United States
Securities and Exchange Commission
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Registrant; State of Incorporation; IRS Employer
Number Address; and Telephone No. Identification No.
1-11459 PP&L Resources, Inc. 23-2758192
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
1-905 PP&L, Inc. 23-0959590
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
PP&L Resources, Inc. Yes X No
PP&L, Inc. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
PP&L Resources, Inc. Common stock, $.01 par value,
165,873,877 shares outstanding at
October 31, 1997
PP&L, Inc. Common stock, no par value,
157,300,382, shares outstanding and
all held by PP&L Resources, Inc. at
October 31, 1997
PP&L RESOURCES, INC.
AND
PP&L, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PP&L Resources, Inc.
Consolidated Statement of Income
Consolidated Statement of Cash Flows
Consolidated Balance Sheet
PP&L, Inc.
Consolidated Statement of Income
Consolidated Statement of Cash Flows
Consolidated Balance Sheet
Notes to Financial Statements
PP&L Resources, Inc. and PP&L, Inc.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PP&L Resources, Inc. and PP&L, Inc.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
GLOSSARY OF TERMS AND ABBREVIATIONS
SIGNATURES
PP&L RESOURCES, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
In the opinion of PP&L Resources, the unaudited financial statements included herein reflect
all adjustments necessary to present fairly the Consolidated Balance Sheet as of September 30,
1997 and December 31, 1996, and the Consolidated Statement of Income and Consolidated Statement of Cash
Flows for the periods ended September 30, 1997 and 1996. PP&L Resources is the parent holding company
of PP&L, PP&L Global, and PP&L Spectrum. PP&L constitutes substantially all of PP&L Resources' assets,
revenues and earnings. All nonutility operating transactions are included in "Other Income and
(Deductions)" in PP&L Resources' Consolidated Statement of Income.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars, except per share data)
Three Months Nine Months
Ended September 30,Ended September 30,
1997 1996 1997 1996
Operating Revenues .............................. $778 $715 $2,250 $2,173
Operating Expenses
Operation
Fuel........................................ 134 124 350 349
Power purchases............................. 138 84 358 249
Other....................................... 125 138 363 387
Maintenance.................................... 46 40 130 136
Depreciation (including amortized depreciation) 94 91 279 272
Income taxes................................... 58 52 192 193
Taxes, other than income....................... 50 50 156 156
645 579 1,828 1,742
Operating Income ................................. 133 136 422 431
Other Income and (Deductions)
Other - net.................................... 3 6 15 10
Income taxes................................... 5 6
Windfall profits tax - PP&L Global............. (40) (40)
(32) 6 (19) 10
Income Before Interest Charges and Dividends on
Preferred Stock................................ 101 142 403 441
Interest Charges
Long-term debt................................. 48 52 147 155
Short-term debt and other...................... 5 4 16 9
53 56 163 164
Preferred Stock Dividend Requirements............. 6 7 17 21
Net Income........................................ $42 $79 $223 $256
Earnings Per Share of Common Stock (a)............ $0.25 $0.49 $1.36 $1.60
Average Number of Shares Outstanding (thousands)..164,961 161,360 164,110 160,650
Dividends Declared Per Share of Common Stock......$0.4175 $0.4175 $1.2525 $1.2525
(a) Based on average number of shares outstanding.
See accompanying Notes to Financial Statements.
PP&L RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
Nine Months
Ended September 30,
1997 1996
Net Cash Provided by Operating Activities.................... $579 $632
Cash Flows From Investing Activities
Property, plant and equipment expenditures.................. (200) (250)
Purchases of available-for-sale securities........................... (61) (405)
Sales and maturities of available-for-sale securities................ 100 392
Investment in electric energy projects .............................. (149) (203)
Purchases and sales of other financial investments - net............. 76
Other investing activities - net............................ 23 45
Net cash used in investing activities.......................... (211) (421)
Cash Flows From Financing Activities
Issuance of long-term debt.................................. 10 116
Issuance of common stock............................................. 53 53
Issuance of Company-obligated mandatorily redeemable
securities of subsidiary holding solely parent debentures ......... 250
Retirement of long-term debt................................ (210) (145)
Purchase of subsidiary's preferred stock (net of premium
and associated costs).............................................. (369)
Payments on capital lease obligations....................... (50) (63)
Common and preferred dividends paid.................................. (223) (221)
Net increase in short-term debt...................................... 139 130
Other financing activities - net .................................... (20) (1)
Net cash used in financing activities.......................... (420) (131)
Net Increase (Decrease) In Cash and Cash Equivalents ........ (52) 80
Cash and Cash Equivalents at Beginning of Period ..................... 101 20
Cash and Cash Equivalents at End of Period ........................... $49 $100
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized)................................ $152 $156
Income taxes........................................................ $194 $224
See accompanying Notes to Financial Statements.
PP&L RESOURCES,INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
September 30,December 31,
1997 1996
(Unaudited) (Audited)
ASSETS
Property, Plant and Equipment
Electric utility plant in service - at original cost. $9,949 $9,824
Accumulated depreciation ................................... (3,502) (3,337)
6,447 6,487
Construction work in progress - at cost....................... 163 172
Nuclear fuel owned and leased - net of amortization .......... 146 170
Other leased property - net of amortization ............................... 76
Electric utility plant - net................................ 6,756 6,905
Other property - (net of depreciation, amortization
and depletion 1997, $57; 1996, $54)......................... 54 55
6,810 6,960
Investments
Investment in and advances to electric energy
projects - at equity .............................. 357 224
Affiliated companies - at equity ............................. 17 17
Nuclear plant decommissioning trust fund ..................... 156 128
Financial investments......................................... 49 133
Other - at cost or less ...................................... 11 18
590 520
Current Assets
Cash and cash equivalents ........................... 49 101
Current financial investments ................................ 32 73
Accounts receivable (less reserve: 1997, $17; 1996, $25)
Customers ................................................ 182 196
Other..................................................... 29 19
Unbilled revenues............................................. 72 85
Fuel, materials and supplies - at average cost................ 200 201
Deferred income taxes ........................................ 24 21
Other......................................................... 69 53
657 749
Regulatory Assets and Other Noncurrent Assets .......... 1,428 1,407
$9,485 $9,636
See accompanying Notes to Financial Statements.
PP&L RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
September 30, December 31,
1997 1996
(Unaudited) (Audited)
LIABILITIES
Capitalization
Common equity
Common stock .......................................... $2 $2
Capital in excess of par value ....................... 1,646 1,596
Earnings reinvested.................................... 1,160 1,143
Capital stock expense and other ....................... (18) 4
2,790 2,745
Preferred stock
With sinking fund requirements ........................ 47 295
Without sinking fund requirements ..................... 50 171
Company-obligated mandatorily redeemable securities
of subsidiary holding solely parent debentures ........ 250
Long-term debt ......................................... 2,482 2,802
5,619 6,013
Current Liabilities
Commercial paper ....................................... 93
Bank loans ............................................. 190 144
Long-term debt due within one year ...................... 150 30
Capital lease obligations due within one year ........... 58 81
Accounts payable ........................................ 102 133
Taxes accrued ......................................................... 19
Interest accrued ........................................ 63 61
Dividends payable ....................................... 76 75
Other ................................................... 114 78
846 621
Deferred Credits and Other Noncurrent Liabilities
Deferred investment tax credits ....................... 202 209
Deferred income taxes ................................... 2,035 2,052
Capital lease obligations ............................... 94 166
Other ................................................... 689 575
3,020 3,002
$9,485 $9,636
See accompanying Notes to Financial Statements.
PP&L, INC. AND SUBSIDIARIES
In the opinion of PP&L, the unaudited financial statements included herein reflect all
adjustments necessary to present fairly the Consolidated Balance Sheet as of September 30, 1997
and December 31, 1996, and the Consolidated Statement of Income and Consolidated Statement
of Cash Flows for the periods ended September 30, 1997 and 1996. All nonutility operating
transactions are included in "Other Income and (Deductions)" in PP&L's Consolidated Statement
of Income.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars)
Three Months Nine Months
Ended September 30,Ended September 30,
1997 1996 1997 1996
Operating Revenues .............................. $778 $715 $2,250 $2,173
Operating Expenses
Operation
Fuel........................................ 134 124 350 349
Power purchases............................. 138 84 358 249
Other....................................... 125 138 363 387
Maintenance.................................... 46 40 130 136
Depreciation (including amortized depreciation) 94 91 279 272
Income taxes................................... 58 52 192 193
Taxes, other than income....................... 50 50 156 156
645 579 1,828 1,742
Operating Income ................................. 133 136 422 431
Other Income and (Deductions)..................... (1) 3 6 9
Income Before Interest Charges.................... 132 139 428 440
Interest Charges
Long-term debt................................. 48 52 147 155
Short-term debt and other...................... 3 1 10 5
51 53 157 160
Net Income........................................ 81 86 271 280
Dividends on Preferred Stock...................... 12 7 28 21
Earnings Available to PP&L Resources ............. $69 $79 $243 $259
See accompanying Notes to Financial Statements.
PP&L, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
Nine Months
Ended September 30,
1997 1996
Net Cash Provided by Operating Activities..................... $576 $634
Cash Flows From Investing Activities
Property, plant and equipment expenditures.................. (200) (250)
Purchases of available-for-sale securities ................................... (61) (84)
Sales and maturities of available-for-sale securities ........................ 78 87
Purchases and sales of other financial investments - net...................... 76
Loan to parent.............................................. (375)
Other investing activities - net ........................... 22 45
Net cash used in investing activities................................... (460) (202)
Cash Flows From Financing Activities
Issuance of long-term debt.................................. 10 116
Issuance of Company-obligated mandatorily redeemable
securities of subsidiary holding solely parent debentures .................. 250
Retirement of long-term debt................................ (210) (145)
Payments on capital lease obligations......................................... (50) (63)
Common and preferred dividends paid........................................... (264) (221)
Net increase (decrease) in short-term debt.................................... 84 (59)
Other financing activities - net ............................................. (9) 21
Net cash provided by (used in) financing activities..................... (189) (351)
Net Increase (Decrease) in Cash and Cash Equivalents.......... (73) 81
Cash and Cash Equivalents at Beginning of Period................................ 95 15
Cash and Cash Equivalents at End of Period...................................... $22 $96
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for
Interest (net of amount capitalized)........................................ $145 $156
Income taxes................................................................ $197 $226
<FN>
See accompanying Notes to Financial Statements.
PP&L, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
September 30, December 31,
1997 1996
(Unaudited) (Audited)
ASSETS
Property, Plant and Equipment
Electric utility plant in service - at original cost.. $9,949 $9,824
Accumulated depreciation ..................................... (3,502) (3,337)
6,447 6,487
Construction work in progress - at cost ........................ 163 172
Nuclear fuel owned and leased - net of amortization ............ 146 170
Other leased property - net of amortization ................................... 76
Electric utility plant - net .................................. 6,756 6,905
Other property - (net of depreciation, amortization
and depletion 1997, $57; 1996, $54) .......................... 54 55
6,810 6,960
Investments
Affiliated companies - at equity ..................... 17 17
Nuclear plant decommissioning trust fund ....................... 156 128
Loan to parent.................................................. 375
Financial investments ................................ 49 133
Other - at cost or less ........................................ 11 10
608 288
Current Assets
Cash and cash equivalents ............................ 22 95
Current financial investments .................................. 32 51
Accounts receivable (less reserve: 1997, $17; 1996, $25)
Customers .................................................... 182 196
Other ........................................................ 34 14
Unbilled revenues............................................... 72 85
Fuel, materials and supplies - at average cost ................. 200 201
Deferred income taxes .......................................... 25 21
Other .......................................................... 68 53
635 716
Regulatory Assets and Other Noncurrent Assets .......... 1,428 1,407
$9,481 $9,371
See accompanying Notes to Financial Statements.
PP&L, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
September 30, December 31,
1997 1996
(Unaudited) (Audited)
LIABILITIES
Capitalization
Common equity
Common stock .......................................... $1,476 $1,476
Additional paid-in capital ............................ 57 57
Earnings reinvested ................................... 1,095 1,094
Capital stock expense and other ...................... (18) (10)
2,610 2,617
Preferred stock
With sinking fund requirements ........................ 295 295
Without sinking fund requirements ..................... 171 171
Company-obligated mandatorily redeemable securities
of subsidiary holding solely parent debentures ........ 250
Long-term debt .......................................... 2,482 2,802
5,808 5,885
Current Liabilities
Commercial paper ........................................ 93
Bank loans .............................................. 10
Long-term debt due within one year ...................... 150 30
Capital lease obligations due within one year ........... 58 81
Accounts payable ........................................ 102 132
Taxes accrued ........................................... 1 21
Interest accrued ........................................ 62 60
Dividends payable ....................................... 82 75
Other ................................................... 113 78
661 487
Deferred Credits and Other Noncurrent Liabilities
Deferred investment tax credits ......................... 202 209
Deferred income taxes ................................... 2,028 2,050
Capital lease obligations .............................. 94 166
Other ................................................... 688 574
3,012 2,999
Commitments and Contingent Liabilities ....................
$9,481 $9,371
See accompanying Notes to Financial Statements.
PP&L Resources, Inc. and PP&L, Inc.
Notes to Financial Statements
Terms and abbreviations appearing in Notes to Financial Statements are
explained in the glossary.
1. Interim Financial Statements
Certain information in footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, has been condensed or omitted in this Form 10-Q
pursuant to the rules and regulations of the SEC. These financial
statements should be read in conjunction with the financial statements and
notes included in PP&L Resources' and PP&L's Annual Reports to the SEC on
Form 10-K for the year ended December 31, 1996.
Certain amounts in the prior period financial statements have been
reclassified to conform to the presentation in the September 30, 1997
financial statements.
2. PUC Restructuring Proceeding
In December 1996, Pennsylvania enacted the Customer Choice Act to
restructure its electric utility industry in order to create retail access
to a competitive market for the generation of electricity. In accordance
with that legislation, PP&L filed its restructuring plan with the PUC on
April 1, 1997.
Under the Customer Choice Act, the PUC is authorized to determine the
amount of PP&L's stranded costs to be recovered through a non-bypassable
competitive transition charge (CTC) to be paid by all PUC-jurisdictional
customers who receive transmission and distribution service from PP&L.
Stranded costs are defined in the Customer Choice Act as "generation-
related costs... which would have been recoverable under a regulated
environment but which may not be recoverable in a competitive generation
market and which the PUC determines will remain following mitigation by the
electric utility."
PP&L's restructuring plan includes a claim of $4.5 billion for
stranded costs. Pursuant to the Customer Choice Act, this claim is
comprised of the following categories:
1. Net plant investments and costs attributable to existing
generation plants and facilities, costs of power purchases, disposal
costs of spent nuclear fuel, retirement costs attributable to existing
generating plants and employee-related transition costs;
2. Prudently incurred costs related to the cancellation, buyout,
buydown or renegotiation of NUG contracts; and
3. Regulatory assets and other deferred charges typically recoverable
under current regulatory practice and cost obligations under PUC-approved
contracts with NUGs.
The following are the components of PP&L's stranded cost claim as
presented in the evidentiary record of the proceeding:
Amount
Category of Stranded Cost (Millions of Dollars)
Nuclear Generation(a) $2,825
Fossil Generation(a) 670
NUG Contracts 651
Regulatory Assets 354
$4,500
(a) Includes deferred income taxes related to generation assets.
In determining the appropriate amount of stranded cost recovery, the
Customer Choice Act requires the PUC to consider the extent to which an
electric utility has taken steps to mitigate stranded costs by appropriate
means that are reasonable under the circumstances. Mitigation efforts
undertaken over time prior to the enactment of the Customer Choice Act are
to be considered of equal importance by the PUC in determining an electric
utility's stranded costs as actions taken after the passage of the Customer
Choice Act. In its restructuring plan, PP&L described its extensive
efforts to mitigate its stranded costs, resulting in a reduction in its
stranded cost claim of over $1 billion.
Numerous parties have intervened in PP&L's restructuring proceeding.
In this regard, the PUC's OTS recommends that PP&L be permitted to recover
$3.2 billion of its stranded costs; the PP&L Industrial Customer Alliance
recommends recovery of $661 million; and the OCA recommends recovery of
$1.1 billion. Under Pennsylvania law, in proceedings before the PUC, the
OCA and the OTS have advocacy roles. Testimony filed by the OCA and OTS
carries no more weight than testimony filed by any other party in the
proceeding.
Evidentiary hearings in this matter were held in late-August. On
September 12, 1997, the PUC extended the schedule for this proceeding by 30
days to allow time for the parties to engage in settlement discussions. On
October 23, 1997, the PUC further extended the procedural schedule by 45
days for continued settlement discussions. If the parties reach a
settlement of this proceeding, the settlement agreement will be filed with
the PUC; the PUC could accept, reject or modify that settlement in its
final order. If no settlement is reached, then the proceeding will
continue pursuant to the established schedule under which the PUC's final
order currently is due by March 26. PP&L cannot predict the outcome of the
ongoing settlement discussions or the ultimate outcome of this proceeding.
The ultimate impact of the Customer Choice Act on PP&L's financial
health will depend on numerous factors, including:
1. The PUC's final order in the restructuring proceeding -- either on
a proposed settlement by the parties or as a result of a fully-litigated
proceeding -- including the amount of stranded cost recovery approved by
the PUC and the PUC's disposition of other issues raised;
2. The effect of the rate cap imposed under the provisions of the
Customer Choice Act;
3. The actual market price of electricity over the transition period;
4. Future sales levels; and
5. The extent to which the regulatory framework established by the
Customer Choice Act will continue to be applied.
Under the Customer Choice Act, PP&L's rates to PUC-jurisdictional
customers are capped at the level in effect on January 1, 1997 through mid-
2001 for transmission and distribution services and through the year 2005
for generation services to customers who do not choose an alternative
supplier. Applying the CTC proposed in its restructuring plan (which is
restricted by the rate cap) through the year 2005, it is estimated that
PP&L would collect approximately $4 billion of its stranded costs. The
remaining $500 million would be reflected as lower cash flow to PP&L after
the transition period than would have occurred with continued regulated
rates.
In this regard, it should be noted that PP&L's stranded cost claim
included in the restructuring plan is based on a projection of future
market prices and assumes a significant portion of PP&L's stranded costs
will be recovered by way of increased market prices for electricity. This
increase may or may not occur. To the extent that the market price of
electricity does not increase as projected, or other projections do not
actually occur, PP&L could experience a lower recovery of stranded costs.
If the PUC's final order in the restructuring proceeding were to
permit full recovery of PP&L's stranded costs, including full recovery of
all regulatory assets and above-market NUG costs over the transition
period, PP&L estimates that its net income over the transition period would
be reduced by about 5% of projected net income.
However, the PUC's final order -- either on a proposed settlement by
the parties or as a result of a fully-litigated proceeding -- may result in
changes to components or assumptions in PP&L's restructuring plan that
could have an adverse effect on the amount of the CTC, the amount of
stranded costs that are recoverable through the CTC or the overall amount
of revenues to be collected from customers. As a result of these
uncertainties, PP&L cannot determine whether and to what extent it may be
subject to a write-off or a reduction in earnings with respect to the
restructuring proceeding. Based on the substantial amounts involved in the
restructuring proceeding, should PP&L incur such a write-off or reduction
in earnings, either one could be material in amount. Accordingly, PP&L is
unable to predict the ultimate effect of the Customer Choice Act or the
PUC's final order in the restructuring proceeding on its financial
position, results of operation, future rate levels or its need or ability
to issue securities to meet future capital requirements.
The Customer Choice Act permits the issuance of "transition bonds"
securitized by CTC revenues to finance the payment of stranded costs. PP&L
is considering whether to seek to securitize some portion of its stranded
cost claim, which would require the approval of the PUC in a qualified rate
order.
Certain parties have brought actions in Pennsylvania Commonwealth
Court challenging the constitutionality of the Customer Choice Act. PP&L
has intervened in these proceedings in support of the Customer Choice Act.
3. Accounting for the Effects of Certain Types of Regulation
The Customer Choice Act establishes a definitive process for
transition to market-based pricing for electric generation. This
transition effectively includes cost-of-service based ratemaking during the
transition period, subject to a rate cap. Rates will include a non-
bypassable CTC, which is designed to give utilities the opportunity to
recover their stranded costs during the transition period.
The FASB's Emerging Issues Task Force (EITF) has addressed the
appropriateness of the continued application of SFAS 71 by utilities in
states that have enacted restructuring legislation similar to the Customer
Choice Act. The EITF has concluded that utilities should discontinue
application of SFAS 71 for the generation portion of their business when a
deregulation plan is in place and its terms are known, which for PP&L will
be upon the issuance of the PUC's restructuring order expected to be no
later than early-1998. One of the EITF's key conclusions is that utilities
should continue to carry some or all of their regulatory assets and
liabilities that originated in the generation portion of the business if
the regulatory cash flows to realize and settle them will be derived from
the regulated portion of the business (e.g., transmission and
distribution). In addition, costs or obligations of the generation portion
of the business that are incurred after application of SFAS 71 ceases and
that are covered by the regulated cash flows for the portion of the
business that remains regulated on a cost of service basis would also meet
the criteria to be considered regulatory assets or liabilities.
Given the current regulatory environment, PP&L's electric transmission
and distribution businesses are expected to remain regulated on a cost-of-
service basis and, as a result, the provisions of SFAS 71 should continue
to apply to those businesses. The impact of the discontinuance of
application of SFAS 71 to the generation portion of PP&L's business will
depend to a large degree on the outcome of the restructuring proceeding
currently pending before the PUC. See Financial Note 2 for a discussion of
the potential financial impacts of that proceeding.
4. Rate Matters
Appeal of Base Rate Case
Reference is made to PP&L Resources' and PP&L's Annual Report to the
SEC on Form 10-K for the year ended December 31, 1996, regarding the PUC
Decision. The OCA appealed three issues from the PUC Decision to the
Pennsylvania Commonwealth Court. In May 1997, the Commonwealth Court
issued its opinion on the OCA's appeal.
The first issue was the recovery of deferrals under SFAS 106. PP&L
had requested recovery of $27 million of increased costs for post-
retirement benefits caused by the change to accrual accounting of those
costs under SFAS 106. The PUC had allowed this recovery, and the
Commonwealth Court upheld the PUC's decision. In June 1997, the OCA filed
a petition for allowance of appeal with the Pennsylvania Supreme Court
requesting review of the Commonwealth Court's decision with respect to
SFAS 106. The Supreme Court has denied the OCA's request for review, and
the Commonwealth Court's decision is now final.
The second issue was the recovery of $19 million of carrying charges
and operating expenses incurred from the date of commercial operation of
Susquehanna Unit 2 until the plant was recognized in rates. PP&L had
requested recovery of those costs to be amortized over ten years. The PUC
had allowed this recovery, and the Commonwealth Court upheld the PUC's
decision.
The third issue was the recovery of Gross Receipts Tax (GRT) on
uncollectible revenues. PP&L had requested an allowance for GRT on the
full amount of revenue approved by the PUC, while the OCA had proposed a
$745,000 adjustment to disallow GRT on revenues that PP&L will not be able
to collect. The PUC had rejected the OCA's proposed adjustment. The
Commonwealth Court reversed the PUC decision and remanded that issue to the
PUC for recalculation of the allowance.
FERC - Major Utility Rates
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
four major electric utility customers (Atlantic, BG&E, JCP&L, and UGI).
PP&L also sought to increase the charges to those customers for nuclear
decommissioning costs. A settlement of this case was approved by the FERC
in June 1997, under terms which have no material effect on PP&L.
5. Sales to Other Major Electric Utilities
In March 1997, PP&L began sales of installed capacity credits of up to
225,000 kW through December 1998 to GPU and Atlantic Electric. Prices for
these sales reflect market conditions.
In May 1997, PP&L reached an agreement with Delmarva Power & Light
Company and Old Dominion Electric Cooperative for PP&L and Delmarva to
jointly provide Old Dominion with 60,000 kW of capacity to serve portions
of Old Dominion's load from 1998 through 2003. Prices for this capacity
reflect market conditions. FERC acceptance of this agreement is pending.
In June 1997, PP&L began a sale of capacity and energy to JCP&L
pursuant to an agreement which provides that JCP&L will purchase 150,000 kW
of capacity and energy for 12 months, increasing to 200,000 kW in June
1998, and then to 300,000 kW in June 1999 through the end of the agreement
in May 2004. Prices for this energy and capacity reflect market
conditions.
In July 1997, FERC accepted a new wholesale power tariff that permits
PP&L to sell capacity and energy at market-based rates, both inside and
outside the PJM area, subject to certain conditions. This tariff allows
PP&L to become more active in the wholesale market with utilities and other
entities, and removes pricing restrictions which in the past had limited
PP&L to charging at or below cost-based rates.
In October 1997, PP&L made an application to the United States
Department of Energy for an export license to sell capacity and/or energy
to electric utilities in Canada. If this application is granted, PP&L will
be able to sell either its own capacity and energy not required to serve
domestic obligations or power purchased from other utilities.
6. Financial Instruments
Financial investments decreased by $125 million from December 31, 1996
to September 30, 1997, largely due to the liquidation of long-term
investments to make funds more readily available for the tender offer to
repurchase PP&L preferred stock by PP&L Resources.
7. Credit Arrangements and Financing Activity
From January through October 1997, PP&L Resources issued $68 million
of common stock through the DRIP.
In April 1997, PP&L redeemed $210 million principal amount of four
series of first mortgage bonds. Three of the series of first mortgage
bonds were redeemed under the maintenance and replacement fund provisions
of the mortgage. These series of bonds consisted of $40 million principal
amount of the 7% series due 1999; $60 million principal amount of the
7-1/4% series due 2001; and $80 million principal amount of the 7-1/2%
series due 2003. The fourth series, $30 million principal amount of the 6-
3/4% series due 1997, was redeemed under the optional redemption provisions
of that series.
In April 1997, PP&L instituted a short-term bond program in order to
meet certain short-term working capital requirements and to accomplish
other corporate purposes. Under this program, a total of $800 million of
short-term bonds (having maturities not in excess of 30 days) were issued
from time to time, with no more than $150 million of such bonds outstanding
at any one time. No such bonds were outstanding at September 30, 1997.
In March and April 1997, PP&L Resources acquired 79.10% ($369 million
par value) of the outstanding preferred stock of PP&L in a tender offer.
By obtaining a majority of the 4-1/2% Preferred Stock and a majority of the
combined amount of the 4-1/2% Preferred Stock and Series Preferred Stock
(collectively, the Preferred Stock), PP&L Resources will be able to waive
certain restrictive provisions contained in PP&L's Articles of
Incorporation, including limitations on PP&L's ability to increase the
authorized number of shares of Preferred Stock, merge or consolidate with
other corporations, and issue additional Preferred Stock and unsecured
debt.
To provide financing for a portion of this tender offer, PP&L arranged
for the issuance of a total of $250 million of "Company-obligated
mandatorily redeemable preferred securities of subsidiary holding solely
parent debentures" (preferred securities) by two Delaware statutory
business trusts. These securities consist of four million shares of 8.20%
preferred securities issued to the public in April 1997 at $25 per share,
for proceeds of $100 million; and six million shares of 8.10% preferred
securities issued to the public in June 1997 at $25 per share, for proceeds
of $150 million. PP&L owns all of the common securities, representing the
remaining undivided beneficial ownership interest in the assets of the
trusts. The assets of the trusts consist solely of PP&L's junior
subordinated deferrable interest debentures, whose rates and maturities
match those of the preferred securities. PP&L has guaranteed all of the
trusts' obligations under the preferred securities. The proceeds of the
sale of these preferred securities were loaned by PP&L to PP&L Resources
for the tender offer.
PP&L Capital Funding is a wholly-owned subsidiary of PP&L Resources
which was formed in September 1997 to provide debt financing for PP&L
Resources and its subsidiaries. The payment of principal, interest and
premium, if any, with respect to debt securities issued by PP&L Capital
Funding will be guaranteed by PP&L Resources.
PP&L Capital Funding has registered $400 million of debt securities
with the SEC. It is expected that these debt securities will be issued
from time to time as medium-term notes to provide long-term debt financing
for PP&L Resources and its unregulated subsidiaries.
As more fully described in PP&L Resources' and PP&L's Annual Reports
to the SEC on Form 10-K for the year ended December 31, 1996, PP&L has a
$250 million revolving credit agreement with a group of banks (the PP&L
Credit Agreement). Any loans made under this credit agreement will mature,
and the facility will terminate, in September 1999. At September 30, 1997,
there were no borrowings outstanding under the PP&L Credit Agreement.
Additional credit arrangements under which another group of banks was
committed to lend PP&L up to $45 million were terminated by PP&L effective
November 7, 1997.
Also as described in the 1996 Form 10-K Report for PP&L Resources and
PP&L, PP&L Resources has a $300 million revolving credit agreement with a
group of banks (the PP&L Resources Credit Agreement). Due to a six-month
extension of this credit agreement in May 1997, loans made under this
credit agreement will mature, and the facility will terminate at the end of
November 1997. At September 30, 1997, there were $190 million of
borrowings outstanding under the PP&L Resources Credit Agreement.
PP&L Capital Funding and PP&L currently are negotiating a new
revolving credit facility with a group of banks under which a total of $450
million of loans will be available to PP&L Capital Funding and PP&L. This
revolving credit facility will replace the PP&L Resources Credit Agreement
and the PP&L Credit Agreement and will be evidenced by two new revolving
credit agreements--a $150 million 364-day Revolving Credit Agreement and a
$300 million five-year Revolving Credit Agreement. At the option of PP&L
Capital Funding and PP&L, interest rates for borrowings under these
agreements will be based upon Eurodollar deposit rates or the prime rate.
The respective obligations of PP&L Capital Funding and PP&L under these
agreements will be several and not joint.
8. Windfall Profits Tax - PP&L Global
In July 1997, the U.K. enacted a windfall profits tax on privatized
utilities. The tax is payable in two equal installments; the first
installment is due in December 1997 and the second one is due in December
1998. SWEB's windfall profits tax was approximately 97 million pounds
sterling, or about $159 million. Based on PP&L Global's 25% ownership
interest in SWEB, PP&L Resources incurred a one-time charge against
earnings of $40 million, or 24 cents per share, in the third quarter of
1997. Subsequent to September 30, 1997, SWEB revised its estimate of the
windfall profits tax from 97 million pounds sterling to approximately 90
million pounds sterling, or about $148 million. The reduction in PP&L
Resources' share of the tax, which is not material, is expected to be
recorded during the fourth quarter.
9. Acquisition of Penn Fuel Gas, Inc.
In June 1997, PP&L Resources entered into an agreement with Penn Fuel
Gas, Inc. (PFG), a Pennsylvania corporation, pursuant to which PP&L
Resources would acquire PFG. PFG, with nearly 100,000 customers in
Pennsylvania and a few hundred in Maryland, distributes and stores natural
gas and sells propane.
Under the terms of the agreement, PFG would become a wholly-owned
subsidiary of PP&L Resources. Upon consummation of the acquisition, each
outstanding PFG common share would be converted into the right to receive
between 6.968 and 8.516 shares of PP&L Resources' Common Stock, and each
outstanding PFG preferred share would be converted into the right to
receive between 0.682 and 0.833 shares of PP&L Resources' Common Stock.
PP&L Resources expects to issue shares of its Common Stock valued at about
$121 million to complete the transaction. The exact conversion rate and
number of PP&L Resources' shares to be issued will be based on the market
value of the Common Stock of PP&L Resources at the time of the merger. The
merger is expected to be treated as a pooling-of-interests for accounting
and financial reporting purposes.
The acquisition of PFG is subject to several conditions, including the
receipt of required approvals by the PUC and the SEC. The Maryland Public
Service Commission has determined not to institute proceedings on the
matter. The U.S. Department of Justice and the Federal Trade Commission
have granted early termination of the required waiting period for the
acquisition under the Hart-Scott-Rodino Premerger Notification Act. On
October 1, 1997, PFG's shareholders approved the acquisition at a special
shareholders meeting. The acquisition does not require the approval of
PP&L Resources' shareholders. The acquisition is expected to be completed
by mid-1998.
In the third quarter of 1997, PP&L Resources recorded one-time
transaction costs associated with the acquisition of PFG of $5.7 million,
which reduced earnings by about three cents per share.
10. Commitments and Contingent Liabilities
There have been no material changes related to PP&L Resources' or
PP&L's commitments and contingent liabilities since the companies filed
their joint 1996 Form 10-K, except for the discussion below regarding loan
guarantees of affiliated companies and employee relations.
For discussion pertaining to PP&L Resources' and PP&L's financing
matters, see Financial Note 7.
Nuclear Insurance
PP&L is a member of certain insurance programs which provide coverage
for property damage to members' nuclear generating stations. Facilities at
the Susquehanna station are insured against property damage losses up to
$2.75 billion under these programs. PP&L is also a member of an insurance
program which provides insurance coverage for the cost of replacement power
during prolonged outages of nuclear units caused by certain specified
conditions. Under the property and replacement power insurance programs,
PP&L could be assessed retroactive premiums in the event of the insurers'
adverse loss experience. The maximum amount PP&L could be assessed under
these programs at September 30, 1997 was about $36 million.
Under provisions of The Price Anderson Amendments Act of 1988, PP&L's
public liability for claims resulting from a nuclear incident at the
Susquehanna station is limited to about $8.9 billion. 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, 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 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 1990 levels for 1999 and 2003, respectively,
are specified under the Northeast Ozone Transport Region's Memorandum of
Understanding. The PA DEP has finalized regulations which require PP&L to
reduce its ozone seasonal NOx by 57% beginning in 1999.
The Clean Air Act requires the EPA to study the health effects of
hazardous air emissions from power plants and other sources. In this
regard, the EPA has finalized new national standards for ambient levels of
ground-level ozone and fine particulates. Based in part on the new ozone
standard, the EPA has proposed NOx emission limits for 22 states including
Pennsylvania, which in effect requires approximately an 80% reduction from
the 1990 level in Pennsylvania in the 2005-2012 timeframe. The new
particulates standard may require yet further reductions in both NOx and
SO2 and may extend the reductions from seasonal to year round.
Expenditures to meet the 1999 NOx reduction 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" on page 32 of the 1996 Form
10-K. 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 which
could be material.
Water and Residual Waste
DEP residual waste regulations set forth requirements for existing ash
basins at PP&L's coal-fired generating stations. To address these DEP
regulations, PP&L has installed dry fly ash handling systems at most of its
power stations, which eliminate the need for ash basins. In other cases,
PP&L has modified the existing facilities to allow continued operation of
the ash basins under a new DEP permit. 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.
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 proposed renewal of the Montour station's NPDES permit contains
stringent limits for iron and chlorine discharges. Depending on the
results of a toxic reduction study to be conducted, additional water
treatment facilities or operational changes may be needed at this station.
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" on page 32 of the 1996 Form
10-K. In this regard, 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 which 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 September 30, 1997, PP&L had accrued $8.9 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 which could be material.
Loan Guarantees of Affiliated Companies
PP&L Global has guaranteed a subsidiary's pro rata share of the
outstanding portion of certain debt issuances of an affiliate. At
September 30, 1997, $13 million of such loans were guaranteed by PP&L
Global. PP&L Global's guarantee is expected to increase to $18 million
during 1998, as the affiliate draws down the balance of its debt facility.
In addition, PP&L Spectrum has a $1 million line of credit, which is
guaranteed by PP&L Resources.
Employee Relations
As of September 30, 1997, PP&L had a total of 6,350 full-time
employees. Approximately 65 percent of these employees are represented by
the IBEW. The labor agreement with the IBEW expires in May 1998.
11. New Accounting Standards
During 1997, the FASB issued SFAS 128, Earnings Per Share; SFAS 129,
Disclosure of Information about Capital Structure; SFAS 130, Reporting
Comprehensive Income; and SFAS 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS 128, SFAS 129, and SFAS 131 are
effective for financial statements issued for periods ending after December
15, 1997. SFAS 130 is effective in 1998. The adoption of these statements
is not expected to have a material impact on PP&L Resources' or PP&L's
financial statements.
PP&L Resources, Inc. and PP&L, Inc.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The financial condition and results of operations of PP&L are
currently the principal factors affecting the financial condition and
results of operations of PP&L Resources. All fluctuations, unless
specifically noted, are primarily due to activities of PP&L. All
nonutility operating transactions are included in "Other Income and
(Deductions)" on the PP&L Resources' Consolidated Statement of Income.
This discussion should be read in conjunction with the section entitled
"Review of the Financial Condition and Results of Operations of PP&L
Resources, Inc. and Pennsylvania Power & Light Company" in PP&L Resources'
and PP&L's Annual Report to the SEC on Form 10-K for the year ended
December 31, 1996.
Terms and abbreviations appearing in Management's Discussion and
Analysis of Financial Condition and Results of Operations are explained in
the glossary.
Forward-looking Information
Certain statements contained in this Form 10-Q concerning
expectations, beliefs, plans, objectives, goals, strategies, future events
or performance and underlying assumptions and other statements which are
other than statements of historical facts, are "forward-looking statements"
within the meaning of the federal securities laws. Although PP&L Resources
and PP&L believe that the expectations reflected in these statements are
reasonable, there can be no assurance that these expectations will prove to
have been correct. These forward-looking statements involve a number of
risks and uncertainties, and actual results may differ materially from the
results discussed in the forward-looking statements. The following are
among the important factors that could cause actual results to differ
materially from the forward-looking statements: state and federal
regulatory developments, especially the PUC's final order on PP&L's
April 1, 1997 restructuring filing; new state or federal legislation;
national or regional economic conditions; weather variations affecting
customer usage; competition in retail and wholesale power markets; the need
for and effect of any business or industry restructuring; PP&L Resources'
and PP&L's profitability and liquidity; new accounting requirements or new
interpretations or applications of existing requirements; system conditions
and operating costs; performance of new ventures; political, regulatory or
economic conditions in foreign countries; exchange rates; and PP&L
Resources' and PP&L's commitments and liabilities. Any such forward-
looking statements should be considered in light of such important factors
and in conjunction with PP&L Resources' and PP&L's other documents on file
with the SEC.
Results of Operations
The following discussion explains material changes in principal items
on the Consolidated Statement of Income comparing the three months and nine
months ended September 30, 1997, to the comparable periods ended September
30, 1996.
The Consolidated Statement of Income reflects the results of past
operations and is not intended as any indication of the results of future
operations. Future results of operations will necessarily be affected by
various and diverse factors and developments. Furthermore, because results
for interim periods can be disproportionately influenced by various factors
and developments and by seasonal variations, the results of operations for
interim periods are not necessarily indicative of results or trends for the
year.
Earnings
Comparison of Earnings - September 30
Three Months Ended Nine Months Ended
1997 1996 1997 1996
Earnings per share - excluding
weather variances and one-time
adjustments $0.48 $0.51 $1.63 $1.56
Weather variances on billed sales (0.02) (0.02) (0.06) 0.04
One-time adjustments
Windfall Profits Tax (0.24) - (0.24) -
UK Income Tax Rate Reduction 0.06 - 0.06 -
Penn Fuel Gas, Inc. acquisition
costs (0.03) - (0.03) -
Earnings per share - reported $0.25 $0.49 $1.36 $1.60
Earnings per share, excluding weather variances and one-time
adjustments, were $.03 lower for the three months ended September 30, 1997,
and $.07 higher for the first nine months of 1997, when compared with the
same periods in 1996. Earnings changes for these periods, excluding
weather variances and one-time adjustments, were primarily the net effect
of the following:
Sept. 30, 1997 vs. Sept. 30, 1996
Three Months Nine Months
Ended Ended
(per share)
o Higher base rate revenues, due to unbilled
revenues and moderate growth in weather-
normalized sales; $ - $0.04
o Higher other operating revenues, primarily
due to increased sales of reservation of
electrical output to other utilities; 0.05 0.10
o Higher pre-tax earnings from PP&L Global; 0.01 0.06
o Net reduction in revenues due to the
phase-down of the contract with JCP&L; (0.01) (0.06)
o Change in regulatory treatment of energy
costs; (0.04) (0.04)
o Lower other income and deductions primarily
due to the sale of investment securities in
1996, and lower earnings from CEP due to the
liquidation of its investments; and (0.02) (0.04)
o Other (0.02) 0.01
Earnings Change $(0.03) $0.07
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; however, the price received for this capacity
and energy on the open market is currently less than the amount received
pursuant to the contract.
In addition, the Customer Choice Act and the regulatory and business
developments related thereto could have a major impact on the future
financial performance of PP&L. See "PUC Restructuring Proceeding" for
additional information.
Electric Energy Sales
The change in PP&L's electric energy sales was attributable to the
following:
Sept. 30, 1997 vs. Sept. 30, 1996
Three Months Nine Months
Ended Ended
(Millions of kWh)
Service Area Sales:
Residential 41 (383)
Commercial 56 13
Industrial 5 166
Other 3 (6)
Total Service Area Sales 105 (210)
Wholesale Energy Sales 2,779 3,891
Total 2,884 3,681
Service area sales were 7.8 billion kWh for the three months ended
September 30, 1997, an increase of 105 million kWh, or 1.4%, over the third
quarter of 1996. If normal weather conditions had been experienced in the
third quarters of 1996 and 1997, service area sales would have increased by
about 58 million kWh, or 0.7%, over the same period of 1996.
Service area sales were 24.1 billion kWh for the nine months ended
September 30, 1997, a decrease of 210 million kWh, or 0.9%, from the first
nine months of 1996. This change was primarily due to a mild winter
heating season in 1997 when compared to 1996. Sales to the Residential
class declined by 4.2% for the period, while Industrial sales increased by
2.2%. Under normal weather conditions, service area sales would have
increased by about 239 million kWh, or 1.0%, over the same period of 1996.
Wholesale energy sales, which includes sales to other utilities and
energy marketers through contracts, spot market transactions or power pool
arrangements, were 6.6 billion kWh for the three months ended September 30,
1997, an increase of 2.8 billion kWh, or 72.1%, from the same period of
1996, despite the reduction in PP&L's contractual bulk power sales to
JCP&L. Improved availability of generating units, along with increased
power purchases, allowed for increased bilateral sales. For the nine
months ended September 30, 1997, the increase in wholesale energy sales was
3.9 billion kWh, or 35.4%.
Operating Revenues
The change in total operating revenues was attributable to the
following:
Sept. 30, 1997 vs. Sept. 30, 1996
Three Months Nine Months
Ended Ended
(Millions of Dollars)
Base Rate Revenues - Service Area Sales
Sales volume and sales mix effect $ 6 $13
Weather effect 4 (36)
Unbilled revenues (1) 6
Energy Revenues (15) (16)
SBRCA 2 8
Wholesale Revenues
Energy and capacity 54 74
Reservation charges and other 10 24
Other 3 4
$63 $77
Operating revenues increased by $63 million, or 8.8%, during the three
months ended September 30, 1997, from the same period in 1996. Revenue
from sales of energy and capacity to wholesale customers increased by $54
million over the prior year, despite the phase-down of the capacity and
energy agreement with JCP&L. These results continue to reflect PP&L's
increased emphasis on competing in wholesale markets. This emphasis is
also reflected in the increase in revenues from the sales of reservation
charges and capacity credits in the third quarter of 1997. Moderate sales
growth to PUC and FERC jurisdictional customers also contributed to the
increase in revenues. These increases were partially offset by a change in
the regulatory treatment of energy costs. Specifically, beginning January
1, 1997, underrecovered energy costs are no longer recorded as energy
revenues but as regulatory credits, which are offsets to "Other Operating
Expenses".
Operating revenues increased by $77 million, or 3.5%, during the nine
months ended September 30, 1997, when compared with the first nine months
of 1996. Revenue increases are attributable to the same factors identified
above for the third quarter, as well as higher unbilled revenues. However,
weather caused an unfavorable impact during the nine months ended September
30, 1997 versus September 30, 1996. Weather changes, most notably the
extremely cold winter in 1996 versus a mild winter in 1997, decreased
revenues by about $36 million for this period.
PUC Restructuring Proceeding
In December 1996, Pennsylvania enacted the Customer Choice Act to
restructure its electric utility industry in order to create retail access
to a competitive market for the generation of electricity. In accordance
with that legislation, PP&L filed its restructuring plan with the PUC on
April 1, 1997.
Under the Customer Choice Act, the PUC is authorized to determine the
amount of PP&L's stranded costs to be recovered through a non-bypassable
competitive transition charge (CTC) to be paid by all PUC-jurisdictional
customers who receive transmission and distribution service from PP&L.
Stranded costs are defined in the Customer Choice Act as "generation-
related costs... which would have been recoverable under a regulated
environment but which may not be recoverable in a competitive generation
market and which the PUC determines will remain following mitigation by the
electric utility."
PP&L's restructuring plan includes a claim of $4.5 billion for
stranded costs. Pursuant to the Customer Choice Act, this claim is
comprised of the following categories:
1. Net plant investments and costs attributable to existing
generation plants and facilities, costs of power purchases, disposal
costs of spent nuclear fuel, retirement costs attributable to existing
generating plants and employee-related transition costs;
2. Prudently incurred costs related to the cancellation, buyout,
buydown or renegotiation of NUG contracts; and
3. Regulatory assets and other deferred charges typically recoverable
under current regulatory practice and cost obligations under PUC-approved
contracts with NUGs.
The following are the components of PP&L's stranded cost claim as
presented in the evidentiary record of the proceeding:
Amount
Category of Stranded Cost (Millions of Dollars)
Nuclear Generation(a) $2,825
Fossil Generation(a) 670
NUG Contracts 651
Regulatory Assets 354
$4,500
(a) Includes deferred income taxes related to generation assets.
In determining the appropriate amount of stranded cost recovery, the
Customer Choice Act requires the PUC to consider the extent to which an
electric utility has taken steps to mitigate stranded costs by appropriate
means that are reasonable under the circumstances. Mitigation efforts
undertaken over time prior to the enactment of the Customer Choice Act are
to be considered of equal importance by the PUC in determining an electric
utility's stranded costs as actions taken after the passage of the Customer
Choice Act. In its restructuring plan, PP&L described its extensive
efforts to mitigate its stranded costs, resulting in a reduction in its
stranded cost claim of over $1 billion.
Numerous parties have intervened in PP&L's restructuring proceeding.
In this regard, the PUC's OTS recommends that PP&L be permitted to recover
$3.2 billion of its stranded costs; the PP&L Industrial Customer Alliance
recommends recovery of $661 million; and the OCA recommends recovery of
$1.1 billion. Under Pennsylvania law, in proceedings before the PUC, the
OCA and the OTS have advocacy roles. Testimony filed by the OCA and OTS
carries no more weight than testimony filed by any other party in the
proceeding.
Evidentiary hearings in this matter were held in late-August. On
September 12, 1997, the PUC extended the schedule for this proceeding by 30
days to allow time for the parties to engage in settlement discussions. On
October 23, 1997, the PUC further extended the procedural schedule by 45
days for continued settlement discussions. If the parties reach a
settlement of this proceeding, the settlement agreement will be filed with
the PUC; the PUC could accept, reject or modify that settlement in its
final order. If no settlement is reached, then the proceeding will
continue pursuant to the established schedule under which the PUC's final
order currently is due by March 26. PP&L cannot predict the outcome of the
ongoing settlement discussions or the ultimate outcome of this proceeding.
The ultimate impact of the Customer Choice Act on PP&L's financial
health will depend on numerous factors, including:
1. The PUC's final order in the restructuring proceeding -- either on
a proposed settlement by the parties or as a result of a fully-litigated
proceeding -- including the amount of stranded cost recovery approved by
the PUC and the PUC's disposition of other issues raised;
2. The effect of the rate cap imposed under the provisions of the
Customer Choice Act;
3. The actual market price of electricity over the transition period;
4. Future sales levels; and
5. The extent to which the regulatory framework established by the
Customer Choice Act will continue to be applied.
Under the Customer Choice Act, PP&L's rates to PUC-jurisdictional
customers are capped at the level in effect on January 1, 1997 through mid-
2001 for transmission and distribution services and through the year 2005
for generation services to customers who do not choose an alternative
supplier. Applying the CTC proposed in its restructuring plan (which is
restricted by the rate cap) through the year 2005, it is estimated that
PP&L would collect approximately $4 billion of its stranded costs. The
remaining $500 million would be reflected as lower cash flow to PP&L after
the transition period than would have occurred with continued regulated
rates.
In this regard, it should be noted that PP&L's stranded cost claim
included in the restructuring plan is based on a projection of future
market prices and assumes a significant portion of PP&L's stranded costs
will be recovered by way of increased market prices for electricity. This
increase may or may not occur. To the extent that the market price of
electricity does not increase as projected, or other projections do not
actually occur, PP&L could experience a lower recovery of stranded costs.
If the PUC's final order in the restructuring proceeding were to
permit full recovery of PP&L's stranded costs, including full recovery of
all regulatory assets and above-market NUG costs over the transition
period, PP&L estimates that its net income over the transition period would
be reduced by about 5% of projected net income.
However, the PUC's final order -- either on a proposed settlement by
the parties or as a result of a fully-litigated proceeding -- may result in
changes to components or assumptions in PP&L's restructuring plan that
could have an adverse effect on the amount of the CTC, the amount of
stranded costs that are recoverable through the CTC or the overall amount
of revenues to be collected from customers. As a result of these
uncertainties, PP&L cannot determine whether and to what extent it may be
subject to a write-off or a reduction in earnings with respect to the
restructuring proceeding. Based on the substantial amounts involved in the
restructuring proceeding, should PP&L incur such a write-off or reduction
in earnings, either one could be material in amount. Accordingly, PP&L is
unable to predict the ultimate effect of the Customer Choice Act or the
PUC's final order in the restructuring proceeding on its financial
position, results of operation, future rate levels or its need or ability
to issue securities to meet future capital requirements.
The Customer Choice Act permits the issuance of "transition bonds"
securitized by CTC revenues to finance the payment of stranded costs. PP&L
is considering whether to seek to securitize some portion of its stranded
cost claim, which would require the approval of the PUC in a qualified rate
order.
Certain parties have brought actions in Pennsylvania Commonwealth
Court challenging the constitutionality of the Customer Choice Act. PP&L
has intervened in these proceedings in support of the Customer Choice Act.
Rate Matters
Refer to Financial Note 4 for information regarding rate matters.
Fuel Expense
Fuel expense for the three months ended September 30, 1997, increased
by $10 million from the comparable period in 1996. This change was
primarily due to increased generation at the Susquehanna nuclear station.
During this period in 1996, an unplanned outage of Unit 2 occurred during
July and the ninth refueling and inspection outage of Unit 1 began in
September. During this same period in 1997, Unit 1 experienced a 100%
availability factor while Unit 2 experienced a brief shutdown in September.
The PJM Power Pool has begun operating with new marketing procedures
under which companies bid their generators' output and buy or sell energy
at a pool-wide market clearing price. Accordingly, PP&L has found it
advantageous at times to independently schedule the operation of its coal-
fired units rather than follow a PJM schedule, resulting in these units
operating at higher output and causing an increase of coal-fired generation
for the quarter.
Fuel expense for the nine months ended 1997 compared to the same
period in 1996 remained virtually unchanged.
Power Purchases
For the three months ended September 30, 1997, power purchases
increased by $54 million over the comparable period in 1996. This increase
was primarily due to greater quantities of power purchased from other
utilities to meet increased energy marketing activities.
For the nine months ended September 30, 1997, power purchases
increased by $109 million over the comparable period in 1996. This
increase was primarily due to greater quantities purchased from other
utilities to meet planned and unplanned outages at the Susquehanna station
and to meet increased energy marketing activities.
The overall market price of power has been higher during 1997 than
1996. Coupled with the increase in quantities of power purchased, these
higher prices contributed to the increase in purchased power costs.
Other Operation and Maintenance Expense
Other operation and maintenance expenses decreased by $7 million and
$30 million, respectively, for the three and nine months ended September
30, 1997 over the comparable periods in 1996. Excluding the effect of
underrecovered energy costs, operation and maintenance expenses increased
by $2 million in both periods.
Prior to 1997, underrecovered energy costs were accrued as energy
revenues. Due to a change by the PUC, effective January 1, 1997 these
underrecovered costs are now recorded as regulatory credits, subject to a
maximum credit of $31.5 million for 1997. At September 30, 1997, these
underrecovered costs have exceeded the limit by $9.9 million. These
regulatory credits are reflected in the income statement as a reduction of
operating expense to be recovered in PP&L's restructuring proceeding.
Windfall Profits Tax - PP&L Global
In July 1997, the U.K. enacted a windfall profits tax on privatized
utilities. The tax is payable in two equal installments; the first
installment is due in December 1997 and the second one is due in December
1998. SWEB's windfall profits tax was approximately 97 million pounds
sterling, or about $159 million. Based on PP&L Global's 25% ownership
interest in SWEB, PP&L Resources incurred a one-time charge against
earnings of $40 million, or 24 cents per share, in the third quarter of
1997. Subsequent to September 30, 1997, SWEB revised its estimate of the
windfall profits tax from 97 million pounds sterling to approximately 90
million pounds sterling, or about $148 million. The reduction in PP&L
Resources' share of the tax, which is not material, is expected to be
recorded during the fourth quarter.
Financial Condition
Financing Activities
The following financings have occurred through September 30, 1997:
o From January through October 1997, PP&L Resources issued $68
million of common stock through the DRIP.
o In April 1997, PP&L redeemed $210 million principal amount of four
series of first mortgage bonds.
o PP&L Resources acquired 79.10% of the outstanding preferred stock
of PP&L pursuant to a tender offer in March and April 1997.
o To provide financing for a portion of this tender offer, PP&L
arranged for two Delaware statutory business trusts to issue a
total of $250 million of preferred securities supported by a
corresponding amount of junior subordinated deferrable interest
debentures issued by PP&L to the trusts. Specifically, in April
and June 1997 the trusts issued $100 million and $150 million of
preferred securities, respectively.
o PP&L Resources' $300 million revolving credit facility was
extended to the end of November 1997. As of September 30, 1997,
borrowings under this credit facility were $190 million.
Refer to Financial Note 7 for additional information.
Financing and Liquidity
The change in cash and cash equivalents for the nine months ended
September 30, 1997 decreased $132 million for PP&L Resources from the
comparable period in 1996. The reasons for this change were:
o A $53 million decrease in cash provided by operating activities
due, in part, to cash outflows for a refueling outage of
Susquehanna Unit 2 and a buyout of a contract with a non-utility
generator.
o A $210 million decrease in cash used in investing activities due
to subsidiaries liquidating long-term investments to make funds
available for other investments and to a reduction in the amount
of investment in electric energy projects by PP&L Global.
o A $289 million increase in cash used in financing activities as a
result of PP&L Resources acquiring 79% of PP&L preferred stock for
a cost, including a premium and associated costs of purchase, of
$380 million. There also was a $106 decrease in the issuance of
long-term debt and a $65 million increase in the retirement of
long-term debt. Offsetting these outflows was PP&L's issuance of
$250 million of preferred securities.
PP&L's projected internally generated funds would be sufficient to
permit PP&L to retire about $550 million of its long-term debt during 1998-
2001.
Outside financing, in amounts not currently determinable, or the
liquidation of certain financial investments, may be required over the next
five years to finance investments in world-wide energy projects by PP&L
Global.
Financial Indicators
The ratio of pre-tax income to interest charges was 3.4 and 3.6,
respectively, for the nine months ended September 30, 1997 and 1996. The
annual per share dividend rate on common stock was unchanged at $1.67 per
share. The ratio of the market price to book value of common stock was
130% at September 30, 1997, compared with 131% at September 30, 1996.
Unregulated Investments
PP&L Global continues to pursue opportunities to develop and acquire
electric generation, transmission and distribution facilities in the United
States and abroad.
As of September 30, 1997, PP&L Global had investments and commitments
in the amount of approximately $370 million in distribution, transmission
and generation facilities in the United Kingdom, Bolivia, Peru, Argentina,
Spain, Portugal and Chile. PP&L Global's principal investments to date are
in SWEB and Emel. Refer to "Windfall Profits Tax - PP&L Global" for
information regarding the effect of the U.K.'s windfall profits tax on the
investment in SWEB.
In July 1997, PP&L Global acquired a 25.05% interest in Emel at a cost
of approximately $118 million. Emel is a Chilean holding company that has
majority interests in six electric distribution companies located in Chile
and Bolivia. Emel's electric distribution company holdings make it the
third largest distributor of electricity in Chile and the second largest in
Bolivia, serving a total of 535,000 customers in those countries. Under a
shareholders' agreement, PP&L Global and another major shareholder, Las
Espigas Group, jointly control Emel's board of directors.
PP&L Resources' other unregulated subsidiary, PP&L Spectrum, offers
energy-related products and services inside and outside of PP&L's service
territory. Other subsidiaries may be formed by PP&L Resources to take
advantage of new business opportunities.
Commitments and Contingent Liabilities
There have been no material changes related to PP&L Resources' or
PP&L's commitments and contingent liabilities since the companies filed
their joint 1996 Form 10-K, except for the discussions in Financial Note 10
- -- "Commitments and Contingent Liabilities" regarding loan guarantees of
affiliated companies and employee relations.
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 "PUC Restructuring Proceeding" for a discussion
of PP&L's April 1997 filing of its restructuring plan pursuant to the
Customer Choice Act.
In February 1997, PP&L filed a proposed retail access pilot program
with the PUC in accordance with the applicable provisions of the Customer
Choice Act and PUC guidelines. Under its pilot program, approximately
61,000 PP&L residential, commercial and industrial customers --
representing about 5% of PP&L's average annual peak load -- will have an
opportunity to purchase energy and capacity from alternative suppliers. A
number of the major parties, including PP&L, entered into a joint
settlement agreement resolving all of the issues in the Pennsylvania
utilities' pilot proceedings. In August 1997, the PUC issued an order
modifying this settlement and modifying and approving PP&L's pilot program.
In October 1997, PP&L submitted its pilot program compliance filing to the
PUC. Under the current schedule, retail customers participating in the
PP&L and other pilot programs will begin to receive power from their
supplier of choice in November 1997.
The customers selected for the pilot programs are now choosing their
electricity supplier. The PUC has extended the state-wide deadline to
choose an electricity supplier from October 25 to November 14, 1997. Only
those alternative suppliers licensed by the PUC and in compliance with the
state tax obligations set forth in the Customer Choice Act may participate
in the pilot programs. To date, approximately 42 suppliers have obtained
such licenses to participate in the pilot programs. PP&L will provide all
transmission and distribution, customer service and back-up energy supply
services to participating customers.
In June 1997, the PUC approved PP&L's application for a license to act
as an electric generation supplier. This license permits PP&L to
participate in the various retail access pilot programs of the other
Pennsylvania utilities, and PP&L currently is offering electric supply to
the participating customers of those utilities.
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 rules also provided that
utilities are entitled to recover from certain wholesale requirements
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 requirements contracts signed
before that 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 required that power pools file pool-wide
open access transmission tariffs and modified bilateral coordination
agreements reflecting the removal of discriminatory provisions by December
31, 1996.
In July 1996, PP&L filed its 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. The non-rate terms and conditions of
that tariff were accepted by the FERC. However, several parties moved to
intervene and protested the new rates in the tariff. In July 1997, the
FERC rejected PP&L's rates and ordered that the rates which had been in
effect prior to the July 1996 filing be reinserted into the tariff.
Hearings have been scheduled in this matter for April 1998.
In March 1997, the FERC issued Orders 888-A and 889-A. Among other
things, these orders required utilities to make certain changes to the non-
rate terms and conditions of their open access transmission tariffs. In
compliance with Order 888-A, in July 1997 PP&L filed a revised open access
transmission tariff. PP&L also requested in that filing that the FERC
approve certain transmission tariff rate changes. The FERC has not yet
acted on that filing.
Under the new FERC rules, 16 small utilities which have power supply
agreements 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 agreements in 1999. Based
upon a formula set forth in FERC Order 888 and applicable only to wholesale
requirements customers, and based upon data unique to the agreements
between PP&L and these customers, PP&L estimated that the stranded costs
associated with service to these wholesale customers would be approximately
$125 million. As a result of a protest by these parties against such
recovery, hearings were conducted at the FERC in March 1997 and June 1997
regarding PP&L's right to recover these stranded costs. Further
proceedings in this matter have been suspended pending the negotiation and
approval by the FERC of a settlement with these customers.
In December 1996, the PJM companies submitted a 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 FERC accepted the PJM tariff and proposed rates, subject to refund, and
they went into effect on March 1, 1997. In June 1997, all of the PJM
companies except PECO filed with the FERC proposals to amend the PJM tariff
and restructure the PJM pool. PECO filed a separate request with the FERC
to amend the PJM tariff and restructure the PJM pool. The FERC has not yet
acted on these filings.
In September 1997, PP&L filed with the FERC a request to lower the
applicable PP&L revenue requirement currently set forth in the PJM open
access transmission tariff. The new revenue requirement results from
PP&L's use of the same test year and cost support data used in the PUC
restructuring proceeding. PP&L requested that the new revenue requirement
take effect on November 1, 1997. The FERC has taken no action on this
filing.
In September 1997, PP&L also filed with the FERC a request to approve
new revenue requirements and rates for the PP&L open access transmission
tariff. No customers currently take service under that tariff. As with
the PJM tariff filing, the new revenue requirements and rates requested by
PP&L are based on the same test year and cost support data used by PP&L in
its PUC restructuring proceeding. The FERC has taken no action in this
filing.
In July 1997, the FERC accepted a new wholesale power tariff that
permits PP&L to sell capacity and energy at market-based rates, both inside
and outside the PJM area, subject to certain conditions. This tariff
allows PP&L to become more active in the wholesale market with utilities
and other entities, and removes pricing restrictions which in the past had
limited PP&L to charging at or below cost-based rates.
In October 1997, PP&L made an application to the United States
Department of Energy for an export license to sell capacity and/or energy
to electric utilities in Canada. If this application is granted, PP&L will
be able to sell either its own capacity and energy not required to serve
domestic obligations or power purchased from other utilities.
PP&L RESOURCES, INC. AND
PP&L, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Notes to Financial Statements for information
concerning rate matters and PP&L's restructuring proceeding before the PUC
under the Customer Choice Act.
Reference is made to PP&L's 1996 Form 10-K for information concerning
a federal antitrust suit by SER, one of the non-utility generating
companies from which PP&L purchases power under PURPA, against PP&L in the
District Court for alleged improper curtailment of power purchases under
the power purchase agreement between the parties. In May 1997, the U.S.
Court of Appeals for the Third Circuit affirmed the District Court's
dismissal of this suit. In September 1997, SER requested the United States
Supreme Court to review the Third Circuit's decision. PP&L cannot predict
the outcome of this proceeding.
Reference is made to PP&L's 1996 Form 10-K for information concerning
a suit by Mon Valley Steel Company, Inc. against PP&L and two of its
subsidiaries regarding the 1992 sale to Mon Valley of Tunnelton Mining
Company. The suit was settled in August 1997 on terms which have no
material effect on PP&L.
Reference is made to PP&L's 1996 Form 10-K for information concerning
PP&L's complaint to the Surface Transportation Board regarding coal
transportation rates charged by three rail carriers. In September 1997,
PP&L reached an agreement with the carriers to settle this case. Under the
terms of the settlement, PP&L would pay lower coal transportation rates to
the carriers. However, the settlement is conditioned on the outcome of the
joint Norfolk Southern/CSX application to take control of Conrail, which is
pending before the Surface Transportation Board. PP&L cannot predict the
outcome of this proceeding or its ultimate impact on PP&L's coal
transportation rates.
Reference is made to PP&L's 1996 Form 10-K for information concerning
complaints by PP&L and 16 unrelated parties against 64 other parties in
District Court seeking reimbursement under Superfund for costs incurred at
the Novak landfill site in Lehigh County, Pennsylvania, as well as an
action by EPA against PP&L and 29 other parties under section 107 of CERCLA
to recover EPA's costs at the site. The parties have reached tentative
settlements in both of these actions. PP&L's allocated share of the costs
at this site is not expected to be material.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 - Computation of Ratio of Earnings to Fixed Charges
27 - Financial Data Schedule
(b) Reports on Form 8-K
Report dated July 14, 1997
Item 5. Other Events
Information regarding the effect of the U.K. windfall profits tax
on PP&L Resources.
Report dated September 12, 1997
Item 5. Other Events
Information regarding (i) a schedule extension in PP&L's
restructuring case; and (ii) corporate name changes of Pennsylvania
Power & Light Company to PP&L, Inc., Power Markets Development Company
to PP&L Global, Inc., and Spectrum Energy Services Corporation to PP&L
Spectrum, Inc., effective September 12, 1997.
GLOSSARY OF TERMS AND ABBREVIATIONS
Atlantic - Atlantic City Electric Company
BG&E - Baltimore Gas & Electric Company
CEP (CEP Group, Inc.) - a wholly-owned subsidiary of PP&L
CERCLA - Comprehensive Environmental Response, Compensation and Liability
Act
Clean Air Act (Federal Clean Air Act Amendments of 1990) - legislation
enacted to address environmental issues including acid rain, ozone and
toxic air emissions
CTC - Competitive transition charge
Customer Choice Act - (Pennsylvania Electricity Generation Customer Choice
and Competition Act) - legislation enacted to restructure the state's
electric utility industry to create retail access to a competitive market
for generation of electricity
DEP - Pennsylvania Department of Environmental Protection
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
EITF - Emerging Issues Task Force
Emel - Empresas Emel, S.A., a Chilean electric distribution holding company
EPA - Environmental Protection Agency
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) - federal agency that regulates
interstate transmission and sale of electricity and related matters
GRT - Gross Receipts Tax
IBEW - International Brotherhood of Electrical Workers
JCP&L - Jersey Central Power & Light Company
Major utilities - Atlantic, BG&E and JCP&L
NOx - Nitrogen oxide
NPDES - National Pollutant Discharge Elimination System
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
OTS - Office of Trial Staff
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
PFG - Penn Fuel Gas, Inc.
PJM (Pennsylvania - New Jersey - Maryland Interconnection Association) -
Mid-atlantic power pool consisting of 11 operating electric utilities,
including PP&L
PP&L - PP&L, Inc. (formerly Pennsylvania Power & Light Company)
PP&L Capital Funding - PP&L Capital Funding, Inc., PP&L Resources' debt
financing subsidiary
PP&L Global - PP&L Global, Inc., a PP&L Resources' unregulated subsidiary
which invests in and develops world-wide power projects (formerly Power
Markets Development Company)
PP&L Resources - PP&L Resources, Inc., the parent holding company of PP&L,
PP&L Global and PP&L Spectrum
PP&L Spectrum - PP&L Spectrum, Inc., a PP&L Resources' unregulated
subsidiary which offers energy-related products and services inside and
outside of PP&L's service territory (formerly Spectrum Energy Services
Corporation)
preferred securities - Company-obligated mandatorily redeemable securities
of subsidiary holding solely parent debentures
PUC (Pennsylvania Public Utility Commission) - state agency that regulates
certain ratemaking, services, 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.
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
SO2 - Sulfur dioxide
Superfund - Federal and state environmental legislation that addresses
remediation of contaminated sites
SWEB - South Western Electricity Board plc, a British regional electric
utility company
UGI - UGI Corporation
U.K. - United Kingdom
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized. The signature for each
undersigned company shall be deemed to relate only to matters having
reference to such company or its subsidiary.
PP&L Resources, Inc.
(Registrant)
PP&L, Inc.
(Registrant)
Date: November 10, 1997 /s/ R. E. Hill
R. E. Hill
Senior Vice President-Financial
(PP&L Resources, Inc. and PP&L, Inc.
/s/ J. J. McCabe
J. J. McCabe
Vice President & Controller (PP&L
Resources, Inc. and PP&L, Inc.)