UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to
Commission File Registrant; State of Incorporation; IRS Employer
Number Address and Telephone Number Identification No.
1-11459 PP&L Resources, Inc. 23-2758192
(Exact name of Registrant as
specified in its charter)
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
1-905 PP&L, INC. 23-0959590
(Exact name of Registrant as
specified in its charter)
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock of PP&L Resources, Inc. New York & Philadelphia
Stock Exchanges
Preferred Stock of PP&L, Inc.
4-1/2% New York & Philadelphia Stock Exchanges
3.35% Series Philadelphia Stock Exchange
4.40% Series New York & Philadelphia Stock Exchanges
4.60% Series Philadelphia Stock Exchange
Company-obligated Mandatorily Redeemable Securities of PP&L, Inc.
8.20% Series ($25 stated value)(a) New York Stock Exchange
8.10% Series ($25 stated value)(b) New York Stock Exchange
(a) Issued by PP&L Capital Trust and guaranteed by PP&L, Inc.
(b) Issued by PP&L Capital Trust II and guaranteed by PP&L, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrants' knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
PP&L Resources, Inc. [ X ]
PP&L, Inc. [ X ]
Indicate by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrants were required to file such reports), and (2)
have been subject to such filing requirements for the past 90 days.
PP&L Resources, Inc. Yes X No
PP&L, Inc. Yes X No
The aggregate market value of the voting common stock held by non-
affiliates of PP&L Resources, Inc. at January 31, 1998 was
$3,670,816,160. PP&L Resources, Inc. held all 157,300,382 outstanding
common shares, no par value, of PP&L, Inc. The aggregate market value of
the voting preferred stock held by non-affiliates of PP&L, Inc. at
January 31, 1998 was $88,801,387.
The number of shares of PP&L Resources, Inc. Common Stock, $.01 par
value, outstanding on January 31, 1998 was 166,855,280.
Documents incorporated by reference:
Registrants have incorporated herein by reference certain sections
of their 1998 Notices of Annual Meetings and Proxy Statements which will
be filed with the Securities and Exchange Commission not later than 120
days after December 31, 1997. Such Proxy Statements will provide the
information required by Part III of this Report.
PP&L RESOURCES, INC.
PP&L, INC.
FORM 10-K ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
This combined Form 10-K is separately filed by PP&L Resources, Inc.
and PP&L, Inc. Information contained herein relating to PP&L, Inc. is
filed by PP&L Resources, Inc. and separately by PP&L, Inc. on its own
behalf. PP&L, Inc. makes no representation as to information relating to
PP&L Resources, Inc. or its subsidiaries, except as it may relate to PP&L,
Inc.
Item Page
PART I
1. Business ............................................. 1
2. Properties ........................................... 14
3. Legal Proceedings .................................... 14
4. Submission of Matters to a Vote of Security Holders .. 18
Executive Officers of the Registrants ................ 19
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters .................................. 21
6. Selected Financial Data .............................. 22
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 24
8. Financial Statements and Supplementary Data
Report of Independent Accountants .................. 41
Management's Report on Responsibility for Financial
Statements ....................................... 42
Financial Statements:
PP&L Resources, Inc.
Consolidated Statement of Income for the Three Years
Ended December 31, 1997........................... 44
Consolidated Statement of Cash Flows for the Three
Years Ended December 31, 1997 .................... 45
Consolidated Balance Sheet at December 31, 1997 and
1996 ............................................. 46
Consolidated Statement of Shareowners' Common Equity
for the Three Years Ended December 31, 1997 ...... 48
Consolidated Statement of Preferred Stock at
December 31, 1997 and 1996 ....................... 49
Consolidated Statement of Company-Obligated
Mandatorily Redeemable Securities at
December 31, 1997 and 1996 ....................... 50
Consolidated Statement of Long-Term Debt at
December 31, 1997 and 1996 ....................... 51
PP&L, Inc.
Consolidated Statement of Income for the Three Years
Ended December 31, 1997 .......................... 52
Consolidated Statement of Cash Flows for the Three
Years Ended December 31, 1997 .................... 53
Consolidated Balance Sheet at December 31, 1997 and
1996 ............................................. 54
Consolidated Statement of Shareowner's Common Equity
for the Three Years Ended December 31, 1997 ...... 56
Consolidated Statement of Preferred Stock at
December 31, 1997 and 1996 ....................... 57
Consolidated Statement of Long-Term Debt at
December 31, 1997 and 1996 ....................... 58
Notes to Financial Statements ...................... 59
Supplemental Financial Statement Schedule:
II - Valuation and Qualifying Accounts and
Reserves for the Three Years Ended
December 31, 1997 ............................. 82
Quarterly Financial, Common Stock Price and
Dividend Data ...................................... 83
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................. 84
PART III
10. Directors and Executive Officers of the Registrants .. 85
11. Executive Compensation ............................... 85
12. Security Ownership of Certain Beneficial
Owners and Management ................................ 85
13. Certain Relationships and Related Transactions ....... 86
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K .................................. 87
Shareowner and Investor Information .................. 89
Signatures ........................................... 92
Exhibit Index ........................................ 93
Computation of Ratio of Earnings to Fixed Charges .... 104
Glossary of Terms and Abbreviations
AFUDC (Allowance for Funds Used During Construction) - the cost
of equity and debt funds used to finance construction projects
that is capitalized as part of construction cost.
Atlantic - Atlantic City Electric Company
BG&E - Baltimore Gas & Electric Company
CERCLA - Comprehensive Environmental Response, Compen-sation 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
District Court - United States District Court for the Eastern
District of Pennsylvania.
DOE - Department of Energy
DRIP (Dividend Reinvestment Plan) - program available to
shareowners of PP&L Resources' common stock and PP&L preferred
stock to reinvest dividends in PP&L Resources' common stock
instead of receiving dividend checks.
ECR (Energy Cost Rate) - a tariff applied to PUC-jurisdictional
customers to recover fuel and other energy costs. Effective
January 1997, energy costs were rolled into base rates.
EITF - Emerging Issues Task Force
Emel - Empresas Emel, S.A., a Chilean electric distribution
holding company
EMF - Electric and Magnetic Fields
Energy Act (Energy Policy Act of 1992) - legislation passed by
Congress to promote competition in the electric energy market for
bulk power.
Energy Marketing Center - organization within PP&L responsible
for marketing and trading wholesale energy
EPA - Environmental Protection Agency
ESOP - Employee Stock Ownership Plan
FASB (Financial Accounting Standards Board) - a rulemaking
organization that establishes financial accounting and reporting
standards.
FGD - Flue gas desulfurization equipment installed at coal-fired
power plants to reduce sulfur dioxide emissions.
FERC (Federal Energy Regulatory Commission) - federal agency that
regulates interstate transmission and sale of electricity and
related matters.
GRT - Gross Receipts Tax
H.T. Lyons - H.T. Lyons, Inc., a PP&L Resources' unregulated
subsidiary specializing in heating, ventilating and air-
conditioning.
IBEW - International Brotherhood of Electrical Workers
IEC (Interstate Energy Company) - a subsidiary of PP&L that
operates an oil and gas pipeline
ISO - Independent System Operator
JCP&L - Jersey Central Power & Light Company
Major utilities - Atlantic, BG&E and JCP&L
MSHA - Mine Safety and Health Administration
NOx - Nitrogen oxide
NPDES - National Pollutant Discharge Elimination System
NRC (Nuclear Regulatory Commission) - Federal agency that
regulates operation of nuclear power facilities
NUG (Non-Utility Generator) - generating plants not owned by
regulated utilities. If the NUG meets certain criteria, its
electrical output must be purchased by public utilities as
required by PURPA.
OCA - Pennsylvania Office of Consumer Advocate
OSM - United States Office of Surface Mining
OTS - PUC Office of Trial Staff
Pa. CNI - Pennsylvania Corporate Net Income Tax
PCB (Polychlorinated Biphenyl) - additive to oil used in certain
electrical equipment up to the late-1970s. Now classified as a
hazardous chemical.
PECO - PECO Energy Company
PFG - Penn Fuel Gas, Inc.
PJM (PJM Interconnection, L.L.C.) - operates the electric
transmission network and electric energy market in the mid-
Atlantic region of U.S.
Plan - PP&L's noncontributory defined benefit pension plan.
PP&L - PP&L, Inc. (formerly Pennsylvania Power & Light Company)
PP&L Capital Funding - PP&L Capital Funding, Inc., PP&L
Resources' financing subsidiary
PP&L Capital Trust - A Delaware statutory business trust created
to issue Preferred Securities
PP&L Capital Trust II -- A Delaware statutory business trust
created to issue Preferred Securities
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, PP&L Spectrum and other subsidiaries
PP&L Spectrum - PP&L Spectrum, Inc., a PP&L Resources'
unregulated subsidiary which offers energy-related products and
services (formerly Spectrum Energy Services Corporation)
PP&L's Mortgage - PP&L's Mortgage and Deed of Trust, dated
October 1, 1945
Preferred Securities - Company-obligated mandatorily re-deemable
preferred securities of subsidiary trusts holding solely company
debentures (issued by two Delaware statutory business trusts)
PSE&G - Public Service Electric & Gas Company
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.
PUHCA - Public Utility Holding Company Act of 1935
PURPA (Public Utility Regulatory Policies Act of 1978) -
legislation passed by Congress to encourage energy conservation,
efficient use of resources, and equitable rates.
RCRA - 1976 Resource Conservation and Recovery Act
SBRCA - Special Base Rate Credit Adjustment
SEC - Securities and Exchange Commission
SER - Schuylkill Energy Resources, Inc.
SFAS (Statement of Financial Accounting Standards) - accounting
and financial reporting rules issued by the FASB.
SO2 - Sulfur dioxide
STAS (State Tax Adjustment Surcharge) - rate adjustment mechanism
to customer bills for changes in certain state taxes.
Superfund - Federal and state legislation that addresses
remediation of contaminated sites.
SWEB - South Western Electricity plc, a British regional electric
utility company.
UGI - UGI Utilities, Inc.
U.K. - United Kingdom
VEBA (Voluntary Employee Benefit Association Trust) - trust
accounts for health and welfare plans for future payments to
employees, retirees or their beneficiaries.
VERP - Voluntary Early Retirement Program
PART I
ITEM 1. BUSINESS
Terms and abbreviations appearing in "BUSINESS" are explained in
the glossary.
BACKGROUND
PP&L Resources is a holding company with headquarters in
Allentown, PA. Its subsidiaries include PP&L, which provides
electricity delivery service in eastern and central Pennsylvania,
sells retail electricity throughout Pennsylvania and markets
wholesale electricity throughout the eastern United States; PP&L
Global, an international independent power company; PP&L Spectrum,
which markets energy-related services and products; PP&L Capital
Funding, which engages in financing for PP&L Resources and its
subsidiaries; and H. T. Lyons, a heating, ventilating and air-
conditioning firm which PP&L Resources acquired on January 22, 1998.
Other subsidiaries may be formed by PP&L Resources to take advantage
of new business opportunities.
PP&L is PP&L Resources' principal subsidiary (approximately 96%
of consolidated assets as of December 31, 1997), and the financial
condition and results of operation of PP&L are currently the
principal factors affecting the financial condition and results of
operations of PP&L Resources.
The electric utility industry, including PP&L, has experienced
and will continue to experience a significant increase in the level
of competition in the energy supply market. The Energy Act amended
the PUHCA to create a new class of independent power producers, and
amended the Federal Power Act to provide open access to electric
transmission systems for wholesale transactions. In addition, in
December 1996 the Customer Choice Act was enacted in Pennsylvania to
restructure the state's electric utility industry in order to create
retail access to a competitive market for the generation of
electricity. PP&L has announced its support for full customer choice
of their energy supplier for all customer classes. See "PUC
Restructuring Proceeding" on page 27 and "Increasing Competition" on
page 37 for a discussion of pending PUC and FERC proceedings on
industry competition and PP&L's involvement in those proceedings.
PP&L is subject to regulation as a public utility by the PUC and
is subject in certain of its activities to the jurisdiction of the
FERC under Parts I, II and III of the Federal Power Act. PP&L
Resources and PP&L have been exempted by the SEC from the provisions
of PUHCA applicable to them as holding companies.
PP&L is subject to the jurisdiction of the NRC in connection
with the operation of the two nuclear-fueled generating units at
PP&L's Susquehanna station. PP&L owns a 90% undivided interest in
each of the Susquehanna units and Allegheny Electric Cooperative,
Inc. owns a 10% undivided interest in each of those units. In
December 1997, Allegheny Electric Cooperative, Inc. issued a Request
for Proposals for the sale of its assets, including its 10% interest
in Susquehanna. This proposed sale is still pending.
PP&L also is subject to the jurisdiction of certain federal,
regional, state and local regulatory agencies with respect to air and
water quality, land use and other environmental matters. The
operations of PP&L are subject to the Occupational Safety and Health
Act of 1970, and the coal cleaning and loading operations of a PP&L
subsidiary are subject to the Federal Mine Safety and Health Act of
1977.
PP&L provides electricity delivery service to approximately 1.2
million customers in a 10,000 square mile territory in 29 counties of
eastern and central Pennsylvania (see Map on page 13), with a
population of approximately 2.6 million persons. This service area
has 129 communities with populations over 5,000, the largest cities
of which are Allentown, Bethlehem, Harrisburg, Hazleton, Lancaster,
Scranton, Wilkes-Barre and Williamsport.
During 1997, about 97% of total operating revenue was derived
from electric energy sales, with 33% coming from residential
customers, 27% from commercial customers, 19% from industrial
customers, 20% from wholesale sales and 1% from others.
See "Increasing Competition" in the Review of the Financial
Condition and Results of Operation on page 37 for a discussion of
PP&L's participation in Pennsylvania's retail access pilot program
under the Customer Choice Act.
PP&L operates its generation and transmission facilities as part
of the PJM. The PJM operates the electric transmission network and
electric energy market in the mid-Atlantic region of the United
States. Bulk electricity is transmitted to wholesale users
throughout a geographic area including all or part of Pennsylvania,
New Jersey, Maryland, Delaware, Virginia and the District of
Columbia.
In November 1997, the FERC ordered the restructuring of the PJM
into an ISO, in order to accommodate greater competition and broader
participation in the power pool. The purpose of the ISO is to
separate operation of, and access to, the transmission grid from the
PJM electric utilities' generation interests. The electric utilities
will continue to own the transmission assets, but the ISO will be
responsible for directing the control and operation of the
transmission facilities. See "Increasing Competition" for further
details on this FERC PJM order.
To take advantage of opportunities in the competitive energy
marketplace, PP&L created an Energy Marketing Center in 1995. The
group operates a 24-hour trading floor and a marketing effort with
responsibility for all PP&L wholesale power transactions. This
Center has allowed PP&L to buy and sell energy at the most
competitive prices and to expand these activities beyond PP&L's
traditional service territory. The group is presently marketing and
trading wholesale electricity in 22 states, including the east coast,
midwest, and mid-Atlantic region.
Wholly-owned subsidiary companies of PP&L principally are
engaged in oil and gas pipeline operations and passive financial
investing.
FINANCIAL CONDITION
See "Earnings", "Electric Energy Sales", and "Financial Indicators"
in the Review of the Financial Condition and Results of Operations
for this information.
CAPITAL EXPENDITURE REQUIREMENTS
See "Financial Condition - Capital Expenditure Requirements" on
page 32 for information concerning PP&L's estimated capital
expenditure requirements for the years 1998-2002. See "Environmental
Matters" on page 35 and Note 16 to Financial Statements for
information concerning PP&L's estimate of the cost to comply with the
federal clean air legislation enacted in 1990, to address groundwater
degradation and waste water control at PP&L facilities and to comply
with solid waste disposal regulations adopted by the DEP.
POWER SUPPLY
PP&L's system capacity (winter rating) at December 31, 1997 was
as follows:
Net
Kilowatt
Plant Capacity
Nuclear-fueled steam station
Susquehanna 1,995,000 (a)
Coal-fired steam stations
Montour 1,525,000
Brunner Island 1,469,000
Sunbury 389,000
Martins Creek 300,000
Keystone 210,000 (b)
Conemaugh 194,000 (c)
Holtwood 73,000
Total coal-fired 4,160,000
Oil-fired steam station
Martins Creek 1,592,000
Combustion turbines and diesels 364,000
Hydroelectric 146,000
Total generating capacity 8,257,000
Firm purchases
Hydroelectric 139,000 (d)
Qualifying facilities 338,000
Total firm purchases 477,000
Total system capacity 8,734,000
_____________________________
(a) PP&L's 90% undivided interest.
(b) PP&L's 12.34% undivided interest.
(c) PP&L's 11.39% undivided interest.
(d) From Safe Harbor Water Power Corporation.
The system capacity shown in the preceding tabulation does not
reflect: (i) sales of capacity and energy to Atlantic; (ii) sales
of capacity and energy to BG&E; (iii) sales of capacity and energy to
JCP&L; or (iv) sales of capacity credits to other load serving
entities for PJM installed capacity accounting purposes only, which
capacity credit sales aggregated 586,000 kilowatts at December 31,
1997. Giving effect to the sales to Atlantic (129,000 kilowatts),
BG&E (132,000 kilowatts), and JCP&L (567,000 kilowatts), PP&L's net
system capacity at December 31, 1997 was 7,906,000 kilowatts.
The capacity of generating units is based upon a number of
factors, including the operating experience and physical condition of
the units, and may be revised from time to time to reflect changed
circumstances.
During 1997, PP&L produced about 40.9 billion kWh in plants it
owned. PP&L purchased 13.4 billion kWh under purchase agreements and
received 1.4 billion kWh as power pool interchange. During the year,
PP&L delivered about 2.2 billion kWh as pool interchange and about
13.4 billion kWh under purchase agreements.
During 1997, 59.5% of the energy generated by PP&L's plants came
from coal-fired stations, 36.9% from nuclear operations at the
Susquehanna station, 2.1% from the Martins Creek oil-fired steam
station and 1.5% from hydroelectric stations.
The maximum one-hour demand recorded on PP&L's system is
6,506,000 kilowatts, which occurred on January 17, 1997. The maximum
recorded one-hour summer demand is 6,046,000 kilowatts, which
occurred on July 15, 1997. These peak demands do not include energy
sold to Atlantic, BG&E or JCP&L.
PP&L purchases and sells energy from other utilities and FERC-
certified power marketers when it is economically desirable to do so.
From time to time, PP&L enters into energy transactions with systems
outside the PJM on a daily, weekly or monthly basis. The amount of
energy purchased and sold in these transactions depends on a number
of factors, including cost and the import capability of the
transmission network.
Under a compliance tariff approved by FERC for implementation
starting April 1, 1997, PP&L has been providing open access of
available capability on its transmission system for use by wholesale
entities on a basis that is comparable with PP&L's own use of its
transmission facilities.
In June 1995, the FERC accepted a short-term capacity and/or
energy sales tariff enabling PP&L to sell to other utilities and
marketers. As of the end of 1997, 90 other parties have signed
service agreements under this tariff. Transactions under these
agreements allow PP&L to make more efficient use of its generating
resources and provide benefits to both PP&L and the other utilities.
At the end of 1996, PP&L filed with the FERC revisions to this cost-
based tariff to unbundle the generation and transmission components
of the existing rate schedules. PP&L also included in this filing a
request for FERC approval to sell power purchased from third parties,
which increases PP&L's capabilities for profitable wholesale trans-
actions.
In July 1997, the FERC accepted PP&L's application for
authorization to sell electric energy and capacity at market-based
rates to wholesale customers located both inside and outside the PJM
control area. Thirty-one parties have signed service and power sales
agreements for transactions under this market-based rates tariff.
In January 1998, the United States Department of Energy approved
PP&L's application for an export license to sell capacity and/or
energy to electric utilities in Canada. This export license will
allow PP&L to sell either its own capacity and energy not required to
serve domestic obligations or power purchased from other utilities.
See Note 5 to Financial Statements for additional information
concerning the sale of capacity and energy to Atlantic, BG&E and
JCP&L, the sale of capacity credits (but not energy) to other
electric utilities in the PJM and the sale of transmission
entitlements and the reservation of output from the Martins Creek
units.
In addition to 338,000 kilowatts of qualifying facility
generation included in the total system capacity, PP&L is purchasing
about 12,000 kilowatts of output from various other non-utility
generating companies. The payments made to non-utility generating
companies, all of whose facilities are located in PP&L's service
area, are recovered from customers through base rate charges
applicable to PUC- and FERC-jurisdictional customers.
The PJM companies had 57.2 million kilowatts of installed
generating capacity at December 31, 1997, and transmission line
connections with neighboring power pools have the capability of
transferring an additional 4 to 5 million kilowatts between the PJM
and neighboring power pools. Through December 31, 1997, the maximum
one-hour demand recorded on the PJM was approximately 49.4 million
kilowatts, which occurred on July 15, 1997. PP&L is also a party to
the Mid-Atlantic Area Coordination Agreement, which provides for the
coordinated planning of generation and transmission facilities by the
companies included in the PJM.
FUEL SUPPLY
Coal
During 1997, PP&L's generating stations burned about 10 million
tons of bituminous coal, anthracite and petroleum coke. About 63% of
the coal delivered to PP&L's generating stations in 1997 was
purchased under contracts and 37% was obtained through open market
purchases. Contracts with non-affiliated coal producers provided
PP&L with about 4.6 million tons of coal in 1997 and are expected to
provide PP&L with about 4.3 million tons in both 1998 and 1999.
PP&L's requirements for additional coal are expected to be obtained
by contracts and market purchases.
The amount of coal carried in inventory at PP&L's generating
stations varies from time to time depending on market conditions and
plant operations. As of December 31, 1997, PP&L's coal supply was
sufficient for at least 32 days of operations.
The coal burned in PP&L's generating stations contains both
organic and pyritic sulfur. Mechanical cleaning processes are
utilized to reduce the pyritic sulfur content of the coal. The
reduction of the pyritic sulfur content by either mechanical cleaning
or blending has lowered the total sulfur content of the coal burned
to levels which permit compliance with current sulfur dioxide
emission regulations established by the DEP. For information
concerning PP&L's plans to achieve compliance with the federal clean
air legislation enacted in 1990, see "Environmental Matters" on page
35 and Note 16 to Financial Statements.
PP&L owns a 12.34% undivided interest in the Keystone station
and an 11.39% undivided interest in the Conemaugh station, both of
which are generating stations located in western Pennsylvania. The
owners of the Keystone station have a long-term contract with a coal
supplier to provide at least two-thirds of that station's
requirements through 1999 and declining amounts thereafter until the
contract expires at the end of 2004. The balance of the Keystone
station requirements are purchased in the open market. The coal
supply requirements for the Conemaugh station are being met from
several sources through a blend of long-term and short-term contracts
and spot market purchases.
Oil and Natural Gas
PP&L's oil and natural gas purchasing and sales functions are
now performed by the Energy Marketing Center. The addition of oil
and gas to the Center's electricity trading enhances wholesale and
retail marketing efforts and provides a diversified energy portfolio
to offer customers. Additionally, the new trading activities create
opportunities to optimize electric generation efficiency and minimize
fuel costs.
During 1997, 100% of the oil requirements for the Martins Creek
units was purchased on the spot market. As of December 31, 1997,
PP&L had no long-term agreements for these requirements.
During 1997, PP&L's Martins Creek station consumed about
2,800,000 mcf of natural gas. All of this natural gas was purchased
and transported under short-term agreements that were one month or
less in duration. PP&L does not have any long-term agreements to
purchase gas or gas transportation.
Nuclear
The nuclear fuel cycle consists of the mining of uranium ore and
its milling to produce uranium concentrates; the conversion of
uranium concentrates to uranium hexafluoride; the enrichment of
uranium hexafluoride; the fabrication of fuel assemblies; the
utilization of the fuel assemblies in the reactor; the temporary
storage of spent fuel; and the permanent disposal of spent fuel.
PP&L has entered into uranium supply and conversion agreements
that satisfy 100% of the uranium hexafluoride requirements for the
Susquehanna units through 1998, approximately 45% of the requirements
for the period 1999-2001 and, including options, approximately 25% of
the requirements for the period 2002-2005. Deliveries under these
agreements are expected to provide sufficient quantities of uranium
hexafluoride to permit Unit 1 to operate into the first quarter of
2000 and Unit 2 to operate into the first quarter of 2001.
PP&L has entered into an agreement that satisfies 100% of its
enrichment requirements through 2004. Deliveries under this
agreement are expected to provide sufficient enrichment to permit
Unit 1 to operate into the first quarter of 2006 and Unit 2 to
operate into the first quarter of 2007.
PP&L has entered into an agreement that, including options,
satisfies 100% of its fabrication requirements through 2006.
Deliveries under this agreement are expected to provide sufficient
fabrication to permit Unit 1 to operate into the first quarter of
2008 and Unit 2 to operate into the first quarter of 2007.
PP&L estimates that there is sufficient storage capability in
the spent fuel pools at Susquehanna to accommodate the fuel that is
expected to be discharged through the end of 1999. Federal law
requires the federal government to provide for the permanent disposal
of commercial spent nuclear fuel. Pursuant to the requirements of
that law, the DOE has initiated an analysis of a site in Nevada for a
permanent nuclear waste repository. Progress on characterization of
a proposed disposal facility has been slow, and the repository is not
expected to be operational before 2010. Congress is considering new
legislation designed to re-establish a schedule for the spent fuel
disposal program. This legislation would authorize an above-ground
interim storage facility, along with the permanent disposal facility,
as part of an integrated disposal program. Even if this legislation
is enacted and the DOE is successful in building and operating the
interim storage facility, because of PP&L's position in the spent
fuel shipping queue, expansion of Susquehanna's on-site spent fuel
storage capability is necessary. To support this expansion, PP&L has
contracted for the design and construction of a spent fuel storage
facility employing dry fuel storage technology at the Susquehanna
plant. The facility will be modular so that additional storage
capacity can be added as needed. PP&L currently estimates that the
new facility should be available to start receiving spent fuel in
1999. See "Financial Condition - Capital Expenditure Requirements"
on page 32.
Federal law also provides that the costs of spent nuclear fuel
disposal are the responsibility of the generators of such wastes.
PP&L includes in customer rates the fees charged by the DOE to fund
the permanent disposal of spent nuclear fuel. In January 1997, PP&L
joined over 30 other utilities in a lawsuit in the U.S. Court of
Appeals for the District of Columbia Circuit seeking assurance of the
DOE's performance of its contractual obligation to accept the spent
nuclear fuel and suspension of the payment of fees to that agency
pending such performance. In November 1997, the Court denied the
utilities' requested relief and held that the contracts between the
utilities and the DOE provide a potentially adequate remedy (i.e.,
monetary damages) if the DOE fails to begin disposal of spent nuclear
fuel by January 31, 1998. However, the Court also precluded the DOE
from arguing that its delay in contract performance was
"unavoidable".
YEAR 2000 COMPUTER ISSUE
See "Year 2000 Computer Issue" in the Review of the Financial
Condition and Results of Operation on page 40 for information.
ENVIRONMENTAL MATTERS
PP&L is subject to certain present and developing federal,
regional, state and local laws and regulations with respect to air
and water quality, land use and other environmental matters. See
"Financial Condition - Capital Expenditure Requirements" on page 32
for information concerning environmental expenditures during 1997 and
PP&L's estimate of those expenditures during the years 1998-2002.
PP&L believes that it is presently in substantial compliance with
applicable environmental laws and regulations.
See "Environmental Matters" on page 35 and Note 16 to Financial
Statements for information concerning federal clean air legislation
enacted in 1990, groundwater degradation and waste water control at
PP&L facilities, the DEP's solid waste disposal regulations and
PP&L's agreement with the DEP concerning remediation at certain sites
of past operations. Other environmental laws, regulations and
developments that may have a substantial impact on PP&L are discussed
below.
Air
The Clean Air Act includes, among other things, provisions that:
(a) require the prevention of significant deterioration of existing
air quality in regions where air quality is better than applicable
ambient standards; (b) restrict the construction of and revise the
performance standards for new coal-fired and oil-fired generating
stations; and (c) authorize the EPA to impose substantial
noncompliance penalties of up to $25,000 per day of violation for
each facility found to be in violation of the requirements of an
applicable state implementation plan. The DEP administers the EPA's
air quality regulations through the Pennsylvania State Implementation
Plan and has concurrent authority to impose penalties for
noncompliance. At this time, PP&L is meeting all requirements of
Phase I of the Clean Air Act.
In December 1997, international negotiators reached agreement in
Kyoto, Japan to strengthen the 1992 United Nations Global Climate
Change Treaty by adding legally-binding greenhouse gas emission
limits. This Agreement -- formally called the Kyoto Protocol -- if
ratified by the U.S. Senate and implemented, would require the United
States to reduce its greenhouse gas emissions to 7% below 1990 levels
by the period 2008 to 2012. Compliance under the Agreement, if
implemented, could result in increased capital and operating expenses
for PP&L in amounts which are not now determinable but which could be
material.
Water
To implement the requirements established by the Federal Water
Pollution Control Act of 1972, as amended by the Clean Water Act of
1977 and the Water Quality Act of 1987, the EPA has adopted
regulations including effluent standards for steam electric stations.
The DEP administers the EPA's effluent standards through state laws
and regulations relating, among other things, to effluent discharges
and water quality. The standards adopted by the EPA pursuant to the
Clean Water Act may have a significant impact on PP&L's existing
facilities, depending on the DEP's interpretation and future
amendments to its regulations.
The EPA and DEP limitations, standards and guidelines for the
discharge of pollutants from point sources into surface waters are
implemented through the issuance of NPDES permits. PP&L has the NPDES
permits necessary for the operation of its facilities.
Pursuant to the Surface Mining and Reclamation Act of 1977, the
OSM has adopted effluent guidelines which are applicable to PP&L
subsidiaries as a result of their past coal mining and continued coal
processing activities. The EPA and the OSM limitations, guidelines
and standards also are enforced through the issuance of NPDES
permits. In accordance with the provisions of the Clean Water Act
and the Reclamation Act of 1977, the EPA and the OSM have authorized
the DEP to implement the NPDES program for Pennsylvania sources.
Compliance with applicable water quality standards is assured by DEP
review of NPDES permit conditions. PP&L's subsidiaries have received
NPDES permits for their mines and related facilities.
Solid and Hazardous Waste
The RCRA regulates the generation, transportation, treatment,
storage and disposal of hazardous wastes. RCRA also imposes joint
and several liability on generators of solid or hazardous waste for
clean-up costs. A revision of RCRA in late-1984 lowered the
threshold for the amount of on-site hazardous waste generation
requiring regulation and incorporated underground tanks used for the
storage of petroleum and petroleum products as regulated units.
Based upon the results of a survey of its solid waste practices, PP&L
in the past has filed notices with the EPA indicating that hazardous
waste is occasionally generated at all of its steam electric
generating stations and service centers. PP&L has established
specific operating procedures for handling this hazardous waste.
Therefore, at this time RCRA and related DEP regulations are not
expected to have a significant additional impact on PP&L.
The provisions of Superfund authorize the EPA to require past
and present owners of contaminated sites and generators of any
hazardous substance found at a site to clean up the site or pay the
EPA or the state for the costs of clean-up. The generators and past
owners can be liable even if the generator contributed only a minute
portion of the hazardous substances at the site. Present owners can
be liable even if they contributed no hazardous substances to the
site.
The Pennsylvania Superfund law also gives the DEP broad
authority to identify hazardous or contaminated sites in Pennsylvania
and to order owners or responsible parties to clean up the sites. If
responsible parties cannot or will not perform the clean-up, the DEP
can hire contractors to clean up the sites and then require
reimbursement from the responsible parties after the clean-up is
completed. To date, PP&L has principally been involved in federal,
rather than state, Superfund sites.
In 1996, PP&L completed removal of coal tar from one subsurface
accumulation at a former coal gasification plant site in Monroe
County, Pennsylvania and currently expects that significant
additional remedial action will not be required. PP&L has entered
into agreements with the adjacent property owner and DEP to share the
past and future costs of remediating this site. PP&L's share of
these costs, including future monitoring, is approximately $3
million, all of which has been spent or accrued.
PP&L has removed coal tar in two brick pits on the site of a
former gas plant and from river sediment adjacent to the site in
Columbia, Pennsylvania. The cost of investigation and remediation of
the areas of the site where such action has been required is
estimated at $3 million, all of which has been spent or accrued.
There also is coal tar contamination of the soil and groundwater at
the site. Further remediation of these other areas of the site may
be required, the costs of which are not now determinable but could be
material.
PP&L at one time also owned and operated several other gas
plants in its service area. None of these sites is presently on the
Superfund list. However, a few of them may be possible candidates
for listing at a future date. PP&L expects to continue to investigate
and, if necessary, remediate these sites. The cost of this work is
not now determinable but could be material.
See "LEGAL PROCEEDINGS" on page 14 for information concerning an
EPA order and a complaint filed by the EPA in federal district court
against PP&L and 35 unrelated parties for remediation of a Superfund
site in Berks County, Pennsylvania; a complaint filed by PP&L and 16
unrelated parties in federal district court against other parties for
contribution under Superfund relating to the Novak landfill Superfund
site in Lehigh County, Pennsylvania and a related action by the EPA
against PP&L and 29 unrelated parties to recover the agency's past
and future costs at the Novak landfill site; an action by the EPA for
reimbursement of the EPA's past response costs and remediation at the
site of a former metal salvaging operation in Montour County,
Pennsylvania; and PP&L's challenge to the DEP's right to collect fees
for emissions from PP&L's coal-fired units.
PP&L is involved in several other sites where it may be
required, along with other parties, to contribute to investigation
and remediation. Some of these sites have been listed by the EPA
under Superfund, and others may be candidates for listing at a future
date. Future investigation or remediation work at sites currently
under review, or at sites currently unknown, may result in material
additional operating costs which PP&L cannot estimate at this time.
In addition, certain federal and state statutes, including Superfund
and the Pennsylvania Hazardous Sites Cleanup Act, empower certain
governmental agencies, such as the EPA and the DEP, to seek
compensation from the responsible parties for the lost value of
damaged natural resources. The EPA and the DEP may file such
compensation claims against the parties, including PP&L, held
responsible for cleanup of such sites. Such natural resource damage
claims against PP&L could result in material additional liabilities.
Low-Level Radioactive Waste
Under federal law, each state is responsible for the disposal of
low-level radioactive waste generated in that state. States may join
in regional compacts to jointly fulfill their responsibilities. The
states of Pennsylvania, Maryland, Delaware and West Virginia are
members of the Appalachian States Low-Level Radioactive Waste
Compact. Efforts to develop a regional disposal facility in
Pennsylvania are currently underway. Low-level radioactive wastes
resulting from the operation of Susquehanna are currently being sent
to Barnwell, South Carolina for disposal. In the event that this
disposal option becomes unavailable or no longer cost effective, the
low-level radioactive waste will be stored on-site at Susquehanna.
PP&L cannot predict the future availability of low-level waste
disposal facilities or the cost of such disposal.
General
Concerns have been expressed by some members of the scientific
community and others regarding the potential health effects of EMFs.
These fields are emitted by all devices carrying electricity,
including electric transmission and distribution lines and substation
equipment. Federal, state and local officials have focused attention
on this issue. PP&L supports the current efforts to determine
whether EMFs cause any human health problems and is taking low cost
or no cost steps to reduce EMFs, where practical, in the design of
new transmission and distribution facilities. PP&L is unable to
predict what effect, if any, the EMF issue might have on PP&L
operations and facilities and the associated cost.
In addition to the matters described above, PP&L and its
subsidiaries have been cited from time to time for temporary
violations of the DEP and EPA regulations with respect to air and
water quality and solid waste disposal in connection with the
operation of their facilities and may be cited for such violations in
the future. As a result, PP&L and its subsidiaries may be subject to
certain penalties which are not expected to be material in amount.
PP&L is unable to predict the ultimate effect of evolving
environmental laws and regulations upon its existing and proposed
facilities and operations. In complying with statutes, regulations
and actions by regulatory bodies involving environmental matters,
including the areas of water and air quality, hazardous and solid
waste handling and disposal and toxic substances, PP&L may be
required to modify, replace or cease operating certain of its
facilities. PP&L may also incur material capital expenditures and
operating expenses in amounts which are not now determinable.
FRANCHISES AND LICENSES
PP&L has authority to provide electric public utility service
throughout its entire service area as a result of grants by the
Commonwealth of Pennsylvania in corporate charters to PP&L and
companies to which it has succeeded and as a result of certification
thereof by the PUC. In addition, the PUC has granted PP&L a license
to act as an electric generation supplier throughout Pennsylvania in
the state's retail access pilot program. PP&L has been granted the
right to enter the streets and highways by the Commonwealth subject
to certain conditions. In general, such conditions have been met by
ordinance, resolution, permit, acquiescence or other action by an
appropriate local political subdivision or agency of the
Commonwealth.
In January 1998, the United States Department of Energy approved
PP&L's application for an export license to sell capacity and/or
energy to electric utilities in Canada.
PP&L operates Susquehanna Unit 1 and Unit 2 pursuant to NRC
operating licenses which expire in 2022 and 2024, respectively. PP&L
operates two hydroelectric projects pursuant to licenses which were
renewed by the FERC in 1980: Wallenpaupack (44,000 kilowatts
capacity) and Holtwood (102,000 kilowatts capacity). The
Wallenpaupack license expires in 2004 and the Holtwood license
expires in 2014.
PP&L also owns one-third of the capital stock of Safe Harbor
Water Power Corporation, which holds a project license which extends
until 2030 for the operation of its hydroelectric plant. The total
capability of the Safe Harbor plant is 417,500 kilowatts, and PP&L is
entitled by contract to one-third of the total capacity (139,000
kilowatts).
EMPLOYEE RELATIONS
As of December 31, 1997, 4,113 of PP&L's 6,343 full-time
employees were represented by the IBEW under a labor agreement which
expires in May 1998.
Page 13 contains a map of PP&L's service territory which shows its
location, the location of each of PP&L's coal-fired, oil-fired, hydro and
nuclear-fueled generating stations and the location of major population
centers.
ITEM 2. PROPERTIES
The accompanying Map shows the location of PP&L's service
area and generating stations.
Reference is made to the "Utility Plant" section of Note 1
for information concerning investments in property, plant and
equipment. Substantially all electric utility plant is subject
to the lien of PP&L's Mortgage.
For additional information concerning the properties of PP&L
see Item 1, "BUSINESS - Power Supply" and "BUSINESS - Fuel
Supply".
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Notes to Financial Statements for
information concerning rate matters and PP&L's restructuring
proceeding before the PUC under the Customer Choice Act.
Reference is made to "Increasing Competition" in the Review
of the Financial Condition and Results of Operation on page 37
for information concerning pending proceedings before the FERC
regarding wholesale customers and restructuring of the PJM.
Reference is made to Item 1 "BUSINESS-Fuel Supply" for
information concerning a lawsuit against the DOE for failure of
that agency to perform certain contractual obligations.
In August 1995, SER, one of the non-utility generating
companies from which PP&L purchases power under the PURPA,
brought suit against PP&L in the District Court. SER alleged
that, since July 1994, PP&L has improperly curtailed power
purchases from SER under the power purchase agreement between the
parties. SER claims that such activity breached the power
purchase agreement and violated the federal antitrust laws, among
other counts. SER alleged that PP&L's actions resulted in loss
of revenue from power sales of $1.6 million and an unquantified
increase in its costs of operation. SER requested compensatory
and punitive damages, as well as treble damages and attorneys'
fees for alleged antitrust violations. In May 1996, the District
Court granted PP&L's motion to dismiss the complaint. In May
1997, the U.S. Court of Appeals for the Third Circuit affirmed
the District Court's dismissal of this suit. In November 1997,
the United States Supreme Court denied SER's petition for a writ
of certiorari.
In December 1995, PP&L filed a petition with the PUC for a
declaratory order that it had acted properly in curtailing
purchases from SER and other NUGs during minimum generation
emergencies on the PJM system. The PUC has stayed a
determination in this case pending a FERC decision regarding
PP&L's request to decertify SER as a qualifying cogeneration
facility (see discussion below).
In November 1995, PP&L initiated a civil action against SER
in the Lehigh County Court of Common Pleas. The principal issue
is whether SER and an affiliate of SER properly used the steam
generated by the plant in accordance with the terms of the
contract. Under the contract, if the steam was used properly,
SER is entitled to a rate of 6.6 cents/kWh; if not, it is
entitled to a rate of only 5.0 cents/kWh. The total annual
difference in PP&L's payment under the two rates is about $9
million. In April 1996, the Court concluded that PP&L must seek
a determination by the FERC prior to reducing the rate paid to
SER.
Accordingly, in July 1996 PP&L filed a motion with the FERC
to revoke SER's status as a qualifying cogeneration facility.
PP&L's motion alleges that SER has engaged in a conscious and
continuing scheme to mislead PP&L and the FERC and that SER has
never complied with the FERC's requirements for a qualifying
cogeneration facility under PURPA. This motion is pending.
In a related matter, in June 1996 SER filed a lawsuit
against PP&L in the Court of Common Pleas of Lehigh County,
Pennsylvania. In this lawsuit, SER restates its allegations
concerning PP&L's procedures for curtailing power deliveries from
SER during periods of minimum generation emergencies declared by
the PJM. SER's claims include breach of contract, fraud,
negligent misrepresentation and breach of duty of good faith and
fair dealing. In addition, SER claims that public statements by
PP&L were libelous. In January 1997, the Court stayed SER's
state law claims against PP&L pending consideration by the PUC of
PP&L's minimum generation petition and dismissed SER's libel
claims.
PP&L cannot predict the outcome of these proceedings.
In April 1991, the U.S. Department of Labor through its MSHA
issued citations to one of PP&L's coal-mining subsidiaries for
alleged coal-dust sample tampering at one of the subsidiary's
mines. The MSHA at the same time issued similar citations to
more than 500 other coal-mine operators. Based on a review of
its dust sampling procedures, the subsidiary is contesting all of
the citations. It is believed at this time, based on the
information available, that the MSHA allegations are without
merit. Citations were also issued against the independent
operator of another subsidiary mine, who is also contesting the
citations issued with respect to that mine. The Administrative
Law Judge assigned to the proceedings ordered that one case be
tried against a single mine operator unrelated to PP&L to
determine whether the MSHA could prove its general allegations
regarding sample tampering. In April 1994, the Judge ruled in
favor of the mine operator and vacated the 75 citations against
it. The MSHA appealed the Judge's decision to the Mine Safety
and Health Review Commission. In November 1995, the Commission
affirmed the Judge's rulings in favor of the operator. The
Secretary of Labor has appealed the Commission's decision to the
U.S. Court of Appeals for the District of Columbia Circuit. PP&L
cannot predict the outcome of these proceedings.
In August 1994, PP&L filed a rate complaint with the federal
Interstate Commerce Commission, now the Surface Transportation
Board, challenging Consolidated Rail Corporation's (Conrail's)
coal transportation rates from interchange points with connecting
carriers to PP&L's power plants. In September 1995, PP&L amended
its complaint to add the connecting carriers, CSX Corporation and
Norfolk Southern Corporation, as additional defendants. As a
result of a Surface Transportation Board ruling in December 1996,
PP&L's complaint against Conrail alone was dismissed, but PP&L's
case against Conrail, CSX and Norfolk Southern jointly continued.
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.
In July 1997, UGI filed a lawsuit against PP&L requesting
that the Court of Common Pleas of Luzerne County, Pennsylvania
interpret the PP&L-UGI wholesale power supply agreement.
Specifically, UGI has asked the court to declare that it is
obligated to purchase from PP&L only that quantity of energy that
represents the difference between the amount of UGI's
requirements and the amount available to UGI from other sources.
UGI also is requesting the court to find that the "energy
requirements" of UGI under the power supply agreement do not
include energy and capacity purchased by UGI's retail customers
from sources other than UGI. PP&L has estimated the potential
impact of this claim at up to $14 million between now and the
termination of the agreement in 2001. PP&L is seeking recovery
of the amount of this claim in UGI's current PUC restructuring
proceeding.
In August 1991, PP&L and 35 other unrelated parties received
an EPA order under CERCLA requiring that certain remedial actions
be taken at a former oil recovery site in Berks County,
Pennsylvania, which has been included on the federal Superfund
list. PP&L had been identified by the EPA as a potentially
responsible party, along with over 100 other parties. The EPA
order required remediation by the 36 named parties of four
specific areas of the site. Remedial action under this order has
been completed at a cost of approximately $2 million, of which
PP&L's interim share was approximately $50,000.
The EPA at the same time filed a complaint under Section 107
of CERCLA in the District Court against PP&L and the same 35
unrelated parties. The complaint asks the District Court to hold
the parties jointly and severally liable for all EPA's past costs
at the site and future costs of remediating some of the remaining
areas of the site. The EPA claims it has spent approximately $21
million to date. PP&L and a group of the other named parties
have sued in District Court approximately 460 other parties that
have contributed waste to the site, demanding that these
companies contribute to the clean-up costs.
In July 1993, PP&L and 33 of the 35 unrelated parties
received an EPA order under Section 106 of CERCLA requiring
remediation of the remaining areas of the site identified by the
EPA. The current estimate of remediating the remainder of the
site is approximately $18 million. These costs would be shared
among the responsible parties. PP&L and other parties to the
lawsuit have reached a settlement among themselves and the
federal government regarding these claims. PP&L's share of the
settlement amount is not material.
In December 1991, PP&L and 16 unrelated parties filed
complaints against 64 other parties in District Court seeking
reimbursement under CERCLA for costs the plaintiffs have incurred
and will incur to investigate and remediate the Novak landfill
site in Lehigh County, Pennsylvania. The complaints allege that
the 64 defendants generated or transported substances disposed of
at the Superfund site. A Remedial Investigation and Draft
Feasibility Study for the site has been completed at a cost of
approximately $3 million, of which PP&L's share was approximately
$200,000. The EPA's selected remedy is currently estimated to
cost approximately $20 million. The EPA has issued a 106 Order
against PP&L and several other parties to implement this remedy.
In January 1997, the EPA filed an action against PP&L and 29
other parties under section 107 of CERCLA to recover its costs at
the site, which it alleges are in excess of $990,000. The
parties have reached a tentative settlement of these actions.
PP&L's allocated share is not material.
In April 1993, PP&L received an order under Section 106 of
CERCLA requiring that actions be taken at the site of a former
metal salvaging operation in Montour County, Pennsylvania. The
EPA has taken similar action with two other potentially
responsible parties at the site. The cost of compliance with the
order is currently estimated to be approximately $37 million.
The EPA currently estimates that additional remediation work not
covered by the order will cost an additional $36 million. In
addition, the EPA has already incurred clean-up costs of
approximately $5 million to date. The EPA had indicated that it
will seek to recover these additional costs at a later date.
PP&L's records indicate that scrap metal, wire and transformers
were sold to the salvage operator between 1969 and 1971. Current
information indicates that PP&L's contribution to the site, if
any, is de minimis.
PP&L has challenged the DEP's right to collect air emission
fees for hazardous air pollutants (HAPs) from PP&L's coal-fired
units and air emission fees for emissions from PP&L's Phase I
affected units from 1995 through 1999. (Phase I affected units
are those units designated by the Clean Air Act, or which
voluntarily opt into the requirement, to make certain reductions
in SO2 and NOx emissions by 1995; all others must make these
reductions by 2000.) The HAPs emissions fees are approximately
$200,000 per year. The emission fees for Phase I affected units
from 1995 through 1999 are estimated at $1.6 million. Depending
on the outcome of this litigation, PP&L may be subject to
penalties and interest for withholding portions of fees assessed
from 1994 to date. These penalties and interest are not likely
to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders, through the solicitation of proxies or otherwise, during
the fourth quarter of 1997.
EXECUTIVE OFFICERS OF THE REGISTRANTS
Officers of PP&L Resources and PP&L are elected annually by
their Boards of Directors to serve at the pleasure of the
respective Boards. There are no family relationships among any
of the executive officers, or any arrangement or understanding
between any executive officer and any other person pursuant to
which the officer was selected.
There have been no events under any bankruptcy act, no
criminal proceedings and no judgments or injunctions material to
the evaluation of the ability and integrity of any executive
officer during the past five years.
Listed below are the executive officers as of December 31,
1997:
PP&L Resources, Inc.:
Effective Date of
Election to
Name Age Position Present Position
William F. Hecht 54 Chairman, President
and Chief Executive February 24, 1995
Officer
Frank A. Long 57 Executive Vice
President February 24, 1995
Robert G. Byram* 52 Senior Vice President-
Generation and Chief
Nuclear Officer - PP&L April 1, 1997
Ronald E. Hill** 55 Senior Vice President-
Financial August 1, 1996
Robert D. Fagan* 52 President - PP&L Global,
Inc. December 20, 1995
Robert J. Grey 47 Senior Vice President,
General Counsel and
Secretary March 1, 1996
Joseph J. McCabe 47 Vice President and
Controller August 1, 1995
PP&L, Inc.:
Effective Date of
Election to
Name Age Position Present Position
William F. Hecht 54 Chairman, President
and Chief Executive
Officer January 1, 1993
Frank A. Long 57 Executive Vice
President and Chief
Operating Officer January 1, 1993
Robert G. Byram 52 Senior Vice President-
Generation and Chief
Nuclear Officer April 1, 1997
Ronald E. Hill** 55 Senior Vice President-
Financial January 1, 1994
John R. Biggar** 53 Vice President-
Finance August 1, 1996
Robert J. Grey 47 Senior Vice President,
General Counsel and
Secretary March 1, 1996
Joseph J. McCabe 47 Vice President and
Controller August 1, 1995
* Mr. Byram and Mr. Fagan have been designated executive
officers of PP&L Resources by virtue of their respective
positions at PP&L Resources subsidiaries.
** Effective January 28, 1998, John R. Biggar, Vice President-
Finance of PP&L, was elected Senior Vice President-Financial
and designated as the acting principal financial officer of
PP&L Resources and PP&L pending the selection of a permanent
successor to Ronald E. Hill, who has retired.
Each of the above officers, with the exception of Mr. Fagan,
Mr. Grey and Mr. McCabe, has been employed by PP&L for more than
five years as of December 31, 1997. Mr. Fagan joined PP&L
Global, Inc. - then a PP&L subsidiary - in November 1994. Prior
to that time, he was Vice President and General Manager at
Mission Energy Company. Mr. McCabe joined PP&L in May 1994 and
was previously a partner of Deloitte & Touche LLP. Mr. Grey
joined PP&L in March 1995. He had been General Counsel of Long
Island Lighting Company since 1992.
Prior to their election to the positions shown above, the
following executive officers held other positions within PP&L
since January 1, 1993: Mr. Byram was Senior Vice President -
System Power & Engineering and Senior Vice President - Nuclear;
Mr. Hill was Vice President, Comptroller and Senior Vice
President - Financial and Treasurer of PP&L Resources; Mr. Biggar
was Vice President-Finance and Vice President - Finance and
Treasurer; Mr. Grey was Vice President, General Counsel and
Secretary, and Mr. McCabe was Controller.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Additional information for this item is set forth in the
sections entitled "Quarterly Financial, Common Stock Price and
Dividend Data" on page 83 and "Shareowner and Investor
Information" on pages 89 through 91 of this report. The number
of common shareowners is set forth in the section entitled
"Selected Financial and Operating Data" on page 22.
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
1997 (a) 1996 1995 (a) 1994 (a) 1993
PP&L RESOURCES, INC.
Income Items -- millions
Operating revenues ...................... $3,049 $2,910 $2,752 $2,725 $2,727
Operating income....................................... 545 556 574 501 563
Net Income ............................................ 296 329 323 216 (e) 314 (e)
Balance Sheet Items -- millions (b)
Property, plant and equipment, net....... 6,820 6,960 6,970 7,195 7,146
Total assets........................................... 9,485 9,670 9,492 9,372 9,454
Long-term debt......................................... 2,735 2,832 2,859 2,941 2,663
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts
holding solely company debentures.................... 250
Preferred stock
With sinking fund requirements....................... 47 295 295 295 335
Without sinking fund requirements.................... 50 171 171 171 171
Common equity.......................................... 2,809 2,745 2,597 2,454 2,426
Short-term debt........................................ 135 144 89 74 202
Total capital provided by investors.................... 6,026 6,187 6,011 5,936 5,797
Capital lease obligations ............................. 171 247 220 225 249
Financial Ratios
Return on average common equity -- % .... 10.61 12.30 12.81 8.73 13.06
Embedded cost rates (b)
Long-term debt -- %.................................. 7.88 7.89 7.95 8.07 8.63
Preferred stock -- %................................. 7.71 6.09 6.09 6.07 6.30
Times interest earned before income taxes.............. 3.39 3.55 3.56 2.73 3.33
Ratio of earnings to fixed charges -- total
enterprise basis (c)................................. 3.23 3.45 3.47 2.70 3.31
Ratio of earnings to fixed charges and
dividends on preferred stock
--total enterprise basis (c)........................ 2.85 2.90 2.91 2.27 2.71
Common Stock Data
Number of shares outstanding -- thousands
Year-end............................................. 166,248 162,665 159,403 155,482 152,132
Average.............................................. 164,550 161,060 157,649 153,458 151,904
Number of shareowners (b).............................. 117,293 123,290 128,075 132,632 130,677
Earnings per share .................................... $1.80 $2.05 $2.05 $1.41 $2.07
Dividends declared per share........................... $1.67 $1.67 $1.67 $1.67 $1.65
Book value per share (b)............................... $16.90 $16.87 $16.29 $15.79 $15.95
Market price per share (b)............................. $23.938 $23 $25 $19 $27
Dividend payout rate -- %.............................. 93 82 82 119 80
Dividend yield -- % (d)................................ 6.98 7.26 6.68 8.79 6.11
Price earnings ratio (d)............................... 13.30 11.22 12.20 13.48 13.04
<FN>
(a) 1997, 1995 and 1994 earnings were affected by several
one-time adjustments. This affected net income and
certain items under Financial Ratios and Common Stock
Data. See Financial Notes 4, 11, 12 and 15.
(b) At year-end
(c) Computed using earnings and fixed charges of PP&L
Resources and its subsidiaries. Fixed charges consist
of interest on short- and long-term debt, other interest
charges, interest on capital lease obligations and the
estimated interest component of other rentals.
(d) Based on year-end market prices.
(e) Restated to reflect formation of the holding company.
SELECTED FINANCIAL AND OPERATING DATA
1997 (a) 1996 1995 (a) 1994 (a) 1993
PP&L, Inc.
Income Items -- millions
Operating revenues ....................... $3,049 $2,910 $2,752 $2,725 $2,727
Operating income......................................... 545 556 574 501 563
Earnings available to PP&L Resources, Inc................ 308 329 324 215 (d) 314 (d)
Balance Sheet Items -- millions (b)
Property, plant and equipment, net........ 6,820 6,960 6,970 7,195 7,146
Total assets............................................. 9,472 9,405 9,424 9,321 9,454
Long-term debt........................................... 2,633 2,832 2,859 2,941 2,663
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts
holding solely company debentures...................... 250
Preferred stock
With sinking fund requirements......................... 295 295 295 295 335
Without sinking fund requirements...................... 171 171 171 171 171
Common equity............................................ 2,612 2,617 2,528 2,404 2,426
Short-term debt.......................................... 45 10 89 74 202
Total capital provided by investors...................... 6,006 5,925 5,942 5,885 5,797
Capital lease obligations ............................... 171 247 220 225 249
Financial Ratios
Return on average common equity -- % ..... 11.75 12.95 13.10 8.83 13.06
Embedded cost rates (b)
Long-term debt -- %.................................... 7.91 7.89 7.95 8.07 8.63
Preferred stock -- %................................... 6.90 6.09 6.09 6.07 6.30
Times interest earned before income taxes................ 3.67 3.62 3.58 2.73 3.33
Ratio of earnings to fixed charges -- total
enterprise basis (c)................................... 3.47 3.50 3.48 2.70 3.31
Ratio of earnings to fixed charges and
dividends on preferred stock
--total enterprise basis (c).......................... 2.77 2.93 2.92 2.26 2.71
Revenue Data
Average price per kWh billed for service area
sales - cents........................................ 7.36 7.38 7.21 7.24 7.37
Sales Data
Customers (thousands)(b).................. 1,247 1,236 1,226 1,213 1,203
Electric energy sales billed -- millions of kWh
Residential ........................................... 11,434 11,849 11,300 11,444 11,043
Commercial ............................................ 10,309 10,288 9,948 9,715 9,373
Industrial ............................................ 10,078 10,016 9,845 9,536 9,100
Other ................................................. 143 154 188 236 219
Service area sales .................................. 31,964 32,307 31,281 30,931 29,735
Wholesale energy sales .............................. 21,454 14,341 11,424 10,848 12,599
Total electric energy sales billed .................. 53,418 46,648 42,705 41,779 42,334
Number of Full-Time Employees (b).......................... 6,343 6,428 6,661 7,431 7,677
<FN>
(a) 1997, 1995 and 1994 earnings were affected by several one-time adjustments. This affected
earnings available to PP&L Resources and certain items in Financial Ratios. See Financial
Notes 4, 12, and 15.
(b) At year-end
(c) Computed using earnings and fixed charges of PP&L and its subsidiaries. Fixed charges consist
of interest on short- and long-term debt, other interest charges, interest on capital lease
obligations and the estimated interest component of other rentals.
(d) Prior years restated to reflect formation of the holding company.
ITEM 7. REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF PP&L RESOURCES, INC. AND PP&L, INC.
PP&L Resources is a holding company with headquarters in Allentown,
PA. Its subsidiaries include PP&L, which provides electricity delivery
service in eastern and central Pennsylvania, sells retail electricity
throughout Pennsylvania and markets wholesale electricity throughout the
eastern United States; PP&L Global, an international independent power
company; PP&L Spectrum, which markets energy-related services and
products; PP&L Capital Funding, which engages in financing for PP&L
Resources and its subsidiaries; and H. T. Lyons, a heating, ventilating
and air-conditioning firm which PP&L Resources acquired on January 22,
1998. Other subsidiaries may be formed by PP&L Resources to take
advantage of new business opportunities.
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 Consolidated Statement of Income.
Terms and abbreviations appearing in the Review of the Financial
Condition and Results of Operations are explained in the glossary.
Forward-looking Information
Certain statements contained in this Form 10-K 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
Earnings
Earnings per share of common stock were $1.80 in 1997 and $2.05 in
1996 and 1995. Excluding the effects of weather and one-time
adjustments, earnings were $2.03 per share in 1997, compared to $2.00 per
share in 1996. The effect of milder weather in 1997 adversely impacted
earnings in 1997 and colder than normal weather benefited earnings in
1996. The following table highlights the major items that impacted
earnings for each of these years:
1997 1996 1995
Earnings per share - excluding
weather and one-time adjustments $2.03 $2.00 $1.77
Weather variances on billed sales (0.03) 0.05 0.02
One-time adjustments:
Windfall Profits Tax (0.23)
U.K. Income Tax Rate Reduction 0.06
Penn Fuel Gas acquisition costs (0.03)
PUC Decision 0.21
Workforce reduction programs (0.11)
ECR purchased power costs 0.04
Gain on subsidiary coal reserves 0.12
Earnings per share - reported $1.80 $2.05 $2.05
Weather-normalized sales to service area customers remained
relatively unchanged from the prior year, increasing by 0.2 percent. A
major factor in this low growth was the shutdown of a large steel
producing facility. Excluding steel-related sales losses, weather
normalized service area energy sales would have increased by 1.1 percent
in 1997 when compared to 1996.
In 1997, higher revenues from bulk power sales and trading activity
of the Energy Marketing Center offset the impact of the phase-down of
contractual sales to JCP&L. Earnings also benefited from refinancing
activities and, excluding one-time adjustments, the on-going operations
of PP&L Global. A change in the regulatory treatment of energy costs
(see "Operating Revenues" on page 27) and higher depreciation in 1997
partially offset these earnings gains.
The earnings improvement in 1996 -- excluding weather and one-time
adjustments -- was primarily due to higher revenues resulting from the
base rate increase from the PUC Decision as well as higher sales to all
service area classes. Earnings also benefited from lower interest
expense due to refinancing efforts. These earnings gains were partially
offset by a reduction in contractual bulk power sales to JCP&L, as well
as higher wages and benefits and depreciation expense.
The costs of establishing the organization and programs to meet
retail competition in Pennsylvania are estimated to be approximately $35
million more in 1998 than in 1997. These expenses will adversely affect
1998 earnings. In addition, the settlement agreements with 16 small
utilities, if approved by FERC as filed, would require PP&L to write off
a portion of its stranded costs applicable to these customers. The
amount of this write-off is currently estimated at approximately $28
million after-tax, or 17 cents per share of common stock. See Financial
Note 3 for additional information. The reduction in contractual bulk
power sales to JCP&L and other major utilities will also continue to
adversely impact earnings over the next few years. However, the efforts
of the Energy Marketing Center to resell the returning electric energy
and capacity on the open market, along with its other energy trading
activities, should continue to offset the loss in revenues from declining
contractual sales. Finally, 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" on page 27 for additional information.
Electric Energy Sales
The change in PP&L's electric energy sales was attributable to the
following:
1997 1996
vs vs
1996 1995
(Millions of kWh)
Service Area sales
Residential (415) 548
Commercial 21 341
Industrial 62 171
Other (11) (34)
Total Service Area Sales (343) 1,026
Wholesale Energy Sales 7,113 2,917
Total 6,770 3,943
Service area sales were 32.0 billion kWh for 1997, a decrease of 343
million kWh, or 1.1%, from 1996. Part of this decrease was attributable
to milder weather in the first quarter of 1997 as compared to 1996. If
normal weather had been experienced in both 1997 and 1996, total service
area sales for 1997 would have increased by about 49 million kWh, or
0.2%, over 1996.
Actual sales to residential customers in 1997 decreased 415 million
kWh, or 3.5%, from 1996, compared with an increase in 1996 of 548 million
kWh, or 4.8%, from 1995. Under normal weather conditions, the 1997
decrease would have been 0.9%. Weather-adjusted commercial sales
increased 1.0% in 1997, and sales to industrial customers increased by
0.6% from 1996.
Wholesale energy sales, which include sales to other utilities and
energy marketers through contracts, spot market transactions or power
pool arrangements, were 21.5 billion kWh for the year ended December 31,
1997, an increase of 7.1 billion kWh, or 49.6%, from 1996, despite the
reduction in PP&L's contractual bulk power sales to JCP&L. This increase
was primarily the result of increased generation from PP&L units and the
increased activity of the Energy Marketing Center.
See "Operating Revenues" for more information.
Operating Revenues
The change in total operating revenues was attributable to the
following:
1997 1996
vs vs
1996 1995
(Millions of Dollars)
Base Rate Revenues - Service Area Sales:
Sales volume and sales mix effect $ (2) $ 57
Weather effect (31) 13
Unbilled revenues 17 (27)
Rate increase - PUC Decision 0 76
Energy Revenues (30) 5
Wholesale Revenues
Energy and capacity 139 27
Reservation charges and other 32 (7)
Other, net 14 14
$139 $158
Operating revenues increased by $139 million, or 4.8%, in 1997 over
1996. Revenues from service area sales in 1997 were slightly lower than
in 1996. This was the result of mild weather in the first quarter of
1997 compared to extremely cold weather during the first quarter of 1996.
However, 1997 saw higher revenues from bulk power sales and the trading
activities of PP&L's Energy Marketing Center. The efforts of the Energy
Marketing Center essentially offset the reduced revenues from the phase-
down of contractual sales to JCP&L. These increases were partially
offset by a change in the regulatory treatment of energy costs by the
PUC. Specifically, beginning January 1, 1997, underrecovered energy
costs up to a cap of $31.5 million annually are no longer recorded as
energy revenues but as regulatory credits, which are offsets to "Other
Operating Expenses." To the extent that underrecovered energy costs --
primarily fuel and purchased power -- exceed the cap, earnings are
adversely affected. Weather also had an unfavorable impact when
comparing 1997 to 1996.
Operating revenues increased by $158 million, or 5.8%, in 1996 over
1995. Base rate revenues were enhanced by the PUC Decision and strong
sales growth in all customer classes. In addition, weather had a
favorable impact when comparing 1996 to 1995. Also, 1996 revenues
reflected increased sales to other utilities, primarily due to the one-
year contract to supply energy to PSE&G. These increases were partially
offset by the loss of revenue due to the phase-down of the capacity and
energy agreement with JCP&L.
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. The
Act includes the following major provisions: (1) all electric utilities
in Pennsylvania are required to file a restructuring plan with the PUC to
implement direct access to a competitive market for electric generation;
(2) retail customer choice will be phased in over three years, beginning
as early as January 1, 1999; (3) electric distribution companies will be
the suppliers of last resort, and the PUC will ensure that adequate
generation reserves exist to maintain reliable electric service; (4)
retail rates generally will be capped for at least four-and-a-half years
for transmission and distribution charges and for as long as nine years
for generation charges; (5) utilities are permitted to recover PUC-
approved transition or stranded costs through a non-bypassable
Competitive Transition Charge (CTC); and (6) transition bonds may be
issued to refinance the stranded costs, with a transition charge on
customers bills to repay the bonds.
Under the Customer Choice Act, the PUC is authorized to determine
the amount of PP&L's stranded costs to be recovered through a 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."
In accordance with the Customer Choice Act, PP&L filed its
restructuring plan with the PUC on April 1, 1997. PP&L's restructuring
plan includes a claim of $4.5 billion (on a net present value basis as of
January 1, 1999) 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.
These parties are recommending stranded cost recovery by PP&L ranging
from $695 million to $3.2 billion. 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 $695
million; and the OCA recommends recovery of $1.1 billion. Under
Pennsylvania law, the OCA and the OTS have advocacy roles in proceedings
before the PUC. 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. The
PUC has revised the procedural schedule several times to permit continued
settlement discussions among the parties. In February 1998, the parties
filed their Main Briefs in the proceeding. Under the current schedule,
the PUC's final order is due by June 4, 1998. PP&L cannot predict 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,
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 (on a net
present value basis as of January 1, 1999) 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% from amounts that were previously projected
under historic cost-based regulation.
However, the PUC's final order -- either as a result of a settlement
or 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 revenues and 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 revenues and earnings, either one could be material in
amount. Accordingly, PP&L Resources 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, its results of
operation, future PP&L rate levels, the need or ability to issue
securities to meet future capital requirements or the ability to maintain
the common stock dividend at the current level.
The Customer Choice Act permits the issuance of "transition bonds"
securitized by customer revenues from an Intangible Transition Charge
(ITC) 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 the 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 1997 increased by $18 million from the comparable
period in 1996. This increase was primarily due to PP&L's coal-fired
units operating at higher output to support increased wholesale electric
market activity, resulting in an increase in total coal-fired generation
for the year. The increase was slightly offset by a decrease in the unit
fuel prices for coal-fired and gas-fired generation.
Power Purchases
Power purchases in 1997 increased $152 million over the comparable
period in 1996. This increase was primarily due to greater quantities of
power purchased from other utilities to meet increased trading activities
of the Energy Marketing Center. Higher overall market prices of power
during 1997 compared to 1996 contributed to the increase in purchased
power costs.
Power purchases in 1996 increased $61 million from 1995. The
increase was primarily due to greater quantities of power purchased from
PJM and other utilities, increased customer demand, planned and unplanned
outages of PP&L generation stations, and attractive market prices for
energy.
Income Taxes
Income tax expense for 1997 decreased $15 million, or 5.9%, from
1996. This was primarily due to a decrease in pre-tax book income of $52
million.
Income tax expense for 1996 decreased $33 million, or 11.3%, from
1995. This was primarily due to a decrease in pre-tax book income of $25
million, and the recording of the tax benefits of research and
experimental tax credits and deductions of $5 million.
Other Operation, Maintenance and Depreciation Expense
Other operation and maintenance expenses in 1997 decreased by $26
million from 1996. Excluding the effect of underrecovered energy costs,
operation and maintenance expenses increased by $6 million in 1997.
These increases were primarily due to costs associated with the pilot
program, the PUC restructuring filing and the FERC transmission access
filing.
Prior to 1997, underrecovered energy costs were accrued as energy
revenues. In 1997, these underrecovered costs were recorded as
regulatory credits, which are reflected in the income statement as a
reduction of "Other Operating Expense". This reflects a change in the
regulatory treatment of undercollected energy costs by the PUC.
Depreciation expenses in 1997 increased by $11 million from 1996.
These increases were primarily due to depreciation on plant additions and
amortization of newly implemented computer software.
Other Income and (Deductions)
Other income and deductions for 1997 decreased by $31 million from
1996. This decrease was primarily due to the windfall profits tax on
PP&L Global's investment in SWEB, which resulted in a $37 million charge.
Refer to "Windfall Profits Tax - PP&L Global" for further discussion.
Other income and deductions for 1997 also includes a $6 million pre-tax
charge for estimated costs associated with the acquisition of PFG.
Partially offsetting these charges was a $10 million one-time tax benefit
recorded by PP&L Global related to its investment in SWEB. This benefit
was based on the reduction of the U.K. corporate income tax rate from 33%
to 31%.
Other income and deductions improved in 1996 compared with 1995, due
to the equity earnings from PP&L Global's investment in SWEB and gains on
the sale of investment securities by PP&L. Other income and deductions
in 1995 reflected a gain on the sale of a PP&L subsidiary's undeveloped
coal reserves, offset by the write-off of Susquehanna Unit 1 deferred
operating expenses and carrying costs (net of energy savings) resulting
from the PUC Decision and by expenses associated with evaluating and
responding to PECO's unsolicited proposals to acquire PP&L Resources.
Windfall Profits Tax - PP&L Global
In July 1997, the U.K. assessed a windfall profits tax on privatized
utilities. The tax is payable in two equal installments; the first
installment was made on December 1, 1997 and the second one is due in
December 1998. SWEB's windfall profits tax was approximately 90 million
pounds sterling, or about $148 million. Based on PP&L Global's 25%
ownership interest in SWEB, PP&L Resources incurred a one-time charge
against earnings of $37 million, or 23 cents per share, in 1997.
Subsidiary Coal Reserves
In November 1995, PP&L sold the coal reserves of one of its
subsidiaries for $52 million, which resulted in a $42 million gain, or
$20 million after-tax. PP&L had acquired the reserves in 1974 with the
intention of supplying future coal-fired generating stations, but later
concluded that it would not develop these reserves for such purposes. In
1994, the reserves' carrying value was written down from $84 million to
$10 million.
Financing Costs
In 1997, PP&L Resources continued to take advantage of opportunities
to reduce its financing costs by retiring long-term debt with the
proceeds from the sale of securities at a lower cost and repurchasing
PP&L preferred stock. Interest on long-term debt and dividends on
preferred stock decreased from $242 million in 1994 to $220 million in
1997, for a total decrease of $22 million.
Financial Condition
Capital Expenditure Requirements
The schedule below shows PP&L's current capital expenditure
projections for the years 1998-2002 and actual spending for the year
1997.
PP&L's Capital Expenditure Requirements (a)
Actual -------------Projected----------------
1997 1998 1999 2000 2001 2002
(Millions of Dollars)
Construction expenditures
Generating facilities $ 64 $ 89 $ 66 $ 72 $ 84 $ 86
Transmission and
distribution facilities 116 124 121 139 138 145
Environmental 12 15 14 6 5 3
Other 58 74 46 22 20 20
Total Construction
Expenditures 250 302 247 239 247 254
Nuclear fuel owned and
leased 60 63 60 63 65 67
Other leased property 35 22 22 22 22 22
Total Capital Expen-
ditures $345 $387 $329 $324 $334 $343
(a) Construction expenditures include AFUDC which is expected to be less
than $10 million in each of the years 1998-2002.
PP&L's capital expenditure projections for the years 1998-2002 total
about $1.7 billion. Capital expenditure plans are revised from time to
time to reflect changes in conditions.
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 December 31, 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.
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. In January and February 1998, PP&L Global acquired
an additional 300,000 shares in Emel at a cost of approximately $5
million, increasing its ownership interest to 27%.
Also, in February 1998, PP&L Global and Emel acquired a 75% interest
in Distributidora de Electricidad del Sur (DelSur), an electric
distribution company serving 193,000 customers in El Salvador, for
approximately $180 million. Under the purchase agreement, PP&L Global
will directly acquire 37.5% of DelSur and Emel will acquire the other
37.5%. DelSur is one of five electricity distribution companies in El
Salvador that are being privatized by the government.
PP&L Resources' other unregulated subsidiary, PP&L Spectrum, offers
energy-related products and services. Other subsidiaries may be formed
by PP&L Resources to take advantage of new business opportunities.
Acquisitions of Penn Fuel Gas, Inc. and H.T. Lyons, 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 customers 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 transaction 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. In October 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, non-
payroll related transaction costs associated with the acquisition of PFG
of $6 million, which reduced earnings by about three cents per share.
Additional charges may be incurred in connection with closing on this
transaction, which are not expected to be material in amount.
On January 22, 1998, PP&L Resources acquired H.T. Lyons, a heating,
ventilating and air-conditioning firm in a cash transaction for an amount
that is not material.
Financing and Liquidity
Net cash provided by operating activities decreased by $16 million
in 1997 compared with 1996. Net cash provided by operating activities
for 1996 increased $101 million over 1995. This increase was primarily
due to higher operating revenues, which reflects the 3.8% base rate
increase from the PUC Decision as well as higher sales to all customer
classes. Lower interest expense also contributed to the increase. These
increases were partially offset by higher fuel inventories.
Net cash used in investing activities was $141 million lower in 1997
than 1996. This decrease was due primarily to lower construction
expenditures by PP&L, liquidation of subsidiaries' long-term investments
to make funds available for other investing and financing activities, and
a reduction in the amount of equity funds invested by PP&L Global
compared to 1996. Net cash used in investing activities was $119 million
higher in 1996 than 1995. This increase was primarily due to PP&L
Global's investment in SWEB, partially offset by lower construction
expenditures by PP&L.
Net cash used in financing activities was $257 million higher in
1997 than 1996. The increase was primarily due to PP&L Resources'
purchase of PP&L preferred stock at a cost, including a premium and
associated cost of purchase, of $380 million. Also, PP&L retired $210
million of long-term debt in 1997, compared with $145 million in 1996.
These outflows were partially offset by PP&L's issuance of $250 million
of Preferred Securities through two Delaware statutory business trusts.
Net cash used in financing activities was $89 million lower in 1996
compared with 1995. This was largely due to higher proceeds from
issuance of long-term debt in 1996.
Additional financing activities in 1997 included PP&L's issuance of
$9 million of Pollution Control Revenue Bonds and PP&L Resources'
issuance of $102 million of Medium-term Notes. PP&L Resources also
issued $76 million of common stock of which $69 million was issued
through its DRIP and the remaining $7 million issued to PP&L's ESOP.
For the years 1995-1997, PP&L issued $282 million of long-term debt.
For the same period, PP&L and PP&L Resources issued a total of $234
million of common stock. Proceeds from security sales were used to
retire $495 million of long-term debt to lower PP&L's financing costs and
reduce short-term debt. During the years 1995-1997, PP&L also incurred
$252 million of obligations under capital leases (primarily nuclear
fuel).
PP&L Capital Funding, a wholly-owned subsidiary of PP&L Resources,
was formed in September 1997 to provide 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.
In November 1997, PP&L and PP&L Capital Funding established a new
joint revolving credit facility with a group of 14 banks comprised of two
separate revolving credit agreements -- a $150 million 364-day revolving
credit agreement and a $300 million five-year revolving credit agreement.
The new revolving credit facility replaced PP&L Resources' $300 million
revolving credit agreement, PP&L's $250 million revolving credit
agreement and three separate PP&L credit agreements totaling $45 million,
all of which were terminated.
At December 31, 1997, PP&L had no borrowings outstanding under the
new revolving credit agreements, and PP&L Capital Funding had $90 million
of borrowings outstanding under the five-year revolving credit agreement.
See Note 10 for additional information on this credit facility.
It is currently expected that the DRIP will continue in 1998 as
necessary to provide equity funding for PP&L Global investments, and that
PP&L's ESOP will provide proceeds of about $8 million in each of the
years 1998 through 2002.
Financial Indicators
PP&L Resources earned a 10.61% return on average common equity
during 1997, a decrease from the 12.30% earned in 1996. Excluding one-
time adjustments, as described in "Earnings", the return on average
common equity was 11.69% during 1997. The ratio of PP&L Resources' pre-
tax income to interest charges was 3.39 for 1997, a decrease from 3.55 in
1996. Excluding one-time adjustments, the ratio of PP&L Resources' pre-
tax income to interest charges was 3.53 in 1997, virtually unchanged from
1996. The annual per share dividend rate on common stock remained
unchanged at $1.67 per share. The book value per share of common stock
increased 0.2%, from $16.87 at the end of 1996 to $16.90 at the end of
1997. The ratio of the market price to book value of common stock was
142% at the end of 1997 compared with 136% at the end of 1996.
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 DEP has finalized regulations which require PP&L to
reduce its ozone seasonal NOx by 57% beginning in 1999.
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 further reductions in both NOx
and SO2 and may extend the reductions from seasonal to year round.
The Clean Air Act requires the EPA to study the health effects of
hazardous air emissions from power plants and other sources. Depending
on the outcome of these studies, PP&L may be required to take additional
action.
Expenditures to meet the 2000 acid rain and 1999 NOx reduction
requirements are included in the table of projected construction
expenditures in the section "Financial Condition - Capital Expenditure
Requirements". PP&L currently estimates that additional capital
expenditures and operating costs for environmental compliance under the
Clean Air Act will be incurred beyond 2002 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. Any new ash
disposal facility must meet the rigid siting and design standards set
forth in the regulations. 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.
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, the only other remedial work being planned is to abate a localized
groundwater degradation problem at Montour.
The recently issued final NPDES permit for the Montour station
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 2002 to comply with the
residual waste regulations, correct groundwater degradation at fossil-
fueled generating stations, and address waste water control at PP&L
facilities are included in the table of construction expenditures in the
section "Financial Condition - Capital Expenditure Requirements". In
this regard, PP&L currently estimates that $6.5 million of additional
capital expenditures may be required in the next four years to close some
of the ash basins and address other ash basin issues at various
generating plants. Additional capital expenditures could be required
beyond the year 2002 in amounts which are not now determinable but which
could be material. 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
In 1995, PP&L entered into 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. As of December 31, 1997, PP&L has completed work
on nearly half of the sites included in the agreement.
At December 31, 1997, PP&L had accrued $8.1 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.
General
Due to the environmental issues discussed above or other
environmental matters, PP&L may be required to modify, replace or cease
operating certain facilities to comply with statutes, regulations and
actions by regulatory bodies or courts. 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.
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. 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. Retail customers
participating in the PP&L and other pilot programs began to receive power
from their supplier of choice in November 1997. Under its pilot program,
approximately 60,000 PP&L residential, commercial and industrial
customers have chosen their electric supplier. PP&L will continue to
provide all transmission and distribution, customer service and back-up
energy supply services to participating customers in its service area.
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
50 suppliers have obtained such licenses to participate in the pilot
programs.
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 PP&L and of
the other Pennsylvania utilities, and PP&L currently is offering electric
supply to the participating customers of those utilities throughout the
state. PP&L has exceeded its goals in all classes for acquisition of
customers in the pilot program.
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 if the utility wishes to
seek such recovery. 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 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.
Under FERC Order 888, 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. PP&L
has now executed settlement agreements with these customers, which will
be filed with the FERC for approval. These settlement agreements provide
for continued power supply by PP&L through January 2004. If FERC
approves the agreements as filed, PP&L would be required to write off a
portion of its stranded costs applicable to these customers. The amount
of this write-off is currently estimated at approximately $28 million
after-tax, or 17 cents per share of common stock. FERC action on this
matter is not expected until the second quarter of 1998.
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 (the PJM Supporting Companies) filed
proposals with the FERC to amend the PJM tariff and restructure the PJM
pool. PECO filed a separate request with the FERC to amend the PJM
tariff. Furthermore, PECO and certain electric marketers submitted
significantly different proposals to restructure the PJM pool.
In November 1997, the FERC approved, with certain modifications, the
PJM Supporting Companies' proposals for transforming the PJM into an ISO.
In summary, the FERC order: (i) approved the PJM's open access
transmission rates based on geographic zones, but required PJM to file a
single PJM system-wide rate proposal by 2002; (ii) accepted the PJM
Supporting Companies' methodology to price transmission when the system
is congested and to charge these congestion costs to system users in
addition to the open access transmission rates, but ordered PJM to file
an additional proposal to address concerns raised over price certainty
for buyers and sellers during periods of congestion; (iii) determined
that the ISO is to operate both the transmission system and the power
exchange which provides for the purchase and sale of spot energy within
the PJM market; and (iv) accepted the PJM Supporting Companies' proposal
regarding mandatory installed capacity obligations for all entities
serving firm retail and wholesale load within PJM, but rejected their
proposal for allocating the capacity benefits which result from PJM's
ability to import power from other regional power pools.
The PJM Supporting Companies and numerous other parties have filed
requests for amendment and/or rehearing of virtually every portion of the
FERC's PJM ISO order. PP&L also has filed its own request for amendment
and/or rehearing. PP&L's primary issue with the FERC's order relates to
a requirement that existing wholesale contracts for sales service and
transmission service be modified to have the new PJM transmission tariff
applied to service under these existing contracts. If PP&L were required
to modify these existing contracts and apply the PJM tariff to them, PP&L
could lose as much as $3-4 million in transmission revenues in 1998 --
but a lesser amount in the following years -- from several wholesale
sales and transmission service contracts that were negotiated prior to
industry deregulation.
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 September 1997, PP&L filed a request with the FERC 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. In February 1998, the FERC
accepted the proposed rates, subject to refund, and set the amount of
the decrease in the revenue requirement for hearing.
In September 1997, PP&L also filed a request with the FERC to
approve new revenue requirements and rates for the PP&L open access
transmission tariff under FERC Order 888. 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.
In February 1998, the FERC rejected PP&L's tariff as unnecessary, in light of
the PJM open access transmission tariff.
In January 1998, the United States Department of Energy approved
PP&L's application for an export license to sell capacity and/or energy
to electric utilities in Canada. This export license allows PP&L to sell
either its own capacity and energy not required to serve domestic
obligations or power purchased from other utilities.
Year 2000 Computer Issue
PP&L Resources and its subsidiaries utilize software and related
technologies throughout their businesses. In the year 2000, computer
software systems will face a potentially serious problem with recognizing
calendar dates. Without corrective action, this problem could result in
computer shutdown or erroneous calculations. In 1996, PP&L Resources
began assessing the Year 2000 implications on its business systems.
During 1997, plans and procedures were developed for achieving
compliance, and remediation efforts began. As of the end of 1997,
approximately one-third of the software applications have been made Year
2000 compliant. The project is expected to be completed on a timely
basis, and the computer systems are expected to be fully Year 2000
compliant, with anticipated future costs of approximately $12 million.
(Address and phone number appears here)
Thirty South Seventeenth Street
Philadelphia, PA 19103-4094
Telephone 215 575 5000
(Price Waterhouse LLP logo appears here)
Report of Independent Accountants
February 2, 1998
To the Shareowners and Board of Directors of
PP&L Resources, Inc. and to the Shareowners and
Board of Directors of PP&L, Inc.
In our opinion, the accompanying consolidated financial statements listed
in the index appearing under Item 14(a)(1) and (2) on page 87, present
fairly, in all material respects, the consolidated financial position of
PP&L Resources, Inc. and its subsidiaries (PP&L Resources) at December 31,
1997 and 1996, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31,
1997 and the consolidated financial position of PP&L, Inc. and its
subsidiaries (PP&L) at December 31, 1997 and 1996 and the consolidated
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of management of PP&L Resources and PP&L; our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
(Signed) Price Waterhouse LLP
PRICE WATERHOUSE LLP
PP&L Resources, Inc.
Management's Report on Responsibility for Financial Statements
The management of PP&L Resources, Inc. is responsible for
the preparation, integrity and objectivity of the consolidated
financial statements and all other sections of this annual
report. The financial statements were prepared in accordance
with generally accepted accounting principles and the Uniform
System of Accounts prescribed by the Federal Energy Regulatory
Commission. In preparing the financial statements, management
makes informed estimates and judgments of the expected effects of
events and transactions based upon currently available facts and
circumstances. Management believes that the financial statements
are free of material misstatement and present fairly the
financial position, results of operations and cash flows of PP&L
Resources.
PP&L Resources' consolidated financial statements have been
audited by Price Waterhouse LLP (Price Waterhouse), independent
certified public accountants, whose report with respect to the
financial statements appears on page 41. Price Waterhouse's
appointment as auditors was previously ratified by the
shareowners. Management has made available to Price Waterhouse
all PP&L Resources' financial records and related data, as well
as the minutes of shareowners' and directors' meetings.
Management believes that all representations made to Price
Waterhouse during its audit were valid and appropriate.
PP&L Resources maintains a system of internal control
designed to provide reasonable, but not absolute, assurance as to
the integrity and reliability of the financial statements, the
protection of assets from unauthorized use or disposition and the
prevention and detection of fraudulent financial reporting. The
concept of reasonable assurance recognizes that the cost of a
system of internal control should not exceed the benefits derived
and that there are inherent limitations in the effectiveness of
any system of internal control.
Fundamental to the control system is the selection and
training of qualified personnel, an organizational structure that
provides appropriate segregation of duties, the utilization of
written policies and procedures and the continual monitoring of
the system for compliance. In addition, PP&L Resources maintains
an internal auditing program to evaluate PP&L Resources' system
of internal control for adequacy, application and compliance.
Management considers the internal auditors' and Price
Waterhouse's recommendations concerning its system of internal
control and has taken actions which are believed to be cost-
effective in the circumstances to respond appropriately to these
recommendations. Management believes that PP&L Resources' system
of internal control is adequate to accomplish the objectives
discussed in this report.
The Board of Directors, acting through its Audit and
Corporate Responsibility Committee, oversees management's
responsibilities in the preparation of the financial statements.
In performing this function, the Audit and Corporate
Responsibility Committee, which is composed of five independent
directors, meets periodically with management, the internal
auditors and the independent certified public accountants to
review the work of each. The independent certified public
accountants and the internal auditors have free access to the
Audit and Corporate Responsibility Committee and to the Board of
Directors, without management present, to discuss internal
accounting control, auditing and financial reporting matters.
Management also recognizes its responsibility for fostering a
strong ethical climate so that PP&L Resources' affairs are
conducted according to the highest standards of personal and
corporate conduct. This responsibility is characterized and
reflected in the business policies and guidelines of PP&L
Resources' operating subsidiaries. These policies and guidelines
address: the necessity of ensuring open communication within
PP&L Resources; potential conflicts of interest; proper
procurement activities; compliance with all applicable laws,
including those relating to financial disclosure; and the
confidentiality of proprietary information.
/s/William F. Hecht
William F. Hecht
Chairman, President and Chief Executive Officer
/s/John R. Biggar
John R. Biggar
Senior Vice President-Financial
PP&L, Inc.
Management's Report on Responsibility for Financial Statements
The management of PP&L, Inc. is responsible for the
preparation, integrity and objectivity of the consolidated
financial statements and all other sections of this annual
report. The financial statements were prepared in accordance
with generally accepted accounting principles and the Uniform
System of Accounts prescribed by the Federal Energy Regulatory
Commission. In preparing the financial statements, management
makes informed estimates and judgments of the expected effects of
events and transactions based upon currently available facts and
circumstances. Management believes that the financial statements
are free of material misstatement and present fairly the
financial position, results of operations and cash flows of PP&L.
PP&L's consolidated financial statements have been audited
by Price Waterhouse LLP (Price Waterhouse), independent certified
public accountants, whose report with respect to the financial
statements appears on page 41. Price Waterhouse's appointment as
auditors was previously ratified by the shareowners. Management
has made available to Price Waterhouse all PP&L's financial
records and related data, as well as the minutes of shareowners'
and directors' meetings. Management believes that all
representations made to Price Waterhouse during its audit were
valid and appropriate.
PP&L maintains a system of internal control designed to
provide reasonable, but not absolute, assurance as to the
integrity and reliability of the financial statements, the
protection of assets from unauthorized use or disposition and the
prevention and detection of fraudulent financial reporting. The
concept of reasonable assurance recognizes that the cost of a
system of internal control should not exceed the benefits derived
and that there are inherent limitations in the effectiveness of
any system of internal control.
Fundamental to the control system is the selection and
training of qualified personnel, an organizational structure that
provides appropriate segregation of duties, the utilization of
written policies and procedures and the continual monitoring of
the system for compliance. In addition, PP&L maintains an
internal auditing program to evaluate PP&L's system of internal
control for adequacy, application and compliance. Management
considers the internal auditors' and Price Waterhouse's
recommendations concerning its system of internal control and has
taken actions which are believed to be cost-effective in the
circumstances to respond appropriately to these recommendations.
Management believes that PP&L's system of internal control is
adequate to accomplish the objectives discussed in this report.
The Board of Directors, acting through PP&L Resources' Audit
and Corporate Responsibility Committee, oversees management's
responsibilities in the preparation of the financial statements.
In performing this function, the Audit and Corporate
Responsibility Committee, which is composed of five independent
directors, meets periodically with management, the internal
auditors and the independent certified public accountants to
review the work of each. The independent certified public
accountants and the internal auditors have free access to PP&L
Resources' Audit and Corporate Responsibility Committee and to
the Board of Directors, without management present, to discuss
internal accounting control, auditing and financial reporting
matters.
Management also recognizes its responsibility for fostering a
strong ethical climate so that PP&L's affairs are conducted
according to the highest standards of personal and corporate
conduct. This responsibility is characterized and reflected in
PP&L's business policies and guidelines. These policies and
guidelines address: the necessity of ensuring open communication
within PP&L; potential conflicts of interest; proper procurement
activities; compliance with all applicable laws, including those
relating to financial disclosure; and the confidentiality of
proprietary information.
/s/William F. Hecht
William F. Hecht
Chairman, President and Chief Executive Officer
/s/John R. Biggar
John R. Biggar
Senior Vice President-Financial
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENT OF INCOME
PP&L Resources, Inc. and Subsidiaries
(Millions of Dollars, except per share data)
1997 1996 1995
Operating Revenues (Notes 1, 4 and 5)............................. $3,049 $2,910 $2,752
Operating Expenses
Operation
Fuel............................................................ 466 448 451
Power purchases................................................. 504 352 291
Other........................................................... 525 544 504
Maintenance....................................................... 184 191 186
Depreciation (including amortized depreciation)
(Notes 1 and 9) ................................................ 374 363 349
Income taxes (Note 6)............................................. 247 253 262
Taxes, other than income (Note 6)................................. 204 203 201
Voluntary early retirement program (Note 4) ......................... (66)
2,504 2,354 2,178
Operating Income................................. 545 556 574
Other Income and (Deductions)
Other - net ................................... 18 21 (16)
Income taxes (Note 6) ............................................ 9 (24)
Gain on sale of coal mining assets (Note 15)......................... 42
Windfall profits tax - PP&L Global (Note 11) ..................... (37)
(10) 21 2
Income Before Interest Charges and Dividends on
Preferred Stock .................................................. 535 577 576
Interest Charges
Long-term debt................................. 196 207 213
Short-term debt and other......................................... 19 13 12
215 220 225
Preferred Stock Dividend Requirements............................... 24 28 28
Net Income....................................... $296 $329 $323
Earnings Per Share of Common Stock (a)........... $1.80 $2.05 $2.05
Average Number of Shares Outstanding (thousands)............... 164,550 161,060 157,649
Dividends Declared Per Share of Common Stock..................... $1.67 $1.67 $1.67
(a) Based on average number of shares outstanding.
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
PP&L Resources, Inc. and Subsidiaries
(Millions of Dollars)
1997 1996 1995
Cash Flows From Operating Activities
Net income.............................................. $296 $329 $323
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation................................................................ 377 366 352
Amortization of property under capital leases............................... 68 86 79
Regulatory debits and credits .............................................. (36) (10) (42)
Deferred income taxes and investment tax credits............................ 18 16
Voluntary early retirement program ........................................................ (66)
Change in current assets and current liabilities
Fuel inventories.......................................................... 11 (14) 43
Other..................................................................... (13) (35) (30)
Other operating activities -- net........................................... 56 71 17
Net cash provided by operating activities............................... 777 793 692
Cash Flows From Investing Activities
Property, plant and equipment expenditures.............. (310) (360) (403)
Proceeds from sale of nuclear fuel to trust................................... 60 93 44
Proceeds from sale of coal reserves......................................................... 52
Purchases of available-for-sale securities ................................... (72) (600) (303)
Sales and maturities of available-for-sale securities ........................ 111 631 301
Investment in electric energy projects........................................ (152) (201) (12)
Purchases and sales of other financial investments - net...................... 76
Other investing activities -- net....................... (4) 5 8
Net cash used in investing activities................................... (291) (432) (313)
Cash Flows From Financing Activities
Issuance of long-term debt.............................. 111 116 55
Issuance of common stock...................................................... 76 77 81
Issuance of Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts holding
solely company debentures................................................... 250
Retirement of long-term debt............................ (210) (145) (140)
Purchase of subsidiary's preferred stock (net of
premium and associated costs) .............................................. (369)
Payments on capital lease obligations................... (68) (86) (79)
Common and preferred dividends paid........................................... (298) (296) (290)
Net increase (decrease) in short-term debt.................................... (9) 55 15
Other financing activities -- net............................................. (20) (1) (11)
Net cash used in financing activities................................... (537) (280) (369)
Net Increase(Decrease) in Cash and Cash Equivalents................ (51) 81 10
Cash and Cash Equivalents at Beginning of Period................................ 101 20 10
Cash and Cash Equivalents at End of Period...................................... $50 $101 $20
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized)........................................ $208 $213 $218
Income taxes................................................................ $244 $286 $257
See accompanying Notes to Financial Statements.
CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PP&L Resources, Inc. and Subsidiaries
(Millions of Dollars)
Assets 1997 1996
Property, Plant and Equipment
Electric utility plant in service - at original cost..... $9,984 $9,824
Accumulated depreciation (Notes 1 and 9).................................... (3,570) (3,337)
6,414 6,487
Construction work in progress - at cost ...................................... 185 172
Nuclear fuel owned and leased - net of amortization ......................... 167 170
Other leased property - net of amortization ........................................... 76
Electric utility plant - net ............................................... 6,766 6,905
Other property - (net of depreciation, amortization
and depletion: 1997, $57; 1996, $54)........................................ 54 55
6,820 6,960
Investments
Investment in and advances to electric energy
projects -- at equity (Note 1) ............................................. 360 224
Affiliated companies - at equity (Note 1)..................................... 17 17
Nuclear plant decommissioning trust fund (Notes 1 and 7)...................... 163 128
Financial investments (Notes 1 and 8) ........................................ 52 133
Other-at cost or less (Note 8) ............................................... 13 18
605 520
Current Assets
Cash and cash equivalents (Note 1) ...................... 50 101
Current financial investments (Notes 1 and 8)................................. 6 73
Accounts receivable (less reserve: 1997, $16; 1996, $25)
Customers .................................................................. 190 196
Other ...................................................................... 48 49
Unbilled revenues
Customers................................................................... 90 85
Other ...................................................................... 37 17
Fuel, materials and supplies - at average cost ............................... 200 201
Deferred income taxes (Note 6)................................................ 22 21
Other ........................................................................ 52 40
695 783
Regulatory Assets and Other Noncurrent Assets (Note 9)......................... 1,365 1,407
$9,485 $9,670
See accompanying Notes to Financial Statements.
Liabilities 1997 1996
Capitalization
Common equity
Common stock ............................................................... $2 $2
Capital in excess of par value ............................................ 1,669 1,596
Earnings reinvested......................................................... 1,164 1,143
Capital stock expense and other ............................................ (26) 4
2,809 2,745
Preferred stock
With sinking fund requirements ............................................. 47 295
Without sinking fund requirements .......................................... 50 171
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
company debentures ......................................................... 250
Long-term debt .......................................... 2,585 2,802
5,741 6,013
Current Liabilities
Short-term debt (Note 10) ............................... 135 144
Long-term debt due within one year ........................................... 150 30
Capital lease obligations due within one year ................................ 58 81
Accounts payable ............................................................. 140 133
Taxes accrued ................................................................ 40 53
Interest accrued ............................................................. 62 61
Dividends payable ............................................................ 76 75
Other ........................................................................ 108 78
769 655
Deferred Credits and Other Noncurrent Liabilities
Deferred investment tax credits (Note 6) ................ 199 209
Deferred income taxes (Note 6) ............................................... 2,022 2,052
Capital lease obligations .................................................... 113 166
Other (Notes 1, 4 and 7)...................................................... 641 575
2,975 3,002
Commitments and Contingent Liabilities (Note 16) ..............................
$9,485 $9,670
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY
PP&L Resources, Inc. and Subsidiaries
(Millions of Dollars)
Capital
Common Stock Outstanding in Excess Earnings Capital Stock
Shares (a) Amount of Par Value Reinvested Expense & Other
Balance at December 31, 1994. 155,481,962 $2 $1,433 $1,024 $(4)
Net income..................................... 323
Cash dividends declared on
common stock.............................. (264)
Common stock issued (b) ............ 3,921,304 80
Other............................................... 3
Balance at December 31, 1995. 159,403,266 $2 $1,513 $1,083 $(1)
Net income..................................... 329
Cash dividends declared on
common stock.............................. (269)
Common stock issued (b) ............ 3,262,150 77
Other............................................... 6 5
Balance at December 31, 1996. 162,665,416 $2 $1,596 $1,143 $4
Net income..................................... 296
Cash dividends declared on
common stock.............................. (275)
Common stock issued (b) ... 3,582,868 76
Other...................... (3) (30)
Balance at December 31, 1997........ 166,248,284 $2 $1,669 $1,164 $(26)
<FN>
(a) $.01 par value, 390,000,000 shares authorized.
Each share entitles the holder to one vote on any question
presented to any shareowners' meeting.
(b) Common Stock issued through the ESOP and the DRIP.
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF PREFERRED STOCK AT DECEMBER 31,
PP&L Resources, Inc. and Subsidiaries (a)
(Millions of Dollars)
Shares
Outstanding Outstanding Shares
1997(b) 1996 1997 (b) Authorized
PP&L
Preferred Stock - $100 par, cumulative
4-1/2%........................... $25 $53 530,189 629,936
Series........................... 72 413 4,133,556 10,000,000
$97 $466
Details of Preferred Stock (c)
Optional Sinking Fund
Redemption Provisions
Shares Price Per Shares to be
Outstanding Outstanding Share Redeemed Redemption
1997 (b) 1996 1997 (b) 1997 Annually (f) Period
With Sinking Fund Requirements
Series Preferred
5.95% ................... $1 $30 300,000 (d) 10,000 April 2001
6.05%............................ 25 250,000 (d)
6.125% .................. 31 115 1,150,000 (d) (e) 2003-2008
6.15%.................... 10 25 250,000 (d) 100,000 April 2003
6.33% ................... 5 100 1,000,000 (d) 50,000 July 2003
$47 $295
Without Sinking Fund Requirements
4-1/2% Preferred........... $25 $53 530,189 $110.00
Series Preferred
3.35%.................... 2 4 41,783 103.50
4.40%.................... 11 23 228,773 102.00
4.60%.................... 3 6 63,000 103.00
6.75%.................... 9 85 850,000 (d)
$50 $171
Increases(Decreases) in Preferred Stock
There were no issuances or redemptions of preferred stock in 1997, 1996 or 1995.
<FN>
(a) Each share of PP&L's preferred stock entitles the holder
to one vote on any question presented to PP&L's
shareowners' meetings. There were 10,000,000 shares
of Resources' preferred stock and 5,000,000
shares of PP&L's preference stock authorized; none were
outstanding at December 31, 1997 and 1996, respectively.
(b) In 1997, PP&L Resources acquired 79.10% ($369 million
par value) of the outstanding preferred stock of PP&L
in a tender offer. At December 31, 1997, these shares
have not been retired or redeemed. The par value
of PP&L preferred stock acquired by PP&L Resources has
been eliminated for purposes of providing consolidated
financial statements.
(c) The involuntary liquidation price of the preferred stock is
$100 per share. The optional voluntary liquidation
price is the optional redemption price per share in effect,
except for the 4-1/2% Preferred Stock for which
such price is $100 per share (plus in each case any unpaid
dividends).
(d) These series of preferred stock are not redeemable prior
to the following years: 5.95%, 2001; 6.05%, 2002;
6.125%, 6.15%, 6.33% and 6.75%, 2003.
(e) Shares to be redeemed annually on October 1 as follows:
2003-2007, 57,500; 2008, 22,500.
(f) After giving effect to the preferred stock tender offer.
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF COMPANY-OBLIGATED MANDATORILY
REDEEMABLE SECURITIES AT DECEMBER 31,
PP&L Resources, Inc. and Subsidiaries (a)
PP&L, Inc. and Subsidiaries (a)
(Millions of Dollars)
Outstanding
1997 1996 1997 Authorized Maturity (b)
Company-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts Holding
Solely Company Debentures - $25 per security
8.10%........ $150 $0 6,000,000 6,000,000 July 2002
8.20%..................... 100 0 4,000,000 4,000,000 April 2002
$250 $0
(a) PP&L arranged for the issuance of a total of $250
million of Company-obligated mandatorily redeemable
Preferred Securities of subsidiary trusts holding solely company
debentures by PP&L Capital Trust and PP&L Capital
Trust II, two Delaware statutory business trusts.
These Preferred Securities are supported by a
corresponding amount of junior subordinated deferrable
interest debentures issued by PP&L to the trusts.
PP&L owns all of the common securities, representing
the remaining undivided beneficial ownership
interest in the assets of the trusts. The proceeds
derived from the issuance of the Preferred Securities
and the common securities were used by PP&L Capital
Trust and PP&L Capital Trust II to acquire $103 million
and $155 million principal amount of Junior Subordinated
Deferrable Interest Debentures, respectively.
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 for PP&L preferred stock.
(b) The Preferred Securities are subject to mandatory
redemption, in whole or in part, upon the repayment of the
Subordinated Debentures at maturity or their earlier
redemption. At the option of the Company, the Subordinated
Debentures are redeemable on and after the dates shown
above in whole at any time or in part from time to
time. The amount of Preferred Securities subject to
such mandatory redemption will be equal to the amount of
related Subordinated Debentures maturing or being redeemed.
The redemption price is $25 per security plus
an amount equal to accumulated and unpaid distributions
to the date of redemption.
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31,
PP&L Resources, Inc. and Subsidiaries
(Millions of Dollars)
Outstanding
1997 1996 Maturity(b)
First Mortgage Bonds (a)
6 3/4% .................................. $30 November 1, 1997(c)
5 1/2%.................................................... $150 150 April 1, 1998
7%....................................................................... 40 January 1, 1999(c)
6%........................................................ 125 125 June 1, 2000
7 1/4% .................................................................. 60 February 1, 2001(c)
7 3/4%.................................................... 150 150 May 1, 2002
6 1/2% to 7 1/2%.......................................... 525 605 2003-2007 (c)
7.70%..................................................... 200 200 2008-2012 (d)
7 3/8%.................................................... 100 100 2013-2017
8 1/2% to 9 3/8% ......................................... 465 465 2018-2022
6 3/4% to 7 7/8% ......................................... 500 500 2023-2027
First Mortgage Pollution Control Bonds (a)
6.40% Series H........................... 90 90 November 1, 2021
5.50% Series I............................................ 53 53 February 15, 2027
6.40% Series J............................................ 116 116 September 1, 2029
6.15% Series K............................................ 55 55 August 1, 2029
2,529 2,739
Medium Term Notes (e)
6.79%.................................... 100 November 22, 2004
6.84%..................................................... 2 November 20, 2007
Unsecured promissory notes ................................. 116 116
Pollution Control Revenue Bonds............................. 9 (f)
2,756 2,855
Unamortized (discount) and premium -- net .................. (21) (23)
2,735 2,832
Less amount due within one year............................. 150 30
Total long-term debt ..................................... $2,585 $2,802
__________________________________________
<FN>
(a) Substantially all owned electric utility plant is
subject to the lien of PP&L's Mortgage.
(b) Aggregate long-term debt maturities through 2002
are (millions of dollars): 1998, $150;
2000, $125; 2002, $150. There are no bonds
outstanding that have sinking fund requirements.
(c) In 1997, PP&L redeemed the $30 million of 6 3/4%
mortgage bonds of the optional redemption
price of 100% of the principal amount. Three
series were redeemed under the maintenance
and replacement fund provisions: $40 million
of the 7% series due in 1999, $60 million of the
7 1/4% series due in 2001, and $80 million of
the 7 1/2% series due in 2003.
(d) Any registered owner of these bonds has the
right to require PP&L to redeem such owner's
bonds on October 1, 1999 at a price of 100%
of the principal amount.
(e) In 1997, PP&L Capital Funding issued two
tranches of Medium-Term Notes. The proceeds
derived from the issuance of these notes were
used to pay down loans made under PP&L
Resources' revolving credit agreement.
(f) In 1997, the Indiana County Industrial Development
Authority issued $62 million of Pollution
Control Revenue Bonds. Of this amount, $9 million
relates to PP&L's share of the financing
of scrubber costs at the Conemaugh Station.
The proceeds were used to retire the interim
financing previously arranged for the Conemaugh
project.
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF INCOME
PP&L, Inc. and Subsidiaries
(Millions of Dollars)
1997 1996 1995
Operating Revenues (Notes 1, 4 and 5)............................. $3,049 $2,910 $2,752
Operating Expenses
Operation
Fuel.......................................................... 466 448 451
Power purchases............................................... 504 352 291
Other......................................................... 525 544 504
Maintenance..................................................... 184 191 186
Depreciation (including amortized depreciation)
(Notes 1 and 9) .............................................. 374 363 349
Income taxes (Note 6)........................................... 247 253 262
Taxes, other than income (Note 6)............................... 204 203 201
Voluntary early retirement program (Note 4) ........................ (66)
2,504 2,354 2,178
Operating Income.................................................. 545 556 574
Other Income and (Deductions)
Other - net .................................. 11 17 (12)
Income taxes (Note 6) .......................................... (1) (2) (26)
Gain on sale of coal mining assets (Note 15) ....................... 42
10 15 4
Income Before Interest Charges.................................... 555 571 578
Interest Charges
Long-term debt................................ 195 207 213
Short-term debt and other....................................... 12 7 13
207 214 226
Net Income........................................................ 348 357 352
Dividends on Preferred Stock...................................... 40 28 28
Earnings Available to PP&L Resources, Inc. ..................... $308 $329 $324
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
PP&L, Inc. and Subsidiaries
(Millions of Dollars)
1997 1996 1995
Cash Flows From Operating Activities
Net income........................................ $348 $357 $352
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation....................................................... 377 366 352
Amortization of property under capital leases...................... 68 86 79
Regulatory debits and credits ..................................... (36) (10) (42)
Deferred income taxes and investment tax
credits.......................................................... 20 (1) 16
Voluntary early retirement program ............................................ (66)
Change in current assets and current liabilities
Fuel inventories................................................. 11 (14) 43
Other............................................................ (25) (38) (28)
Other operating activities -- net.................................. 23 53 (10)
Net cash provided by operating activities...................... 786 799 696
Cash Flows From Investing Activities
Property, plant and equipment expenditures........ (310) (360) (403)
Proceeds from sales of nuclear fuel to trust......................... 60 93 44
Proceeds from sale of coal reserves............................................. 52
Purchases of available-for-sale securities .......................... (72) (90) (81)
Sales and maturities of available-for-sale
securities......................................................... 88 93 80
Purchases and sales of other financial
investments - net.................................................. 76
Loan to parent ................................... (375)
Other investing activities -- net................. (4) 5 7
Net cash used in investing activities.......................... (537) (259) (301)
Cash Flows From Financing Activities
Issuance of long-term debt........................ 9 116 55
Issuance of Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts holding
solely company debentures ......................................... 250
Issuance of common stock and capital
contribution from parent........................................... 7 32 60
Retirement of long-term debt......................................... (210) (145) (140)
Payments on capital lease obligations................................ (67) (86) (79)
Common and preferred dividends paid.................................. (344) (296) (290)
Net increase (decrease) in short-term debt........................... 35 (79) 15
Other financing activities -- net.................................... (9) (2) (10)
Net cash used in financing activities.......................... (329) (460) (389)
Net Increase(Decrease) in Cash and Cash Equivalents................... (80) 80 6
Cash and Cash Equivalents at Beginning of Period....................... 95 15 9
Cash and Cash Equivalents at End of Period............................. $15 $95 $15
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for
Interest (net of amount capitalized)............................... $201 $208 $218
Income taxes....................................................... $253 $289 $258
<FN>
See accompanying Notes to Financial Statements.
CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PP&L, Inc. and Subsidiaries
(Millions of Dollars)
Assets 1997 1996
Property, Plant and Equipment
Electric utility plant in service - at original cost.... $9,984 $9,824
Accumulated depreciation (Notes 1 and 9)................................... (3,570) (3,337)
6,414 6,487
Construction work in progress - at cost ..................................... 185 172
Nuclear fuel owned and leased - net of amortization ......................... 167 170
Other leased property - net of amortization ............................................ 76
Electric utility plant - net ............................................... 6,766 6,905
Other property - (net of depreciation, amortization
and depletion: 1997, $57; 1996, $54)...................................... 54 55
6,820 6,960
Investments
Affiliated companies - at equity (Note 1) .............. 17 17
Nuclear plant decommissioning trust fund (Notes 1 and 7)..................... 163 128
Loan to parent .............................................................. 375
Financial investments (Notes 1 and 8) .................. 52 133
Other - at cost or less (Note 8) ............................................ 13 10
620 288
Current Assets
Cash and cash equivalents (Note 1) ..................... 15 95
Current financial investments (Notes 1 and 8)................................ 6 51
Accounts receivable (less reserve: 1997, $16; 1996, $25)
Customers ................................................................. 188 196
Other ..................................................................... 64 44
Unbilled revenues
Customers ................................................................. 90 85
Other ..................................................................... 36 17
Fuel, material and supplies - at average cost ............................... 200 201
Deferred income taxes (Note 6)............................................... 22 21
Other ....................................................................... 49 40
670 750
Regulatory Assets and Other Noncurrent Assets (Note 9)........................ 1,362 1,407
$9,472 $9,405
See accompanying Notes to Financial Statements.
Liabilities 1997 1996
Capitalization
Common equity
Common stock .............................................................. $1,476 $1,476
Additional paid-in capital ................................................ 64 57
Earnings reinvested ....................................................... 1,092 1,094
Capital stock expense and other .......................................... (20) (10)
2,612 2,617
Preferred stock
With sinking fund requirements ............................................ 295 295
Without sinking fund requirements ......................................... 171 171
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
company debentures ........................................................ 250
Long-term debt ......................................... 2,483 2,802
5,811 5,885
Current Liabilities
Short-term debt (Note 10) .............................. 45 10
Long-term debt due within one year .......................................... 150 30
Capital lease obligations due within one year ............................... 58 81
Accounts payable ............................................................ 148 132
Taxes accrued ............................................................... 40 55
Interest accrued ............................................................ 59 60
Dividends payable ........................................................... 81 75
Other ....................................................................... 107 78
688 521
Deferred Credits and Other Noncurrent Liabilities
Deferred investment tax credits (Note 6) ............... 199 209
Deferred income taxes (Note 6) .............................................. 2,022 2,050
Capital lease obligations .................................................. 113 166
Other (Notes 1, 4 and 7) .................................................... 639 574
2,973 2,999
Commitments and Contingent Liabilities (Note 16) ...................................
$9,472 $9,405
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF SHAREOWNER'S COMMON EQUITY
PP&L, INC. AND SUBSIDIARIES
(Millions of Dollars)
Additional
Common Stock Outstanding Paid-in Earnings Capital Stock
Shares (a) Amount Capital Reinvested Expense & Other
Balance at December 31, 1994............... 155,481,962 $1,441 $0 $973 $(10)
Net income.................................................................. 352
Cash dividends declared
Preferred stock.......................................................... (28)
Common stock........................................................... (263)
Common stock issued (b) ............................... 1,818,420 35
Capital contribution from PP&L Resources................. 25
Other............................................................................ 3
Balance at December 31, 1995............... 157,300,382 $1,476 $25 $1,034 $(7)
Net income.................................................................. 357
Cash dividends declared
Preferred stock.......................................................... (28)
Common stock........................................................... (269)
Capital contribution from PP&L Resources................. 32
Other............................................................................ (3)
Balance at December 31, 1996............... 157,300,382 $1,476 $57 $1,094 $(10)
Net income.................................................................. 348
Cash dividends declared
Preferred stock.......................................................... (40)
Common stock........................... (275)
Dividends to PP&L Resources ........... (35)
Capital contribution from PP&L Resources. 7
Other.................................... (10)
Balance at December 31, 1997............................. 157,300,382 $1,476 $64 $1,092 $(20)
<FN>
(a) No par value. 170,000,000 shares authorized. As of April 27, 1995, all holders of PP&L common
stock became holders of PP&L Resources common stock, all PP&L common stock was acquired by PP&L
Resources.
(b) Common Stock was issued through the ESOP and DRIP.
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF PREFERRED STOCK AT DECEMBER 31,
PP&L, Inc. and Subsidiaries(a)
(Millions of Dollars)
Shares
Outstanding Outstanding Shares
1997 1996 1997 Authorized
Preferred Stock -- $100 par, cumulative
4-1/2%.......... $53 $53 530,189 629,936
Series.......................... 413 413 4,133,556 10,000,000
$466 $466
Details of Preferred Stock (b)
Optional Sinking Fund
Redemption Provisions
Shares Price Per Shares to be
Outstanding Outstanding Share Redeemed Redemption
1997 1996 1997 1997 Annually Period
With Sinking Fund Requirements
Series Preferred
5.95% ................... $30 $30 300,000 (c) 300,000 April 2001
6.05%.................... 25 25 250,000 (c) 250,000 April 2002
6.125% .................. 115 115 1,150,000 (c) (d) 2003-2008
6.15%.................... 25 25 250,000 (c) 250,000 April 2003
6.33% ................... 100 100 1,000,000 (c) (e) 2003-2008
$295 $295
Without Sinking Fund Requirements
4-1/2% Preferred........... $53 $53 530,189 $110.00
Series Preferred
3.35%.................... 4 4 41,783 103.50
4.40%.................... 23 23 228,773 102.00
4.60%.................... 6 6 63,000 103.00
6.75%.................... 85 85 850,000 (c)
$171 $171
Increases (Decreases) in Preferred Stock
There were no issuances or redemptions of preferred stock in 1997, 1996 or 1995.
<FN>
(a) Each share of PP&L's preferred stock entitles the holder to one vote on any question
presented to PP&L's shareowners' meetings. There were 5,000,000 shares of PP&L's
preference stock authorized; none were outstanding at December 31, 1997 and 1996,
respectively.
(b) The involuntary liquidation price of the preferred stock is $100 per share. The
optional voluntary liquidation price is the optional redemption price per share in
effect, except for the 4-1/2% Preferred Stock for which such price is $100 per share
(plus in each case any unpaid dividends).
(c) These series of preferred stock are not redeemable prior to the following years:
5.95%, 2001; 6.05%, 2002; 6.125%, 6.15%, 6.33% and 6.75%, 2003.
(d) Shares to be redeemed annually on October 1 as follows: 2003-2007, 57,500; 2008,
862500
(e) Shares to be redeemed annually on July 1 as follows: 2003-2007, 50,000; 2008, 750,000.
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31,
PP&L, Inc. and Subsidiaries
(Millions of Dollars)
Outstanding
1997 1996 Maturity(b)
First Mortgage Bonds (a)
6 3/4% ................................. $30 November 1, 1997(c)
5 1/2%.................................................. $150 150 April 1, 1998
7%.................................................................... 40 January 1, 1999(c)
6%...................................................... 125 125 June 1, 2000
7 1/4% ............................................................... 60 February 1, 2001(c)
7 3/4%.................................................. 150 150 May 1, 2002
6 1/2% to 7 1/2%........................................ 525 605 2003-2007 (c)
7.70%................................................... 200 200 2008-2012 (d)
7 3/8%.................................................. 100 100 2013-2017
8 1/2% to 9 3/8% ....................................... 465 465 2018-2022
6 3/4% to 7 7/8% ....................................... 500 500 2023-2027
First Mortgage Pollution Control Bonds (a)
6.40% Series H.......................... 90 90 November 1, 2021
5.50% Series I.......................................... 53 53 February 15, 2027
6.40% Series J.......................................... 116 116 September 1, 2029
6.15% Series K.......................................... 55 55 August 1, 2029
2,529 2,739
Unsecured promissory notes ............................... 116 116
Pollution Control Revenue Bonds........................... 9 (e)
2,654 2,855
Unamortized (discount) and premium -- net ................ (21) (23)
2,633 2,832
Less amount due within one year........................... 150 30
Total long-term debt ................................... $2,483 $2,802
__________________________________________
<FN>
(a) Substantially all owned electric utility plant is subject to the lien of PP&L's
Mortgage.
(b) Aggregate long-term debt maturities through 2002 are (millions of dollars): 1998,
$150; 2000, $125; 2002, $150. There are no bonds outstanding that have sinking fund
requirements.
(c) In 1997, PP&L redeemed the $30 million of 6 3/4% mortgage bonds at the optional
redemption price of 100% of the principal amount. Three series were redeemed under
the maintenance and replacement fund provisions: $40 million of the 7% series due
in 1999, $60 million of the 7 1/4% series due in 2001, and $80 million of the
7 1/2% series due in 2003.
(d) Any registered owner of these bonds has the right to require PP&L to redeem such
owner's bonds on October 1, 1999 at a price of 100% of the principal amount.
(e) In 1997, the Indiana County Industrial Development Authority issued $62 million of
Pollution Control Revenue Bonds. Of this amount, $9 million relates to PP&L's share
of the financing of scrubber costs at the Conemaugh Station. The proceeds were used
to retire the interim financing previously arranged for the Conemaugh project.
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Terms and abbreviations appearing in Notes to Financial Statements
are explained in the glossary.
1. Summary of Significant Accounting Policies
Business and Consolidation
As of December 31, 1997, PP&L Resources was the parent holding
company of PP&L, PP&L Global, PP&L Spectrum and PP&L Capital Funding.
PP&L's financial condition and results of operations are currently
the principal factors affecting PP&L Resources' financial condition and
results of operations. PP&L is an operating electric utility serving
customers in central eastern Pennsylvania. All nonutility operating
transactions are included in "Other Income and (Deductions)" on the
Consolidated Statements of Income.
The consolidated financial statements include the accounts of PP&L
Resources and its direct and indirect subsidiaries. All significant
intercompany transactions have been eliminated.
Less than 50% owned affiliates are accounted for using the equity
method. These affiliates consist principally of Safe Harbor Water Power
Corporation and investments held by PP&L Global.
Reclassification
Certain amounts from prior years' financial statements have been
reclassified to conform to the current year presentation.
Management's Estimates
These financial statements have been prepared using information
available including certain information which represents management's
best estimates of existing conditions. Actual results could differ from
these estimates.
Accounting Records
The accounting records for PP&L, the principal subsidiary of PP&L
Resources, are maintained in accordance with the Uniform System of
Accounts prescribed by the FERC and adopted by the PUC.
Regulation
PP&L prepares its financial statements in accordance with the
provisions of SFAS 71, "Accounting for the Effects of Certain Types of
Regulation." SFAS 71 requires a rate-regulated entity to reflect the
effects of regulatory decisions in its financial statements. In
accordance with SFAS 71, PP&L has deferred certain costs pursuant to the
rate actions of the PUC and the FERC and is recovering or expects to
recover such costs in electric rates charged to customers. These
deferred costs or "regulatory assets" are enumerated and discussed in
Note 9.
To the extent that PP&L concludes that recovery of a regulatory
asset is no longer probable due to regulatory treatment, the effects of
competition or other factors, the amount would have to be written off
against income. PP&L will discontinue application of SFAS 71 for the
generation portion of its business upon the issuance of the PUC's
restructuring order. See Note 3 for additional information.
Utility Plant
Additions to utility plant and replacement of units of property are
capitalized at cost. The cost of funds used to finance construction
projects or AFUDC is capitalized as part of construction cost.
The cost of units of property retired or replaced is charged to
accumulated depreciation. Expenditures for maintenance and repairs of
property and the cost of replacing items determined to be less than an
entire unit of property are charged to operating expense.
Major classes of electric utility plant in service and their
respective balances are (millions of dollars):
1997 1996
Production $6,305 $6,303
Transmission 392 386
Distribution 2,891 2,774
General 328 303
Other 68 58
$9,984 $9,824
For financial statement purposes, depreciation is being provided
over the estimated useful lives of property using a straight-line method
for all property except for certain property at the Susquehanna steam
station. The other portion of the Susquehanna property is depreciated at
an annual rate of $173 million from October 1995 through December 1998,
after which depreciation is scheduled to decline by $71 million annually.
Provisions for depreciation, as a percent of average depreciable
property, approximated 3.8% in 1997 and 1996 and 3.7% in 1995.
Nuclear Decommissioning and Fuel Disposal
An annual provision for PP&L's share of the future cost to
decommission the Susquehanna station, equal to the amount allowed for
ratemaking purposes, is charged to operating expense. Such amounts are
invested in external trust funds which can be used only for future
decommissioning costs. See Notes 4 and 7.
The DOE is responsible for the permanent storage and disposal of
spent nuclear fuel removed from nuclear reactors. PP&L pays the DOE a
fee for future disposal services and recovers such costs in customer
rates. PP&L has joined other utilities in a federal lawsuit to suspend
payments to the DOE and to place the fees in escrow unless that
department begins accepting nuclear fuel as agreed to in its contract
with the utilities.
Financial Investments
Securities subject to the requirements of SFAS 115 "Accounting for
Certain Investments in Debt and Equity Securities" are carried at fair
value, determined at the balance sheet date. Net unrealized gains on
available-for-sale securities are included in common equity. Net
unrealized gains and losses on trading securities are included in income.
Net unrealized gains and losses on securities that are not available for
unrestricted use due to regulatory or legal reasons are reflected in the
related asset and liability accounts. Realized gains and losses on the
sale of securities are recognized utilizing the specific cost
identification method. Investments in financial limited partnerships are
accounted for under the equity method of accounting and venture capital
investments are recorded at cost. See Note 8.
Premium on Reacquired Long-Term Debt
Premiums paid and expenses incurred by PP&L to redeem long-term debt
are deferred and amortized over the life of the new debt issue or the
remaining life of the retired debt when the redemption is not financed by
a new issue.
Capital Leases
Leased property of PP&L capitalized on the Consolidated Balance
Sheet is recorded at the present value of future lease payments and is
amortized so that the total of interest on the lease obligation and
amortization of the leased property equals the rental expense allowed for
ratemaking purposes. Future lease payments for nuclear fuel are based on
the quantity of electricity produced at the Susquehanna Station. The
maximum amount of nuclear fuel available for lease under current
arrangements is $200 million.
In April 1997, capital leases for vehicles, personal computers, and
other property were reclassified as operating leases. This
reclassification resulted from a revised agreement between PP&L and its
leasing companies. The new leases did not meet any of the classification
criteria to be deemed capital leases according to FASB No. 13.
Revenues
Electric revenues are recorded based on the amounts of electricity
delivered to customers through the end of each calendar month. This
includes amounts customers will be billed for electricity delivered from
the time meters were last read to the end of the month. During 1997,
PP&L's ECR and STAS were zero. The SBRCA ended in June 1997.
Approximately 97% of operating revenues were derived from electric
energy sales, with 33% coming from residential customers, 27% from
commercial customers, 19% from industrial customers, 20% from wholesale
sales and 1% from others.
Income Taxes
PP&L Resources and its subsidiaries file a consolidated federal
income tax return. Income taxes are allocated to operating expenses and
other income and deductions on the Consolidated Statements of Income.
The provision for PP&L's deferred income taxes is based upon the
ratemaking principles reflected in rates established by the PUC and FERC.
The difference in the provision for deferred income taxes and the amount
that otherwise would be recorded under generally accepted accounting
principles is deferred and included in taxes recoverable through future
rates on the Consolidated Balance Sheet. See Note 6.
Investment tax credits were deferred when utilized and are amortized
over the average lives of the related property.
Pension Plan and Other Postretirement and Postemployment Benefits
PP&L has a noncontributory pension plan covering substantially all
employees. Subsidiary companies of PP&L formerly engaged in coal mining
have a noncontributory pension plan for substantially all non-bargaining,
full-time employees. Funding is based upon actuarially determined
computations that take into account the amount deductible for income tax
purposes and the minimum contribution required under the Employee
Retirement Income Security Act of 1974.
PP&L Global has a non-qualified retirement plan for its corporate
officers.
For information on other postretirement and postemployment benefits,
see Note 13.
Cash Equivalents
All highly liquid debt instruments purchased with original
maturities of three months or less are considered to be cash equivalents.
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. The
Act includes the following major provisions: (1) all electric utilities
in Pennsylvania are required to file a restructuring plan with the PUC to
implement direct access to a competitive market for electric generation;
(2) retail customer choice will be phased in over three years, beginning
as early as January 1, 1999; (3) electric distribution companies will be
the suppliers of last resort, and the PUC will ensure that adequate
generation reserves exist to maintain reliable electric service; (4)
retail rates generally will be capped for at least four-and-a-half years
for transmission and distribution charges and for as long as nine years
for generation charges; (5) utilities are permitted to recover PUC-
approved transition or stranded costs through a non-bypassable
Competitive Transition Charge (CTC); and (6) transition bonds may be
issued to refinance the stranded costs, with a transition charge on
customers bills to repay the bonds.
Under the Customer Choice Act, the PUC is authorized to determine
the amount of PP&L's stranded costs to be recovered through a 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."
In accordance with the Customer Choice Act, PP&L filed its
restructuring plan with the PUC on April 1, 1997. PP&L's restructuring
plan includes a claim of $4.5 billion (on a net present value basis as of
January 1, 1999) 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.
These parties are recommending stranded cost recovery by PP&L ranging
from $695 million to $3.2 billion. 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 $695
million; and the OCA recommends recovery of $1.1 billion. Under
Pennsylvania law, the OCA and the OTS have advocacy roles in proceedings
before the PUC. 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. The
PUC has revised the procedural schedule several times to permit continued
settlement discussions among the parties. In February 1998, the parties
filed their Main Briefs in the proceeding. Under the current schedule,
the PUC's final order is due by June 4, 1998. PP&L cannot predict 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,
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 (on a net
present value basis as of January 1, 1999) 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% from amounts that were previously projected
under historic cost-based regulation.
However, the PUC's final order -- either as a result of a settlement
or 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 revenues and 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 revenues and earnings, either one could be material in
amount. Accordingly, PP&L Resources 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, its results of
operation, future PP&L rate levels, the need or ability to issue
securities to meet future capital requirements or the ability to maintain
the common stock dividend at the current level.
The Customer Choice Act permits the issuance of "transition bonds"
securitized by customer revenues from an Intangible Transition Charge
(ITC) 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 the 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 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 issued its statement 97-4 (Deregulation of
the Pricing of Electricity -- Issues Related to the Application of FASB
Statements 71 and 101), which 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. For PP&L, this
will be upon the issuance of the PUC's restructuring order expected to be
no later than mid-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.
PUC Proceedings
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.
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.
FERC Proceedings
Under FERC Order 888, 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. PP&L
has now executed settlement agreements with these customers, which will
be filed with the FERC for approval. These settlement agreements provide
for continued power supply by PP&L through January 2004. If FERC
approves the agreements as filed, PP&L would be required to write off a
portion of its stranded costs applicable to these customers. The amount
of this write-off is currently estimated at approximately $28 million
after-tax, or 17 cents per share of common stock. FERC action on this
matter is not expected until the second quarter of 1998.
4. Rate Matters
Base Rate Filing with the PUC
In 1995, the PUC issued a final order with respect to the base rate
case filed by PP&L in December 1994. The PUC Decision increased PUC
jurisdictional rates by about $85 million annually, or 3.8%. The PUC
Decision permitted the levelization of depreciation expense for the
Susquehanna station, recovery of retiree health care costs and costs of
the 1994 voluntary early retirement program and revised costs to
decommission Susquehanna SES. The order also permitted recovery of
deferred operating and capital costs, net of energy savings, for
Susquehanna Unit 2 but disallowed similar costs for Unit 1. The PUC also
rejected PP&L's request to include in the ECR the cost of capacity billed
to other utilities after the contractual arrangements with these
utilities expire.
The OCA appealed three issues from the PUC Decision to the
Pennsylvania Commonwealth Court. In May 1997, the Commonwealth Court
issued its decision on the OCA's appeal. Two of the issues, recovery of
SFAS 106 deferrals and the carrying charges and operating expenses for
Susquehanna Unit 2 from commercial operation until the plant was
recognized in rates, were decided in PP&L's favor. The third issue was
the recovery of Pennsylvania 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
annualized 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 adjustment 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 Electric Utilities
PP&L provides Atlantic with 125,000 kilowatts of capacity (summer
rating) and related energy from its wholly owned coal-fired stations.
Sales to Atlantic will expire in March 1998.
PP&L provided JCP&L with 567,000 kilowatts of capacity and related
energy from all of its generating units during 1997. This amount will
decline by 189,000 kilowatts per year until the end of the agreement on
December 31, 1999. PP&L expects to be able to resell the capacity and
energy at market prices.
PP&L provides BG&E with 129,000 kilowatts or 6.6 percent of its
share of capacity and related energy from the Susquehanna station. Sales
to BG&E will continue through May 2001.
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
kilowatts of capacity and energy for 12 months, increasing to 200,000
kilowatts in June 1998, and then to 300,000 kilowatts 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.
Sales of capacity and energy have been made under this new tariff.
In January 1998, the United States Department of Energy approved
PP&L's application for an export license to sell capacity and/or energy
to electric utilities in Canada. This export license allows PP&L to sell
either its own capacity and energy not required to serve domestic
obligations or power purchased from other utilities.
6. Income Taxes
For 1997, 1996 and 1995, the corporate federal income tax rate was
35%, and the Pa. CNI rate was 9.99%.
The tax effects of significant temporary differences comprising PP&L
Resources' net deferred income tax liability were as follows (millions of
dollars):
1997 1996
Deferred tax assets
Deferred investment tax credits $ 82 $ 86
Accrued pension costs 77 67
Other 66 75
Valuation allowance (6) (6)
219 222
Deferred tax liabilities
Electric utility plant - net 1,755 1,788
Other property - net 9 9
Taxes recoverable through future rates 377 399
Reacquired debt costs 43 46
Other 35 11
2,219 2,253
Net deferred tax liability $2,000 $2,031
Details of the components of income tax expense, a reconciliation of
federal income taxes derived from statutory tax rates applied to income
from continuing operations for accounting purposes, and details of taxes,
other than income are as follows (millions of dollars):
Income Tax Expense 1997 1996 1995
Included in Operating Expenses
Provision - Federal $169 $189 $195
State 59 64 62
228 253 257
Deferred - Federal 20 4 9
State 9 6 6
29 10 15
Investment tax credit,
net - Federal (10) (10) (10)
247 253 262
Included in Other Income
and Deductions
Provision (credit) - Federal (6) (1) 8
State (2) 1 4
(8) 0 12
Deferred - Federal (1) 1 10
State 0 (1) 2
(1) 0 12
(9) 0 24
Total income tax
expense - Federal 172 183 212
State 66 70 74
$238 $253 $286
Reconciliation of Income
Tax Expense
Indicated federal income tax on
pre-tax income at statutory
tax rate - 35% $195 $213 $223
Increase (decrease) due to:
State income taxes 40 44 50
Flow through of depreciation
differences not previously
normalized 22 20 16
Amortization of investment
tax credit (10) (10) (10)
Research & experimentation
income tax credits (1) (5)
Other (8) (9) 7
43 40 63
Total income tax expense $238 $253 $286
Effective income tax rate 42.7% 41.5% 44.9%
Taxes, Other Than Income
State gross receipts $104 $105 $102
State utility realty 46 44 46
State capital stock 34 34 33
Social security and other 20 20 20
$204 $203 $201
7. Nuclear Decommissioning Costs
PP&L's most recent estimate of the cost to decommission the
Susquehanna station was completed in 1993 and was a site-specific study,
based on immediate dismantlement and decommissioning of each unit
following final shutdown. The study indicates that PP&L's 90% share of
the total estimated cost of decommissioning the Susquehanna station is
approximately $724 million in 1993 dollars. The estimated cost includes
decommissioning the radiological portions of the station and the cost of
removal of nonradiological structures and materials. The operating
licenses for Units 1 and 2 expire in 2022 and 2024, respectively.
Decommissioning costs charged to operating expense were $12 million
in both 1997 and 1996 and $8 million in 1995 and are based upon amounts
included in customer rates. The increase in 1996 is a result of the PUC
Decision, in which recovery of decommissioning costs was based on the
cost estimates in the 1993 site-specific study. Rates charged to small
utilities reflect the estimated cost of decommissioning in the 1993
study. In January 1996, PP&L filed with the FERC to increase its
decommissioning rate to reflect the projected cost of decommissioning the
Susquehanna station. A settlement of this case was approved by the FERC
in June 1997. See Note 4 for further information.
Amounts collected from customers for decommissioning, less
applicable taxes, are deposited in external trust funds for investment
and can be used only for future decommissioning costs. The market value
of securities held and accrued income in the trust funds at December 31,
1997 and 1996 aggregated approximately $163 million and $128 million,
respectively. The trust funds experienced, on a fair market value basis,
a $24 million net gain in 1997, which includes net unrealized
appreciation of $18 million, and a net gain in 1996 of $6 million, which
includes net unrealized appreciation of $2 million. The trust fund
activity is reflected in the nuclear plant decommissioning trust fund and
in other noncurrent liabilities on the Consolidated Balance Sheet.
Accrued nuclear decommissioning costs were $166 million and $130 million
at December 31, 1997 and 1996, respectively.
The FASB issued an exposure draft on the accounting for liabilities
related to closure and removal of long-lived assets, including
decommissioning of nuclear power plants. As a result, current industry
accounting practices for decommissioning may change, including the
possibility that the estimated cost for decommissioning could be recorded
as a liability at the present value of the estimated future cash outflows
that will be required to satisfy those obligations. Due to FASB's
recognition that these issues intertwine with other unresolved accounting
issues, FASB has not yet determined when it will issue another exposure
draft or a final statement.
8. Financial Instruments
The carrying amount shown on the Consolidated Balance Sheet and the
estimated fair value of PP&L Resources' financial instruments are as
follows (millions of dollars):
December 31, 1997 December 31, 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets
Nuclear plant decommis-
sioning trust fund (a) $163 $163 $128 $128
Financial investments (a) 58 62 206 206
Other investments 13 13 18 18
Cash and cash equivalents 50 50 101 101
Other financial instru-
ments included in
other current assets 3 3 2 2
Liabilities
Preferred stock with
sinking fund require-
ments (b) 47 49 295 294
Company-obligated manda-
torily redeemable
preferred securities of
subsidiary trusts
holding solely company
debentures (b) 250 256 - -
Long-term debt (b) 2,735 2,895 2,832 2,885
Commercial paper and
bank loans 135 135 144 144
(a) The carrying value of these financial instruments generally is
based on established market prices and approximates fair value.
(b) The fair value generally is based on quoted market prices for the
securities where available and estimates based on current rates offered
to PP&L Resources where quoted market prices are not available.
9. Regulatory Assets
The following regulatory assets were reflected in the PP&L
Consolidated Balance Sheet (millions of dollars):
1997 1996
Deferred depreciation $ 71 $ 140
Deferred operating and carrying
costs - Susquehanna 15 17
Utility plant carrying charges -
net of amortization 19 21
Reacquired debt costs 103 110
Taxes recoverable through future
rates 909 963
Assessment for decommissioning
uranium enrichment facilities 28 30
Postretirement benefits other
than pensions 25 28
Voluntary early retirement program 36 49
ECR undercollection 49 17
Buyout of NUG contracts 84
Other 20 24
$1,359 $1,399
As of December 31, 1997, substantially all of PP&L's regulatory
assets are being recovered through rates charged to customers over
periods ranging from 3 to 35 years. In December 1996, Pennsylvania
passed restructuring legislation which permits utilities to recover
approved regulatory assets as transition or stranded costs. See Note 2
"PUC Restructuring Proceeding".
For a discussion of taxes recoverable through future rates,
postretirement benefits other than pensions, assessment for
decommissioning uranium enrichment facilities, VERP, and additional
information on the PUC Decision, see Notes 4, 6, and 13.
10. Credit Arrangements & Financing Activities
PP&L issues commercial paper and, from time to time, borrows from
banks to provide short-term funds required for general corporate
purposes. In addition, certain subsidiaries also borrow from banks to
obtain short-term funds. Bank borrowings generally bear interest at
rates negotiated at the time of the borrowing. PP&L's weighted average
interest rate on short-term borrowings was 6.6% and 4.9% at December 31,
1997 and 1996, respectively. PP&L currently has authorization from the
FERC to issue up to $750 million of short-term debt.
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 December
31, 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
trusts holding solely company debentures" (Preferred Securities) by two
Delaware statutory business trusts. These securities consist of four
million shares of 8.20% Preferred Securities issued by PP&L Capital Trust
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 by
PP&L Capital Trust II to the public in June 1997 at $25 per share, for
proceeds of $150 million. PP&L owns all of the common securities of both
trusts. The sole asset of PP&L Capital Trust is $103 million of PP&L's
8.20% junior subordinated deferrable interest debentures (Junior
Subordinated Debentures), due April 1, 2027, and the sole asset of PP&L
Capital Trust II is $155 million of PP&L's 8.10% Junior Subordinated
Debentures, due July 1, 2027. The obligations of PP&L under the Junior
Subordinated Debentures, the indenture under which the Junior
Subordinated Debentures were issued, the trust agreements of the trusts
and the guarantees by PP&L of payment of the Preferred Securities, in the
aggregate, constitute a full and unconditional guarantee by PP&L of each
trust's Preferred Securities.
PP&L Capital Funding, a wholly-owned subsidiary of PP&L Resources,
was formed in September 1997 to provide 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.
In November 1997, PP&L and PP&L Capital Funding established a new
joint revolving credit facility with a group of 14 banks comprised of two
separate revolving credit agreements -- a $150 million 364-day revolving
credit agreement and a $300 million five-year revolving credit agreement.
Under the terms of these credit agreements, either company can borrow at
interest rates based on Eurodollar deposit rates or the prime rate, and
the respective obligations of each company are several and not joint.
The new revolving credit facility replaced PP&L Resources' $300 million
revolving credit agreement, PP&L's $250 million revolving credit
agreement and three separate PP&L credit agreements totaling $45 million,
all of which were terminated. At December 31, 1997, PP&L had no
borrowings outstanding under the new revolving credit agreements, and
PP&L Capital Funding had $90 million of borrowings outstanding under the
five-year revolving credit agreement.
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. In this
regard, in November 1997 PP&L Capital sold $100 million of medium-term
notes having a seven-year term and $2 million of medium-term notes having
a ten-year term. The proceeds from these sales of medium-term notes were
used to repay bank borrowings incurred by PP&L Resources under its prior
revolving credit agreement that had been used to provide interim
financing for the capital needs of PP&L Global.
PP&L leases its nuclear fuel from a trust. The maximum financing
capacity of the trust under existing credit arrangements is $200 million.
11. Windfall Profits Tax - PP&L Global
In July 1997, the U.K. assessed a windfall profits tax on privatized
utilities. The tax is payable in two equal installments; the first
installment was made on December 1, 1997 and the second one is due in
December 1998. SWEB's windfall profits tax was approximately 90 million
pounds sterling, or about $148 million. Based on PP&L Global's 25%
ownership interest in SWEB, PP&L Resources incurred a one-time charge
against earnings of $37 million, or 23 cents per share, in 1997.
12. Acquisitions of Penn Fuel Gas, Inc. and H.T. Lyons, 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 customers 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 transaction 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. In October 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, non-
payroll related transaction costs associated with the acquisition of PFG
of $6 million, which reduced earnings by about three cents per share.
Additional charges may be incurred in connection with closing on this
transaction, which are not expected to be material in amount.
On January 22, 1998, PP&L Resources acquired H.T. Lyons, a heating,
ventilating and air-conditioning firm in a cash transaction for an amount
that is not material.
13. Pension Plan and Other Postretirement and
Postemployment Benefits
Pension Plan
PP&L has a funded noncontributory defined benefit pension plan
covering substantially all employees. Benefits are based upon a
participant's earnings and length of participation in the Plan, subject
to meeting certain minimum requirements.
PP&L has an unfunded supplemental retirement plan for certain
management employees. A similar plan for directors was terminated
December 31, 1996. Benefit payments pursuant to these supplemental plans
are made directly by PP&L. At December 31, 1997, the projected benefit
obligation of these supplemental plans was approximately $23 million.
PP&L Global has established, effective December 1, 1994, a non-qualified
retirement plan for its corporate officers. The cost of the plan was
immaterial in 1997.
The components of PP&L's net periodic pension cost for the three
plans were (millions of dollars):
1997 1996 1995
Service cost-benefits earned
during the period $ 32 $ 32 $ 27
Interest cost 64 61 58
Actual return on plan assets (254) (146) (241)
Net amortization and deferral 166 68 167
Net periodic pension cost $ 8 $ 15 $ 11
The net periodic pension cost charged to operating expenses was $5
million in 1997, $9 million in 1996 and $6 million in 1995. The balance
was charged to construction and other accounts. The funded status of
PP&L's Plan was (millions of dollars):
December 31
1997 1996
Fair value of plan assets $1,396 $1,187
Actuarial present value of benefit obligations:
Accumulated benefit obligation-vested 762 695
Effect of projected future compensation 200 191
Projected benefit obligation 962 886
Plan assets in excess of projected
benefit obligation 434 301
Unrecognized transition assets (being
amortized over 23 years) (54) (59)
Unrecognized prior service cost 52 55
Unrecognized net gain (636) (495)
Accrued expense $ (204) $(198)
The weighted average discount rate used in determining the actuarial
present value of projected benefit obligations was 6.75% and 7.0% on
December 31, 1997 and 1996, respectively. The rate of increase in future
compensation used in determining the actuarial present value of projected
benefit obligations was 5.0% on December 31, 1997 and 1996. The assumed
long-term rates of return on assets used in determining pension cost in
1997 and 1996 was 8.0%. Plan assets consist primarily of common stocks,
government and corporate bonds and temporary cash investments.
PP&L's subsidiaries formerly engaged in coal mining have a
noncontributory defined benefit pension plan covering substantially all
non-bargaining unit, full-time employees, which is fully funded,
primarily by group annuity contracts with insurance companies. This plan
was amended to freeze benefit increases effective June 1996. In
addition, the companies are liable under federal and state laws to pay
black lung benefits to claimants and dependents with respect to approved
claims, and are members of a trust which was established to facilitate
payment of such liabilities. Such costs were not material in 1997, 1996
and 1995.
Postretirement Benefits Other Than Pensions
Substantially all employees of PP&L and its subsidiaries will become
eligible for certain health care and life insurance benefits upon
retirement. PP&L sponsors four health and welfare benefit plans that
cover substantially all management and bargaining unit employees upon
retirement. One plan provides for retiree health care benefits to
certain management employees, another plan provides retiree health care
benefits to bargaining unit employees, a third plan provides retiree life
insurance benefits to certain management employees up to a specified
amount and a fourth plan provides retiree life insurance benefits to
bargaining unit employees.
Dollar limits have been established for the amount PP&L will
contribute annually toward the cost of retiree health care for employees
retiring after March 1993.
The PUC Decision in 1995 permitted recovery of the PUC-
jurisdictional amount of retiree health care costs resulting from the
adoption of SFAS 106. In addition, the PUC Decision permitted PP&L to
recover, over a period of about 17 years, the amount of SFAS 106 costs
that would have been deferred from January 1, 1993 through September 30,
1995, pursuant to a PUC order but for a Commonwealth Court decision that
PP&L could not recover these deferred costs. As a result of the PUC
Decision, which provided for recovery of $27 million of previously
expensed SFAS 106 costs, PP&L recorded a $16 million after-tax credit to
income in the third quarter of 1995.
In December 1993, PP&L established a separate VEBA for each of the
four health and welfare benefit plans for retirees. After making initial
contributions, additional funding of the trusts was deferred pending
resolution of PP&L's ability to recover the costs of the plans in rates.
Continued funding of these trusts was subject to the resolution of the
OCA appeal of the PUC Decision. In 1997, the Pennsylvania Supreme Court
ruled that the Commonwealth Court's decision to uphold the PUC Decision
is now final. In December 1997, PP&L contributed an additional $31
million to these VEBAs.
The following table sets forth the plans' combined funded status
reconciled with the amount shown on PP&L Resources' Consolidated Balance
Sheet as of December 31 (millions of dollars):
1997 1996
Accumulated postretirement benefit obligation:
Retirees $137 $123
Fully eligible active plan participants 21 19
Other active plan participants 79 85
237 227
Plan assets at fair value, primarily
temporary cash investments 64 31
Accumulated postretirement benefit obligation
in excess of plan assets 173 196
Unrecognized prior service costs (4) (5)
Unrecognized net loss (11) (12)
Unrecognized transition obligation (being
amortized over 20 years) (131) (139)
Accrued postretirement benefit cost $ 27 $ 40
The net periodic postretirement benefit cost included the following
components (millions of dollars):
1997 1996 1995
Service cost - benefits attributed
to service during the period $ 4 $ 4 $ 4
Interest cost on accumulated
postretirement benefit obligation 17 15 15
Actual return on plan assets (2) (1) (2)
Net amortization and deferral 10 9 9
Net periodic postretirement
benefit cost $29 $27 $26
Retiree health and benefits costs charged to operating expenses were
approximately $23 million in 1997, $20 million in 1996, and a net credit
of approximately $17 million in 1995 (reflecting both a $32 million
credit due to the PUC Decision and costs applicable to contractual
agreements with other major utilities). Costs in excess of the amount
charged to expense were charged to construction and other accounts.
For measurement purposes, an 8% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1998; the
rate was assumed to decrease gradually to 6% by 2006 and remain at that
level thereafter. Increasing the assumed health care cost trend rates by
1% in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1997, by about $11 million and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by about $1 million.
In determining the accumulated postretirement benefit obligation,
the weighted average discount rate used was 6.75% and 7.0% on December
31, 1997 and 1996, respectively. The trusts that are holding the plan
assets, except for retiree health care benefits to certain management
employees, are tax-exempt. The expected long-term rate of return on plan
assets for the tax-exempt trusts was 6.5% on December 31, 1997 and 1996.
PP&L and its subsidiaries formerly engaged in coal mining accrued an
additional liability for the cost of health care of retired miners
previously employed by them. The liability, based on the present value
of future benefits, was estimated at $51 million and $54 million as of
December 1997 and 1996, respectively. In December 1997, PP&L contributed
$25 million to a VEBA to partially fund these health care costs.
Postemployment Benefits
PP&L provides health and life insurance benefits to disabled
employees and income benefits to eligible spouses of deceased employees.
Postemployment benefits charged to operating expenses were not material.
14. Jointly Owned Facilities
At December 31, 1997, PP&L or its subsidiary owned undivided
interests in the following facilities (millions of dollars):
Merrill
-----Generating Stations------ Creek
Susquehanna Keystone Conemaugh Reservoir
Ownership interest 90.00% 12.34% 11.39% 8.37%
Electric utility plant in
service $4,060 $68 $103
Other property $22
Accumulated depreciation 1,160 37 40 9
Construction work in progress 67 1
Each participant in these facilities provides its own financing.
PP&L receives a portion of the total output of the generating stations
equal to its percentage ownership. PP&L's share of fuel and other
operating costs associated with the stations is reflected on the PP&L
Consolidated Statement of Income. In December 1997, Allegheny Electric
Cooperative, Inc. issued a Request for Proposals for the sale of its
assets, including its 10% interest in Susquehanna. This proposed sale is
still pending. The Merrill Creek Reservoir provides water during periods
of low river flow to replace water from the Delaware River used by PP&L
and other utilities in the production of electricity.
15. Subsidiary Coal Reserves
In November 1995, PP&L sold the coal reserves of one of its
subsidiaries for $52 million, which resulted in a $42 million gain, or
$20 million after-tax. PP&L had acquired the reserves in 1974 with the
intention of supplying future coal-fired generating stations, but later
concluded that it would not develop these reserves for such purposes. In
1994, the reserves' carrying value was written down from $84 million to
$10 million.
16. Commitments and Contingent Liabilities
Construction Expenditures
PP&L's construction expenditures for the period 1998-2002 are
estimated to aggregate $1.3 billion, including AFUDC. For discussion
pertaining to construction expenditures, see Review of Financial
Condition and Results of Operations under the caption "Financial
Condition -- Capital Expenditure Requirements" on page 32.
Nuclear Insurance
PP&L is a member of certain insurance programs which provide
coverage for property damage to members' nuclear generating stations.
Facilities at the Susquehanna station are insured against property damage
losses up to $2.75 billion under these programs. PP&L is also a member
of an insurance program which provides insurance coverage for the cost of
replacement power during prolonged outages of nuclear units caused by
certain specified conditions. Under the property and replacement power
insurance programs, PP&L could be assessed retroactive premiums in the
event of the insurers' adverse loss experience. The maximum amount PP&L
could be assessed under these programs at December 31, 1997 was about $31
million.
PP&L's public liability for claims resulting from a nuclear incident
at the Susquehanna station is limited to about $8.9 billion under
provisions of The Price Anderson Amendments Act of 1988. PP&L is
protected against this liability by a combination of commercial insurance
and an industry assessment program. In the event of a nuclear incident
at any of the reactors covered by The Price Anderson Amendments Act of
1988, PP&L could be assessed up to $151 million per incident, payable at
a rate of $20 million per year, plus an additional 5% surcharge, if
applicable.
Environmental Matters
Air
The Clean Air Act deals, in part, with acid rain, attainment of
federal ambient ozone standards and toxic air emissions. PP&L has
complied with the Phase I acid rain provisions required to be implemented
by 1995 by installing continuous emission monitors on all units, burning
lower sulfur coal and installing low nitrogen oxide burners on certain
units. To comply with the year 2000 acid rain provisions, PP&L plans to
purchase lower sulfur coal and use banked or purchased emission
allowances instead of installing FGD on its wholly-owned units.
PP&L has met the initial ambient ozone requirements 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 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 further reductions in both NOx
and SO2 and may extend the reductions from seasonal to year round.
The Clean Air Act requires the EPA to study the health effects of
hazardous air emissions from power plants and other sources. Depending
on the outcome of these studies, PP&L may be required to take additional
action.
Expenditures to meet the 2000 acid rain and 1999 NOx reduction
requirements are included in the table of projected construction
expenditures in the section "Financial Condition - Capital Expenditure
Requirements" in the Review of the Financial Condition and Results of
Operations. PP&L currently estimates that additional capital expen-
ditures and operating costs for environmental compliance under the Clean
Air Act will be incurred beyond 2002 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. Any new ash
disposal facility must meet the rigid siting and design standards set
forth in the regulations. 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.
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, the only other remedial work being planned is to abate a localized
groundwater degradation problem at Montour.
The recently issued final NPDES permit for the Montour station
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 2002 to comply with the
residual waste regulations, correct groundwater degradation at fossil-
fueled generating stations, and address waste water control at PP&L
facilities are included in the table of construction expenditures in the
section "Financial Condition - Capital Expenditure Requirements" in the
Review of the Financial Condition and Results of Operations. In this
regard, PP&L currently estimates that $6.5 million of additional capital
expenditures may be required in the next four years to close some of the
ash basins and address other ash basin issues at various generating
plants. Additional capital expenditures could be required beyond the
year 2002 in amounts which are not now determinable but which could be
material. 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
In 1995, PP&L entered into 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. As of December 31, 1997, PP&L has completed work
on nearly half of the sites included in the agreement.
At December 31, 1997, PP&L had accrued $8.1 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.
General
Due to the environmental issues discussed above or other
environmental matters, PP&L may be required to modify, replace or cease
operating certain facilities to comply with statutes, regulations and
actions by regulatory bodies or courts. 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
December 31, 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.
IEC has arrangements with banks under which the banks may lend funds
to IEC on an uncommitted basis. PP&L has been authorized by the PUC to
guarantee up to $45 million of these bank loans or to lend up to $45
million under a fixed rate loan agreement with PP&L. IEC has been
authorized by the PUC to have a maximum of $45 million outstanding at any
one time under both of these loan arrangements.
In addition, PP&L Spectrum has a $1 million line of credit, which is
guaranteed by PP&L Resources.
Source of Labor Supply
At December 31, 1997, PP&L had a total of 6,343 full-time employees.
Approximately 65 percent of these full-time employees are represented by
the IBEW. The labor agreement with the IBEW expires in May 1998.
17. 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 and SFAS 129 are effective
for financial statements issued for periods ending after December 15,
1997, however these statements cause no additional disclosures. SFAS 130
and SFAS 131 are 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.
PP&L, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
Deductions
from
Balance Additions Reserves -
at Charges Losses or Balance at
Beginning Charged to Other Expenses End of
Description of Period to Income Accounts Applicable Period
(Millions of Dollars)
Year Ended December 31, 1997
Reserves deducted from assets in
the Balance Sheet
Uncollectible accounts ............................ $25 $17 $26 $16
Year Ended December 31, 1996
Reserves deducted from assets in
the Balance Sheet
Uncollectible accounts ............................ 35 20 30 25
Obsolete inventory - Materials and supplies........ 15 15 0
Year Ended December 31, 1995
Reserves deducted from assets in
the Balance Sheet
Uncollectible accounts ............................ 29 25 19 35
Obsolete inventory - Materials and supplies........ 0 15 15
QUARTERLY FINANCIAL, COMMON STOCK PRICE AND DIVIDEND DATA (Unaudited)
PP&L Resources, Inc. and Subsidiaries
(Millions of Dollars, except per share data)
For the Quarters Ended (a)
March 31 June 30 Sept. 30 Dec. 31
1997
Operating revenues..................... $786 $686 $778 $799
Operating income....................... 171 118 133 123
Net income............................. 117 65 42 72
Earnings per common share (b).......... 0.72 0.39 0.25 0.44
Dividends declared per common share (c) 0.4175 0.4175 0.4175 0.4175
Price per common share
High....................................... 24 20 7/8 23 1/16 24 1/4
Low.................................. 20 19 19 7/16 20
1996
Operating revenues..................... $789 $669 $715 $737
Operating income............................. 176 120 136 124
Net income................................... 116 61 79 73
Earnings per common share (b)................ 0.73 0.38 0.49 0.45
Dividends declared per common share (c)...... 0.4175 0.4175 0.4175 0.4175
Price per common share
High....................................... 26 24 1/2 24 24 1/2
Low........................................ 23 1/2 22 21 5/8 21 7/8
<FN>
(a) PP&L's electric utility business is seasonal in nature with
peak sales periods generally occurring in the winter months. In
addition earnings in several quarters were affected by several
one-time adjustments. Accordingly, comparisons
among quarters of a year may not be indicative of overall
trends and changes in operations.
(b) The sum of the quarterly amounts may not equal annual
earnings per share due to changes in the number of common
shares outstanding during the year or rounding.
(c) PP&L Resources has paid quarterly cash dividends on its
common stock in every year since 1946. The dividends paid
per share in 1997 and 1996 were $1.67. The most recent
regular quarterly dividend paid by PP&L Resources
was 41.75 cents per share (equivalent to $1.67 per annum) paid
January 1, 1998. Future dividends will be dependent
upon future earnings, financial requirements and other factors.
QUARTERLY FINANCIAL DATA (Unaudited)
PP&L, Inc. and Subsidiaries
(Millions of Dollars)
For the Quarters Ended (a)
March 31 June 30 Sept. 30 Dec. 31
1997
Operating revenues..................... $786 $686 $778 $799
Operating income....................... 171 118 133 123
Net income ............................ 120 70 81 77
Earnings available to PP&L Resources... 113 61 69 65
1996
Operating revenues..................... $789 $669 $715 $737
Operating income............................. 176 120 136 124
Net income .................................. 125 69 86 77
Earnings available to PP&L Resources......... 118 62 79 70
<FN>
(a) PP&L's electric utility business is seasonal in nature
with peak sales periods generally occurring in
the winter months. Accordingly, comparisons among quarters
of a year may not be indicative of overall trends
and changes in operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information for this item concerning directors of PP&L
Resources will be set forth in the sections entitled
"Nominees for Directors" and "Directors Continuing in
Office" in PP&L Resources' 1998 Notice of Annual Meeting and
Proxy Statement, which will be filed with the SEC not later
than 120 days after December 31, 1997, and which information
is incorporated herein by reference. Information required
by this item concerning the executive officers of PP&L
Resources is set forth on pages 19 through 20 of this
report.
Information for this item concerning directors of PP&L
will be set forth in the sections entitled "Nominees for
Directors" and "Directors Continuing in Office" in PP&L's
1998 Notice of Annual Meeting and Proxy Statement, which
will be filed with the SEC not later than 120 days after
December 31, 1997, and which information is incorporated
herein by reference. Information required by this item
concerning the executive officers of PP&L is set forth on
pages 19 through 20 of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information for this item for PP&L Resources will be
set forth in the sections entitled "Compensation of
Directors," "Summary Compensation Table" and "Retirement
Plans for Executive Officers" in PP&L Resources' 1998 Notice
of Annual Meeting and Proxy Statement, which will be filed
with the SEC not later than 120 days after December 31,
1997, and which information is incorporated herein by
reference.
Information for this item for PP&L will be set forth in
the sections entitled "Compensation of Directors," "Summary
Compensation Table" and "Retirement Plans for Executive
Officers" in PP&L's 1998 Notice of Annual Meeting and Proxy
Statement, which will be filed with the SEC not later than
120 days after December 31, 1997, and which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information for this item for PP&L Resources will be
set forth in the section entitled "Stock Ownership" in PP&L
Resources' 1998 Notice of Annual Meeting and Proxy
Statement, which will be filed with the SEC not later than
120 days after December 31, 1997, and which information is
incorporated herein by reference.
Information for this item for PP&L will be set forth in
the section entitled "Stock Ownership" in PP&L's 1998 Notice
of Annual Meeting and Proxy Statement, which will be filed
with the SEC not later than 120 days after December 31,
1997, and which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information for this item for PP&L Resources will be
set forth in the section entitled "Certain Transactions
Involving Directors or Executive Officers" in PP&L
Resources' 1998 Notice of Annual Meeting and Proxy
Statement, which will be filed with the SEC not later than
120 days after December 31, 1997, and which information is
incorporated herein by reference.
Information for this item for PP&L will be set forth in
the section entitled "Certain Transactions Involving
Directors or Executive Officers" in PP&L's 1998 Notice of
Annual Meeting and Proxy Statement, which will be filed with
the SEC not later than 120 days after December 31, 1997, and
which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements - included in response to Item 8.
PP&L Resources, Inc.
Report of Independent Accountants
Consolidated Statement of Income for the Three
Years Ended December 31, 1997
Consolidated Statement of Cash Flows for
the Three Years Ended December 31, 1997
Consolidated Balance Sheet at December 31, 1997
and 1996
Consolidated Statement of Shareowners' Common Equity
for the Three Years Ended December 31, 1997
Consolidated Statement of Preferred Stock at
December 31, 1997 and 1996
Consolidated Statement of Company-Obligated
Mandatorily Redeemable Securities at
December 31, 1997 and 1996
Consolidated Statement of Long-Term Debt at
December 31, 1997 and 1996
Notes to Financial Statements
PP&L, Inc.
Report of Independent Accountants
Consolidated Statement of Income for the Three
Years Ended December 31, 1997
Consolidated Statement of Cash Flows for
the Three Years Ended December 31, 1997
Consolidated Balance Sheet at December 31, 1997
and 1996
Consolidated Statement of Shareowner's Common Equity
for the Three Years Ended December 31, 1997
Consolidated Statement of Preferred Stock at
December 31, 1997 and 1996
Consolidated Statement of Company-Obligated
Mandatorily Redeemable Securities at
December 31, 1997 and 1996
Consolidated Statement of Long-Term Debt at
December 31, 1997 and 1996
Notes to Financial Statements
2. Supplementary Data and Supplemental Financial Statement
Schedule - included in response to Item 8.
Schedule II - Valuation and Qualifying Accounts and
Reserves for the Three Years Ended
December 31, 1997
All other schedules are omitted because of the absence
of the conditions under which they are required or
because the required information is included in the
financial statements or notes thereto.
3. Exhibits
Exhibit Index on page 93.
(b) Reports on Form 8-K:
The following Reports on Form 8-K were filed during the
three months ended December 31, 1997:
Report dated October 24, 1997
Item 5. Other Events
Information regarding a schedule extension in PP&L's
restructuring case.
Report dated November 12, 1997
Item 5. Other Events
Information regarding the distribution, from time to time,
of up to $400 million aggregate principal amount of Medium-
Term Notes, Series A of PP&L Capital Funding.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
Exhibits relating to the $400 million aggregate principal
amount of Medium-Term Notes, Series A of PP&L Capital
Funding.
Report dated December 3, 1997
Item 5. Other Events
Information regarding a schedule extension in PP&L's
restructuring case.
Report dated December 24, 1997
Item 5. Other Events
Information regarding a schedule extension in PP&L's
restructuring case.
SHAREOWNER AND INVESTOR INFORMATION
Annual Meetings: The annual meetings of shareowners of PP&L Resources and
PP&L are held each year on the fourth Friday of April. The 1998 annual
meetings will be held on Friday, April 24, 1998, at Lehigh University's
Stabler Arena, at the Goodman Campus Complex located in Lower Saucon
Township, outside Bethlehem, PA.
Proxy Material: A proxy statement and notice of PP&L Resources' and PP&L's
annual meetings are mailed to all shareowners of record as of February 27,
1998.
Dividends: The 1998 dates for consideration of the declaration of
dividends by the board of directors or its finance committee are February
27, May 22, August 28 and November 20. Subject to the declaration,
dividends are paid on the first day of April, July, October and January.
Dividend checks are mailed in advance of those dates with the intention
that they arrive as close as possible to the payment dates. The 1998
record dates for dividends are expected to be the 10th day of March, June,
September and December.
Direct Deposit of Dividends: Shareowners may choose to have their dividend
checks deposited directly into their checking or savings account.
Quarterly dividend payments are electronically credited on the dividend
date, or the first business day thereafter.
Dividend Reinvestment Plan: Shareowners may choose to have dividends on
their PP&L Resources common stock or PP&L preferred stock reinvested in
PP&L Resources common stock instead of receiving the dividend by check.
Certificate Safekeeping: Shareowners participating in the Dividend
Reinvestment Plan may choose to have their common stock certificates
forwarded to PP&L for safekeeping.
Lost Dividend or Interest Checks: Dividend or interest checks lost by
investors, or those that may be lost in the mail, will be replaced if the
check has not been located by the 10th business day following the payment
date.
Transfer of Stock or Bonds: Stock or bonds may be transferred from one
name to another or to a new account in the name of another person. Please
contact Investor Services regarding transfer instructions.
Bondholder Information: Much of the information and many of the procedures
detailed here for shareowners also apply to bondholders. Questions related
to bondholder accounts should be directed to Investor Services.
Lost Stock or Bond Certificates: Please contact Investor Services for an
explanation of the procedure to replace lost stock or bond certificates.
PP&L Resources Summary Annual Report: published and mailed in mid-March to
all shareowners of record.
Shareowners' Newsletter: an easy-to-read newsletter containing current
items of interest to shareowners -- published and mailed at the beginning
of each quarter.
Periodic Mailings: Letters regarding new investor programs, special items
of interest, or other pertinent information are mailed on a non-scheduled
basis as necessary.
Duplicate Mailings: The summary annual report and other investor
publications are mailed to each investor account. If you have more than
one account, or if there is more than one investor in your household, you
may contact Investor Services to request that only one publication be
delivered to your address. Please provide account numbers for all
duplicate mailings.
Shareowner Information Line: Shareowners can get detailed corporate and
financial information 24 hours a day using the Shareowner Information Line.
They can hear timely recorded messages about earnings, dividends and other
company news releases; request information by fax; and request printed
materials in the mail.
The toll-free Shareowner Information Line is 1-800-345-3085.
With the introduction of the Shareowner Information Line, PP&L
Resources will no longer publish the Quarterly Review. Replacing these
quarterly mailings with an enhanced information service is part of the
company's effort to improve the quality and timeliness of shareowner
communications. Other PP&L Resources publications, such as the annual and
quarterly reports to the Securities and Exchange Commission (Forms 10-K and
10-Q) will be mailed upon request. There will be no change in the mailing
of annual reports, proxy statements or dividend checks.
Another part of this new service is an enhanced Internet home page
(www.papl.com). Shareowners can access PP&L Resources' Securities and
Exchange Commission filings, stock quotes and historical performance.
Visitors to our website can provide their E-mail address and indicate their
desire to receive future earnings or news releases automatically at the
time of their release.
Investor Services: For any questions you have or additional information
you require about PP&L Resources and its subsidiaries, please call the
Shareowner Information Line, or write to:
George I. Kline
Manager-Investor Services
PP&L, Inc.
Two North Ninth Street
Allentown, PA 18101
Internet Access: For updated information throughout the year, check out
our home page at http://www.papl.com. You may also contact Investor
Services via E-mail at invserv@papl.com.
Security Analyst and Institutional
Investor Inquiries: Members of the financial community seeking additional
information may contact:
Timothy J. Paukovits
Investor Relations Manager
Phone: (610) 774-4124
Fax: (610) 774-5106
E-mail: tjpaukovits@papl.com
Listed Securities: Fiscal Agents:
New York Stock Exchange Stock Transfer Agents and Registrars
PP&L Resources, Inc.: Norwest Bank Minnesota, N.A.
Common Stock (Code: PPL) Shareowner Services
161 North Concord Exchange
PP&L, Inc.: South St. Paul, MN 55075
4-1/2% Preferred Stock
(Code: PPLPRB) PP&L, Inc.
4.40% Series Preferred Stock Investor Services Department
(Code: PPLPRA)
Dividend Disbursing Office and
Dividend Reinvestment Plan Agent
PP&L Capital Trust: PP&L, Inc.
8.20% Preferred Securities Investor Services Department
(Code: PPLPRC)
Mortgage Bond Trusteee
PP&L Capital Trust II: Bankers Trust Co.
8.10% Preferred Securities Attn: Security Transfer Unit
(Code: PPLPRD) P.O. Box 291569
Nashville, TN 37229
Philadelphia Stock Exchange
PP&L Resources, Inc.: Bond Interest Paying Agent
Common Stock PP&L, Inc.
Investor Services Department
PP&L, Inc.
4-1/2% Preferred Stock
3.35% Series Preferred Stock
4.40% Series Preferred Stock
4.60% Series Preferred Stock
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
PP&L Resources, Inc.
(Registrant)
PP&L, Inc.
(Registrant)
By /s/William F. Hecht
William F. Hecht - Chairman, President
and Chief Executive
Officer (PP&L Resources,
Inc. and PP&L, Inc.)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the date indicated.
TITLE
By /s/William F. Hecht Principal Executive
William F. Hecht - Chairman, President Officer and Director
and Chief Executive
Officer (PP&L Resources,
Inc. and PP&L, Inc.)
By /s/John R. Biggar Principal Financial
John R. Biggar - Senior Vice President - Officer
Financial(PP&L Resources,
Inc. and PP&L, Inc.)
By /s/Joseph J. McCabe Principal Accounting
Joseph J. McCabe - Vice President and Officer
Controller(PP&L Resources,
Inc. and PP&L, Inc.)
E. Allen Deaver Clifford L. Jones
Nance K. Dicciani Ruth Leventhal
William J. Flood Marilyn Ware Lewis Directors
Elmer D. Gates Frank A. Long
Stuart Heydt Norman Robertson
By /s/William F. Hecht
William F. Hecht, Attorney-in-fact Date: March 3, 1998
EXHIBIT INDEX
The following Exhibits indicated by an asterisk preced-
ing the Exhibit number are filed herewith. The balance of
the Exhibits have heretofore been filed with the Commission
and pursuant to Rule 12(b)-32 are incorporated herein by
reference. Exhibits indicated by a # are filed or listed
pursuant to Item 601(b)(10)(iii) of Regulation S-K.
3(a)-1 - Articles of Incorporation of PP&L Resources,
Inc. (Exhibit B to Proxy Statement of PP&L and Prospectus of
Resources, dated March 9, 1995)
3(a)-2 - Restated Articles of Incorporation of PP&L,
Inc. (Exhibit A to Proxy Statement of PP&L and Prospectus of
Resources, dated March 9, 1995)
*3(a)-3 - Articles of Amendment of PP&L, Inc., dated
September 12, 1997
3(b)-1 - By-laws of PP&L Resources, Inc. (Exhibit 3.2
to Registration Statement No. 33-57949)
3(b)-2 - By-laws of PP&L, Inc. (Exhibit 3(ii) to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1993)
4(a)-1 - Amended and Restated Employee Stock
Ownership Plan, dated October 26, 1988 (Exhibit 4(b) to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1988)
4(a)-2 - Amendment No. 1 to said Employee Stock
Ownership Plan, effective January 1, 1989 (Exhibit 4(b)-2 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1989)
4(a)-3 - Amendment No. 2 to said Employee Stock
Ownership Plan, effective January 1, 1990 (Exhibit 4(b)-3 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1989)
4(a)-4 - Amendment No. 3 to said Employee Stock
Ownership Plan, effective January 1, 1991 (Exhibit 4(b)-4 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1990)
4(a)-5 - Amendment No. 4 to said Employee Stock
Ownership Plan, effective January 1, 1991 (Exhibit 4(a)-5 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1991)
4(a)-6 - Amendment No. 5 to said Employee Stock
Ownership Plan, effective October 23, 1991 (Exhibit 4(a)-6 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1991)
4(a)-7 - Amendment No. 6 to said Employee Stock
Ownership Plan, effective January 1, 1990 and January 1, 1992
(Exhibit 4(a)-7 to PP&L's Form 10-K Report (File No. 1-905)
for the year ended December 31, 1991)
4(a)-8 - Amendment No. 7 to said Employee Stock
Ownership Plan, effective January 1, 1992 (Exhibit 4(a)-8 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1991)
4(a)-9 - Amendment No. 8 to said Employee Stock
Ownership Plan, effective July 1, 1992 (Exhibit 4(a)-9 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1992)
4(a)-10 - Amendment No. 9 to said Employee Stock
Ownership Plan, effective January 1, 1993 (Exhibit 4(a)-10 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1992)
4(a)-11 - Amendment No. 10 to said Employee Stock
Ownership Plan, effective January 1, 1993 (Exhibit 4(a)-11 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1993)
4(a)-12 - Amendment No. 11 to said Employee Stock
Ownership Plan, effective January 1, 1994 (Exhibit 4(a)-12 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1994)
4(a)-13 - Amendment No. 12 to said Employee Stock
Ownership Plan, effective January 1, 1994 (Exhibit 4(a)-13 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1994)
4(a)-14 - Amendment No. 13 to said Employee Stock
Ownership Plan, effective April 27, 1995 (Exhibit 4(a)-14 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1995)
4(a)-15 - Amendment No. 14 to said Employee Stock
Ownership Plan, effective January 1, 1989 and January 1, 1995
(Exhibit 4(a)-14 to PP&L's Form 10-K Report (File No. 1-905)
for the year ended December 31, 1994)
4(a)-16 - Amendment No. 15 to said Employee Stock
Ownership Plan, effective October 25, 1995 (Exhibit 4(a)-16
to PP&L's Form 10-K Report (File No. 1-905) for the year
ended December 31, 1995)
4(a)-17 - Amendment No. 16 to said Employee Stock
Ownership Plan, effective January 1, 1989 (Exhibit 4(a)-17 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1996)
4(a)-18 - Amendment No. 17 to said Employee Stock
Ownership Plan, effective January 1, 1996 (Exhibit 4(a)-18 to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1996)
*4(a)-19 - Amendment No. 18 to said Employee Stock
Ownership Plan, effective December 12, 1994, January 1, 1997,
January 1, 1998, and January 1, 2000
*4(a)-20 - Amendment No. 19 to said Employee Stock
Ownership Plan, effective January 1, 1998
4(b)-1 - Mortgage and Deed of Trust, dated as of
October 1, 1945, between PP&L and Guaranty Trust Company of
New York, as Trustee (now Bankers Trust Company, as successor
Trustee) (Exhibit 2(a)-4 to Registration Statement No. 2-
60291)
4(b)-2 - Supplement, dated as of July 1, 1954, to
said Mortgage and Deed of Trust (Exhibit 2(b)-5 to
Registration Statement No. 219255)
4(b)-3 - Supplement, dated as of October 1, 1989, to
said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form
8-K Report (File No. 1-905) dated November 6, 1989)
4(b)-4 - Supplement, dated as of July 1, 1991, to
said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form
8-K Report (File No. 1-905) dated July 29, 1991)
4(b)-5 - Supplement, dated as of May 1, 1992, to said
Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K
Report (File No. 1-905) dated June 1, 1992)
4(b)-6 - Supplement, dated as of November 1, 1992, to
said Mortgage and Deed of Trust (Exhibit 4(b)-29 to PP&L's
Form 10-K Report (File 1-905) for the year ended December 31,
1992)
4(b)-7 - Supplement, dated as of February 1, 1993, to
said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form
8-K Report (File No. 1-905) dated February 16, 1993)
4(b)-8 - Supplement, dated as of April 1, 1993, to
said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form
8-K Report (File No. 1-905) dated April 30, 1993)
4(b)-9 - Supplement, dated as of June 1, 1993, to
said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form
8-K Report (File No. 1-905) dated July 7, 1993)
4(b)-10 - Supplement, dated as of October 1, 1993, to
said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form
8-K Report (File No. 1-905) dated October 29, 1993)
4(b)-11 - Supplement, dated as of February 15, 1994,
to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's
Form 8-K Report (File No. 1-905) dated March 11, 1994)
4(b)-12 - Supplement, dated as of March 1, 1994, to
said Mortgage and Deed of Trust (Exhibit 4(b) to PP&L's Form
8-K Report (File No. 1-905) dated March 11, 1994)
4(b)-13 - Supplement, dated as of March 15, 1994, to
said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form
8-K Report (File No. 1-905) dated March 30, 1994)
4(b)-14 - Supplement, dated as of September 1, 1994,
to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's
Form 8-K (File No. 1-905) dated October 3, 1994)
4(b)-15 - Supplement, dated as of October 1, 1994, to
said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form
8-K Report (File No. 1-905) dated October 3, 1994)
4(b)-16 - Supplement, dated as of August 1, 1995, to
said Mortgage and Deed of Trust (Exhibit 6(a) to PP&L's Form
10-Q Report (File No. 1-905) for the quarter ended September
30, 1995)
*4(b)-17 - Supplement, dated as of April 1, 1997 to
said Mortgage and Deed of Trust
4(c)-1 - Indenture, dated as of November 1, 1997,
among PP&L Resources, Inc., PP&L Capital Funding, Inc. and
The Chase Manhattan Bank as Trustee (Exhibit 4.1 to PP&L's 8-
K (File No. 1-905) dated November 12, 1997)
4(c)-2 - Supplement, dated as of November 1, 1997, to
said Indenture (Exhibit 4.2 to PP&L's 8-K (File No. 1-905)
dated November 12, 1997)
4(d)-1 - Junior Subordinated Indenture, dated as of
April 1, 1997, between PP&L, Inc. and The Chase Manhattan
Bank, as Trustee (Exhibit 4.1 to Registration Statement No.
333-20661)
4(d)-2 - Amended and Restated Trust Agreement, dated
as of April 8, 1997, among PP&L, Inc., The Chase Manhattan
Bank, as Property Trustee, Chase Manhattan Bank (Delaware),
as Delaware Trustee, and John R. Biggar and James E. Abel, as
Administrative Trustees (Exhibit 4.4 to Registration
Statement No. 333-20661)
4(d)-3 - Guarantee Agreement, dated as of April 8,
1997, between PP&L, Inc. and The Chase Manhattan Bank, as
Trustee (Exhibit 4.6 to Registration Statement No. 333-20661)
4(e)-1 - Amended and Restated Trust Agreement, dated
as of June 13, 1997, among PP&L, Inc., The Chase Manhattan
Bank, as Property Trustee, Chase Manhattan Bank (Delaware),
as Delaware Trustee, and John R. Biggar and James E. Abel, as
Administrative Trustees (Exhibit 4.4 to Registration
Statement No. 333-27773)
4(e)-2 - Guarantee Agreement, dated as of June 13,
1997, between PP&L, Inc. and The Chase Manhattan Bank, as
Trustee (Exhibit 4.6 to Registration Statement No. 333-27773)
*10(a) - 364-Day Revolving Credit Agreement, dated as
of November 20, 1997, between PP&L, Inc., PP&L Capital
Funding, Inc. and PP&L Resources, Inc. and the Banks named
therein
*10(b) - Five-Year Revolving Credit Agreement, dated
as of November 20, 1997, between PP&L, Inc., PP&L Capital
Funding, Inc. and PP&L Resources, Inc. and the banks named
therein
10(c) - Credit Agreement, dated as of March 14, 1996,
between PP&L, Inc. and The First National Bank of Chicago
(Exhibit 10(c) to PP&L, Inc.'s Form 10-K Report (File No. 1-
905) for the year ended December 31, 1996)
10(d) - Pollution Control Facilities Agreement, dated
as of May 1, 1973, between PP&L, Inc. and the Lehigh County
Industrial Development Authority (Exhibit 5(z) to
Registration Statement No. 2-60834)
*10(e) - Operating Agreement of the PJM
Interconnection, dated as of June 2, 1997 and revised as of
December 31, 1997
10(f) - Capacity and Energy Sales Agreement, dated
June 29, 1983, between PP&L, Inc. and Atlantic City Electric
Company (Exhibit 10(f)-2 to PP&L's Form 10-K Report (File No.
1-905) for the year ended December 31, 1983)
10(g)-1 - Capacity and Energy Sales Agreement, dated
March 9, 1984, between PP&L, Inc. and Jersey Central Power &
Light Company (Exhibit l0(f)-3 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended December 31, 1984)
10(g)-2 - First Supplement, effective February 28,
1986, to said Capacity and Energy Sales Agreement (Exhibit
10(e)-4 to PP&L's Form 10-K Report (File No. 1-905) for the
year ended December 31, 1986)
10(g)-3 - Second Supplement, effective January 1,
1987, to said Capacity and Energy Sales Agreement (Exhibit
10(g)-3 to PP&L's Form 10-K Report (File No. 1-905) for the
year ended December 31, 1989)
10(g)-4 - Amendments to Exhibit A, effective
October 1, 1987, to said Capacity and Energy Sales Agreement
(Exhibit 10(e)-6 to PP&L's Form 10-K Report (File No. 1-905)
for the year ended December 31, 1987)
10(g)-5 - Third Supplement, effective December 1,
1988, to said Capacity and Energy Sales Agreement (Exhibit
10(g)-5 to PP&L's Form 10-K Report (File No. 1-905) for the
year ended December 31, 1989)
10(g)-6 - Fourth Supplement, effective December 1,
1988, to said Capacity and Energy Sales Agreement (Exhibit
10(g)-6 to PP&L's Form 10-K Report (File No. 1-905) for the
year ended December 31, 1989)
10(h)-1 - Capacity and Energy Sales Agreement, dated
January 28, 1988, between PP&L, Inc. and Baltimore Gas and
Electric Company (Exhibit 10(e)-7 to PP&L's Form 10-K Report
(File No. 1-905) for the year ended December 31, 1987)
10(h)-2 - First Supplement, effective November 1,
1988, to said Capacity and Energy Sales Agreement (Exhibit
10(i)-2 to PP&L's Form 10-K Report (File No. 1-905) for the
year ended December 31, 1989)
10(h)-3 - Second Supplement, effective June 1, 1989,
to said Capacity and Energy Sales Agreement (Exhibit 10(i)-3
to PP&L's Form 10-K Report (File No. 1-905) for the year
ended December 31, 1989)
10(h)-4 - Third Supplement, effective June 1, 1991,
to said Capacity and Energy Sales Agreement (Exhibit 10(g)-4
to PP&L's Form 10-K Report (File No. 1-905) for the year
ended December 31, 1991)
*10(h)-5 - Fourth Supplement, effective June 1, 1992,
to said Capacity and Energy Sales Agreement
*10(h)-6 - Fifth Supplement, effective July 15, 1993,
to said Capacity and Energy Sales Agreement
*10(h)-7 - Sixth Supplement, effective June 1, 1993,
to said Capacity and Energy Sales Agreement
#10(i) - Amended and Restated Directors Deferred
Compensation Plan, effective July 1, 1995 (Exhibit C to Proxy
Statement of PP&L and Prospectus of Resources, dated March 9,
1995)
#10(i)-1 - Amendment No. 1 to said Amended and
Restated Directors Deferred Compensation Plan, effective
November 1, 1996 (Exhibit 10(j)-1 to PP&L, Inc.'s Form 10-K
Report (File No. 1-905) for the year ended December 31, 1996)
#10(i)-2 - Amendment No. 2 to said Amended and
Restated Directors Deferred Compensation Plan, effective
January 1, 1997 (Exhibit 10(j)-2 to PP&L, Inc.'s Form 10-K
Report (File No. 1-905) for the year ended December 31, 1996)
*#10(i)-3 - Amendment No. 3 to said Amended Directors
Deferred Compensation Plan, effective January 1, 1998
#10(j)-1 - Amended and Restated Deferred Compensation
Plan for Executive Officers, effective January 1, 1990
(Exhibit 10(s) to PP&L's Form 10-K Report (File No. 1-905)
for the year ended December 31, 1990)
#10(j)-2 - Amendment No. 1 to said Officers Deferred
Compensation Plan, effective January 1, 1991 (Exhibit 10(j)-2
to PP&L's Form 10-K Report (File No. 1-905) for the year
ended December 31, 1991)
#10(j)-3 - Amendment No. 2 to said Officers Deferred
Compensation Plan, effective October 23, 1991 (Exhibit 10(j)-
3 to PP&L's Form 10-K Report (File No. 1-905) for the year
ended December 31, 1991)
#10(j)-4 - Amendment No. 3 to said Officers Deferred
Compensation Plan, effective January 1, 1992 and April 1,
1992 (Exhibit 10(j)-4 to PP&L's Form 10-K Report (File No. 1-
905) for the year ended December 31, 1991)
#10(j)-5 - Amendment No. 4 to said Officers Deferred
Compensation Plan, effective January 1, 1995 (Exhibit 10(j)-5
to PP&L's Form 10-K Report (File No. 1-905) for the year
ended December 31, 1994)
#10(j)-6 - Amendment No. 5 to said Officers Deferred
Compensation Plan, effective January 1, 1996 (Exhibit 10(l)-6
to PP&L, Inc.'s Form 10-K Report (File No. 1-905) for the
year ended December 31, 1996)
#10(k) - Amended and Restated Supplemental Executive
Retirement Plan, effective August 31, 1995 (Exhibit 10(k) to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1995)
#10(k)-1 - Amendment No. 1 to said Amended and
Restated Supplemental Executive Retirement Plan, effective
July 1, 1996 (Exhibit 10(m)-1 to PP&L, Inc.'s Form 10-K
Report (File No. 1-905) for the year ended December 31, 1996)
#10(l) - Amended and Restated Executive Retirement
Security Plan, effective August 31, 1995 (Exhibit 10(l) to
PP&L's Form 10-K Report (File No. 1-905) for the year ended
December 31, 1995)
#10(l)-1 - Amendment No. 1 to said Amended and
Restated Executive Retirement Security Plan, effective
January 1, 1996 (Exhibit 10(n)-1 to PP&L, Inc.'s Form 10-K
Report (File No. 1-905) for the year ended December 31, 1996)
#10(m)-1 - Amended and Restated Incentive Compensation
Plan, effective January 1, 1995 (Exhibit D to Proxy Statement
of PP&L and Prospectus of Resources, dated March 9, 1995)
#10(m)-2 - Amendment No. 1 to said Amended and
Restated Incentive Compensation Plan, effective April 27,
1995 (Exhibit 10(m)-2 to PP&L's Form 10-K Report (File No. 1-
905) for the year ended December 31, 1995)
#10(m)-3 - Amendment No. 2 to said Amended and
Restated Incentive Compensation Plan, effective January 1,
1996 (Exhibit 10(o)-3 to PP&L, Inc.'s Form 10-K Report (File
No. 1-905) for the year ended December 31, 1996)
#10(m)-4 - Amendment No. 3 to said Amended and
Restated Incentive Compensation Plan, effective January 1,
1997 (Exhibit 10(o)-4 to PP&L, Inc.'s Form 10-K Report (File
No. 1-905) for the year ended December 31, 1996)
#10(n) - Description of Executive Compensation
Incentive Award Program (Exhibit 10(p) to PP&L Form 10-K
Report (File No. 1-905) for the year ended December 31,
1996) 1/
1/This description is provided pursuant to 17 C.F.R.
Section 229.601(b)(10)(iii)(A).
10(o) - Nuclear Fuel Lease, dated as of February 1,
1982, between PP&L, as lessee, and Newton I. Waldman, not in
his individual capacity, but solely as Cotrustee of the
Pennsylvania Power & Light Energy Trust, as lessor (Exhibit
10(g) to PP&L's Form 10-K Report (File No. 1-905) for the
year ended December 31, 1981)
*12(a) - PP&L Resources, Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
*12(b) - PP&L, Inc. and Subsidiaries Computation of
Ratio of Earnings to Fixed Charges
*23 - Consent of Price Waterhouse LLP
*24 - Power of Attorney
*27 - Financial Data Schedule