent fuel. Therefore, expansion of
Susquehanna's spent fuel storage capability is necessary. To support
this expansion, PP&L has contracted for the design and construction
of a spent fuel storage facility employing dry fuel storage
technology at the Susquehanna plant. The facility will be modular so
that additional storage capacity can be added as needed. PP&L
currently estimates that construction of the facility will be
completed by mid-1997.
Federal law also provides that the costs of spent nuclear fuel
disposal are the responsibility of the generators of such wastes.
PP&L includes in customer rates the fees charged by the DOE to fund
the permanent disposal of spent nuclear fuel. In January 1997, PP&L
joined over 30 other utilities in a lawsuit in the U.S. Court of
Appeals for the District of Columbia Circuit seeking assurance of
DOE's performance of its contractual obligation to accept the spent
nuclear fuel and suspension of the payment of fees to that agency
pending such performance.
ENVIRONMENTAL MATTERS
PP&L is subject to certain present and developing federal,
regional, state and local laws and regulations with respect to air
and water quality, land use and other environmental matters. See
"Financial Condition - Capital Expenditure Requirements" on page 32
for information concerning environmental expenditures during 1996 and
PP&L's estimate of those expenditures during the years 1997-2001.
PP&L believes that it is presently in substantial compliance with
applicable environmental laws and regulations.
See "Environmental Matters" on page 34 and Note 14 to Financial
Statements for information concerning federal clean air legislation
enacted in 1990, groundwater degradation and waste water control at
PP&L facilities, DEP's solid waste disposal regulations and PP&L's
agreement with the DEP concerning remediation at certain sites of
past operations. Other environmental laws, regulations and
developments that may have a substantial impact on PP&L are discussed
below.
Air
The Clean Air Act includes, among other things, provisions that:
(a) require the prevention of significant deterioration of existing
air quality in regions where air quality is better than applicable
ambient standards; (b) restrict the construction of and revise the
performance standards for new coal-fired and oil-fired generating
stations; and (c) authorize the EPA to impose substantial
noncompliance penalties of up to $25,000 per day of violation for
each facility found to be in violation of the requirements of an
applicable state implementation plan. The DEP administers the EPA's
air quality regulations through the Pennsylvania State Implementation
Plan and has concurrent authority to impose penalties for
noncompliance. At this time, PP&L is meeting all requirements of
Phase I of the Clean Air Act.
Water
To implement the requirements established by the Federal Water
Pollution Control Act of 1972, as amended by the Clean Water Act of
1977 and the Water Quality Act of 1987, the EPA has adopted
regulations including effluent standards for steam electric stations.
The DEP administers the EPA's effluent standards through state laws
and regulations relating, among other things, to effluent discharges
and water quality. The standards adopted by the EPA pursuant to the
Clean Water Act may have a significant impact on PP&L's existing
facilities depending on the DEP's interpretation and future
amendments to its regulations.
The EPA and DEP limitations, standards and guidelines for the
discharge of pollutants from point sources into surface waters are
implemented through the issuance of NPDES permits. PP&L has the NPDES
permits necessary for the operation of its facilities.
Pursuant to the Surface Mining and Reclamation Act of 1977, the
OSM has adopted effluent guidelines which are applicable to PP&L
subsidiaries as a result of their past coal mining and continued coal
processing activities. The EPA and the OSM limitations, guidelines
and standards also are enforced through the issuance of NPDES
permits. In accordance with the provisions of the Clean Water Act
and the Reclamation Act of 1977, the EPA and the OSM have authorized
the DEP to implement the NPDES program for Pennsylvania sources.
Compliance with applicable water quality standards is assured by DEP
review of NPDES permit conditions. PP&L's subsidiaries have received
NPDES permits for their mines and related facilities.
Solid and Hazardous Waste
The RCRA regulates the generation, transportation, treatment,
storage and disposal of hazardous wastes. RCRA also imposes joint
and several liability on generators of solid or hazardous waste for
clean-up costs. A revision of RCRA in late-1984 lowered the
threshold for the amount of on-site hazardous waste generation
requiring regulation and incorporated underground tanks used for the
storage of petroleum and petroleum products as regulated units.
Based upon the results of a survey of its solid waste practices, PP&L
in the past has filed notices with the EPA indicating that hazardous
waste is occasionally generated at all of its steam electric
generating stations and service centers. PP&L has established
specific operating procedures for handling this hazardous waste.
Therefore, at this time RCRA and related DEP regulations are not
expected to have a significant additional impact on PP&L.
The provisions of Superfund authorize the EPA to require past
and present owners of contaminated sites and generators of any
hazardous substance found at a site to clean up the site or pay the
EPA or the state for the costs of clean-up. The generators and past
owners can be liable even if the generator contributed only a minute
portion of the hazardous substances at the site. Present owners can
be liable even if they contributed no hazardous substances to the
site.
The Pennsylvania Superfund law also gives the DEP broad
authority to identify hazardous or contaminated sites in Pennsylvania
and to order owners or responsible parties to clean up the sites. If
responsible parties cannot or will not perform the clean-up, the DEP
can hire contractors to clean up the sites and then require
reimbursement from the responsible parties after the clean-up is
completed. To date, PP&L has principally been involved in federal,
rather than state, Superfund sites.
In 1996, PP&L completed removal of coal tar from one subsurface
accumulation at a former coal gasification plant site along Brodhead
Creek, Monroe County, Pennsylvania and currently expects that
significant additional remedial action will not be required. PP&L
has entered into agreements with the adjacent property owner and DEP
to share the past and future costs of remediating this site. PP&L's
share of the costs is approximately $2.3 million, all of which has
been spent.
The EPA has placed the site of a former PP&L gas plant in
Columbia, Pennsylvania on the national Superfund list. PP&L and
another potentially responsible party had previously conducted a
detailed investigation of the site, and PP&L removed a substantial
amount of coal tar from a pedestrian tunnel at the rear of the
property. However, coal tar remains in two brick pits on the site.
There also is coal tar contamination of the soil and groundwater at
the site and of river sediment adjacent to the site. PP&L signed a
consent order with the DEP to remediate the brick pits and conduct
additional investigations. The costs of investigation and
remediation of the areas of the site where the agencies have required
action are estimated at $2.6 million, all of which has been spent or
is accrued. Further remediation of other areas of the site may be
required, the costs of which are not now determinable but could be
material.
PP&L at one time also owned and operated several other gas
plants in its service area. None of these sites is presently on the
Superfund list. However, a few of them may be possible candidates
for listing at a future date. PP&L expects to continue to investigate
and, if necessary, remediate these sites. The cost of this work is
not now determinable but could be material.
See "LEGAL PROCEEDINGS" on page 14 for information concerning an
EPA order and a complaint filed by the EPA in federal district court
against PP&L and 35 unrelated parties for remediation of a Superfund
site in Berks County, Pennsylvania; a complaint filed by PP&L and 16
unrelated parties in federal district court against other parties for
contribution under Superfund relating to the Novak landfill Superfund
site in Lehigh County, Pennsylvania and a related action by EPA
against PP&L and 29 unrelated parties to recover the agency's past
and future costs at the Novak landfill site; and an action by the EPA
for reimbursement of the EPA's past response costs and remediation at
the site of a former metal salvaging operation in Montour County,
Pennsylvania.
PP&L is involved in several other sites where it may be
required, along with other parties, to contribute to investigation
and remediation. Some of these sites have been listed by the EPA
under Superfund, and others may be candidates for listing at a future
date. Future investigation or remediation work at sites currently
under review, or at sites currently unknown, 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.
Low-Level Radioactive Waste
Under federal law, each state is responsible for the disposal of
low-level radioactive waste generated in that state. States may join
in regional compacts to jointly fulfill their responsibilities. The
states of Pennsylvania, Maryland, Delaware and West Virginia are
members of the Appalachian States Low-Level Radioactive Waste
Compact. Efforts to develop a regional disposal facility in
Pennsylvania are currently underway. Low-level radioactive wastes
resulting from the operation of Susquehanna are currently being sent
to Barnwell, South Carolina for disposal. In the event that this
disposal option becomes unavailable or no longer cost effective, the
low-level radioactive waste will be stored on-site at Susquehanna.
PP&L cannot predict the future availability of low-level waste
disposal facilities or the cost of such disposal.
General
Concerns have been expressed by some members of the scientific
community and others regarding the potential health effects of EMFs.
These fields are emitted by all devices carrying electricity,
including electric transmission and distribution lines and substation
equipment. Federal, state and local officials are focusing increased
attention on this issue. PP&L is actively participating in the
current research effort to determine whether EMFs cause any human
health problems and is taking steps to reduce EMFs, where practical,
in the design of new transmission and distribution facilities. PP&L
is unable to predict what effect the EMF issue might have on PP&L
operations and facilities and the associated cost.
In addition to the matters described above, PP&L and its
subsidiaries have been cited from time to time for temporary
violations of the DEP and EPA regulations with respect to air and
water quality and solid waste disposal in connection with the
operation of their facilities and may be cited for such violations in
the future. As a result, PP&L and its subsidiaries may be subject to
certain penalties which are not expected to be material in amount.
PP&L is unable to predict the ultimate effect of evolving
environmental laws and regulations upon its existing and proposed
facilities and operations. In complying with statutes, regulations
and actions by regulatory bodies involving environmental matters,
including the areas of water and air quality, hazardous and solid
waste handling and disposal and toxic substances, PP&L may be
required to modify, replace or cease operating certain of its
facilities. PP&L may also incur material capital expenditures and
operating expenses in amounts which are not now determinable.
FRANCHISES AND LICENSES
PP&L has authority to provide electric public utility service
throughout its entire service area as a result of grants by the
Commonwealth of Pennsylvania in corporate charters to PP&L and
companies to which it has succeeded and as a result of certification
thereof by the PUC. PP&L has been granted the right to enter the
streets and highways by the Commonwealth subject to certain
conditions. In general, such conditions have been met by ordinance,
resolution, permit, acquiescence or other action by an appropriate
local political subdivision or agency of the Commonwealth.
PP&L operates Susquehanna Unit 1 and Unit 2 pursuant to NRC
operating licenses which expire in 2022 and 2024, respectively. PP&L
operates two hydroelectric projects pursuant to licenses which were
renewed by the FERC in 1980: Wallenpaupack (44,000 kilowatts
capacity) and Holtwood (102,000 kilowatts capacity). The
Wallenpaupack license expires in 2004 and the Holtwood license
expires in 2014.
PP&L also owns one-third of the capital stock of Safe Harbor
Water Power Corporation, which holds a project license which extends
until 2030 for the operation of its hydroelectric plant. The total
capability of the Safe Harbor plant is 417,500 kilowatts, and PP&L is
entitled by contract to one-third of the total capacity (139,000
kilowatts).
EMPLOYEE RELATIONS
As of December 31, 1996, approximately 4,190 of PP&L's 6,428
full-time employees were represented by the IBEW under a three-year
agreement which expires in May 1997.
Page 13 contains a map of PP&L's service territory which shows its
location, the location of each of PP&L's coal-fired, oil-fired, hydro and
nuclear-fueled generating stations and the location of major population
centers.
ITEM 2. PROPERTIES
The accompanying Map shows the location of PP&L's service
area and generating stations.
Reference is made to the "Utility Plant" section of Note 1
for information concerning investments in property, plant and
equipment. Substantially all electric utility plant is subject
to the lien of PP&L's first mortgage.
For additional information concerning the properties of PP&L
see Item 1, "BUSINESS - Power Supply" and "BUSINESS - Fuel
Supply".
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Notes to Financial Statements for
information concerning rate matters.
Reference is made to Item 1 "BUSINESS-Fuel Supply" for
information concerning a lawsuit against DOE for failure of that
agency to perform contractual obligations.
In August 1991, a group of fuel oil dealers in PP&L's
service area filed a complaint against PP&L in District Court
alleging that PP&L's promotion of electric heat pumps and off-
peak thermal storage systems had violated and continues to
violate the federal antitrust laws. Specifically, the complaint
alleged that PP&L's use of its PUC-filed tariff to provide a
lower electric rate for newly constructed residences equipped
with thermal storage systems, combined with PP&L's program of
providing cash grants to developers and contractors for the
installation of high efficiency heat pumps in these residences,
allowed PP&L to illegally capture at least 70% of the market for
heating in new residential construction within its service area.
The complaint requested judgment against PP&L for a sum in
excess of $10 million for the alleged antitrust violations,
treble the damages alleged to have been sustained by the
plaintiffs over the past four years. The complaint also
requested a permanent injunction against all activities found to
be illegal, including the cash grant program.
PP&L filed a motion for summary judgment seeking to dispose
of plaintiffs' claims in this case, and in September 1992, the
judge ruled on this motion and dismissed all counts against PP&L.
The plaintiffs appealed to the Court of Appeals for the Third
Circuit. In April 1994, the Court of Appeals issued a decision
which in part affirmed the lower court's grant of summary
judgment for PP&L, but reversed the grant of summary judgment as
to cash grants to developers based upon all-electric builder
agreements.
The District Court reacquired jurisdiction over this case.
In February 1997, the parties reached an agreement in principle
to settle this proceeding. The terms of this settlement would
not have a material effect on PP&L.
In August 1995, SER, one of the non-utility generating
companies from which PP&L purchases power under the PURPA,
brought suit against PP&L in the District Court. SER alleged
that, since July 1994, PP&L has improperly curtailed power
purchases from SER under the power purchase agreement between the
parties. SER claims that such activity breached the power
purchase agreement and violated the federal antitrust laws, among
other counts. SER alleged that PP&L's actions resulted in loss
of revenue from power sales of $1.6 million and an unquantified
increase in its costs of operation. SER requested compensatory
and punitive damages, as well as treble damages and attorneys'
fees for alleged antitrust violations. In May 1996, the District
Court granted PP&L's motion to dismiss the complaint. SER has
appealed this decision to the U.S. Court of Appeals for the Third
Circuit.
In December 1995, PP&L filed a petition with the PUC for a
declaratory order that it had acted properly in curtailing
purchases from SER and other NUGs during minimum generation
emergencies on the PJM system. The PUC has stayed a
determination in this case pending a FERC decision regarding
PP&L's request to decertify SER as a qualifying cogeneration
facility (see discussion below).
In November 1995, PP&L initiated a civil action against SER
in the Lehigh County Court of Common Pleas. The principal issue
is whether SER and an affiliate of SER properly used the steam
generated by the plant in accordance with the terms of the
contract. Under the contract, if the steam was used properly,
SER is entitled to a rate of 6.6 cents per KWH; if not, it is
entitled to a rate of only 5.0 cents per KWH. The total annual
difference in payment under the two rates is about $9 million.
In April 1996, the Court concluded that PP&L must seek a
determination by the FERC prior to reducing the rate paid to SER.
Accordingly, in July 1996 PP&L filed a motion with the FERC
to revoke SER's status as a qualifying cogeneration facility.
PP&L's motion alleges that SER has engaged in a conscious and
continuing scheme to mislead PP&L and the FERC and that SER has
never complied with the FERC's requirements for a qualifying
cogeneration facility. This motion is pending.
In a related matter, in June 1996 SER filed a state court
lawsuit against PP&L in Lehigh County, Pennsylvania. In this
lawsuit, SER restates its allegations concerning PP&L's
procedures for curtailing power deliveries from SER during
periods of minimum generation emergencies declared by the PJM.
SER's claims include breach of contract, fraud, negligent
misrepresentation and breach of duty of good faith and fair
dealing. In addition, SER claims that public statements by PP&L
were libelous. In January 1997, the Court stayed SER's state law
claims against PP&L pending consideration by the PUC of PP&L's
minimum generation petition and dismissed SER's libel claims.
PP&L cannot predict the outcome of these proceedings.
In April 1991, the U.S. Department of Labor through its 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 believed 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 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. The
Secretary of Labor has appealed the Commission's decision to the
U.S. 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. 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 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.
In August 1994, PP&L filed a rate complaint with the
Interstate Commerce Commission, now the Surface Transportation
Board, challenging Consolidated Rail Corporation's (Conrail's)
coal transportation rates from interchange points with connecting
carriers to PP&L's power plants. In September 1995, PP&L amended
its complaint to add the connecting carriers, CSX Corporation and
Norfolk Southern Corporation, as additional defendants.
As a result of an Surface Transportation Board ruling in
December 1996, PP&L's complaint against Conrail alone was
dismissed, but PP&L's case against Conrail, CSX and Norfolk
Southern jointly continues. PP&L cannot predict the outcome of
this proceeding or its ultimate impact on PP&L's coal
transportation rates.
In August 1991, PP&L and 35 other unrelated parties received
an EPA order under Superfund requiring that certain remedial
actions be taken at a former oil recovery site in Berks County,
Pennsylvania, which has been included on the federal Superfund
list. PP&L had been identified by the EPA as a potentially
responsible party, along with over 100 other parties. The EPA
order required remediation by the 36 named parties of four
specific areas of the site. Remedial action under this order has
been completed at a cost of approximately $2 million, of which
PP&L's interim share was approximately $50,000.
The EPA at the same time filed a complaint under Section 107
of Superfund in the District Court against PP&L and the same 35
unrelated parties. The complaint asks the District Court to hold
the parties jointly and severally liable for all EPA's past costs
at the site and future costs of remediating some of the remaining
areas of the site. The EPA claims it has spent approximately $21
million to date. PP&L and a group of the other named parties
have sued in District Court approximately 460 other parties that
have contributed waste to the site, demanding that these
companies contribute to the clean-up costs.
In July 1993, PP&L and 33 of the 35 unrelated parties
received an EPA order under Section 106 of Superfund requiring
remediation of the remaining areas of the site identified by EPA.
Current estimates of remediating the remainder of the site range
from $50 million to $200 million. These costs would be shared
among the responsible parties. PP&L and other parties to the
lawsuit have reached a settlement with the federal government
regarding these claims. PP&L's share is not material.
In December 1991, PP&L and 16 unrelated parties filed
complaints against 64 other parties in District Court seeking
reimbursement under Superfund for costs the plaintiffs have
incurred and will incur to investigate and remediate the Novak
landfill site in Lehigh County, Pennsylvania. The complaints
allege that the 64 defendants generated or transported substances
disposed of at the Superfund site. A Remedial Investigation and
Draft Feasibility Study for the site has been completed at a cost
of approximately $3 million, of which PP&L's share was
approximately $200,000. EPA's selected remedy is currently
estimated to cost approximately $20 million. EPA has issued a
106 Order against PP&L and several other parties to implement
this remedy. In January 1997, EPA filed an action against PP&L
and 29 other parties under section 107 of CERCLA to recover its
costs at the site, which it alleges are in excess of $990,000.
The parties currently are negotiating with EPA. PP&L's allocated
share is not expected to be material.
In April 1993, PP&L received an order under Section 106 of
Superfund requiring that actions be taken at the site of a former
metal salvaging operation in Montour County, Pennsylvania. The
EPA has taken similar action with two other potentially
responsible parties at the site. The cost of compliance with the
order is currently estimated to be approximately $37 million.
The EPA currently estimates that additional remediation work not
covered by the order will cost an additional $36 million. In
addition, the EPA has already incurred clean-up costs of
approximately $5 million to date. The EPA had indicated that it
will seek to recover these additional costs at a later date.
PP&L's records indicate that scrap metal, wire and transformers
were sold to the salvage operator between 1969 and 1971. Current
information indicates that PP&L's contribution to the site, if
any, is de minimis.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders, through the solicitation of proxies or otherwise, during
the fourth quarter of 1996.
EXECUTIVE OFFICERS OF THE REGISTRANTS
Officers of PP&L Resources and PP&L are elected annually by
their Boards of Directors to serve at the pleasure of the
respective Boards. There are no family relationships among any
of the executive officers, or any arrangement or understanding
between any executive officer and any other person pursuant to
which the officer was selected.
There have been no events under any bankruptcy act, no
criminal proceedings and no judgments or injunctions material to
the evaluation of the ability and integrity of any executive
officer during the past five years.
Listed below are the executive officers of:
PP&L Resources, Inc.
Effective Date of
Election to
Name Age Position Present Position
William F. Hecht 53 Chairman, President
and Chief Executive February 24, 1995
Officer
Francis A. Long 56 Executive Vice
President February 24, 1995
Robert G. Byram* 51 Senior Vice President-
Nuclear - PP&L December 20, 1995
Ronald E. Hill 54 Senior Vice President-
Financial August 1, 1996
Robert D. Fagan* 51 President - Power Markets
Development Company December 20, 1995
Robert J. Grey 46 Senior Vice President,
General Counsel and
Secretary March 1, 1996
Joseph J. McCabe 46 Vice President and
Controller August 1, 1995
Pennsylvania Power & Light Company:
Effective Date of
Election to
Name Age Position Present Position
William F. Hecht 53 Chairman, President
and Chief Executive
Officer January 1, 1993
Francis A. Long 56 Executive Vice
President and Chief
Operating Officer January 1, 1993
Robert G. Byram 51 Senior Vice President-
Nuclear March 26, 1993
Ronald E. Hill 54 Senior Vice President-
Financial January 1, 1994
John R. Biggar 52 Vice President-
Finance August 1, 1996
Robert J. Grey 46 Senior Vice President,
General Counsel and
Secretary March 1, 1996
Joseph J. McCabe 46 Vice President and
Controller August 1, 1995
* Mr. Byram and Mr. Fagan have been designated executive
officers of PP&L Resources by virtue of their respective
positions at PP&L Resources subsidiaries.
Each of the above officers, with the exception of Mr. Fagan,
Mr. Grey, and Mr. McCabe, has been employed by PP&L for more than
five years as of December 31, 1996. Mr. Fagan joined PMDC - then
a PP&L subsidiary - in November 1994. Prior to that time, he was
Vice President and General Manager at Mission Energy Company. Mr.
McCabe joined PP&L in May 1994 and was previously a partner of
Deloitte & Touche LLP. Mr. Grey joined PP&L in March 1995. He
had been General Counsel of Long Island Lighting Company since
1992. Prior to that time, he held the position of partner at the
law firm of Preston Gates & Ellis.
Prior to election to the positions shown above, the
following executive officers held other positions with PP&L since
January 1, 1992: Mr. Hecht was President and Chief Operating
Officer; Mr. Long was Senior Vice President - System Power &
Engineering; Mr. Byram was Vice President - Nuclear Operations
and Senior Vice President - System Power & Engineering; Mr. Hill
was Vice President, Comptroller and Senior Vice President -
Financial and Treasurer of PP&L Resources; Mr. Biggar was Vice
President-Finance and Vice President - Finance and Treasurer; Mr.
Grey was Vice President, General Counsel and Secretary, and Mr.
McCabe was Controller.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Additional information for this item is set forth in the
section entitled "Shareowner and Investor Information" on pages
81 through 83 of this report, and the number of common
shareowners is set forth in the section entitled "Selected
Financial and Operating Data" on page 79.
ITEM 6. SELECTED FINANCIAL DATA
Information for this item is set forth in the section
entitled "Selected Financial and Operating Data" on pages 79 and
80 of this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this item is set forth in the section
entitled "Review of the Financial Condition and Results of
Operations of PP&L Resources, Inc. and Pennsylvania Power & Light
Company" on pages 24 through 39 of this report.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Financial statements and supplementary data are set forth on
the pages indicated below.
Page
Report of Independent Accountants 41
Independent Auditors' Report 42
Management's Report on Responsibility for Financial
Statements 43
Financial Statements:
PP&L Resources, Inc.
Consolidated Statement of Income for the Three Years
Ended December 31, 1996 45
Consolidated Statement of Cash Flows for the Three
Years Ended December 31, 1996 46
Consolidated Balance Sheet at December 31, 1996 and
1995 47
Consolidated Statement of Shareowners' Common Equity
for the Three Years Ended December 31, 1996 49
Consolidated Statement of Preferred Stock at
December 31, 1996 and 1995 49
Consolidated Statement of Long-Term Debt at
December 31, 1996 and 1995 51
Pennsylvania Power & Light Company
Consolidated Statement of Income for the Three Years
Ended December 31, 1996 53
Consolidated Statement of Cash Flows for the Three
Years Ended December 31, 1996 54
Consolidated Balance Sheet at December 31, 1996 and
1995 55
Consolidated Statement of Shareowners' Common Equity
for the Three Years Ended December 31, 1996 57
Consolidated Statement of Preferred Stock at
December 31, 1996 and 1995 57
Consolidated Statement of Long-Term Debt at
December 31, 1996 and 1995 59
Notes to Financial Statements 60
Supplemental Financial Statement Schedule:
II - Valuation and Qualifying Accounts and
Reserves for the Three Years Ended
December 31, 1996 86
Selected Financial and Operating Data for the Five
Years Ended December 31, 1996 79
Quarterly Financial, Common Stock Price and
Dividend Data 84
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Based upon a recommendation of its Audit Committee, PP&L's
Board of Directors decided on January 25, 1995 that Deloitte &
Touche LLP would not be retained as the independent auditors for
1995. On February 22, 1995, PP&L's Board of Directors, based
upon a recommendation of PP&L's Audit Committee, appointed Price
Waterhouse LLP as PP&L's new independent auditors.
The auditors' report of Deloitte & Touche LLP on PP&L's
financial statements for each of the two years ended December 31,
1993 and 1994, did not contain any adverse opinion or disclaimer
of opinion, nor were the reports modified or qualified in any
manner.
During the period of such two years and the period from
December 31, 1994 through January 25, 1995, there were no
disagreements with Deloitte & Touche LLP on any matter of
accounting principles or practices, financial statement
disclosure or auditing scope or procedure. During such periods,
there were no "reportable events" as that term is defined in Item
304(a)(1)(v) of Regulation S-K.
Deloitte & Touche LLP provided a letter to PP&L regarding
this matter, dated February 1, 1995, indicating that they agreed
with the statements in the two preceding paragraphs.
REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF PP&L RESOURCES, INC. AND PENNSYLVANIA POWER & LIGHT COMPANY
PP&L Resources is the parent holding company of PP&L, PMDC and
Spectrum. PP&L Resources' principal subsidiary, PP&L, is an operating
public utility providing electric service in central eastern
Pennsylvania. PMDC was formed to engage in unregulated business
activities through investments in electric energy projects. Spectrum,
another unregulated subsidiary, was formed to pursue opportunities to
offer energy-related products and services to PP&L's existing customers
and to others beyond PP&L's service territory.
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 fluctuations, unless
specifically noted, are primarily due to activities of PP&L. All
nonutility operating transactions are included in "Other Income and
Deductions - Net" on the Consolidated Statement of Income.
Terms and abbreviations appearing in the Review of the Financial
Condition and Results of Operations are explained in the glossary.
Results of Operations
Earnings
Earnings per share of common stock were $2.05 in 1996, $2.05 in 1995
and $1.41 in 1994. The following table highlights the major items that
impacted earnings for each of the years:
1996 1995 1994
Earnings per share - excluding
workforce reductions and one-
time adjustments $2.05 $1.79 $2.02
Workforce reduction programs:
Voluntary early retirement
program 0.24 (0.28)
Other (0.03) (0.11) 0.03
One-time adjustments:
Research and experimentation
income tax credits 0.03
Postretirement benefits other
than pensions 0.10 (0.04)
Disallowance - Susquehanna
Unit No. 1 deferred costs (0.13)
ECR purchased power costs 0.04 (0.06)
Gain/(loss) on subsidiary coal
reserves 0.12 (0.26)
Earnings per share - reported $2.05 $2.05 $1.41
Earnings per share, excluding the adjustments identified above,
improved by $.26 for 1996. This earnings improvement reflects higher
revenues resulting from the 3.8% base rate increase from the PUC
Decision, as well as higher sales to all service-area classes. On a
weather-adjusted basis, sales to commercial customers grew by 3.6%, with
sales to residential and industrial customers posting increases of 3.2%
and 1.7%, respectively. Earnings also benefited from lower interest
expense, due to the refinancing of long-term debt with lower cost
securities. These earnings gains were partially offset by a reduction in
contractual bulk power sales to JCP&L, as well as higher depreciation
expense. The higher depreciation is due to new property, plant and
equipment placed in service in 1996, as well as higher depreciation for
the Susquehanna station as a result of the PUC Decision.
The decline in earnings in 1995, excluding the adjustments
identified above, was primarily due to higher operating costs,
depreciation for the Susquehanna station and costs associated with the
review of PECO's proposals to acquire PP&L Resources.
The reduction in contractual bulk power sales to JCP&L and other
major utilities will continue to adversely affect earnings over the next
few years. PP&L has increased its efforts to sell this returning energy
and capacity on the open market. In addition, legislation recently
enacted in Pennsylvania to restructure its electric utility industry to
create retail access to a competitive market for generation of
electricity could have a major impact on the future financial performance
of PP&L. See "Pennsylvania Restructuring Legislation" for additional
information.
Electric Energy Sales
The increases (decreases) in PP&L's electric energy sales were
attributable to the following:
1996 1995
vs vs
1995 1994
(Millions of KWH)
Electric energy sales
Residential 548 (144)
Commercial 341 232
Industrial 171 309
Other (including UGI) 60 (40)
System sales 1,120 357
Sales to other utilities 3,843 1,368
PJM energy sales (1,020) (800)
3,943 925
System, or service area, sales increased 1.1 billion kwh, or 3.4%,
over 1995. Part of this increase was attributable to colder weather in
the first quarter of 1996. If normal weather had been experienced in
both 1996 and 1995, system sales for 1996 would have increased by about
953 million kwh, or 2.9%, over 1995.
Actual sales to residential customers in 1996 increased 548 million
kwh, or 4.8%, from 1995, compared with a decrease in 1995 of 144 million
kwh, or 1.3%, from 1994. Under normal weather conditions, the 1996
increase would have been 3.2%. Weather-adjusted commercial sales
increased 3.6% in 1996, and sales to industrial customers increased by
1.7% from 1995. Commercial and industrial sales are good indicators of
the region's economic health.
Sales to other utilities increased 3.8 billion kwh, or 50.1%, from
1995, despite a reduction in PP&L's contractual bulk power sales to
JCP&L. These increases were primarily the result of PP&L's one-year
contract to supply energy to PSE&G and increased efforts to sell energy
and capacity on the open market. Sales to other utilities in 1995
increased by 1.4 billion kwh, or 21.7% from 1994. These increases were
primarily due to PP&L's efforts to increase direct two-party sales to
other utilities rather than selling to PJM.
Sales to PJM in 1996 decreased by 1 billion kwh, or 43.3%, from
1995. These lower PJM sales were primarily the result of increases in
direct sales to other utilities, such as the contract sales to PSE&G
referenced above. Sales to PJM in 1995 decreased by 800 million kwh, or
25.3% from 1994. These decreases were also primarily due to PP&L's
efforts to increase direct two-party sales.
See "Operating Revenues" for more information.
Operating Revenues
The increases in total operating revenues were attributable to the
following:
1996 1995
vs vs
1995 1994
(Millions of Dollars)
Base rate revenues:
Rate increase - PUC Decision $ 76 $17
Sales volume/mix 57 25
Weather 13 (10)
Energy revenue 5 4
Sales to other utilities & PJM 27 (5)
Other, net (20) (4)
$158 $27
Operating revenues increased by $158 million, or 5.8%, in 1996 over
1995. Base rate revenues were enhanced by the PUC Decision, which
increased PUC jurisdictional rates about 3.8% and by strong sales growth
in all customer classes. In addition, weather had a favorable impact
when comparing 1996 to 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. Finally, revenues during 1996 reflect
increased sales to other utilities, primarily due to the one-year
contract to supply energy to PSE&G. These increases were partially
offset by the loss of revenue due to the phasing-out of the capacity
sales agreement with JCP&L.
Operating revenues increased $27 million, or 1%, in 1995 over 1994.
Base rate revenues in 1995 were enhanced for three months as a result of
the PUC Decision and by higher sales in the commercial and industrial
sectors. These revenues were partially offset by unfavorable weather
variances caused by the mild weather in early 1995 compared to the
extremely cold weather in early 1994.
PP&L's generation sales tariff was amended effective January 1,
1997, subject to FERC approval, to allow PP&L to buy energy for the
purpose of resale in competitive wholesale markets. This change provides
PP&L additional flexibility in creating wholesale power supply
opportunities that will increase operating revenues.
Pennsylvania Restructuring Legislation
In December 1996, Pennsylvania enacted legislation to restructure
its electric utility industry in order to create retail access to a
competitive market for the generation of electricity. The legislation,
which was effective on January 1, 1997, includes the following major
provisions:
1. All electric utilities in Pennsylvania are required to file,
beginning on April 1, 1997 and in no event later than September 30, 1997,
a restructuring plan to implement direct access to a competitive market
for electric generation. The plan must include unbundled rates for
generation, jurisdictional transmission, distribution and other services;
a proposed competitive transition charge; a proposed universal service
and energy conservation cost recovery mechanism; procedures for ensuring
direct access to all licensed energy suppliers; a discussion of the
proposed plan's impacts on utility employees and revised tariffs and
rates implementing the foregoing.
2. Retail customer choice will be phased in as follows: up to 33%
of all customer load on January 1, 1999; up to 66% of all customer load
on January 1, 2000; and 100% of all customer load by January 1, 2001.
The PUC can delay this schedule by two 6-month periods, if necessary.
3. Electric distribution companies will be the suppliers of last
resort. The PUC will ensure that adequate generation reserves exist to
maintain reliable electric service. The utility's transmission and
distribution system must continue to meet established national industry
standards for installation, maintenance and safety.
4. Retail rates will be capped for at least 4-1/2 years for
transmission and distribution charges and for as long as 9 years for
generation charges. A utility may be exempted from the caps only under
very specific circumstances, e.g., the need for extraordinary rate
relief, non-utility generation contracts, changes in laws or regulations,
required upgrades or repairs to the transmission system, increases in
fuel prices or purchased power prices, nuclear power plant
decommissioning costs or taxes.
5. Pennsylvania utilities are permitted to recover PUC-approved
transition or stranded costs over several years; however, the utilities
are required to mitigate these costs to the extent practicable. Also,
the recovery of these costs must not result in cost shifting among
customers.
6. "Transition bonds" may be issued to pay the stranded costs.
This procedure involves the following elements: (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 and to pay stranded costs;
(ii) the issuance by the financing entity of "transition bonds"; (iii)
the collection by the utility of "transition charges" on customers'
bills, which are transferred to the financing entity to pay the principal
and interest and other related costs of issuing the transition bonds;
(iv) upon the imposition of transition charges on customers' bills, the
utility must reduce customer rates by an amount equal to the revenue
requirements of the stranded costs financed with transition bonds; and
(v) a PUC "qualified rate order," which would be irrevocable, approving
the collection of the transition charges. This irrevocability would
protect the cash flow stream used to repay the transition bonds.
7. All generation suppliers must demonstrate financial and
technical fitness and must be licensed by the PUC. Cooperatives and
municipalities may participate in retail competition but are not subject
to the provisions of the legislation, unless they elect to serve
customers outside their franchise territories.
8. State tax revenues paid by utilities and generation suppliers
are to remain at their current level, to protect against any state
revenue loss from restructuring.
9. The PUC will monitor electricity markets for anti-competitive or
discriminatory conduct, and will consider the impact of mergers and
acquisitions on these markets.
PP&L is formulating its restructuring plan, which it currently plans
to file on April 1, 1997. Under the legislation, the PUC must take
action on the restructuring plan within nine months of the filing date.
PP&L is unable to predict the ultimate effect of this legislation on its
financial position, results of operation or its need to issue securities
to meet future capital requirements.
Rate Matters
Base Rate Filing with the PUC
In September 1995, the PUC issued a final order with respect to the
base rate case filed by PP&L in December 1994. The PUC Decision
increased PUC jurisdictional rates by about $85 million annually, or
3.8%. The PUC Decision permitted the levelization of depreciation
expense for the Susquehanna station, recovery of retiree health care
costs and costs of the 1994 voluntary early retirement program and
revised costs to decommission Susquehanna SES. The order also permitted
recovery of deferred operating and capital costs, net of energy savings,
for Susquehanna Unit 2 but disallowed similar costs for Unit No. 1. The
PUC also ruled that PP&L could not include in the ECR the cost of
capacity billed to other utilities after the contractual arrangements
with these utilities expire. The OCA has appealed certain aspects of the
PUC Decision to the Commonwealth Court. PP&L cannot predict the final
outcome in this matter.
Energy Cost Rate Issues
Through December 1996, PP&L's PUC tariffs contained an ECR under
which customers were billed an estimated amount for fuel and other energy
costs. Any difference between the actual and estimated amount for such
costs was collected from, or refunded to, customers in a subsequent
period.
In December 1996, the PUC issued a tentative order permitting the
roll-in of PP&L's ECR into base rates. The order also authorized PP&L to
defer certain unrecovered energy costs as regulatory assets and seek
recovery for these costs in the competitive transition charge described
above under "Pennsylvania Restructuring Legislation."
In 1994, the PUC reduced PP&L's ECR claim by $16 million for costs
associated with replacement power during a Susquehanna Unit 1 outage for
refueling and repairs. PP&L's appeal of that reduction was settled in
1995, and as a result PP&L recorded a net credit to income of $10
million.
Special Base Rate Credit Adjustment
Beginning in April 1991, PP&L's PUC tariff included a SBRCA rider
which provided for credits to retail customers' bills for three
nonrecurring items. They were (i) the use of an inventory method of
accounting for certain power plant spare parts (this credit expired as of
April 1, 1996); (ii) the sale of capacity and related energy from PP&L's
wholly owned coal-fired stations to Atlantic (this credit was rolled into
retail base rates at Docket No. R-00943271 and was removed from the SBRCA
effective in September 1995); and (iii) the proceeds from a settlement of
outstanding contract claims arising from construction of the Susquehanna
station (this credit is due to expire in the second quarter of 1997).
State Tax Adjustment Surcharge
Through December 1996, PP&L's PUC tariffs included a rate mechanism
to adjust customer bills for changes in certain state taxes. The STAS
had no effect on net income. In December 1996, the PUC issued a
tentative order permitting the roll-in of STAS into base rates.
FERC-Major Utilities' Rates
In August 1995, JCP&L filed a complaint against PP&L with the FERC
regarding billings under the bulk power sales agreement between the
parties. In its complaint, JCP&L alleges that PP&L inappropriately
allocated certain costs to JCP&L that should not have been billed and
seeks other adjustments. JCP&L is seeking both refunds (with interest)
in an unspecified amount and an amendment to the agreement. PP&L has
denied JCP&L's allegations and requested that FERC dismiss the complaint.
PP&L cannot predict the final outcome of this proceeding.
In October 1995, FERC allowed PP&L to begin charging, subject to
refund, four major electric utility customers of PP&L (Atlantic, BG&E,
JCP&L and UGI) for certain PP&L costs for post-retirement benefits other
than pensions. In that same proceeding, FERC opened to review all other
charges by PP&L under its contracts with those customers. JCP&L raised a
number of objections to PP&L's charges. In November 1996, an
Administrative Law Judge ruled in PP&L's favor on all issues. The case
currently is pending before the FERC.
In January 1996, PP&L filed a request with the FERC to incorporate a
change in the method of calculating depreciation under its contracts with
these same four major utilities. PP&L also sought to increase the
charges to those customers for nuclear decommissioning costs. This case
was settled in principle with the four customers in January 1997, under
terms which would have no material effect on PP&L. Formal settlement
documents are expected to be filed with the FERC by March 1997.
See Note 4 for more information regarding these contracts.
Power Purchases
Power purchases in 1996 increased $61 million from 1995 and remained
essentially unchanged in 1995 from 1994. The increase in 1996 was
primarily due to greater quantities of power purchased from PJM and other
utilities, increased customer demand, planned and unplanned outages of
PP&L generating stations, and attractive market prices for energy.
Income Taxes
Income tax expense for 1996 decreased $33 million, or 11.3%, from
1995. This was primarily due to a decrease in pre-tax book income of $25
million, and the recording of the tax benefits of research and
experimental tax credits and deductions of $5 million.
Income tax expense in 1995 increased $106 million, or 59%, from
1994. This increase was primarily due to a higher pre-tax book income of
$212 million, one-time charges for expensing deferred tax benefits of $12
million as a result of the PUC Decision and recognizing deferred tax
liabilities of $4 million relative to undeveloped coal reserves.
Partially offsetting these increases was an $8 million decrease resulting
from the reduction of the Pa. CNI rate from 11.99% for 1994 to 9.99% for
1995.
Other Operation, Maintenance and Depreciation
Other operation expenses increased $40 million in 1996 and $29
million in 1995. However, other operation expenses were impacted by the
PUC Decision, which prescribed the treatment of postretirement benefit
costs, the amortization of VERP expenses and other issues. After
eliminating the effects of these rate case issues from both years, other
operation expenses decreased by $6 million in 1996, versus an increase of
$54 million in 1995.
The $6 million decrease in 1996 reflects a $24 million decline in
workforce reduction expenses and a $5 million decrease in the provision
for uncollectible customer accounts. These decreases were partially
offset by a 1996 accrual of $9 million for licensing and design basis
projects committed for the Susquehanna station, an $8 million increase in
pension and medical expenses, and a net increase of $6 million relating
to higher lease expenses and outside litigation costs.
The $54 million increase in 1995 was primarily due to $31 million
for PP&L's workforce reductions, an $18 million increase in computer
support designed to enhance productivity, an $8 million increase in the
provision for uncollectible accounts, and $6 million of higher leasing
costs. These increases were partially offset by a $17 million decline in
postretirement benefits costs in 1995 versus 1994. The 1994
postretirement benefits costs included the write-off of FAS 106 costs,
based on the May 1994 Commonwealth Court decision that reversed a
previous PUC order permitting the deferral of these costs.
Maintenance expenses increased $5 million in 1996 and $6 million in
1995. The 1996 maintenance expenses were $21 million less than in 1995
due to the expiration of a credit to income for a change in inventory
practices. See "Rate Matters" for a discussion of the SBRCA. In
addition, 1996 contracted maintenance costs were about $10 million higher
at the fossil generating stations due to unplanned outages. These items
were partially offset by a $19 million charge recorded in 1995 for
obsolete and excess inventory at PP&L's generating stations, and a $5
million decrease in the amortization of deferred refueling and inspection
outage costs at the Susquehanna station. The $6 million increase in 1995
resulted from the $19 million charge for obsolete and excess inventory,
offset by $13 million in lower maintenance costs reflecting continued
efforts to reduce costs and achieve longer operating cycles at PP&L's
generating stations.
Depreciation expense increased $14 million in 1996 and $34 million
in 1995. These increases resulted from new property, plant and equipment
placed in service, as well as higher depreciation expense for the
Susquehanna station. The PUC Decision provided for an increase in
Susquehanna depreciation applicable to property placed in service prior
to January 1, 1989. The order provided for the Susquehanna property to
be depreciated at an annual level of $173 million from October 1, 1995 to
December 31, 1998, after which depreciation is scheduled to decline by
$71 million annually.
Voluntary Early Retirement Program
As part of its continuing efforts to reduce costs, PP&L offered a
VERP to 851 employees who were age 55 or older by December 31, 1994. A
total of 640 employees elected to retire under the program, at a total
cost of $76 million. The VERP provided for a lump sum payment based on
an employee's years of service, no reduction in retirement benefits for
age, and supplemental monthly payments. PP&L recorded the cost of this
program as a charge against income in the fourth quarter of 1994, which
reduced net income by $43 million, or 28 cents per share of common stock.
As a result of the PUC Decision, PP&L was allowed to recover through
customer rates the PUC-jurisdictional amount, $66 million, of the cost of
its VERP over a period of five years. Consequently, PP&L recorded a $38
million after-tax credit to income, or 24 cents per share of common
stock, in the third quarter of 1995 to reverse the PUC-jurisdictional
portion of the charge for this program that was recorded in the fourth
quarter of 1994. The estimated annual savings of $35 million from this
program also are included in rates.
Other Income and (Deductions) - Net
Other income and deductions improved in 1996 due to the equity
earnings from PMDC's investment in SWEB, as well as gains on the sale of
investment securities by PP&L. Other income and deductions in 1995
reflected a gain on the sale of a PP&L subsidiary's undeveloped coal
reserves, offset by the write-off of Susquehanna Unit 1 deferred
operating expenses and carrying costs (net of energy savings) resulting
from the PUC Decision, and by expenses associated with evaluating and
responding to PECO's unsolicited proposals to acquire PP&L Resources.
Other income and deductions in 1994 were adversely impacted by the
writedown of the undeveloped coal reserves which were sold in 1995.
Financing Costs
In 1996, PP&L Resources continued to take advantage of opportunities
to reduce its financing costs by retiring long-term debt with the
proceeds from the sale of securities at a lower cost and the issuance of
common stock through its DRIP. Interest on long-term debt and dividends
on preferred stock decreased from $260 million in 1993 to $235 million in
1996, for a total decrease of $25 million.
Financial Condition
Capital Expenditure Requirements
The schedule below shows PP&L's current capital expenditure
projections for the years 1997-2001 and actual spending for the year
1996.
PP&L's Capital Expenditure Requirements (a)
Actual -------------Projected----------------
1996 1997 1998 1999 2000 2001
(Millions of Dollars)
Construction expenditures
Generating facilities $ 86 $ 65 $ 81 $ 53 $ 76 $ 68
Transmission and
distribution facilities 124 120 126 123 147 142
Environmental 16 16 21 34 3 3
Other 39 57 44 20 17 17
Total Construction
Expenditures 265 258 272 230 243 230
Nuclear fuel owned and
leased 98 68 71 67 71 73
Other leased property 19 24 22 22 22 22
Total Capital Expen-
ditures $382 $350 $365 $319 $336 $325
(a) Construction expenditures include AFUDC which is expected to be less
than $10 million in each of the years 1997-2001.
PP&L's capital expenditure projections for the years 1997-2001 total
about $1.7 billion. Capital expenditure plans are revised from time to
time to reflect changes in conditions.
Financing and Liquidity
Net cash provided by operating activities for 1996 increased $101
million over 1995. This increase is primarily due to higher operating
revenues, which reflects the 3.8% base rate increase from the PUC
Decision as well as higher sales to all customer classes. Lower interest
expense also contributed to the increase. These increases were partially
offset by higher fuel inventories. Net cash provided by operating
activities between 1995 and 1994 was essentially unchanged.
Net cash used in investing activities was $119 million higher in
1996 than 1995. This increase was primarily due to PMDC's increased
investments in electric energy projects, partially offset by lower
construction expenditures by PP&L. Net cash used in investing activities
was $184 million lower in 1995 than 1994. This decrease was due
primarily to lower construction expenditures by PP&L and the proceeds
from the sale of coal reserves.
In 1996, PP&L sold $116 million of unsecured notes while PP&L
Resources issued $77 million of common stock of which $70 million was
issued through its DRIP and the remaining $7 million issued to PP&L's
ESOP. During the year, PP&L retired $145 million of long-term debt.
For the years 1994-1996, PP&L issued $1.1 billion of long-term debt
and $80 million of preferred stock. For the same period, PP&L and PP&L
Resources issued a total of $228 million of common stock. Proceeds from
security sales were used to retire $923 million of long-term debt and
$120 million of preferred stock to lower PP&L's financing costs, reduce
short-term debt and finance construction expenditures. During the years
1994-1996, PP&L also incurred $249 million of obligations under capital
leases (primarily nuclear fuel).
PP&L Resources established a revolving credit facility in the second
quarter of 1996 in the amount of $300 million. PP&L Resources used $190
million of borrowings under this revolving credit facility to fund a PMDC
subsidiary's acquisition of a 25 percent interest in SWEB. Borrowings of
$135 million were outstanding under this credit facility at December 31,
1996. See Note 9 for further information.
To enhance financing flexibility, PP&L maintains a $250 million
revolving credit arrangement with a group of banks, which is used
principally as a back-up for PP&L's commercial paper. In addition, $45
million in credit arrangements are maintained with a group of banks to
provide back-up for PP&L's commercial paper and short-term borrowings of
certain of its subsidiaries. No borrowings were outstanding at December
31, 1996 under these arrangements. See Financial Note 9 for further
information. In January 1997, PP&L requested FERC authorization to
issue, from time to time, up to $750 million of short-term debt to
provide funding for working capital requirements, the maturity of long-
term debt, the early retirement of long-term debt and the refinancing of
other securities.
PP&L plans to redeem four series of its first mortgage bonds on
April 1, 1997. Three of the series of first mortgage bonds, which have a
total principal amount of $180 million, will be redeemed under the
maintenance and replacement fund provisions of these bonds. The fourth
series, having a principal amount of $30 million, will be redeemed under
the optional redemption provisions of these bonds. The redemption of
these series of bonds is part of PP&L's plan to reduce its overall cost
of financing.
PP&L has registered with the SEC to issue Junior Subordinated
Deferrable Interest Debentures to support a $100 million public offering
of Trust Originated Preferred Securities. The proceeds of this issuance
will be used for general corporate purposes, including the refinancing of
outstanding securities.
The funds required by PP&L Resources during 1997 to retire the
borrowings outstanding under its revolving credit facility (described
above), to permit PMDC to complete the acquisition of a 25.05 percent
interest in Emel and for investment in other PMDC projects (see
"Unregulated Investments") are expected to be provided through the
issuance of about $170 million of debt pursuant to a medium-term note
program that PP&L Resources plans to put in place in the second quarter
of 1997 and the issuance of about $70 million of common stock under the
DRIP. The liquidation of temporary cash investments of about $57 million
is expected to provide the balance of the funds necessary for PMDC
investments during 1997.
It is currently expected that the DRIP will be continued after 1997
as necessary to provide equity funding for PMDC investments, and that
PP&L's ESOP will provide proceeds of about $8 million in each of the
years 1997 through 2001.
Financial Indicators
PP&L Resources earned a 12.30% return on average common equity
during 1996, a decrease from the 12.81% earned in 1995. Excluding one-
time adjustments, as described in "Earnings", the return on average
common equity was 12.11% during 1996, an increase from the 11.96% earned
in 1995. The ratio of PP&L Resources' pre-tax income to interest charges
was 3.55 for 1996, virtually unchanged from 1995. Excluding one-time
adjustments, the ratio of PP&L Resources' pre-tax income to interest
charges was 3.53 in 1996, an increase from the 3.48 in 1995. The annual
per share dividend rate on common stock remained unchanged at $1.67 per
share. The book value per share of common stock increased 3.6% from
$16.29 at the end of 1995 to $16.87 at the end of 1996. The ratio of the
market price to book value of common stock was 136% at the end of 1996
compared with 153% at the end of 1995.
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 equipment 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 seasonal (i.e., 5
month) nitrogen oxide reductions to 55% and 75% of pre-Clean Air Act
levels for 1999 and 2003, respectively, are specified under the Northeast
Ozone Transport Region's Memorandum of Understanding.
The Clean Air Act requires EPA to study the health effects of
hazardous air emissions from power plants and other sources. In this
regard, in November 1996 the EPA proposed new national standards for
ambient levels of ground-level ozone and fine particulates. The new
standards, if implemented, may result in EPA mandating additional NOx and
SO2 reductions from utility boilers in the 2005-2010 timeframe. NOx
reductions to meet the new ozone standard are likely to be in the range
of the 75% seasonal NOx reductions that already are required for PP&L
under the Memorandum of Understanding in 2003 and beyond. However, to
meet the new fine particulate standards, EPA may mandate additional SO2
reductions significantly greater than those now planned for the acid rain
program and extend the NOx reductions required by the Memorandum of
Understanding from seasonal to year-round.
Expenditures to meet the year 1999 Memorandum of Understanding
requirements are included in the table of projected construction
expenditures in the section "Financial Condition - 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 2001 in amounts which are not now
determinable but could be material.
Water and Residual Waste
DEP residual waste regulations require PP&L to obtain permits for
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 plans 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 and proposed Holtwood
station NPDES permit contain 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 these stations.
Capital expenditures through the year 2001 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
section "Financial Condition - Capital Expenditure Requirements". PP&L
currently estimates that $12 million of additional capital expenditures
may be required in the next four years and $67 million of additional
capital expenditures could be required beyond the year 2001. 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 PP&L 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 December 31, 1996, PP&L had accrued $10 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.
Other Environmental Matters
In addition to the issues discussed above, PP&L may be required to
modify, replace or cease operating certain 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 capital expenditures, operating expenses and other costs in
amounts which are not now determinable, but may be material.
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 costs, which are generation-related costs that
traditionally would be recoverable in a regulated environment, but which
may not be recoverable in a competitive electric generation market.
Pennsylvania Activities
Reference is made to "Pennsylvania Restructuring Legislation" for a
discussion of the recent Pennsylvania restructuring legislation and
PP&L's planned PUC filings pursuant to that legislation.
In response to a July 1996 PUC Report on achieving retail
competition in Pennsylvania, PP&L in October 1996 became the first
Pennsylvania utility to file for PUC approval of a 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. In January 1997, the PUC issued final guidelines
for retail access pilot programs. Those guidelines require each major
electric utility in Pennsylvania to file a proposed pilot program in
accordance with the guidelines by March 1, 1997. PP&L is currently
evaluating the impact of the guidelines on its proposed pilot program and
will respond, as appropriate, by March 1, 1997.
Under its proposed pilot program, PP&L initially will provide 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.
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, recovery of stranded costs, and information systems
for displaying available transmission capability (FERC Orders 888 and
889). These rules required all electric utilities to file open access
transmission tariffs by July 9, 1996. 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.
Finally, the rules require that a power pool-wide open access
transmission tariff and modified bilateral coordination agreements
reflecting the removal of discriminatory provisions 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.
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 applicable to these customers if
they were to terminate their contracts in 1999. Based upon a formula set
forth in FERC Order 888 and applicable only to 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 would be approximately $95 million. This estimate
was subsequently raised to approximately $125 million. As a result of a
protest by these parties against such recovery, the FERC has scheduled
hearings in the spring of 1997 regarding PP&L's right to recover these
stranded costs.
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, subject to refund. Several parties, including
the small utilities, moved to intervene and protested the new rates.
These matters may 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 has accepted this filing.
In July 1996, all of the PJM companies, except PECO, submitted a
comprehensive filing for FERC approval of changes to the PJM to
accommodate greater competition and broader participation. 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. In August
1996, PECO filed a separate PJM restructuring proposal with the FERC,
which differed significantly in several areas from the other companies'
filing.
In November 1996, the FERC rejected both proposals for restructuring
the PJM for several reasons, the principal one being its view that the
ISO was not sufficiently independent. FERC ordered the PJM companies to
file a pool-wide tariff and modified coordination agreements reflecting
the removal of provisions which FERC considered discriminatory against
non-PJM members. In December 1996, all members of PJM submitted an
interim compliance filing with the FERC, which proposed a pool-wide pro
forma transmission tariff and a revised interconnection agreement and
transmission owners agreement designed to accommodate open, non-
discriminatory participation in the pool. The PJM companies currently
are working with multiple stakeholders to develop a consensus package for
the comprehensive restructuring of the PJM, which is expected to be filed
with the FERC in May 1997.
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 December 31, 1996, PMDC had investments and commitments in the
amount of approximately $250 million in distribution, transmission and
generation facilities in the United Kingdom, Bolivia, Peru, Argentina,
Spain and Portugal. The principal investment to date is its July 1, 1996
purchase of a 25 percent interest in SWEB, a British regional electric
utility company, for approximately $189 million.
In addition, PMDC is negotiating definitive agreements for the
purchase of a 25.05 percent interest in Empresas Emel S.A., a Chilean
holding company. Emel is the third largest distributor of electricity in
Chile, and the second largest in Bolivia. Emel, through its controlling
interests in six electric distribution companies, serves a total of
535,000 customers in Chile and Bolivia. Under the terms of the
agreements being negotiated, PMDC would purchase existing and new shares
of Emel for about $120 million in mid-1997.
See Financial Note 14 for additional information on the financing of
these investments.
PP&L Resources' other unregulated subsidiary, Spectrum, offers
energy-related products and services to PP&L's existing customers and to
others outside of PP&L's service territory. Other subsidiaries may be
formed by PP&L Resources to take advantage of new business opportunities.
(Address and phone number appears here)
Thirty South Seventeenth Street
Philadelphia, PA 19103-4094
Telephone 215 575 5000
(Price Waterhouse LLP logo appears here)
Report of Independent Accountants
February 3, 1997
To the Shareowners and Board of Directors of
PP&L Resources, Inc. and to the Shareowners and
Board of Directors of Pennsylvania Power & Light Company
In our opinion, the accompanying consolidated financial statements listed
in the index appearing under Item 8 on page 22, present fairly, in all
material respects, the consolidated financial position of PP&L Resources,
Inc. and its subsidiaries (PP&L Resources) at December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for
each of the two years then ended and the consolidated financial position of
Pennsylvania Power & Light Company and its subsidiaries (PP&L) at December
31, 1996 and 1995, and the consolidated results of their operations and their
cash flows for each of the two years then ended, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of management of PP&L Resources and PP&L; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. The consolidated
financial statements of PP&L for the year ended December 31, 1994, prior to
restatement (not presented separately herein), were audited by other
independent accountants whose report dated February 3, 1995 expressed an
unqualified opinion on those financial statements.
Effective April 27, 1995, PP&L Resources, which had been a wholly-owned
subsidiary of PP&L, became the parent holding company of PP&L. The
accompanying consolidated financial statements reflect this reorganization
on a retroactive basis. We have audited the adjustments that were applied
to restate the 1994 PP&L consolidated financial statements. In our
opinion, such adjustments are appropriate and have been properly applied to
the 1994 PP&L consolidated financial statements.
(Signed) Price Waterhouse LLP
PRICE WATERHOUSE LLP
(Deloitte & Touche LLP Logo appears here)
(Address and phone number appear here)
Two Hilton Court
P.O. Box 319
Parsippany, New Jersey 07054-0319
Telephone: (201) 631-7000
Facsimile: (201) 631-7459
INDEPENDENT AUDITORS' REPORT
Pennsylvania Power & Light Company:
We have audited the consolidated statements of income, shareowners' common
equity, and cash flows of Pennsylvania Power & Light Company and its
subsidiaries for the year ended December 31, 1994, prior to restatement
and not presented separately herein. Our audit also included the
financial statement schedule for the year ended December 31, 1994 listed
in the Index at Item 8. These financial statements and the financial
statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements
and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements, prior to
restatement and not presented separately herein, present fairly, in all
material respects, the results of operations of Pennsylvania Power & Light
Company and its subsidiaries and their cash flows for the year ended
December 31, 1994 in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedule for
the year ended December 31, 1994, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
(Signed) Deloitte & Touche LLP
February 3, 1995
(Deloitte Touche
Tohmatsu
International logo appears here)
PP&L Resources, Inc.
Management's Report on Responsibility for Financial Statements
The management of PP&L Resources, Inc. is responsible for the
preparation, integrity and objectivity of the consolidated financial
statements and all other sections of this annual report. The financial
statements were prepared in accordance with generally accepted accounting
principles and the Uniform System of Accounts prescribed by the Federal
Energy Regulatory Commission. In preparing the financial statements,
management makes informed estimates and judgments of the expected effects
of events and transactions based upon currently available facts and
circumstances. Management believes that the financial statements are free
of material misstatement and present fairly the financial position, results
of operations and cash flows of PP&L Resources.
PP&L Resources' consolidated financial statements have been audited by
Price Waterhouse LLP (Price Waterhouse), independent certified public
accountants, whose report with respect to the financial statements appears
on page 41. Price Waterhouse's appointment as auditors was previously
ratified by the shareowners. Management has made available to Price
Waterhouse all PP&L Resources' financial records and related data, as well
as the minutes of shareowners' and directors' meetings. Management
believes that all representations made to Price Waterhouse during its audit
were valid and appropriate.
PP&L Resources maintains a system of internal control designed to
provide reasonable, but not absolute, assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition and the prevention and detection of
fraudulent financial reporting. The concept of reasonable assurance
recognizes that the cost of a system of internal control should not exceed
the benefits derived and that there are inherent limitations in the
effectiveness of any system of internal control.
Fundamental to the control system is the selection and training of
qualified personnel, an organizational structure that provides appropriate
segregation of duties, the utilization of written policies and procedures
and the continual monitoring of the system for compliance. In addition,
PP&L Resources maintains an internal auditing program to evaluate PP&L
Resources' system of internal control for adequacy, application and
compliance. Management considers the internal auditors' and Price
Waterhouse's recommendations concerning its system of internal control and
has taken actions which are believed to be cost-effective in the
circumstances to respond appropriately to these recommendations.
Management believes that PP&L Resources' system of internal control is
adequate to accomplish the objectives discussed in this report.
The Board of Directors, acting through its Audit and Corporate
Responsibility Committee, oversees management's responsibilities in the
preparation of the financial statements. In performing this function, the
Audit and Corporate Responsibility Committee, which is composed of five
independent directors, meets periodically with management, the internal
auditors and the independent certified public accountants to review the
work of each. The independent certified public accountants and the
internal auditors have free access to the Audit and Corporate
Responsibility Committee and to the Board of Directors, without management
present, to discuss internal accounting control, auditing and financial
reporting matters.
Management also recognizes its responsibility for fostering a strong
ethical climate so that PP&L Resources' affairs are conducted according to
the highest standards of personal and corporate conduct. This
responsibility is characterized and reflected in the business policies and
guidelines of PP&L Resources' operating subsidiaries. These policies and
guidelines address: the necessity of ensuring open communication within
PP&L Resources; potential conflicts of interest; proper procurement
activities; compliance with all applicable laws, including those relating
to financial disclosure; and the confidentiality of proprietary
information.
/s/ William F. Hecht
William F. Hecht
Chairman, President and Chief Executive Officer
/s/ R. E. Hill
R. E. Hill
Senior Vice President - Financial
Pennsylvania Power & Light Company
Management's Report on Responsibility for Financial Statements
The management of Pennsylvania Power & Light Company is responsible
for the preparation, integrity and objectivity of the consolidated
financial statements and all other sections of this annual report. The
financial statements were prepared in accordance with generally accepted
accounting principles and the Uniform System of Accounts prescribed by the
Federal Energy Regulatory Commission. In preparing the financial
statements, management makes informed estimates and judgments of the
expected effects of events and transactions based upon currently available
facts and circumstances. Management believes that the financial statements
are free of material misstatement and present fairly the financial
position, results of operations and cash flows of PP&L.
PP&L's consolidated financial statements have been audited by Price
Waterhouse LLP (Price Waterhouse), independent certified public
accountants, whose report with respect to the financial statements appears
on page 41. Price Waterhouse's appointment as auditors was previously
ratified by the shareowners. Management has made available to Price
Waterhouse all PP&L's financial records and related data, as well as the
minutes of shareowners' and directors' meetings. Management believes that
all representations made to Price Waterhouse during its audit were valid
and appropriate.
PP&L maintains a system of internal control designed to provide
reasonable, but not absolute, assurance as to the integrity and reliability
of the financial statements, the protection of assets from unauthorized use
or disposition and the prevention and detection of fraudulent financial
reporting. The concept of reasonable assurance recognizes that the cost of
a system of internal control should not exceed the benefits derived and
that there are inherent limitations in the effectiveness of any system of
internal control.
Fundamental to the control system is the selection and training of
qualified personnel, an organizational structure that provides appropriate
segregation of duties, the utilization of written policies and procedures
and the continual monitoring of the system for compliance. In addition,
PP&L maintains an internal auditing program to evaluate PP&L's system of
internal control for adequacy, application and compliance. Management
considers the internal auditors' and Price Waterhouse's recommendations
concerning its system of internal control and has taken actions which are
believed to be cost-effective in the circumstances to respond appropriately
to these recommendations. Management believes that PP&L's system of
internal control is adequate to accomplish the objectives discussed in this
report.
The Board of Directors, acting through PP&L Resources' Audit and
Corporate Responsibility Committee, oversees management's responsibilities
in the preparation of the financial statements. In performing this
function, the Audit and Corporate Responsibility Committee, which is
composed of five independent directors, meets periodically with management,
the internal auditors and the independent certified public accountants to
review the work of each. The independent certified public accountants and
the internal auditors have free access to PP&L Resources' Audit and
Corporate Responsibility Committee and to the Board of Directors, without
management present, to discuss internal accounting control, auditing and
financial reporting matters.
Management also recognizes its responsibility for fostering a strong
ethical climate so that PP&L's affairs are conducted according to the
highest standards of personal and corporate conduct. This responsibility
is characterized and reflected in PP&L's business policies and guidelines.
These policies and guidelines address: the necessity of ensuring open
communication within PP&L; potential conflicts of interest; proper
procurement activities; compliance with all applicable laws, including
those relating to financial disclosure; and the confidentiality of
proprietary information.
/s/ William F. Hecht
William F. Hecht
Chairman, President and Chief Executive Officer
/s/ R. E. Hill
R. E. Hill
Senior Vice President - Financial
CONSOLIDATED STATEMENT OF INCOME
PP&L Resources, Inc. and Subsidiaries
(Millions of Dollars, except per share data)
1996 1995 1994
Operating Revenues (Notes 1, 3 and 4)................................. $2,910 $2,752 $2,725
Operating Expenses
Operation
Fuel..................................................................... 448 451 472
Power purchases.......................................................... 352 291 287
Other.................................................................... 544 504 475
Maintenance................................................................ 191 186 180
Depreciation (including amortized depreciation) (Notes
1 and 8) ................................................................ 363 349 315
Income taxes (Note 5)...................................................... 253 262 218
Taxes, other than income (Note 5).......................................... 203 201 201
Voluntary early retirement program (Note 11) ...................................... (66) 76
2,354 2,178 2,224
Operating Income......................................... 556 574 501
Other Income and (Deductions) - Net 21 2 (30)
Income Before Interest Charges and Dividends on
Preferred Stock ........................................................... 577 576 471
Interest Charges
Long-term debt......................................... 207 213 214
Short-term debt and other.................................................. 13 12 13
220 225 227
Preferred Stock Dividend Requirements........................................ 28 28 28
Net Income............................................... $329 $323 $216
Earnings Per Share of Common Stock (a)................... $2.05 $2.05 $1.41
Average Number of Shares Outstanding (thousands)............................. 161,060 157,649 153,458
Dividends Declared Per Share of Common Stock................................. $1.67 $1.67 $1.67
(a) Based on average number of shares outstanding.
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
PP&L Resources, Inc. and Subsidiaries
(Millions of Dollars)
1996 1995 1994
Cash Flows From Operating Activities
Net income............................................ $329 $323 $216
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation............................................................. 366 352 317
Amortization of property under capital leases............................ 86 79 86
Amortization of contract settlement proceeds and
deferred cost of power plant spare parts............................... (15) (37) (38)
Deferred income taxes and investment tax credits........................... 16 (70)
Voluntary early retirement program ................................................... (66) 76
Write-down of coal reserves .............................................................. 74
Change in current assets and current liabilities
Fuel inventories....................................................... (14) 43 (30)
Other.................................................................. (35) (30) (5)
Other operating activities -- net........................................ 76 12 85
Net cash provided by operating activities............................ 793 692 711
Cash Flows From Investing Activities
Property, plant and equipment expenditures............ (360) (403) (505)
Proceeds from sale of nuclear fuel to trust................................ 93 44 36
Proceeds from sale of coal reserves................................................... 52
Purchases of available-for-sale securities ................................ (600) (303) (204)
Sales and maturities of available-for-sale securities ..................... 631 301 148
Investment in electric energy projects..................................... (201) (12)
Other investing activities -- net.......................................... 5 8 28
Net cash used in investing activities................................ (432) (313) (497)
Cash Flows From Financing Activities
Issuance of long-term debt............................ 116 55 919
Issuance of common stock................................................... 77 81 70
Issuance of preferred stock.................................................................. 80
Retirement of long-term debt............................................... (145) (140) (638)
Retirement of preferred stock .............................................................. (120)
Payments on capital lease obligations...................................... (86) (79) (86)
Common and preferred dividends paid........................................ (296) (290) (284)
Net increase (decrease) in short-term debt................................. 55 15 (128)
Other financing activities -- net.......................................... (1) (11) (25)
Net cash used in financing activities................................ (280) (369) (212)
Net Increase in Cash and
Cash Equivalents............................................................. 81 10 2
Cash and Cash Equivalents at Beginning of Period............................. 20 10 8
Cash and Cash Equivalents at End of Period................................... $101 $20 $10
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized)..................................... $213 $218 $200
Income taxes............................................................. $286 $257 $264
See accompanying Notes to Financial Statements.
CONSOLIDATED BALANCE SHEET AT DECEMBER 31
PP&L Resources, Inc. and Subsidiaries
(Millions of Dollars)
Assets 1996 1995
Property, Plant and Equipment
Electric utility plant in service - at original cost........... $9,824 $9,637
Accumulated depreciation (Notes 1 and 8)............................................. (3,337) (3,113)
6,487 6,524
Construction work in progress - at cost ............................................... 172 170
Nuclear fuel owned and leased - net of amortization .................................. 170 134
Other leased property - net of amortization .......................................... 76 85
Electric utility plant - net ........................................................ 6,905 6,913
Other property - (net of depreciation, amortization
and depletion 1996, $54; 1995, $56) (Note 13)........................................ 55 57
6,960 6,970
Investments
Investment in electric energy projects -- at equity (Note 1) .. 224 12
Affiliated companies - at equity (Note 1).............................................. 17 17
Nuclear plant decommissioning trust fund (Notes 1 and 6)............................... 128 109
Financial investments (Notes 1 and 7) ................................................. 133 142
Other-at cost or less (Note 7) ........................................................ 18 9
520 289
Current Assets
Cash and cash equivalents (Note 1) ............................ 101 20
Current financial investments (Notes 1 and 7).......................................... 73 96
Accounts receivable (less reserve: 1996, $25; 1995, $35)
Customers ........................................................................... 196 197
Other ............................................................................... 19 14
Unbilled revenues...................................................................... 85 92
Fuel, materials and supplies - at average cost ........................................ 201 190
Deferred income taxes (Note 5)......................................................... 21 42
Other ................................................................................. 53 42
749 693
Regulatory Assets and Other (Note 8).................................................... 1,407 1,540
$9,636 $9,492
See accompanying Notes to Financial Statements.
Liabilities 1996 1995
Capitalization
Common equity
Common stock ........................................................................ $2 $2
Capital in excess of par value ..................................................... 1,590 1,513
Earnings reinvested.................................................................. 1,143 1,083
Capital stock expense and other ..................................................... 10 (1)
2,745 2,597
Preferred stock
With sinking fund requirements ...................................................... 295 295
Without sinking fund requirements ................................................... 171 171
Long-term debt ........................................................................ 2,802 2,829
6,013 5,892
Current Liabilities
Commercial paper (Note 9) ..................................... 68
Bank loans (Note 9) ................................................................... 144 21
Long-term debt due within one year .................................................... 30 30
Capital lease obligations due within one year ......................................... 81 81
Accounts payable ...................................................................... 133 128
Taxes accrued ......................................................................... 19 47
Interest accrued ...................................................................... 61 66
Dividends payable ..................................................................... 75 74
Other ................................................................................. 78 86
621 601
Deferred Credits and Other Noncurrent Liabilities
Deferred investment tax credits (Note 5) ...................... 209 219
Deferred income taxes (Note 5) ........................................................ 2,052 2,106
Capital lease obligations ............................................................. 166 139
Other (Notes 1, 3, 6, and 10).......................................................... 575 535
3,002 2,999
Commitments and Contingent Liabilities (Note 14) ......................................
$9,636 $9,492
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY
PP&L Resources, Inc. and Subsidiaries
(Millions of Dollars)
Common
Common Stock Capital Capital
Stock Outstand- in Excess Earnings Stock
Outstanding ing of Par Rein- Expense &
Shares (a) Amount Value vested Other
Balance at December 31, 1993... 152,132,089 $2 $1,369 $1,066 $(11)
Net income.......................................... 216
Cash dividends declared on
common stock................................... (257)
Stock redemption costs....................... (1)
Common stock issued (b) ................ 3,349,873 64
Other.................................................... 7
Balance at December 31, 1994... 155,481,962 $2 $1,433 $1,024 $(4)
Net income.......................................... 323
Cash dividends declared on
common stock................................... (264)
Common stock issued (b) ................ 3,921,304 80
Other.................................................... 3
Balance at December 31, 1995... 159,403,266 $2 $1,513 $1,083 $(1)
Net income.......................................... 329
Cash dividends declared on
common stock................................... (269)
Common stock issued (b) ................ 3,262,150 77
Other.................................................... 11
Balance at December 31, 1996... 162,665,416 $2 $1,590 $1,143 $10
<FN>
(a) $.01 par value, 390,000,000 shares authorized.
Each share entitles the holder to one vote on
any question presented to any shareowners' meeting.
(b) Common Stock issued through the ESOP and the DRIP.
Consolidated Statement of Preferred Stock at December 31
PP&L Resources, Inc. and Subsidiaries (a)
(Millions of Dollars)
Shares
Outstand- Outstand- Outstand-
ing ing ing Shares
1996 1995 1996 Authorized
PP&L
Preferred Stock - $100 par, cumulative
4-1/2%.................... $53 $53 530,189 629,936
Series............................................... 413 413 4,133,556 10,000,000
$466 $466
See accompanying Notes to Financial Statements.
Details of Preferred Stock (b)
Optional Sinking Fund
Redemption Provisions (c)
Shares Price Per Shares to be
Outstanding Outstanding Share Redeemed Redemption
1996 1995 1996 1996 Annually Period
With Sinking Fund Requirements
Series Preferred
5.95% ................... $30 $30 300,000 (d) 300,000 April 2001
6.05%.................... 25 25 250,000 (d) 250,000 April 2002
6.125% .................. 115 115 1,150,000 (d) (e) 2003-2008
6.15%.................... 25 25 250,000 (d) 250,000 April 2003
6.33% ................... 100 100 1,000,000 (d) (f) 2003-2008
$295 $295
Without Sinking Fund Requirements
4-1/2% Preferred........... $53 $53 530,189 $110.00
Series Preferred
3.35%.................... 4 4 41,783 103.50
4.40%.................... 23 23 228,773 102.00
4.60%.................... 6 6 63,000 103.00
6.75%.................... 85 85 850,000 (d)
$171 $171
Increases (Decreases) in Preferred Stock
1996 1995 1994
Shares Amount Shares Amount Shares Amount
Series Preferred Stock
5.95% ............................. 300,000 $30
6.05% ............................. 250,000 25
6.125% ...........................
6.15% ............................. 250,000 25
6.33% .............................
6.75% .............................
6.875% ........................... (400,000) (40)
7.00% ............................. (800,000) (80)
Decreases in Preferred Stock represent: (i) the redemption of stock
pursuant to sinking fund requirements; or (ii) shares redeemed
pursuant to optional redemption provisions. There were no issuances or
redemptions of preferred stock in 1996 or 1995.
<FN>
(a) Each share of PP&L's preferred stock entitles the holder to one vote
on any question presented to PP&L's shareowners' meetings. There
were 10,000,000 shares of Resources' preferred stock and 5,000,000
shares of PP&L's preference stock authorized; none were outstanding
at December 31, 1996 and 1995, respectively.
(b) The involuntary liquidation price of the preferred stock is $100 per share.
The optional voluntary liquidation price is the optional redemption price
per share in effect, except for the 4-1/2% Preferred Stock for which such
price is $100 per share (plus in each case any unpaid dividends).
(c) These series of preferred stock are not redeemable prior to the following
years: 5.95%, 2001; 6.05%, 2002; 6.125%, 6.15%, 6.33% and 6.75%, 2003.
(d) Shares to be redeemed annually on October 1 as follows: 2003-2007,
57,500; 2008, 862,500.
(e) Shares to be redeemed annually on July 1 as follows: 2003-2007,
50,000; 2008, 750,000.
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31
PP&L Resources, Inc. and Subsidiaries
(Millions of Dollars)
Outstanding
1996 1995 Maturity(b)
First Mortgage Bonds (a)
5 5/8% .................................. $30 June 1, 1996
6 3/4% .................................................. $30 30 November 1, 1997
5 1/2%................................................... 150 150 April 1, 1998
7%....................................................... 40 40 January 1, 1999
8 1/8%................................................................... 40 June 1, 1999
6%....................................................... 125 125 June 1, 2000
7 1/4% .................................................. 60 60 February 1, 2001
6.5% to 7 3/4%........................................... 755 830 2002-2006
7.70%.................................................... 200 200 2007-2011 (c)
7 3/8%................................................... 100 100 2012-2016
9 1/4% to 9 3/8% ........................................ 315 315 2017-2021
6 3/4% to 8 1/2% ........................................ 650 650 2022-2026
First Mortgage Pollution Control Bonds (a)
6.40% Series H........................... 90 90 November 1, 2021
5.50% Series I........................................... 53 53 February 15, 2027
6.40% Series J........................................... 116 116 September 1, 2029
6.15% Series K........................................... 55 55 August 1, 2029
2,739 2,884
Unsecured promissory notes ................................ 116 (d)
2,855 2,884
Unamortized (discount) and premium -- net ................. (23) (25)
2,832 2,859
Less amount due within one year............................ 30 30
Total long-term debt .................................... $2,802 $2,829
__________________________________________
<FN>
(a) Substantially all owned electric utility plant is subject to the lien of
PP&L's first mortgage.
(b) Aggregate long-term debt maturities through 2001 are (millions of
dollars): 1997, $30; 1998, $150; 1999, $40; 2000, $125; 2001, $60.
Maximum sinking fund requirements aggregate $5.6 million through
2001 and may be met with property additions or retirement of bonds.
The annual sinking fund requirements through 2001 will not exceed
$1.8 million.
(c) Any registered owner of these bonds has the right to require PP&L
to redeem such owner's bonds on October 1, 1999 at a
price of 100% of the principal amount.
(d) In 1996, PP&L issued $116 million of unsecured promissory notes
due in March 2001. The proceeds were used to redeem
$40 million of First Mortgage Bonds, 8-1/8% Series due 1999, and
$75 million of First Mortgage Bonds, 7-5/8% Series due 2002.
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF INCOME
Pennsylvania Power & Light Company and Subsidiaries
(Millions of Dollars)
1996 1995 1994
Operating Revenues (Notes 1, 3 and 4)............................. $2,910 $2,752 $2,725
Operating Expenses
Operation
Fuel.......................................................... 448 451 472
Power purchases............................................... 352 291 287
Other......................................................... 544 504 475
Maintenance..................................................... 191 186 180
Depreciation (including amortized depreciation)
(Notes 1 and 8) .............................................. 363 349 315
Income taxes (Note 5)........................................... 253 262 218
Taxes, other than income (Note 5)............................... 203 201 201
Voluntary early retirement program (Note 11) ...................... (66) 76
2,354 2,178 2,224
Operating Income.................................................. 556 574 501
Other Income and (Deductions) - Net 15 4 (31)
Income Before Interest Charges.................................... 571 578 470
Interest Charges
Long-term debt................................ 207 213 214
Short-term debt and other....................................... 7 13 13
214 226 227
Net Income........................................................ 357 352 243
Dividends on Preferred Stock...................................... 28 28 28
Earnings Available to PP&L Resources, Inc. .................... $329 $324 $215
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Pennsylvania Power & Light Company and Subsidiaries
(Millions of Dollars)
1996 1995 1994
Cash Flows From Operating Activities
Net income............................................ $357 $352 $243
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation........................................................... 366 352 317
Amortization of property under capital leases.......................... 86 79 86
Amortization of contract settlement proceeds and
deferred cost of power plant spare parts............................. (15) (37) (38)
Deferred income taxes and investment tax credits....................... (1) 16 (70)
Voluntary early retirement program ................................................. (66) 76
Write down of coal reserves .............................................................. 74
Change in current assets and current liabilities
Fuel inventories..................................................... (14) 43 (30)
Other................................................................ (38) (28) (4)
Other operating activities -- net...................................... 58 (15) 56
Net cash provided by operating activities.......................... 799 696 710
Cash Flows From Investing Activities
Property, plant and equipment expenditures............ (360) (403) (505)
Proceeds from sales of nuclear fuel to trust............................. 93 44 36
Proceeds from sale of coal reserves................................................... 52
Purchases of available-for-sale securities .............................. (90) (81) (95)
Sales and maturities of available-for-sale securities ................... 93 80 90
Other investing activities -- net........................................ 5 7 27
Net cash used in investing activities.............................. (259) (301) (447)
Cash Flows From Financing Activities
Issuance of long-term debt............................ 116 55 919
Issuance of common stock and capital
contribution from parent............................................... 32 60 70
Issuance of preferred stock.................................................................. 80
Retirement of long-term debt............................................. (145) (140) (638)
Retirement of preferred stock............................................................... (120)
Payments on capital lease obligations.................................... (86) (79) (86)
Common and preferred dividends paid...................................... (296) (290) (284)
Dividends for capitalization of PMDC .................................................. (50)
Net increase (decrease) in short-term debt............................... (79) 15 (128)
Other financing activities -- net........................................ (2) (10) (25)
Net cash used in financing activities.............................. (460) (389) (262)
Net Increase in Cash and
Cash Equivalents........................................................... 80 6 1
Cash and Cash Equivalents at Beginning of Period........................... 15 9 8
Cash and Cash Equivalents at End of Period................................. $95 $15 $9
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for
Interest (net of amount capitalized)................................... $208 $218 $200
Income taxes........................................................... $289 $258 $264
See accompanying Notes to Financial Statements.
CONSOLIDATED BALANCE SHEET AT DECEMBER 31
Pennsylvania Power & Light Company and Subsidiaries
(Millions of Dollars)
Assets 1996 1995
Property, Plant and Equipment
Electric utility plant in service - at original cost...... $9,824 $9,637
Accumulated depreciation (Notes 1 and 8)..................................... (3,337) (3,113)
6,487 6,524
Construction work in progress - at cost ....................................... 172 170
Nuclear fuel owned and leased - net of amortization ........................... 170 134
Other leased property - net of amortization ................................... 76 85
Electric utility plant - net ................................................. 6,905 6,913
Other property - net of depreciation, amortization
and depletion (1996, $54; 1995, $56) (Note 13)............................... 55 57
6,960 6,970
Investments
Affiliated companies - at equity (Note 1) ................ 17 17
Nuclear plant decommissioning trust fund (Notes 1 and 6)....................... 128 110
Financial investments (Notes 1 and 7) ......................................... 133 132
Other - at cost or less (Note 7) .............................................. 10 9
288 268
Current Assets
Cash and cash equivalents (Note 1) ....................... 95 15
Marketable securities (Notes 1 and 7).......................................... 51 55
Accounts receivable (less reserve: 1996, $25; 1995, $35)
Customers ................................................................... 196 197
Other ....................................................................... 14 13
Unbilled revenues.............................................................. 85 92
Fuel, material and supplies - at average cost ................................. 201 190
Deferred income taxes (Note 5)................................................. 21 42
Other ......................................................................... 53 42
716 646
Regulatory Assets and Other (Note 8)............................................. 1,407 1,540
$9,371 $9,424
See accompanying Notes to Financial Statements.
Liabilities 1996 1995
Capitalization
Common equity
Common stock ................................................................ $1,476 $1,476
Additional paid-in capital .................................................. 57 25
Earnings reinvested ......................................................... 1,094 1,034
Capital stock expense and other ............................................ (10) (7)
2,617 2,528
Preferred stock
With sinking fund requirements .............................................. 295 295
Without sinking fund requirements ........................................... 171 171
Long-term debt ................................................................ 2,802 2,829
5,885 5,823
Current Liabilities
Commercial paper (Note 9) ................................ 68
Bank loans (Note 9) ........................................................... 10 21
Long-term debt due within one year ............................................ 30 30
Capital lease obligations due within one year ................................. 81 81
Accounts payable .............................................................. 132 128
Taxes accrued ................................................................. 21 48
Interest accrued .............................................................. 60 66
Dividends payable ............................................................. 75 74
Other ......................................................................... 78 86
487 602
Deferred Credits and Other Noncurrent Liabilities
Deferred investment tax credits (Note 5) ................. 209 219
Deferred income taxes (Note 5) ................................................ 2,050 2,106
Capital lease obligations .................................................... 166 139
Other (Notes 1, 3, 6 and 10) .................................................. 574 535
2,999 2,999
Commitments and Contingent Liabilities (Note 14) ............................
$9,371 $9,424
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF
SHAREOWNERS' COMMON EQUITY
Pennsylvania Power & Light Company
and Subsidiaries
(Millions of Dollars)
Common Capital
Stock Additional Stock
Outstanding Paid-in Earnings Expense &
Shares (a) Amount Capital Reinvested Other
Balance at December 31, 1993......... 152,132,089 $1,371 $0 $1,066 $(11)
Net income...................................................... 243
Cash dividends declared
Preferred stock.............................................. (28)
Common stock............................................... (257)
Dividends for capitalization
of PMDC....................................................... (50)
Stock redemption costs................................... (1)
Common stock issued (b) ........................ 3,349,873 70
Other................................................................ 1
Balance at December 31, 1994......... 155,481,962 $1,441 $0 $973 $(10)
Net income...................................................... 352
Cash dividends declared
Preferred stock.............................................. (28)
Common stock............................................... (263)
Common stock issued (b) ........................ 1,818,420 35
Capital contribution from
PP&L Resources........................................... 25
Other................................................................ 3
Balance at December 31, 1995......... 157,300,382 $1,476 $25 $1,034 $(7)
Net income...................................................... 357
Cash dividends declared
Preferred stock.............................................. (28)
Common stock............................................... (269)
Common stock issued (b) ...............................
Other................................................................ 32 (3)
Balance at December 31, 1996......... 157,300,382 $1,476 $57 $1,094 $(10)
<FN>
(a) No par value. 170,000,000 shares authorized.
As of April 27, 1995, all holders of PP&L
common stock became holders of PP&L Resources common
stock, all PP&L common stock was acquired
by PP&L Resources.
(b) Common Stock was issued through the ESOP and DRIP.
Consolidated Statement of Preferred
Stock at December 32
Pennsylvania Power & Light Company
and Subsidiaries(a)
(Millions of Dollars)
Shares
Outstanding Outstanding Shares
1996 1995 1996 Authorized
Preferred Stock -- $100 par, cumulative
4-1/2%.......................... $53 $53 530,189 629,936
Series....................................................... 413 413 4,133,556 10,000,000
$466 $466
See accompanying Notes to Financial Statements.
Details of Preferred Stock (b)
Optional Sinking Fund
Redemption Provisions (c)
Shares Price Per Shares to be
Outstanding Outstanding Share Redeemed Redemption
1996 1995 1996 1996 Annually Period
With Sinking Fund Requirements
Series Preferred
5.95% ................... $30 $30 300,000 (d) 300,000 April 2001
6.05%.................... 25 25 250,000 (d) 250,000 April 2002
6.125% .................. 115 115 1,150,000 (d) (e) 2003-2008
6.15%.................... 25 25 250,000 (d) 250,000 April 2003
6.33% ................... 100 100 1,000,000 (d) (f) 2003-2008
$295 $295
Without Sinking Fund Requirements
4-1/2% Preferred........... $53 $53 530,189 $110.00
Series Preferred
3.35%.................... 4 4 41,783 103.50
4.40%.................... 23 23 228,773 102.00
4.60%.................... 6 6 63,000 103.00
6.75%.................... 85 85 850,000 (d)
$171 $171
Increases (Decreases) in Preferred Stock
1996 1995 1994
Shares Amount Shares Amount Shares Amount
Series Preferred Stock
5.95% ............................. 300,000 $30
6.05% ............................. 250,000 25
6.125% ...........................
6.15% ............................. 250,000 25
6.33% .............................
6.75% .............................
6.875% ........................... (400,000) (40)
7.00% ............................. (800,000) (80)
Decreases in Preferred Stock represent: (i) the redemption of stock
pursuant to sinking fund requirements; or (ii) shares redeemed
pursuant to optional redemption provisions. There were no issuances
or redemptions of preferred stock in 1996 or 1995.
(a) Each share of PP&L's preferred stock entitles the holder to one vote
on any question presented to PP&L's shareowners' meetings.
There were 5,000,000 shares of PP&L's preference stock authorized;
none were outstanding at December 31, 1996 and 1995, respectively.
(b) The involuntary liquidation price of the preferred stock is $100 per share.
The optional voluntary liquidation price is the optional redemption price
per share in effect, except for the 4-1/2% Preferred Stock for which
such price is $100 per share (plus in each case any unpaid dividends).
(c) These series of preferred stock are not redeemable prior to the following
years: 5.95%, 2001; 6.05%, 2002; 6.125%, 6.15%, 6.33% and 6.75%, 2003.
(d) Shares to be redeemed annually on October 1 as follows: 2003-2007,
57,500; 2008, 862,500.
(e) Shares to be redeemed annually on July 1 as follows: 2003-2007,
50,000; 2008, 750,000.
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31
Pennsylvania Power & Light Company and Subsidiaries
(Millions of Dollars)
Outstanding
1996 1995 Maturity(b)
First Mortgage Bonds (a)
5 5/8% .................................. $30 June 1, 1996
6 3/4% .................................................. $30 30 November 1, 1997
5 1/2%................................................... 150 150 April 1, 1998
7%....................................................... 40 40 January 1, 1999
8 1/8%................................................................... 40 June 1, 1999
6%....................................................... 125 125 June 1, 2000
7 1/4% .................................................. 60 60 February 1, 2001
6.5% to 7 3/4%........................................... 755 830 2002-2006
7.70%.................................................... 200 200 2007-2011 (c)
7 3/8%................................................... 100 100 2012-2016
9 1/4% to 9 3/8% ........................................ 315 315 2017-2021
6 3/4% to 8 1/2% ........................................ 650 650 2022-2026
First Mortgage Pollution Control Bonds (a)
6.40% Series H........................... 90 90 November 1, 2021
5.50% Series I........................................... 53 53 February 15, 2027
6.40% Series J........................................... 116 116 September 1, 2029
6.15% Series K........................................... 55 55 August 1, 2029
2,739 2,884
Unsecured promissory notes ................................ 116 (d)
2,855 2,884
Unamortized (discount) and premium -- net ................. (23) (25)
2,832 2,859
Less amount due within one year............................ 30 30
Total long-term debt .................................... $2,802 $2,829
__________________________________________
<FN>
(a) Substantially all owned electric utility plant is subject to the lien of
PP&L's first mortgage.
(b) Aggregate long-term debt maturities through 2001 are (millions of
dollars): 1997, $30; 1998, $150; 1999, $40; 2000, $125; 2001,
$60. Maximum sinking fund requirements aggregate $5.6 million through 2001
and may be met with property additions or retirement of bonds.
The annual sinking fund requirements through 2001 will not exceed $1.8 million.
(c) Any registered owner of these bonds has the right to require PP&L to
redeem such owner's bonds on October 1, 1999 at a
price of 100% of the principal amount.
(d) In 1996, PP&L issued $116 million of unsecured promissory notes
due in March 2001. The proceeds were used to redeem $40 million
of First Mortgage Bonds, 8-1/8% Series due 1999, and $75 million
of First Mortgage Bonds, 7-5/8% Series due 2002.
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Terms and abbreviations appearing in Notes to Financial Statements
are explained in the glossary.
1. Summary of Significant Accounting Policies
Business and Consolidation
PP&L Resources is the parent holding company of PP&L, PMDC and
Spectrum.
PP&L's financial condition and results of operations are currently
the principal factors affecting PP&L Resources' financial condition and
results of operations. PP&L is an operating electric utility serving
customers in central eastern Pennsylvania. All nonutility operating
transactions are included in "Other Income and Deductions -- Net" on the
Consolidated Statements of Income.
The consolidated financial statements include the accounts of PP&L
Resources and its direct and indirect subsidiaries. All significant
intercompany transactions have been eliminated.
Less than 50% owned affiliates are accounted for using the equity
method. These affiliates consist principally of Safe Harbor Water Power
Corporation and investments held by PMDC.
Reclassification
Certain amounts from prior years' financial statements have been
reclassified to conform to the current year presentation.
Management's Estimates
These financial statements have been prepared using information
available including certain information which represents management's
best estimates of existing conditions. Actual results could differ from
these estimates.
Accounting Records
The accounting records for PP&L, the principal subsidiary of PP&L
Resources, are maintained in accordance with the Uniform System of
Accounts prescribed by the FERC and adopted by the PUC.
Regulation
PP&L prepares its financial statements in accordance with the
provisions of SFAS 71, "Accounting for the Effects of Certain Types of
Regulation." SFAS 71 requires a rate-regulated entity to reflect the
effects of regulatory decisions in its financial statements. In
accordance with SFAS 71, PP&L has deferred certain costs pursuant to the
rate actions of the PUC and the FERC and is recovering or expects to
recover such costs in electric rates charged to customers. These
deferred costs or "regulatory assets" are enumerated and discussed in
Note 8.
To the extent that PP&L concludes that recovery of a regulatory
asset is no longer probable due to regulatory treatment, the effects of
competition or other factors, the amount would have to be written off
against income.
Utility Plant
Additions to utility plant and replacement of units of property are
capitalized at cost. The cost of funds used to finance construction
projects or AFUDC is capitalized as part of construction cost.
The cost of units of property retired or replaced is charged to
accumulated depreciation. Expenditures for maintenance and repairs of
property and the cost of replacing items determined to be less than an
entire unit of property are charged to operating expense.
Major classes of electric utility plant in service and their
respective balances are (millions of dollars):
1996 1995
Production $6,303 $6,251
Transmission 386 374
Distribution 2,774 2,652
General 303 302
Other 58 58
$9,824 $9,637
For financial statement purposes, depreciation is being provided
over the estimated useful lives of property using a straight-line method
for all property except for certain property at the Susquehanna steam
station. Susquehanna property is depreciated at an annual rate of $173
million from October 1995 through December 1998, after which depreciation
is scheduled to decline by $71 million annually. Provisions for
depreciation, as a percent of average depreciable property, approximated
3.8% in 1996, 3.7% in 1995 and 3.5% in 1994.
Nuclear Decommissioning and Fuel Disposal
An annual provision for PP&L's share of the future cost to
decommission the Susquehanna station, equal to the amount allowed for
ratemaking purposes, is charged to operating expense. Such amounts are
invested in external trust funds which can be used only for future
decommissioning costs. See Notes 3 and 6.
The DOE is responsible for the permanent storage and disposal of
spent nuclear fuel removed from nuclear reactors. PP&L pays DOE a fee
for future disposal services and recovers such costs in customer rates.
PP&L has joined other utilities in a federal lawsuit to suspend payments
to DOE and to place the fees in escrow unless that department begins
accepting nuclear fuel as agreed to in its contract with the utilities.
Financial Investments
Securities subject to the requirements of SFAS 115 "Accounting for
Certain Investments in Debt and Equity Securities" are carried at fair
value, determined at the balance sheet date. Net unrealized gains on
available-for-sale securities are included in common equity. Net
unrealized gains and losses on trading securities are included in income.
Net unrealized gains and losses on securities that are not available for
unrestricted use due to regulatory or legal reasons are reflected in the
related asset and liability accounts. Realized gains and losses on the
sale of securities are recognized utilizing the specific cost
identification method. Investments in financial limited partnerships are
accounted for under the equity method of accounting and venture capital
investments are recorded at cost. See Note 7.
Premium on Reacquired Long-Term Debt
Premiums paid and expenses incurred by PP&L to redeem long-term debt
are deferred and amortized over the life of the new debt issue or the
remaining life of the retired debt when the redemption is not financed by
a new issue.
Capital Leases
Leased property of PP&L capitalized on the Consolidated Balance
Sheet is recorded at the present value of future lease payments and is
amortized so that the total of interest on the lease obligation and
amortization of the leased property equals the rental expense allowed for
ratemaking purposes. Future minimum lease payments under capital leases
in effect at December 31, 1996 (excluding nuclear fuel) aggregate $89
million, including $13 million in imputed interest. Future lease
payments for nuclear fuel are based on the quantity of electricity
produced at the Susquehanna Station. The maximum amount of nuclear fuel
available for lease under current arrangements is $200 million.
Revenues
Electric revenues are recorded based on the amounts of electricity
delivered to customers through the end of each calendar month. This
includes amounts customers will be billed for electricity delivered from
the time meters were last read to the end of the month. Through December
1996, PP&L's tariff included revenues from the ECR, SBRCA and STAS.
Approximately 98% of operating revenues were derived from electric
energy sales, with 35% coming from residential customers, 28% from
commercial customers, 20% from industrial customers, 14% from other major
utilities and the PJM and 3% from others. For information on the ECR,
SBRCA and STAS, see Note 3.
Income Taxes
PP&L Resources and its subsidiaries file a consolidated federal
income tax return. Income taxes are allocated to operating expenses and
other income and deductions on the Consolidated Statements of Income.
The provision for PP&L's deferred income taxes is based upon the
ratemaking principles reflected in rates established by the PUC and FERC.
The difference in the provision for deferred income taxes and the amount
that otherwise would be recorded under generally accepted accounting
principles is deferred and included in taxes recoverable through future
rates on the Consolidated Balance Sheet. See Note 5.
Investment tax credits were deferred when utilized and are amortized
over the average lives of the related property.
Pension Plan and Other Postretirement and Postemployment Benefits
PP&L has a noncontributory pension plan covering substantially all
employees. Subsidiary companies of PP&L formerly engaged in coal mining
have a noncontributory pension plan for substantially all non-bargaining,
full-time employees. Funding is based upon actuarially determined
computations that take into account the amount deductible for income tax
purposes and the minimum contribution required under the Employee
Retirement Income Security Act of 1974.
PMDC has a non-qualified retirement plan for its corporate officers.
For information on other postretirement and postemployment benefits,
see Note 10.
Cash Equivalents
All highly liquid debt instruments purchased with original
maturities of three months or less are considered to be cash equivalents.
2. Pennsylvania Restructuring Legislation
In December 1996, Pennsylvania enacted legislation to restructure
its electric utility industry in order to create retail access to a
competitive market for the generation of electricity. The legislation,
which was effective on January 1, 1997, includes the following major
provisions:
1. All electric utilities in Pennsylvania are required to file,
beginning on April 1, 1997 and in no event later than September 30, 1997,
a restructuring plan to implement direct access to a competitive market
for electric generation. The plan must include unbundled rates for
generation, jurisdictional transmission, distribution and other services;
a proposed competitive transition charge; a proposed universal service
and energy conservation cost recovery mechanism; procedures for ensuring
direct access to all licensed energy suppliers; a discussion of the
proposed plan's impacts on utility employees and revised tariffs and
rates implementing the foregoing.
2. Retail customer choice will be phased in as follows: up to 33%
of all customer load on January 1, 1999; up to 66% of all customer load
on January 1, 2000; and 100% of all customer load by January 1, 2001.
The PUC can delay this schedule by two 6-month periods, if necessary.
3. Electric distribution companies will be the suppliers of last
resort. The PUC will ensure that adequate generation reserves exist to
maintain reliable electric service. The utility's transmission and
distribution system must continue to meet established national industry
standards for installation, maintenance and safety.
4. Retail rates will be capped for at least 4-1/2 years for
transmission and distribution charges and for as long as 9 years for
generation charges. A utility may be exempted from the caps only under
very specific circumstances, e.g., the need for extraordinary rate
relief, non-utility generation contracts, changes in laws or regulations,
required upgrades or repairs to the transmission system, increases in
fuel prices or purchased power prices, nuclear power plant
decommissioning costs or taxes.
5. Pennsylvania utilities are permitted to recover PUC-approved
transition or stranded costs over several years; however, the utilities
are required to mitigate these costs to the extent practicable. Also,
the recovery of these costs must not result in cost shifting among
customers.
6. "Transition bonds" may be issued to pay the stranded costs.
This procedure involves the following elements: (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 and to pay stranded costs;
(ii) the issuance by the financing entity of "transition bonds"; (iii)
the collection by the utility of "transition charges" on customers'
bills, which are transferred to the financing entity to pay the principal
and interest and other related costs of issuing the transition bonds;
(iv) upon the imposition of transition charges on customers' bills, the
utility must reduce customer rates by an amount equal to the revenue
requirements of the stranded costs financed with transition bonds; and
(v) a PUC "qualified rate order," which could be irrevocable, approving
the collection of the transition charges. This irrevocability would
protect the cash flow stream used to repay the transition bonds.
7. All generation suppliers must demonstrate financial and
technical fitness and must be licensed by the PUC. Cooperatives and
municipalities may participate in retail competition but are not subject
to the provisions of the legislation, unless they elect to serve
customers outside their franchise territories.
8. State tax revenues paid by utilities and generation suppliers
are to remain at their current level, to protect against any state
revenue loss from restructuring.
9. The PUC will monitor electricity markets for anti-competitive or
discriminatory conduct, and will consider the impact of mergers and
acquisitions on these markets.
PP&L is formulating its restructuring plan, which it currently plans
to file on April 1, 1997. Under the legislation, the PUC must take
action on the restructuring plan within nine months of the filing date.
PP&L is unable to predict the ultimate effect of this legislation on its
financial position, results of operation or its need to issue securities
to meet future capital requirements.
3. Rate Matters
Base Rate Filing with the PUC
In September 1995, the PUC issued a final order with respect to the
base rate case filed by PP&L in December 1994. The PUC Decision
increased PUC jurisdictional rates by about $85 million annually, or
3.8%. The PUC Decision permitted the levelization of depreciation
expense for the Susquehanna station, recovery of retiree health care
costs and costs of the 1994 voluntary early retirement program and
revised costs to decommission Susquehanna SES. The order also permitted
recovery of deferred operating and capital costs, net of energy savings,
for Susquehanna Unit 2 but disallowed similar costs for Unit No. 1. The
PUC also ruled that PP&L could not include in the ECR the cost of
capacity billed to other utilities after the contractual arrangements
with these utilities expire. The OCA has appealed certain aspects of the
PUC Decision to the Commonwealth Court. PP&L cannot predict the final
outcome in this matter.
Energy Cost Rate Issues
Through December 1996, PP&L's PUC tariffs contained an ECR under
which customers were billed an estimated amount for fuel and other energy
costs. Any difference between the actual and estimated amount for such
costs was collected from, or refunded to, customers in a subsequent
period.
In December 1996, the PUC issued a tentative order permitting the
roll-in of PP&L's ECR into base rates. The order also authorized PP&L to
defer certain unrecovered energy costs as regulatory assets and seek
recovery for these costs in the competitive transition charge described
above under "Pennsylvania Restructuring Legislation."
In 1994, the PUC reduced PP&L's ECR claim by $16 million for costs
associated with replacement power during a Susquehanna Unit 1 outage for
refueling and repairs. PP&L's appeal of that reduction was settled in
1995, and as a result PP&L recorded a net credit to income of $10
million.
Special Base Rate Credit Adjustment
Beginning in April 1991, PP&L's PUC tariff included a SBRCA rider
which provided for credits to retail customers' bills for three
nonrecurring items. They were (i) the use of an inventory method of
accounting for certain power plant spare parts (this credit expired as of
April 1, 1996); (ii) the sale of capacity and related energy from PP&L's
wholly owned coal-fired stations to Atlantic (this credit was rolled into
retail base rates at Docket No. R-00943271 and was removed from the SBRCA
effective in September 1995); and (iii) the proceeds from a settlement of
outstanding contract claims arising from construction of the Susquehanna
station (this credit is due to expire in the second quarter of 1997).
State Tax Adjustment Surcharge
Through December 1996, PP&L's PUC tariffs included a rate mechanism
to adjust customer bills for changes in certain state taxes. The STAS
had no effect on net income. In December 1996, the PUC issued a
tentative order permitting the roll-in of STAS into base rates.
FERC-Major Utilities' Rates
In August 1995, JCP&L filed a complaint against PP&L with the FERC
regarding billings under the bulk power sales agreement between the
parties. In its complaint, JCP&L alleges that PP&L inappropriately
allocated certain costs to JCP&L that should not have been billed and
seeks other adjustments. JCP&L is seeking both refunds (with interest)
in an unspecified amount and an amendment to the agreement. PP&L has
denied JCP&L's allegations and requested that FERC dismiss the complaint.
PP&L cannot predict the final outcome of this proceeding.
In October 1995, FERC allowed PP&L to begin charging, subject to
refund, four major electric utility customers of PP&L (Atlantic, BG&E,
JCP&L and UGI) for certain PP&L costs for post-retirement benefits other
than pensions. In that same proceeding, FERC opened to review all other
charges by PP&L under its contracts with those customers. JCP&L raised a
number of objections to PP&L's charges. In November 1996, an
Administrative Law Judge ruled in PP&L's favor on all issues. The case
currently is pending before the FERC.
In January 1996, PP&L filed a request with the FERC to incorporate a
change in the method of calculating depreciation under its contracts with
these same four major utilities. PP&L also sought to increase the
charges to those customers for nuclear decommissioning costs. This case
was settled in principle with the four customers in January 1997, under
terms which would have no material effect on PP&L. Formal settlement
documents are expected to be filed with the FERC by March 1997.
See Note 4 for more information regarding these contracts.
4. Sales to Other Electric Utilities
PP&L provides Atlantic with 125,000 kilowatts of capacity (summer
rating) and related energy from its wholly owned coal-fired stations.
Sales to Atlantic will continue through March 1998.
PP&L provided JCP&L with 756,000 kilowatts of capacity and related
energy from all of its generating units during 1996. This amount will
decline by 189,000 kilowatts per year until the end of the agreement on
December 31, 1999. PP&L expects to be able to resell the capacity and
energy at market prices.
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, and the matter is still pending.
PP&L provides BG&E with 129,000 kilowatts or 6.6 percent of its
share of capacity and related energy from the Susquehanna station. Sales
to BG&E will continue through May 2001.
See Note 3 for more information regarding these contracts.
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.
On December 31, 1996, PP&L filed for FERC approval of amendments to
its generation sales tariff to allow PP&L to buy energy for the purpose
of resale in competitive wholesale markets. This change provides PP&L
flexibility in pursuing wholesale power supply opportunities to increase
operating revenues. PP&L is currently operating under this amended
tariff, subject to final FERC approval.
5. Income Taxes
The corporate federal income tax rate is 35%. The Pa. CNI rate was
11.99% in 1994 and 9.99% in 1995 and 1996.
For 1995 PP&L Resources recorded a decrease in Pa. CNI expense of $8
million from the prior year related to the rate reduction. Substantially
all of this reduction was reflected in lower customer rates through the
STAS.
The tax effects of significant temporary differences comprising PP&L
Resources' net deferred income tax liability were as follows (millions of
dollars):
1996 1995
Deferred tax assets
Deferred investment tax credits $ 86 $ 90
Accrued pension costs 67 54
Other 75 87
Valuation allowance (6) (6)
222 225
Deferred tax liabilities
Electric utility plant - net 1,788 1,788
Other property - net 9 12
Taxes recoverable through future rates 399 416
Reacquired debt costs 46 48
Other 11 25
2,253 2,289
Net deferred tax liability $2,031 $2,064
Details of the components of income tax expense, a reconciliation of
federal income taxes derived from statutory tax rates applied to income
from continuing operations for accounting purposes, and details of taxes,
other than income are as follows (millions of dollars):
Income Tax Expense 1996 1995 1994
Included in operating expenses
Provision - Federal $189 $195 $198
State 64 62 77
253 257 275
Deferred - Federal 4 9 (34)
State 6 6 (11)
10 15 (45)
Investment tax credit,
net - Federal (10) (10) (12)
253 262 218
Included in other income
and deductions
Provision (credit) - Federal (1) 8 (18)
State 1 4 (7)
0 12 (25)
Deferred - Federal 1 10 (9)
State (1) 2 (4)
0 12 (13)
0 24 (38)
Total income tax
expense - Federal 183 212 125
State 70 74 55
$253 $286 $180
Reconciliation of Income
Tax Expense
Indicated federal income tax on
pre-tax income at statutory
tax rate - 35% $213 $223 $148
Increase (decrease) due to:
State income taxes 44 50 35
Flow through of depreciation
differences not previously
normalized 20 16 15
Amortization of investment
tax credit (10) (10) (12)
Research & experimentation
income tax credits (5)
Other (9) 7 (6)
40 63 32
Total income tax expense $253 $286 $180
Effective income tax rate 41.5% 44.9% 42.4%
Taxes, Other Than Income
State gross receipts $105 $102 $ 99
State utility realty 44 46 47
State capital stock 34 33 35
Social security and other 20 20 20
$203 $201 $201
6. Nuclear Decommissioning Costs
PP&L's most recent estimate of the cost to decommission the
Susquehanna station was completed in 1993 and was a site-specific study,
based on immediate dismantlement and decommissioning of each unit
following final shutdown. The study indicates that PP&L's 90% share of
the total estimated cost of decommissioning the Susquehanna station is
approximately $724 million in 1993 dollars. The estimated cost includes
decommissioning the radiological portions of the station and the cost of
removal of nonradiological structures and materials. The operating
licenses for Units 1 and 2 expire in 2022 and 2024, respectively.
Decommissioning costs charged to operating expense were $12 million
in 1996, $8 million in 1995 and $7 million in 1994 and are based upon
amounts included in customer rates. The increases in 1996 and 1995 are a
result of the PUC Decision, in which recovery of decommissioning costs
was based on the cost estimates in the 1993 site-specific study. Rates
charged to small utilities reflect the estimated cost of decommissioning
in the 1993 study. In January 1996, PP&L filed with the FERC to increase
its decommissioning rate to reflect the projected cost of decommissioning
the Susquehanna station. See Note 3 for further information.
Amounts collected from customers for decommissioning, less
applicable taxes, are deposited in external trust funds for investment
and can be used only for future decommissioning costs. The market value
of securities held and accrued income in the trust funds at December 31,
1996 and 1995 aggregated approximately $128 million and $109 million,
respectively. The trust funds experienced, on a fair market value basis,
a $6 million net gain in 1996, which includes net unrealized appreciation
of $2 million, and a net gain in 1995 of $14 million, which includes net
unrealized appreciation of $8 million. The trust fund activity is
reflected in the nuclear plant decommissioning trust fund and in other
noncurrent liabilities on the Consolidated Balance Sheet. Accrued
nuclear decommissioning costs were $130 million and $112 million at
December 31, 1996 and 1995, respectively.
The FASB issued an exposure draft on the accounting for liabilities
related to closure and removal of long-lived assets, including
decommissioning of nuclear power plants. As a result, current industry
accounting practices for decommissioning may change, including the
possibility that the estimated cost for decommissioning could be recorded
as a liability at the present value of the estimated future cash outflows
that will be required to satisfy those obligations.
7. Financial Instruments
The carrying amount shown on the Consolidated Balance Sheet and the
estimated fair value of PP&L Resources' financial instruments are as
follows (millions of dollars):
December 31, 1996 December 31, 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets
Nuclear plant decommis-
sioning trust fund (a) $128 $128 $109 $109
Financial investments (a) 206 206 238 236
Other investments 18 18 9(c) 9(c)
Cash and cash equivalents 101 101 20 20
Other financial instru-
ments included in
other current assets 2 2 3 3
Liabilities
Preferred stock with
sinking fund require-
ments (b) 295 294 295 295
Long-term debt (b) 2,832 2,885 2,859 3,033
Commercial paper and
bank loans 144 144 89 89
(a) The carrying value of financial instruments generally is based on
established market prices and approximates fair value.
(b) The fair value generally is based on quoted market prices for the
securities where available and estimates based on current rates offered
to PP&L Resources where quoted market prices are not available.
(c) $12 million of PMDC's other investments for 1995 were reclassi-
fied as investments in electric energy projects - at equity.
8. Regulatory Assets
The following regulatory assets were reflected in the PP&L
Consolidated Balance Sheet (millions of dollars):
1996 1995
Deferred depreciation $ 140 $ 209
Deferred operating and carrying
costs - Susquehanna 17 18
Reacquired debt costs 110 117
Taxes recoverable through future
rates 963 1,003
Assessment for decommissioning
uranium enrichment facilities 30 32
Postretirement benefits other
than pensions 28 31
Voluntary early retirement program 49 62
ECR undercollection 17
Other 45 57
$1,399 $1,529
As of December 31, 1996, substantially all of PP&L's regulatory
assets are being recovered through rates charged to customers over
periods ranging from 3 to 29 years. In December 1996, Pennsylvania
passed restructuring legislation which will continue to permit utilities
to recover approved regulatory assets as transition or stranded costs.
See Note 2 "Pennsylvania Restructuring Legislation".
For a discussion of taxes recoverable through future rates,
postretirement benefits other than pensions, assessment for
decommissioning uranium enrichment facilities, VERP, and additional
information on the PUC Decision, see Notes 3, 5, 10, and 11.
9. Credit Arrangements
PP&L issues commercial paper and, from time to time, borrows from
banks to provide short-term funds required for general corporate
purposes. In addition, certain subsidiaries also borrow from banks to
obtain short-term funds. Bank borrowings generally bear interest at
rates negotiated at the time of the borrowing. PP&L's weighted average
interest rate on short-term borrowings was 4.9% and 6.0% at December 31,
1996 and 1995, respectively.
PP&L has a $250 million revolving credit arrangement with a group of
banks. At the option of PP&L, interest rates would be based upon
certificate of deposit rates, Eurodollar deposit rates or the prime rate.
Any loans made under this credit arrangement would mature in September
1999. 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 December 31,
1996 under these credit arrangements.
PP&L Resources has 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. Loans made under this credit
arrangement will mature, and the facility will terminate at the end of
May 1997. PP&L Resources used $190 million of this credit facility in
June 1996 to fund a PMDC subsidiary's acquisition of a 25 percent
interest in SWEB. Borrowings of $135 million were outstanding under this
credit facility at December 31, 1996. PP&L Resources expects to repay a
portion of the outstanding balance through the liquidation of temporary
cash investments and repay the balance by issuing medium-term notes.
PP&L leases its nuclear fuel from a trust. The maximum financing
capacity of the trust under existing credit arrangements is $200 million.
10. Pension Plan and Other Postretirement and
Postemployment Benefits
Pension Plan
PP&L has a funded noncontributory defined benefit pension plan
covering substantially all employees. Benefits are based upon a
participant's earnings and length of participation in the Plan, subject
to meeting certain minimum requirements.
PP&L has an unfunded supplemental retirement plan for certain
management employees. A similar plan for directors was terminated
December 31, 1996. Benefit payments pursuant to these supplemental plans
are made directly by PP&L. At December 31, 1996, the projected benefit
obligation of these supplemental plans was approximately $20 million.
Effective December 1, 1994, PMDC has a non-qualified retirement plan for
its corporate officers. The cost of the plan was immaterial in 1996.
The components of PP&L's net periodic pension cost for the three
plans were (millions of dollars):
1996 1995 1994
Service cost-benefits earned
during the period $ 32 $ 27 $ 33
Interest cost 61 58 51
Actual return on plan assets (146) (241) 29
Net amortization and deferral 68 167 (96)
Net periodic pension cost $ 15 $ 11 $ 17
The net periodic pension cost charged to operating expenses was $9
million in 1996, $6 million in 1995 and $10 million in 1994. The balance
was charged to construction and other accounts. The funded status of
PP&L's Plan was (millions of dollars):
December 31
1996 1995
Fair value of plan assets $1,187 $1,086
Actuarial present value of benefit obligations:
Vested benefits 695 673
Nonvested benefits 2
Accumulated benefit obligation 695 675
Effect of projected future compensation 191 194
Projected benefit obligation 886 869
Plan assets in excess of projected
benefit obligation 301 217
Unrecognized transition assets (being
amortized over 23 years) (59) (63)
Unrecognized prior service cost 55 59
Unrecognized net gain (495) (394)
Accrued expense $(198) $(181)
The weighted average discount rate used in determining the actuarial
present value of projected benefit obligations was 7.0% and 6.75% on
December 31, 1996 and 1995, respectively. The rate of increase in future
compensation used in determining the actuarial present value of projected
benefit obligations was 5.0% on December 31, 1996 and 1995. The assumed
long-term rates of return on assets used in determining pension cost in
1996 and 1995 was 8.0%. Plan assets consist primarily of common stocks,
government and corporate bonds and temporary cash investments.
PP&L's subsidiaries formerly engaged in coal mining have a
noncontributory defined benefit pension plan covering substantially all
non-bargaining unit, full-time employees, which is fully funded,
primarily by group annuity contracts with insurance companies. This plan
was amended to freeze benefit increases effective June 1996. In
addition, the companies are liable under federal and state laws to pay
black lung benefits to claimants and dependents with respect to approved
claims, and are members of a trust which was established to facilitate
payment of such liabilities. Such costs were not material in 1996, 1995
and 1994.
Postretirement Benefits Other Than Pensions
Substantially all employees of PP&L and its subsidiaries will become
eligible for certain health care and life insurance benefits upon
retirement. PP&L sponsors four health and welfare benefit plans that
cover substantially all management and bargaining unit employees upon
retirement. One plan provides for retiree health care benefits to
certain management employees, another plan provides retiree health care
benefits to bargaining unit employees, a third plan provides retiree life
insurance benefits to certain management employees up to a specified
amount and a fourth plan provides retiree life insurance benefits to
bargaining unit employees.
Dollar limits have been established for the amount PP&L will
contribute annually toward the cost of retiree health care for employees
retiring after March 1993.
In accordance with a PUC order, PP&L had deferred from January 1,
1993 through 1994, the PUC-jurisdictional accrued cost of retiree health
and life insurance benefits recorded pursuant to SFAS 106, "Employers'
Accounting For Postretirement Benefits Other Than Pensions" in excess of
actual claims paid pending recovery of the increased cost in retail
rates. As a result of a decision of the Commonwealth Court, in 1994 PP&L
started to expense the increased costs applicable to operations that were
previously being deferred and wrote off such costs deferred in 1993.
The PUC Decision in 1995 permitted recovery of the PUC-
jurisdictional amount of retiree health care costs resulting from the
adoption of SFAS 106. In addition, the PUC Decision permitted PP&L to
recover, over a period of about 17 years, the amount of SFAS 106 costs
that would have been deferred from January 1, 1993 through September 30,
1995, pursuant to a PUC order but for a Commonwealth Court decision that
PP&L could not recover these deferred costs. As a result of the PUC
Decision, which provided for recovery of $27 million of previously
expensed SFAS 106 costs, PP&L recorded a $16 million after-tax credit to
income in the third quarter of 1995.
In December 1993, PP&L established a separate VEBA for each of the
four health and welfare benefit plans for retirees. After making initial
contributions, additional funding of the trusts was deferred pending
resolution of PP&L's ability to recover the costs of the plans in rates.
Continued funding of these trusts is subject to the resolution of the OCA
appeal of the PUC Decision. See Note 3.
The following table sets forth the plan's combined funded status
reconciled with the amount shown on PP&L Resources' Consolidated Balance
Sheet as of December 31 (millions of dollars):
1996 1995
Accumulated postretirement benefit obligation:
Retirees $123 $128
Fully eligible active plan participants 19 18
Other active plan participants 85 79
227 225
Plan assets at fair value, primarily
temporary cash investments 31 29
Accumulated postretirement benefit obligation
in excess of plan assets 196 196
Unrecognized prior service costs (5) (5)
Unrecognized net loss (12) (19)
Unrecognized transition obligation (being
amortized over 20 years) (139) (148)
Accrued postretirement benefit cost $ 40 $ 24
The net periodic postretirement benefit cost included the following
components (millions of dollars):
1996 1995 1994
Service cost - benefits attributed
to service during the period $ 4 $ 4 $ 4
Interest cost on accumulated
postretirement benefit obligation 15 15 14
Actual return on plan assets (1) (2)
Net amortization and deferral 9 9 8
Net periodic postretirement
benefit cost $ 27 $26 $26
Retiree health and benefits costs charged to operating expenses were
approximately $20 million in 1996, a net credit of approximately $17
million in 1995 (reflecting both a $32 million credit due to the PUC
Decision and costs applicable to contractual agreements with other major
utilities), and $27 million in 1994 (which includes $11 million of
retiree health and benefits costs previously deferred in 1993). Costs in
excess of the amount charged to expense were charged to construction and
other accounts.
For measurement purposes, an 8% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1997; the
rate was assumed to decrease gradually to 6% by 2006 and remain at that
level thereafter. Increasing the assumed health care cost trend rates by
1% in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1996, by about $11 million and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by about $1 million.
In determining the accumulated postretirement benefit obligation,
the weighted average discount rate used was 7.0% and 6.75% on December
31, 1996 and 1995, respectively. The trusts that are holding the plan
assets, except for retiree health care benefits to certain management
employees, are tax-exempt. The expected long-term rate of return on plan
assets for the tax-exempt trusts was 6.5% on December 31, 1996 and 1995.
In 1992, as a result of the Energy Act, PP&L and its subsidiaries
formerly engaged in coal mining accrued an additional liability for the
cost of health care of retired miners previously employed by them. The
liability, based on the present value of future benefits, was estimated
at $54 million as of December 1996 and 1995.
Postemployment Benefits
PP&L provides health and life insurance benefits to disabled
employees and income benefits to eligible spouses of deceased employees.
Postemployment benefits charged to operating expenses were not material.
11. Workforce Reductions
PP&L continued its efforts to reduce costs in 1996. An employment
decline of approximately 100 management employees occurred through job
displacements, rather than from the type of major initiatives in
workforce reductions that took place in 1994 and 1995. In anticipation
of planned further workforce reductions in 1997 and to accrue for
enhanced pension benefits for employees displaced in 1996, PP&L recorded
costs of $5 million after-tax, or 3 cents per share of common stock.
During 1995, PP&L offered a voluntary severance program to employees who
are members of the IBEW Local 1600 and continued re-engineering efforts
that reduced the management workforce. Total employment declined in 1995
by approximately 225 due to these two initiatives. The costs of the
workforce reductions in 1995 amounted to about $19 million after-tax, or
11 cents per share of common stock.
During 1994, PP&L offered a voluntary early retirement program to
851 employees who were age 55 or older by December 31, 1994. A total of
640 employees elected to retire under the program, at a total cost of $76
million. PP&L recorded the cost of the program as a charge against
income in the fourth quarter of 1994, which reduced net income by $43
million, or 28 cents per share of common stock. As a result of the PUC
Decision, which permitted recovery of the PUC-jurisdictional amount
through customer rates, PP&L recorded in 1995 a $38 million after-tax
credit to expense, or 24 cents per share of common stock, to reverse the
charge for this program that was recorded in 1994. PP&L estimates annual
savings of $35 million from this program, which were included in the PUC
Decision.
12. Jointly Owned Facilities
At December 31, 1996, PP&L or its subsidiary owned undivided
interests in the following facilities (millions of dollars):
Merrill
-----Generating Stations------ Creek
Susquehanna Keystone Conemaugh Reservoir
Ownership interest 90.00% 12.34% 11.39% 8.37%
Electric utility plant in
service $4,060 $66 $102
Other property $22
Accumulated depreciation 1,000 35 37 8
Construction work in progress 55 1 1
Each participant in these facilities provides its own financing.
PP&L receives a portion of the total output of the generating stations
equal to its percentage ownership. PP&L's share of fuel and other
operating costs associated with the stations is reflected on the PP&L
Consolidated Statement of Income. The Merrill Creek Reservoir provides
water during periods of low river flow to replace water from the Delaware
River used by PP&L and other utilities in the production of electricity.
13. Subsidiary Coal Reserves
In connection with a review by PP&L of its non-core business assets
performed in 1994, a subsidiary of PP&L initiated an evaluation of the
carrying value of its $84 million investment in undeveloped coal reserves
in western Pennsylvania. Outside appraisal firms completed the evaluation
and indicated that due to changing market conditions an impairment had
occurred. Accordingly, the carrying value of this investment was written
down to its estimated net realizable value of $10 million, resulting in a
$74 million pre-tax charge to income. This write down resulted in an
after-tax charge to income of $40 million in 1994.
These reserves were acquired in 1974 with the intention of supplying
future coal-fired generating stations. PP&L concluded that it would not
develop these reserves. In November 1995, the coal reserves were sold
for $52 million, which resulted in a $42 million gain, or $20 million
after-tax.
14. Commitments and Contingent Liabilities
Construction Expenditures
PP&L's construction expenditures for the period 1997-2001 are
estimated to aggregate $1.2 billion, including AFUDC. For discussion
pertaining to construction expenditures, see Review of Financial
Condition and Results of Operations under the caption "Financial
Condition -- Capital Expenditure Requirements" on page 32.
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 December 31, 1996 was about $35
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 seasonal (i.e., 5
month) nitrogen oxide reductions to 55% and 75% of pre-Clean Air Act
levels for 1999 and 2003, respectively, are specified under the Northeast
Ozone Transport Region's Memorandum of Understanding.
The Clean Air Act requires EPA to study the health effects of
hazardous air emissions from power plants and other sources. In this
regard, in November 1996 the EPA proposed new national standards for
ambient levels of ground-level ozone and fine particulates. The new
standards, if implemented, may result in EPA mandating additional NOx and
SO2 reductions from utility boilers in the 2005-2010 timeframe. NOx
reductions to meet the new ozone standard are likely to be in the range
of the 75% seasonal NOx reductions that already are required for PP&L
under the Memorandum of Understanding in 2003 and beyond. However, to
meet the new fine particulate standards, EPA may mandate additional SO2
reductions significantly greater than those now planned for the acid rain
program and extend the NOx reductions required by the Memorandum of
Understanding from seasonal to year-round.
Expenditures to meet the year 1999 Memorandum of Understanding
requirements are included in the table of projected construction
expenditures in the Review of the Financial Condition and Results of
Operations under the caption "Financial Condition - 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 2001 in amounts which are not now
determinable but could be material.
Water and Residual Waste
DEP residual waste regulations require PP&L to obtain permits for
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 plans 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 and proposed Holtwood
station NPDES permit contain 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 these stations.
Capital expenditures through the year 2001 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
Review of the Financial Condition and Results of Operations under the
caption "Financial Condition - Capital Expenditure Requirements". PP&L
currently estimates that $12 million of additional capital expenditures
may be required in the next four years and $67 million of additional
capital expenditures could be required beyond the year 2001. 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 PP&L 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 December 31, 1996, PP&L had accrued $10 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.
Other Environmental Matters
In addition to the issues discussed above, PP&L may be required to
modify, replace or cease operating certain 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 capital expenditures, operating expenses and other costs in
amounts which are not now determinable, but may be material.
Loan Guarantees of Affiliated Companies
PMDC has provided a parental guarantee of a subsidiary's pro rata
share of the outstanding portion of certain debt issuances of an
investee. At December 31, 1996, $11 million of such loans were
guaranteed by PMDC. During 1997, PMDC will guarantee another $8 million
in connection with additional borrowings in 1997.
In addition, Spectrum has a $1 million line of credit, which is
guaranteed by PP&L Resources.
Source of Labor Supply
At December 31, 1996, PP&L had a total of approximately 6,428 full-
time employees. Approximately 65 percent of these full-time employees
are represented by the IBEW. The existing three-year agreement with the
IBEW will expire in May 1997.
SELECTED FINANCIAL AND OPERATING DATA
1996 1995 1994 1993 1992
PP&L RESOURCES, INC.
Income Items -- millions
Operating revenues ................ $2,910 $2,752 $2,725 $2,727 $2,744
Operating income............................... 556 574 501 563 573
Net Income (e)................................. 329 323 (d) 216 (d) 314 306
Balance Sheet Items -- millions (a)
Property, plant and equipment, net. 6,960 6,970 7,195 7,146 7,020
Total assets................................... 9,636 9,492 9,372 9,454 8,192
Long-term debt................................. 2,832 2,859 2,941 2,663 2,627
Preferred and preference stock
With sinking fund
requirements................................ 295 295 295 335 326
Without sinking fund
requirements................................ 171 171 171 171 224
Common equity.................................. 2,745 2,597 2,454 2,426 2,367
Short-term debt................................ 144 89 74 202 159
Total capital provided
by investors.................................. 6,187 6,011 5,936 5,797 5,703
Capital lease obligations ..................... 247 220 225 249 251
Financial Ratios
Return on average common
equity -- % ...................... 12.30 12.81 8.73 13.06 13.11
Embedded cost rates (a)
Long-term debt -- %.......................... 7.89 7.95 8.07 8.63 9.36
Preferred and preference
stock -- %.................................. 6.09 6.09 6.07 6.30 7.36
Times interest earned before
income taxes................................. 3.55 3.56 2.73 3.33 3.18
Ratio of earnings to fixed charges
-- total enterprise basis (b)................ 3.45 3.47 2.70 3.31 3.15
Ratio of earnings to fixed charges
and dividends on preferred and
preference stock
--total enterprise basis (b)................ 2.90 2.91 2.27 2.71 2.53
Common Stock Data
Number of shares outstanding
-- thousands
Year-end..................................... 162,665 159,403 155,482 152,132 151,885
Average...................................... 161,060 157,649 153,458 151,904 151,676
Number of shareowners (a)...................... 123,290 128,075 132,632 130,677 129,394
Earnings per share ............................ $2.05 $2.05 (d) $1.41 (d) $2.07 $2.02
Dividends declared per share................... $1.67 $1.67 $1.67 $1.65 $1.60
Book value per share (a)....................... $16.87 $16.29 $15.79 $15.95 $15.58
Market price per share (a)..................... $23 $25 $19 $27 $27-1/4
Dividend payout rate -- %...................... 82 82 119 80 79
Dividend yield -- % (c)........................ 7.26 6.68 8.79 6.11 5.87
Price earnings ratio (c)....................... 11.22 12.20 13.48 13.04 13.49
(a) At year-end
(b) Computed using earnings and fixed charges of
PP&L Resources and its subsidiaries. Fixed charges
consist of interest on short-and long-term debt,
other interest charges, interest on capital lease
obligations and the estimated interest component
of other rentals.
(c) Based on year-end market prices.
(d) 1995 and 1994 earnings were affected by several
one-time adjustments. See Financial Notes 3,
11, and 13.
(e) Prior years restated to reflect formation of
the holding company.
SELECTED FINANCIAL AND OPERATING DATA
1996 1995 1994 1993 1992
Pennsylvania Power & Light Company
Income Items -- millions
Operating revenues ...................... $2,910 $2,752 $2,725 $2,727 $2,744
Operating income........................................ 556 574 501 563 573
Earnings available to PP&L
Resources, Inc. (d)................................... 329 324 (c) 215 (c) 314 306
Balance Sheet Items -- millions (a)
Property, plant and equipment, net....... 6,960 6,970 7,195 7,146 7,020
Total assets............................................ 9,371 9,424 9,321 9,454 8,192
Long-term debt.......................................... 2,832 2,859 2,941 2,663 2,627
Preferred and preference stock
With sinking fund requirements........................ 295 295 295 335 326
Without sinking fund requirements..................... 171 171 171 171 224
Common equity........................................... 2,617 2,528 2,404 2,426 2,367
Short-term debt......................................... 10 89 74 202 159
Total capital provided by investors..................... 5,925 5,942 5,885 5,797 5,703
Capital lease obligations .............................. 247 220 225 249 251
Financial Ratios
Return on average common equity -- % .... 12.95 13.10 8.83 13.06 13.11
Embedded cost rates (a)
Long-term debt -- %................................... 7.89 7.95 8.07 8.63 9.36
Preferred and preference stock -- %................... 6.09 6.09 6.07 6.30 7.36
Times interest earned before......................................
income taxes.......................................... 3.62 3.58 2.73 3.33 3.18
Ratio of earnings to fixed charges --
total enterprise basis (b)............................ 3.50 3.48 2.70 3.31 3.15
Ratio of earnings to fixed charges and
dividends on preferred and preference
stock--total enterprise basis (b).................... 2.93 2.92 2.26 2.71 2.53
Revenue Data
Average price per kwh billed for system
sales - cents....................................... 7.22 7.10 7.14 7.27 7.39
Sales Data
Customers(a)............................. 1,236,294 1,226,089 1,213,023 1,203,139 1,186,682
Electric energy sales billed --
millions of kwh
Residential .......................................... 11,849 11,300 11,444 11,043 10,604
Commercial ........................................... 10,288 9,948 9,716 9,373 9,039
Industrial ........................................... 10,016 9,845 9,536 9,100 8,746
Other ................................................ 1,638 1,578 1,618 1,534 1,366
System sales ....................................... 33,791 32,671 32,314 31,050 29,755
Contractual sales to other
major utilities .................................... 11,519 7,676 6,307 7,142 7,327
PJM energy sales ..................................... 1,338 2,358 3,158 4,142 5,160
Total electric energy sales billed ................. 46,648 42,705 41,779 42,334 42,242
Number of Full-Time Employees (a)......................... 6,428 6,661 7,431 7,677 7,882
<FN>
(a) At year-end
(b) Computed using earnings and fixed charges of PP&L and its subsidiaries.
Fixed charges consist of interest on short- and long-term debt, other
interest charges, interest on capital lease obligations and the estimated
interest component of other rentals.
(c) 1995 and 1994 earnings were affected by several one-time adjustments.
See Financial Notes 3, 11, and 13.
(d) Prior years restated to reflect formation of the holding company.
SHAREOWNER AND INVESTOR INFORMATION
Annual Meetings: The annual meetings of shareowners of PP&L Resources and
PP&L are held each year on the fourth Wednesday of April. The 1997 annual
meetings will be held on Wednesday, April 23, 1997, at Lehigh University's
Stabler Arena, at the Goodman Campus Complex located in Lower Saucon
Township, outside Bethlehem, PA.
Proxy Material: A proxy statement and notice of PP&L Resources' and PP&L's
annual meetings are mailed to all shareowners of record as of February 28,
1997.
Dividends: The 1997 dates for consideration of the declaration of
dividends by the board of directors or its finance committee are February
26, May 28, August 27 and November 26. Subject to the declaration,
dividends are paid on the first day of April, July, October and January.
Dividend checks are mailed in advance of those dates with the intention
that they arrive as close as possible to the payment dates. The 1997
record dates for dividends are expected to be the 10th day of March, June,
September and December.
Direct Deposit of Dividends: Shareowners may choose to have their dividend
checks deposited directly into their checking or savings account.
Quarterly dividend payments are electronically credited on the dividend
date, or the first business day thereafter.
Dividend Reinvestment Plan: Shareowners may choose to have dividends on
their PP&L Resources common stock or PP&L preferred stock reinvested in
PP&L Resources common stock instead of receiving the dividend by check.
Certificate Safekeeping: Shareowners participating in the Dividend
Reinvestment Plan may choose to have their common stock certificates
forwarded to PP&L for safekeeping.
Lost Dividend or Interest Checks: Dividend or interest checks lost by
investors, or those that may be lost in the mail, will be replaced if the
check has not been located by the 10th business day following the payment
date.
Transfer of Stock or Bonds: Stock or bonds may be transferred from one
name to another or to a new account in the name of another person. Please
contact Investor Services regarding transfer instructions.
Bondholder Information: Much of the information and many of the procedures
detailed here for shareowners also apply to bondholders. Questions related
to bondholder accounts should be directed to Investor Services.
Lost Stock or Bond Certificates: Please contact Investor Services for an
explanation of the procedure to replace lost stock or bond certificates.
Publications: Several publications are prepared each year and sent to all
investors of record and to others who request their names be placed on our
mailing list. If your stock is held in street name and you wish to receive
company information on a more timely basis, write, call or E-mail Investor
Services at the addresses or number listed below. We will add your name to
our direct mailing list.
PP&L Resources
Summary Annual Report -- published and mailed in mid-March to all
shareowners of record.
Shareowners' Newsletter -- an easy-to-read newsletter containing current
items of interest to shareowners -- published and mailed at the beginning
of each quarter.
Quarterly Review -- published in May, July and October to provide quarterly
financial information to investors.
Periodic Mailings: Letters regarding new investor programs, special items
of interest, or other pertinent information are mailed on a non-scheduled
basis as necessary.
Duplicate Mailings: The summary annual report and other investor
publications are mailed to each investor account. If you have more than
one account, or if there is more than one investor in your household, you
may contact Investor Services to request that only one publication be
delivered to your address. Please provide account numbers for all
duplicate mailings.
Investor Services: For any questions you have or additional information
you require about PP&L Resources and its subsidiaries, please call the
toll-free number listed below, or write to:
George I. Kline
Manager-Investor Services
Pennsylvania Power & Light Co.
Two North Ninth Street
Allentown, PA 18101
Toll-Free Phone Number: For information regarding your investor account,
or other inquiries, call toll-free: 1-800-345-3085.
Internet Access: For updated information throughout the year, check out
our home page at http://www.papl.com. You may also contact Investor
Services via E-mail at invserv@papl.com.
Security Analyst and Institutional
Investor Inquiries: Members of the financial community seeking additional
information may contact:
Timothy J. Paukovits
Investor Relations Manager
Phone: (610) 774-4124
Fax: (610) 774-5106
E-mail: tjpaukovits@papl.com
Listed Securities: Fiscal Agents:
New York Stock Exchange Stock Transfer Agents and Registrars
PP&L Resources, Inc.: Norwest Bank Minnesota, N.A.
Common Stock (Code: PPL) Shareowner Services
161 North Concord Exchange
Pennsylvania Power & Light Co.: South St. Paul, MN 55075
4-1/2% Preferred Stock
(Code: PPLPRB) Pennsylvania Power & Light Co.
4.40% Series Preferred Stock Investor Services Department
(Code: PPLPRA)
Dividend Disbursing Office and
Dividend Reinvestment Plan Agent
Philadelphia Stock Exchange Pennsylvania Power & Light Co.
PP&L Resources, Inc.: Investor Services Department
Common Stock
Mortgage Bond Trustee
Bankers Trust Co.
Pennsylvania Power & Light Co.: Attn: Security Transfer Unit
4-1/2% Preferred Stock P.O. Box 291569
3.35% Series Preferred Stock Nashville, TN 37229
4.40% Series Preferred Stock
4.60% Series Preferred Stock Bond Interest Paying Agent
Pennsylvania Power & Light Co.
Investor Services Department
QUARTERLY FINANCIAL, COMMON STOCK PRICE AND DIVIDEND DATA (Unaudited)
PP&L Resources, Inc. and Subsidiaries
(Millions of Dollars, except per share data)
For the Quarters Ended (a)
March 31 June 30 Sept. 30 Dec. 31
1996
Operating revenues...................... $789 $669 $715 $737
Operating income.............................. 176 120 136 124
Net income.................................... 116 61 79 73
Earnings per common share (b)................. 0.73 0.38 0.49 0.45
Dividends declared per common share (c)....... 0.4175 0.4175 0.4175 0.4175
Price per common share
High........................................ 26 24 1/2 24 24 1/2
Low......................................... 23 1/2 22 21 5/8 21 7/8
1995
Operating revenues...................... $728 $609 $682 $733
Operating income.............................. 162 104 179 129
Net income.................................... 101 45 87 90
Earnings per common share (b)................. 0.65 0.28 0.55 0.56
Dividends declared per common share (c)....... 0.4175 0.4175 0.4175 0.4175
Price per common share
High........................................ 20 7/8 19 7/8 23 1/2 26 1/2
Low......................................... 19 1/8 17 7/8 18 5/8 21 5/8
<FN>
(a) PP&L's electric utility business is seasonal in nature with peak sales
periods generally occurring in the winter months. In addition
earnings in several quarters were affected by several one-time adjustments.
Accordingly, comparisons among quarters of a year may not be indicative of
overall trends and changes in operations.
(b) The sum of the quarterly amounts may not equal annual earnings per
share due to changes in the number of common shares outstanding
during the year or rounding.
(c) PP&L Resources has paid quarterly cash dividends on its common
stock in every year since 1946. The dividends paid per
share in 1996 and 1995 were $1.67. The most recent regular quarterly
dividend paid by PP&L Resources was 41.75 cents per share
(equivalent to $1.67 per annum) paid January 1, 1997. Future dividends
will be dependent upon future earnings, financial requirements
and other factors.
QUARTERLY FINANCIAL DATA (Unaudited)
Pennsylvania Power & Light Company and Subsidiaries
(Millions of Dollars)
For the Quarters Ended (a)
March 31 June 30 Sept. 30 Dec. 31
1996
Operating revenues.................. $789 $669 $715 $737
Operating income.......................... 176 120 136 124
Net income ............................... 125 69 86 77
Earnings available to PP&L Resources...... 118 62 79 70
1995
Operating revenues.................. $728 $609 $682 $733
Operating income.......................... 162 104 179 129
Net income ............................... 108 52 95 97
Earnings available to PP&L Resources...... 101 45 88 90
<FN>
(a) PP&L's electric utility business is seasonal in nature with peak sales
periods generally occurring in the winter months. Accordingly, comparisons
among quarters of a year may not be indicative of overall trends
and changes in operations.
PP&L Resources, Inc.
Pennsylvania Power & Light Company
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
Deductions
from
Balance Additions Reserves -
at Charges Losses or Balance at
Beginning Charged to Other Expenses End of
Description of Period to Income Accounts Applicable Period
(Millions of Dollars)
Year Ended December 31, 1996
Reserves deducted from assets in
the Balance Sheet
Uncollectible accounts ............................ $35 $20 $30 $25
Obsolete inventory - Materials and supplies........ 15 15 0
Year Ended December 31, 1995
Reserves deducted from assets in
the Balance Sheet
Uncollectible accounts ............................ 29 25 19 35
Obsolete inventory - Materials and supplies........ 0 15 15
Year Ended December 31, 1994
Reserves deducted from assets in
the Balance Sheet
Uncollectible accounts ............................ 29 17 17 29
Obsolete inventory - Materials and supplies........ 0 0
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information for this item concerning directors of PP&L
Resources will be set forth in the sections entitled
"Nominees for Directors" and "Directors Continuing in
Office" in PP&L Resources' 1997 Notice of Annual Meeting and
Proxy Statement, which will be filed with the SEC not later
than 120 days after December 31, 1996, and which information
is incorporated herein by reference. Information required
by this item concerning the executive officers of PP&L
Resources is set forth on page 19 through 20 of this report.
Information for this item concerning directors of PP&L
will be set forth in the sections entitled "Nominees for
Directors" and "Directors Continuing in Office" in PP&L's
1997 Notice of Annual Meeting and Proxy Statement, which
will be filed with the SEC not later than 120 days after
December 31, 1996, and which information is incorporated
herein by reference. Information required by this item
concerning the executive officers of PP&L is set forth on
page 19 through 20 of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information for this item for PP&L Resources will be
set forth in the sections entitled "Compensation of
Directors," "Summary Compensation Table" and "Retirement
Plans for Executive Officers" in PP&L Resources' 1997 Notice
of Annual Meeting and Proxy Statement, which will be filed
with the SEC not later than 120 days after December 31,
1996, and which information is incorporated herein by
reference.
Information for this item for PP&L will be set forth in
the sections entitled "Compensation of Directors," "Summary
Compensation Table" and "Retirement Plans for Executive
Officers" in PP&L's 1997 Notice of Annual Meeting and Proxy
Statement, which will be filed with the SEC not later than
120 days after December 31, 1996, and which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information for this item for PP&L Resources will be
set forth in the section entitled "Stock Ownership" in PP&L
Resources' 1997 Notice of Annual Meeting and Proxy
Statement, which will be filed with the SEC not later than
120 days after December 31, 1996, and which information is
incorporated herein by reference.
Information for this item for PP&L will be set forth in
the section entitled "Stock Ownership" in PP&L's 1997 Notice
of Annual Meeting and Proxy Statement, which will be filed
with the SEC not later than 120 days after December 31,
1996, and which information is incorporated herein by refer-
ence.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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 - included in response to Item 8.
PP&L Resources, Inc.
Report of Independent Accountants
Independent Auditors' Report
Consolidated Statement of Income for the Three
Years Ended December 31, 1996
Consolidated Statement of Cash Flows for
the Three Years Ended December 31, 1996
Consolidated Balance Sheet at December 31, 1996
and 1995
Consolidated Statement of Shareowners' Common Equity
for the Three Years Ended December 31, 1996
Consolidated Statement of Preferred Stock at
December 31, 1996 and 1995
Consolidated Statement of Long-Term Debt at
December 31, 1996 and 1995
Notes to Financial Statements
Pennsylvania Power & Light Company
Report of Independent Accountants
Independent Auditors' Report
Consolidated Statement of Income for the Three
Years Ended December 31, 1996
Consolidated Statement of Cash Flows for
the Three Years Ended December 31, 1996
Consolidated Balance Sheet at December 31, 1996
and 1995
Consolidated Statement of Shareowners' Common Equity
for the Three Years Ended December 31, 1996
Consolidated Statement of Preferred Stock at
December 31, 1996 and 1995
Consolidated Statement of Long-Term Debt at
December 31, 1996 and 1995
Notes to Financial Statements
2. Supplementary Data and Supplemental Financial Statement
Schedule - included in response to Item 8.
Schedule II - Valuation and Qualifying Accounts and
Reserves for the Three Years Ended
December 31, 1996
All other schedules are omitted because of the absence
of the conditions under which they are required or
because the required information is included in the
financial statements or notes thereto.
3. Exhibits
Exhibit Index on page 92.
(b) Reports on Form 8-K:
The following Reports on Form 8-K were filed during the
three months ended December 31, 1996:
Report dated December 6, 1996 and
Amended on December 9, 1996
Item 5. Other Events
Information regarding major provisions in the Pennsylvania
legislation enacted to restructure the electric utility
industry in order to create retail access to a competitive
market for the generation of electricity.
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.
PP&L Resources, Inc.
(Registrant)
Pennsylvania Power & Light Company
(Registrant)
By /s/ William F. Hecht
William F. Hecht - Chairman, President
and Chief Executive
Officer (PP&L Resources,
Inc. and Pennsylvania
Power & Light Company)
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.
TITLE
By /s/ William F. Hecht Principal Executive
William F. Hecht - Chairman, President Officer and Director
and Chief Executive
Officer (PP&L Resources,
Inc. and Pennsylvania
Power & Light Company)
By /s/ R. E. Hill Principal Financial
R. E. Hill - Senior Vice President- Officer
Financial (PP&L
Resources, Inc. and
Pennsylvania Power &
Light Company)
By /s/ J. J. McCabe Chief Accounting
J. J. McCabe - Vice President and Officer
Controller(PP&L Resources,
Inc. and Pennsylvania Power
& Light Company)
E. Allen Deaver Stuart Heydt
William J. Flood Clifford L. Jones
Elmer D. Gates Ruth Leventhal
Derek C. Hathaway Francis A. Long Directors
Norman Robertson
By /s/ William F. Hecht
William F. Hecht, Attorney-in-fact Date: February 28, 1997
EXHIBIT INDEX
The following Exhibits indicated by an asterisk preceding
the Exhibit number are filed herewith. The balance of the
Exhibits have heretofore been filed with the Commission and
pursuant to Rule 12(b)-32 are incorporated herein by
reference. Exhibits indicated by a # are filed or listed
pursuant to Item 601(b)(10)(iii) of Regulation S-K.
3(a)-1 - Articles of Incorporation of Resources
(Exhibit B to Proxy Statement of PP&L and
Prospectus of Resources, dated March 9,
1995)
3(a)-2 - Restated Articles of Incorporation of PP&L
(Exhibit A to Proxy Statement of PP&L and
Prospectus of Resources, dated March 9,
1995)
3(b)-1 - By-laws of Resources (Exhibit 3.2 to
Registration Statement No. 33-57949)
3(b)-2 - By-laws of PP&L (Exhibit 3(ii) to PP&L's
Form 10-K Report (File No. 1-905) for the
year ended December 31, 1993)
4(a)-1 - Amended and Restated Employee Stock
Ownership Plan, dated October 26, 1988
(Exhibit 4(b) to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1988)
4(a)-2 - Amendment No. 1 to said Employee Stock
Ownership Plan, effective January 1, 1989
(Exhibit 4(b)-2 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1989)
4(a)-3 - Amendment No. 2 to said Employee Stock
Ownership Plan, effective January 1, 1990
(Exhibit 4(b)-3 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1989)
4(a)-4 - Amendment No. 3 to said Employee Stock
Ownership Plan, effective January 1, 1991
(Exhibit 4(b)-4 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1990)
4(a)-5 - Amendment No. 4 to said Employee Stock
Ownership Plan, effective January 1, 1991
(Exhibit 4(a)-5 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1991)
4(a)-6 - Amendment No. 5 to said Employee Stock
Ownership Plan, effective October 23, 1991
(Exhibit 4(a)-6 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1991)
4(a)-7 - Amendment No. 6 to said Employee Stock
Ownership Plan, effective January 1, 1990
and January 1, 1992 (Exhibit 4(a)-7 to
PP&L's Form 10-K Report (File No. 1-905)
for the year ended December 31, 1991)
4(a)-8 - Amendment No. 7 to said Employee Stock
Ownership Plan, effective January 1, 1992
(Exhibit 4(a)-8 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1991)
4(a)-9 - Amendment No. 8 to said Employee Stock
Ownership Plan, effective July 1, 1992
(Exhibit 4(a)-9 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1992)
4(a)-10 - Amendment No. 9 to said Employee Stock
Ownership Plan, effective January 1, 1993
(Exhibit 4(a)-10 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1992)
4(a)-11 - Amendment No. 10 to said Employee Stock
Ownership Plan, effective January 1, 1993
(Exhibit 4(a)-11 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1993)
4(a)-12 - Amendment No. 11 to said Employee Stock
Ownership Plan, effective January 1, 1994
(Exhibit 4(a)-12 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1994)
4(a)-13 - Amendment No. 12 to said Employee Stock
Ownership Plan, effective January 1, 1994
(Exhibit 4(a)-13 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1994)
4(a)-14 - Amendment No. 13 to said Employee Stock
Ownership Plan, effective April 27, 1995
(Exhibit 4(a)-14 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1995)
4(a)-15 - Amendment No. 14 to said Employee Stock
Ownership Plan, effective January 1, 1989
and January 1, 1995 (Exhibit 4(a)-14 to
PP&L's Form 10-K Report (File No. 1-905)
for the year ended December 31, 1994)
4(a)-16 - Amendment No. 15 to said Employee Stock
Ownership Plan, effective October 25, 1995
(Exhibit 4(a)-16 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1995)
*4(a)-17 - Amendment No. 16 to said Employee Stock
Ownership Plan, effective January 1, 1989
*4(a)-18 - Amendment No. 17 to said Employee Stock
Ownership Plan, effective January 1, 1996
4(b)-1 - Mortgage and Deed of Trust, dated as of
October 1, 1945, between PP&L and Guaranty
Trust Company of New York, as Trustee (now
Bankers Trust Company, as successor
Trustee) (Exhibit 2(a)-4 to Registration
Statement No. 2-60291)
4(b)-2 - Supplement, dated as of July 1, 1954, to
said Mortgage and Deed of Trust (Exhibit
2(b)-5 to Registration Statement
No. 219255)
4(b)-4 - Supplement, dated as of November 1, 1967,
to said Mortgage and Deed of Trust (Exhibit
2(a)-14 to Registration Statement No. 2-
60291)
4(b)-5 - Supplement, dated as of January 1, 1969, to
said Mortgage and Deed of Trust (Exhibit
2(a)-16 to Registration Statement No. 2-
60291)
4(b)-7 - Supplement, dated as of February 1, 1971,
to said Mortgage and Deed of Trust (Exhibit
2(a)-19 to Registration Statement No. 2-
60291)
4(b)-9 - Supplement, dated as of January 1, 1973, to
said Mortgage and Deed of Trust (Exhibit
2(a)-21 to Registration Statement No. 2-
60291)
4(b)-10 - Supplement, dated as of October 1, 1989, to
said Mortgage and Deed of Trust (Exhibit
4(a) to PP&L's Form 8-K Report (File No. 1-
905) dated November 6, 1989)
4(b)-11 - Supplement, dated as of July 1, 1991, to
said Mortgage and Deed of Trust
(Exhibit 4(a) to PP&L's Form 8-K Report
(File No. 1-905) dated July 29, 1991)
4(b)-12 - Supplement, dated as of May 1, 1992, to
said Mortgage and Deed of Trust (Exhibit
4(a) to PP&L's Form 8-K Report (File No. 1-
905) dated June 1, 1992)
4(b)-13 - Supplement, dated as of November 1, 1992,
to said Mortgage and Deed of Trust (Exhibit
4(b)-29 to PP&L's Form 10-K Report (File 1-
905) for the year ended December 31, 1992)
4(b)-14 - Supplement, dated as of February 1, 1993,
to said Mortgage and Deed of Trust (Exhibit
4(a) to PP&L's Form 8-K Report (File No. 1-
905) dated February 16, 1993)
4(b)-15 - Supplement, dated as of April 1, 1993, to
said Mortgage and Deed of Trust (Exhibit
4(a) to PP&L's Form 8-K Report (File No. 1-
905) dated April 30, 1993)
4(b)-16 - Supplement, dated as of June 1, 1993, to
said Mortgage and Deed of Trust (Exhibit
4(a) to PP&L's Form 8-K Report (File No. 1-
905) dated July 7, 1993)
4(b)-17 - Supplement, dated as of October 1, 1993, to
said Mortgage and Deed of Trust (Exhibit
4(a) to PP&L's Form 8-K Report (File No. 1-
905) dated October 29, 1993)
4(b)-18 - Supplement, dated as of February 15, 1994,
to said Mortgage and Deed of Trust (Exhibit
4(a) to PP&L's Form 8-K Report (File No. 1-
905) dated March 11, 1994)
4(b)-19 - Supplement, dated as of March 1, 1994, to
said Mortgage and Deed of Trust (Exhibit
4(b) to PP&L's Form 8-K Report (File No. 1-
905) dated March 11, 1994)
4(b)-20 - Supplement, dated as of March 15, 1994, to
said Mortgage and Deed of Trust (Exhibit
4(a) to PP&L's Form 8-K Report (File No. 1-
905) dated March 30, 1994)
4(b)-21 - Supplement, dated as of September 1, 1994,
to said Mortgage and Deed of Trust (Exhibit
4(a) to PP&L's Form 8-K (File No. 1-905)
dated October 3, 1994)
4(b)-22 - Supplement, dated as of October 1, 1994, to
said Mortgage and Deed of Trust (Exhibit
4(a) to PP&L's Form 8-K Report (File No. 1-
905) dated October 3, 1994)
4(b)-23 - Supplement, dated as of August 1, 1995, to
said Mortgage and Deed of Trust (Exhibit
6(a) to PP&L's Form 10-Q Report (File No.
1-905) for the quarter ended September 30,
1995)
10(a) - Revolving Credit Agreement, dated as of
August 30, 1994, between PP&L and the Banks
named therein (Exhibit 10(a)-1 to PP&L's
Form 10-K Report (File No. 1-905) for the
year ended December 31, 1994)
10(b) - Agreement, dated as of May 30, 1996,
between PP&L Resources, Inc., Chemical Bank
and Citibank, N.A. (Exhibit 10(a) to PP&L's
Form 10-Q Report (File No. 1-905) for the
quarter ended September 30, 1996)
*10(c) - Credit Agreement, dated as of March 14,
1996, between PP&L and The First National
Bank of Chicago
10(d) - Pollution Control Facilities Agreement,
dated as of May 1, 1973, between PP&L and
the Lehigh County Industrial Development
Authority (Exhibit 5(z) to Registration
Statement No. 2-60834)
10(e)-1 - Interconnection Agreement, dated September
26, 1956, among Public Service Electric &
Gas Company, Philadelphia Electric Company,
PP&L, Baltimore Gas & Electric Company,
Pennsylvania Electric Company, Metropolitan
Edison Company, New Jersey Power & Light
Company and Jersey Central Power & Light
Company (Exhibit 5(e) to Registration
Statement No. 2-60291)
10(e)-2 - Supplemental Agreement, dated April 1,
1974, to said Interconnection Agreement
(Exhibit 5(f)-4 to Registration Statement
No. 2-51312)
10(e)-3 - Supplemental Agreement, dated June 15,
1977, to said Interconnection Agreement
(Exhibit 5(e)-5 to Registration Statement
No. 2-60291)
10(e)-4 - Agreement of Settlement and Compromise,
dated July 25, 1980, among the parties to
said Interconnection Agreement (Exhibit
20(b)-8 to PP&L's Form 10-Q Report (File
No. 1-905) for the quarter ended September
30, 1980)
10(e)-5 - Supplemental Agreement, dated March 26,
1981, to said Interconnection Agreement
(Exhibit l0(b)-l0 to PP&L's Form l0-K
Report (File No. 1-905) for the year ended
December 31, 1981)
10(e)-6 - Revisions to Schedules 4.02, 7.01, and
9.01, all effective August 9, 1982, to said
Interconnection Agreement (Exhibit 10(e)-11
to PP&L's Form l0-K Report (File No. l-905)
for the year ended December 31, 1982)
10(e)-7 - Schedules 4.02, 5.01, 5.02, 5.04, 5.05,
6.01, 6.03, 6.04, 7.01, 7.02 7.03; all
effective February 6, 1984, to said
Interconnection Agreement (Exhibit 10(e)-8
to PP&L's Form l0-K Report (File No. 1-905)
for the year ended December 31, 1985)
10(e)-8 - Schedule 5.03, Revision l, Exhibit A,
revised May 31, 1985, to said Intercon-
nection Agreement (Exhibit 10(e)-10 to
PP&L's Form l0-K Report (File No. 1-905)
for the year ended December 31, 1985)
10(e)-9 - Schedule 4.02, Revision No. 2, effective
December 4, 1989, to said Interconnection
Agreement (Exhibit 10(d)-13 to PP&L's Form
10-K Report (File No. 1-905) for the year
ended December 31, 1989)
10(e)-10 - Schedule 5.06, Revision No. 1, effective
June 1, 1990, to said Interconnection
Agreement (Exhibit 10(d)-14 to PP&L's Form
10-K Report (File No. 1-905) for the year
ended December 31, 1990)
10(e)-11 - Schedule 2.21, Revision No. 1, effective
June 1, 1990, to said Interconnection
Agreement (Exhibit 10(d)-15 to PP&L's Form
10-K Report (File No. 1-905) for the year
ended December 31, 1990)
10(e)-12 - Schedule 2.212, Revision No. 2, effective
June 1, 1990, to said Interconnection
Agreement (Exhibit 10(d)-16 to PP&L's Form
10-K Report (File No. 1-905) for the year
ended December 31, 1990)
10(e)-13 - Schedule 9.01, Revision No. 4, effective
June 1, 1992, to said Interconnection
Agreement (Exhibit 10(d)-18 to PP&L's Form
10-K Report (File No. 1-905) for the year
ended December 31, 1990)
10(e)-14 - Schedule 3.01, Revision No. 3, effective
June 1, 1992, to said Interconnection
Agreement (Exhibit 10(c)-15 to PP&L's Form
10-K Report (File No. 1-905) for the year
ended December 31, 1991)
10(e)-15 - Schedule 4.01, Revision No. 13, effective
June 1, 1993, to said Interconnection
Agreement (Exhibit 10(c)-15 to PP&L's Form
10-K Report (File No. 1-905) for the year
ended December 31, 1993)
10(f) - Capacity and Energy Sales Agreement, dated
June 29, 1983, between PP&L and Atlantic
City Electric Company (Exhibit 10(f)-2 to
PP&L's Form 10-K Report (File No. 1-905)
for the year ended December 31, 1983)
10(g)-1 - Capacity and Energy Sales Agreement, dated
March 9, 1984, between PP&L and Jersey
Central Power & Light Company (Exhibit
l0(f)-3 to PP&L's Form 10-K Report (File
No. 1-905) for the year ended December 31,
1984)
10(g)-2 - First Supplement, effective February 28,
1986, to said Capacity and Energy Sales
Agreement (Exhibit 10(e)-4 to PP&L's Form
10-K Report (File No. 1-905) for the year
ended December 31, 1986)
10(g)-3 - Second Supplement, effective January 1,
1987, to said Capacity and Energy Sales
Agreement (Exhibit 10(g)-3 to PP&L's Form
10-K Report (File No. 1-905) for the year
ended December 31, 1989)
10(g)-4 - Amendments to Exhibit A, effective
October 1, 1987, to said Capacity and
Energy Sales Agreement (Exhibit 10(e)-6 to
PP&L's Form 10-K Report (File No. 1-905)
for the year ended December 31, 1987)
10(g)-5 - Third Supplement, effective December 1,
1988, to said Capacity and Energy Sales
Agreement (Exhibit 10(g)-5 to PP&L's Form
10-K Report (File No. 1-905) for the year
ended December 31, 1989)
10(g)-6 - Fourth Supplement, effective December 1,
1988, to said Capacity and Energy Sales
Agreement (Exhibit 10(g)-6 to PP&L's Form
10-K Report (File No. 1-905) for the year
ended December 31, 1989)
10(h)-1 - Capacity and Energy Sales Agreement, dated
December 21, 1989, between PP&L and GPU
Service Corporation (Exhibit 10(h) to
PP&L's Form 10-K Report (File No. 1-905)
for the year ended December 31, 1989)
10(h)-2 - First Supplement, effective June 1, 1991,
to said Capacity and Energy Sales Agreement
(Exhibit 10(f)-2 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1991)
10(i)-1 - Capacity and Energy Sales Agreement, dated
January 28, 1988, between PP&L and
Baltimore Gas and Electric Company (Exhibit
10(e)-7 to PP&L's Form 10-K Report (File
No. 1-905) for the year ended December 31,
1987)
10(i)-2 - First Supplement, effective November 1,
1988, to said Capacity and Energy Sales
Agreement (Exhibit 10(i)-2 to PP&L's Form
10-K Report (File No. 1-905) for the year
ended December 31, 1989)
10(i)-3 - Second Supplement, effective June 1, 1989,
to said Capacity and Energy Sales Agreement
(Exhibit 10(i)-3 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1989)
10(i)-4 - Third Supplement, effective June 1, 1991,
to said Capacity and Energy Sales Agreement
(Exhibit 10(g)-4 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1991)
#10(j)-1 - Amended and Restated Directors Deferred
Compensation Plan, effective July 1, 1995
(Exhibit C to Proxy Statement of PP&L and
Prospectus of Resources, dated March 9,
1995)
*#10(j)-1 - Amendment No. 1 to said Amended and
Restated Directors Deferred Compensation
Plan, effective November 1, 1996
*#10(j)-2 - Amendment No. 2 to said Amended and
Restated Directors Deferred Compensation
Plan, effective January 1, 1997
#10(k) - Amended and Restated Directors Retirement
Plan, effective April 27, 1995 (Exhibit
10(i) to PP&L's Form 10-K Report (File No.
1-905) for the year ended December 31,
1995)
#10(l)-1 - Amended and Restated Deferred
Compensation Plan for Executive Officers,
effective January 1, 1990 (Exhibit 10(s) to
PP&L's Form 10-K Report (File No. 1-905)
for the year ended December 31, 1990)
#10(l)-2 - Amendment No. 1 to said Officers Deferred
Compensation Plan, effective January 1,
1991 (Exhibit 10(j)-2 to PP&L's Form 10-K
Report (File No. 1-905) for the year ended
December 31, 1991)
#10(l)-3 - Amendment No. 2 to said Officers Deferred
Compensation Plan, effective October 23,
1991 (Exhibit 10(j)-3 to PP&L's Form 10-K
Report (File No. 1-905) for the year ended
December 31, 1991)
#10(l)-4 - Amendment No. 3 to said Officers Deferred
Compensation Plan, effective January 1,
1992 and April 1, 1992 (Exhibit 10(j)-4 to
PP&L's Form 10-K Report (File No. 1-905)
for the year ended December 31, 1991)
#10(l)-5 - Amendment No. 4 to said Officers Deferred
Compensation Plan, effective January 1,
1995 (Exhibit 10(j)-5 to PP&L's Form 10-K
Report (File No. 1-905) for the year ended
December 31, 1994)
*10(l)-6 - Amendment No. 5 to said Officers Deferred
Compensation Plan, effective January 1,
1996
#10(m) - Amended and Restated Supplemental Executive
Retirement Plan, effective August 31, 1995
(Exhibit 10(k) to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1995)
*#10(m)-1 - Amendment No. 1 to said Amended and
Restated Supplemental Executive Retirement
Plan, effective July 1, 1996
#10(n) - Amended and Restated Executive Retirement
Security Plan, effective August 31, 1995
(Exhibit 10(l) to PP&L's Form 10-K Report
(File No. 1-905) for the year ended
December 31, 1995)
*#10(n)-1 - Amendment No. 1 to said Amended and
Restated Executive Retirement Security
Plan, effective January 1, 1996
#10(o)-1 - Amended and Restated Incentive
Compensation Plan, effective January 1,
1995 (Exhibit D to Proxy Statement of PP&L
and Prospectus of Resources, dated March 9,
1995)
#10(o)-2 - Amendment No. 1 to said Amended and
Restated Incentive Compensation Plan,
effective April 27, 1995 (Exhibit 10(m)-2
to PP&L's Form 10-K Report (File No. 1-905)
for the year ended December 31, 1995)
*#10(o)-3 - Amendment No. 2 to said Amended and
Restated Incentive Compensation Plan,
effective January 1, 1996
*#10(o)-4 - Amendment No. 3 to said Amended and
Restated Incentive Compensation Plan,
effective January 1, 1997
*#10(p) - Description of Executive Compensation
Incentive Award Program 1/
10(q) - Nuclear Fuel Lease, dated as of February
1, 1982, between PP&L, as lessee, and
Newton I. Waldman, not in his individual
capacity, but solely as Cotrustee of the
Pennsylvania Power & Light Energy Trust, as
lessor (Exhibit 10(g) to PP&L's Form l0-K
Report (File No. 1-905) for the year ended
December 31, 1981)
*12 - Computation of Ratio of Earnings to Fixed
Charges
*23(a) - Consent of Price Waterhouse LLP
*23(b) - Consent of Deloitte & Touche LLP
*24 - Power of Attorney
*27 - Financial Data Schedule
1/ This description is provided pursuant to 17 C.F.R.
Subsection 229.601(b)(10)(iii)(A).
(PP&L LOGO
APPEARS HERE)
PP&L Resources, Inc.
Two North Ninth Street * Allentown, PA 18101
Bulk Rate
U.S. Postage
PAID
Allentown, PA.
Permit No. 104