ML17157C369

PP&L Annual Rept 1992

ML17157C369
Person / Time
Site:	Susquehanna
Issue date:	12/31/1992
From:	Hecht W, Kauffman J PENNSYLVANIA POWER & LIGHT CO.
To:
Shared Package
ML17157C370	List: ML17157C369 ML20056C394 PLA-3989, Forwards PP&L Annual Rept 1992 & Allegheny Electric Cooperative,Inc Annual Rept 1992
References
NUDOCS 9306220327
Download: ML17157C369 (110)

Text

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o 09 The rules of our business are changing. The electric utility industry has entered a new age of competition.

The future holds both challenge and opportunity.

We can turn challenges into opportunities only by under-standing and managing change.

This is the key to PPKL's continuing success.

COMPANY PROFILE O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 Pennsylvania Power K Light Co., headquartered in Allentown, Pa., provides electric service to approximately 1.2 million homes and businesses throughout a 10,000.square-mile area in 29 counties of Central Eastern Pennsylvania.

Principal cities in the PP8IL service area are Allentown, Bethlehem, Harrisburg, Hazleton, Lancaster, Scranton, Wilkes-Barre and Williamsport. The area is at the heart of the nation's largest industrial and commercial market area. More than 70 million consumers live within a 300-mile radius.

SUSQUEHANNA DIVISION

~ Willlamsport NORTHEAST DIVISION Scranton Wilkes-

~ Barr Haaleton HARRISBURG DIVISION Bethlehem Allentown Harrisburg LANCASTER DIVISION Lancaster LEHIGH DIVISION CONTENTS 000000000000 1993 ANNUALMEETING 0 0 0 0 0 0 0 0 0 0 0 00 0 0 OO 0 0 0 0 00 0 0 Financial/Operating Highlights I

Kauffman's Farewell 2

Chairman's Letter 3

CMC Meets With Employees/Customers 6

Year In Review 7

Focusing on Customer Satisfaction 10 Financial Review 16 Independent Auditors'eport 23 Management's Report on Responsibility for Financial Statements 23 Financial Statements 24 Notes to Financial Statements 31 Selected Financial and Operating Data 42 Shareowner and Investor Information 46 Officers 48 Directors Inside Back Cover PP8cL's 1993 annual meeting will be held April 28 at the Harrisburg Marriott, 4650 Lindle Road, Harrisburg, Pa. See Page 46 for details.

Printed on Recycled Paper

KAUFFMAN'S FAREWELL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 As my career at PP&L comes to an end, I can't help but recall with appreciation the outstanding support

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that we always have received from our shareowners.

Your loyalty to PP&L, and your faith and trust in our leadership, have been a great sense of strength to me and all the rest of us in the company.

Looking back on more than four decades, it seems like it all went by so

'uickly.

As I wrote in our employee publication in December, it seems like only yesterday that we were building power plants at Holtwood, Montour and Susquehanna.

It seems like only yesterday that we were selling Gold Medallion Homes. It seems like only yesterday that the Energy of Man train was cruising through our system.

But, it was not yesterday and the time has come to move on.

We have "moved on" at PP&L, changing with the times, meeting the new challenges that each generation seems to bring. It is that spirit of changing with the times that has marked our success in the past and will do so in the future.

I count myself fortunate to have had the privilege of facing those challenges with your support and the efforts of thousands of dedicated employees at PP&L. It really was their efforts that made the difference between success and failure for your company.

As I retire as an active employee, I am leaving the company in the hands of a very capable management team in the hands of people like Bill Hecht, whom I have worked with for more than 20 years. Bill and the other members of corporate manage-ment willprovide the leadership and direction the company will need to face the challenges that lie ahead.

Although I will not be involved in the day-to-day operations of the company, the board has asked that I continue as a director. I intend to be very active in retirement, involved in activities that are allied with PP&L's interests. For instance, I willcontinue in my work with the education reform movement in Pennsylva-nia and at the national level.

Improving our education system is one of the most important challenges facing our nation today.

In closing, I'd like to thank you for your continuing support for PP&L, as Bill and his team chart a course for PP&L's successful future.

Sincerely, John T. Kauffman December 31, 1992 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 John Kauffman, who began his utilitycareer as a test engineer at Holtwood when Harry Truman was still savoring his victory over Dewey, is an institution at PP&L. Although he served as the company's top executive for only 30 months (since the tnglc death of Robert K. Campbell), Kauffman has been a key figure in PP&L history.

John Kauffman willmost vividlybe remembered as the man who "built" the power. generation system that is one of the best in the nation. John was involved in building 12 of the 16 electric generating units that now provide electricity to nearly 1.2 million PP&L customers.

John was the driving force behind the Susquehanna nuclear units, which went into commercial operation in 1983 and 1985. Since then, Susque-hanna,has been a world leader in generating electricity and in per-formance as monitored by industry associations and the Nuclear Regulatory Commission.

Under John's leadership as executive vice president. Operations, PP&L became a major wholesale supplier of electricity, revitalized its marketing prognm and further solidified its place as an industry leader.

Then, just as John was preparing to retire, PP&L's chairman, president and CEO, Bob Campbell, passed away. In June 1990, putting his personal plans on hold, John assumed the title of chairman, president and CEO of PP&L. He retired as an active employee at the end of 1992, but willstay on as a member of the board of directors through 1995.

Commenting on John's retirement, Bill Hecht said, "%e willmiss John' leadership, his enthusiasm and the spirit that he brought to the company for more than 40 years. We wish him well in his retirement and are very pleased that he will remain on our board of directors."

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HIGHLIGHTS (CONsOLIDATED)

Operating Data (in thousands)

Total Energy Sales, Kilowatt-hours (a).......

System Energy Sales, Kilowatt-hours(b).....

Contractual Sales to Other Utilities, Kilowatt-hours PJM Interchange Power Sales, Kilowatt-hours..

Electricity Generated, Kilowatt-hours.......

NetSystem Capacity, Kilowatts(c)(d).....:

Winter Peak Demand, Kilowatts(e).........

Financial Data(in thousands)

Operating Revenues (a)

Operating Income

'et Income Common Dividends Declared.............

Common Equity(c).

Capital Provided by Investors (c)...........

Construction Expenditures.

Construction WorkinProgress(c)..........

Property, Plant and EquipmentNet(c).....

Total Assets (c)

Per Common Share (f)

Earnings Dividends Declared Market Price(c)..

Book Value(c)

Other Information Return on Average Common Equity........

Times Interest Earned Before Income Taxes...

Number ofCustomers Electric(a) (c)......

Common Shares Outstanding (c)(f).........

Number ofCommon Shareowners (c).......

Number ofEmployees Electric(c)........

1992 42,242,334 29,755,211 7,326,845 5,160,278 39,186,425 7,802 6,130

$ 2,744,122

$ 573,431

$ 346,724

$242,655

$ 2,366,939

$ 5,702,658

$ 387,220

$211,534

$ 7,019,504

$8,191,768

$2.02

$ 1.60

$ 27'/4

$ 15.58 13.11%

3.18 1,186,682 151,885,335 129,394 7,981 7,182,642 2.0 7,553,348 (31.7) 41,551,242 (5.7) 7,797 0.1 5974 26 0.1 (1 5)

(0 5) 34 3.0 1.4 15.0 15.4 1.3 3.2

$2,740,715

$ 582,331

$34s,414

$234,626

$2,298,010

$ 5,623,378

$336,741

$ 183,242

$6,929,578

$7,934,595

$2.01 0.5

$ 1.55 3.2

$ 26>/s 3.3

$ 15.15 2.8 13.42%

. 3o6 1,173,680 151,655,268 127,272 s,144 (2 3) 3.9 1.1 0.2 1.7 (2.0) 1992-1991 1991

%Change 43,772,159 (3.5)

,29,036,169 2.5 1990 44,671,355 28,672,040 7,028,354 8,970,961 41,942,040 7,912 5,661

$2,637,922

$59 o,366

$343,9o6

$224,850

$2,221,759

$5,573,360

$288,278

$ 143,os4

$6,894,221

$7,735,442

$ 1.97

$ 1.49

$217/s

$ 14.68 13.65%

2.86 1,161,232 151,297,940 130,719 8,149 (a) Years prior to 1992 have been restated to reflect interchange power sales being recorded as electric operating revenues and electric energy sales instead ofa credit to operating expenses inaccordance witha Fedenl Energy Regulatory Commission order.

(b) Excludes contractual sales to other utilities and PJM interchange power sales.

(c) Atyear-end.

(d) Total genenting capacity plus firmcapacity purchases less firmcapacity sales.

(e) Winter peaks were reached carly in the subsequent year.

(f) Commonsharedata for 1991 and 1990havebeenadjusted forthe two for-onecommonstockspliteffectiveApril22, 1992.

WHERE THE PP8'cL INCOME DOLLARWENT IN 1992

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30c Fuel and power purchases 16c Other operation 7c Maintenance 16c taxes 10c Depreciation 9c lmcrest 10c Dividends 2c Earnings rcinvcsted I ooao

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CHAIRMAN'S LETTER 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 It's my distinct pleasure, in my first annual report as PP&L's chairman, to review some of your company's outstanding accomplish-ments of 1992 and to discuss some of the important issues that will have a substantial impact on us in the future.

A major event of 1992, of course, was the change in corporate leadership.

John Kauffman, a tremendous pres-ence at PP&L for more than four decades, retired as the year came to a close, and I took his place as chairman, president and chief executive officer. Also, we have several new assignments on our Corporate Management Committee. Frank Long, who had served as senior vice president-System Power & Engineering since 1990, was

'amed executive vice president and chief operating officer, and Bob Byram, our vice president-Nuclear Operations, was named to replace Long as senior vice president-System Power & Engineering.

The 12 months since the last annual report also brought congressional action that will have a fundamental, long-term effect on how electric utilities operate.

Later in this letter, I'l review what the new national energy policy will mean to PP&L.

First, however, let me bring you up to date on how we fared in 1992.

Our system sales for the year, when adjusted for normal weather, increased by about 2.6 percent over 1991. By compari-son, weather-adjusted energy sales in 1991 increased by only 0.2 percent over 1990 levels. During 1992, residential sales were up 1.8 percent over 1991 and commercial sales increased 2.7 percent, when adjusted for weather. Most en-couraging, however, is the fact that industrial sales, which are not affected by weather, increased by 3.4 percent.

We attribute this increase to an im-provement in the service-area economy from the depressed economic conditions in 1991 when we saw our sales to in-dustrial customers decline by 3 percent.

We continued to be a major player in the bulk power sales market. In fact, during 1992, we sold 12.5 billion kwh to other utilities.

In 1992, our base rates remained stable, as they have since 1985. We are continuing with our plans not to increase base rates un-til at least the 1994-95 time period.

Earnings for 1992 were $2.02 per share, up slightly from $2.01 per share.

Milder-than-normal weather affected earnings in both 1992 and 1991. If weather had been normal, our earn-ings would have been

$2.09 per share in 1992 and $2.07 in 1991.

Our fossil-fueled power plants were available to produce electricity about 85 percent of the time, more than they have been in any year since we began keeping records. A major reason for this improvement is a maintenance outage schedule that results in less planned down time. We made the maintenance schedule changes after an intense study of our outage proc-esses.

This is a fine example of what we mean when we talk about con-tinually improving our performance.

Our Susquehanna nuclear units generated 13.5 billion kilowat-hours, 7 percent more than was budgeted for the year.

And, they achieved this record despite two refuel-in outa es durin the g

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year. In another l( ':Oi:,;P(

milestone, the Nuclear Regulatory Commission recognized Susquehan-na for its "high level of safety performance" and for "commitment to safety throughout the organization." Only five plants in the na-tion were recognized in that manner.

1992 was another safe year for PP&L people. For the fourth year in a row, we had no on-the-job employee fatalities.

Our marketing and economic development efforts resulted in new annualized sales of 435 million kwh, meeting our forecast an impressive showing in a year when many consumers and business leaders were cautious about spending on new buildings or expansions.

We also spent a great deal of the past year planning for major changes in our industry.

The passage of the Energy Policy Act of 1992, signed into law in October, sets the tone for a restructuring of our industry that is likely to bring major changes in the way we do business.

The new energy act makes it much easier for non.utility compa-nies to build power plants. It also provides the Federal Energy Regula-((3L (r,(

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tory Commission with new authority to order utilities to provide transmis-sion service to others. The new law means that we have entered an age of intensified competition at PP&L. This change will have implications for years to come.

At the same time, our traditional competitors for the home heating mar-ket oil and gas are getting more" aggressive and more competitive than they once were. Fossil fuels also are providing more competition in the in-dustrial market. And, on the economic development front, we are working hard to meet competition from other states and other regions of the country.

These new conditions provide both opportunities and challenges.

We will take advantage of these opportunities using the same basic tenets that have served us well in the past. We willcontinue to concentrate on marketing and economic develop-ment, effective cost management, operational excellence and sensitivity to people. We can turn challenges into opportunities only by understand-ing and managing change. This is the key to PP&L's continuing success.

We know that we cannot be complacent. In fact, we have been successful because we have continu-ally adapted to the changing circum-stances of our business.

We are not strangers to competition.

We have been a leader in market-ing the concept of total-electric living.

We have been a leader in forming economic development partnerships that have resulted in thousands of new jobs in our service area.

We have been a leader in the Northeast in making sales to other electric utilities.

These experiences give us a sound base from which we can address the markets of the future.

In 1992, we announced initiatives designed to encourage the develop-ment and use of electric vehicles. We are one of the first utilities in the country to offer lower rates to custom-ers who use electric vehicles. In addition, we have instituted a grant program to help offset the cost difference between gasoline-powered vehicles and today's electric-powered vehicles.

We believe electric vehicles wilt play an important role in meeting the country's environmental and energy goals. We also believe that they hold the potential for an important market for us one of those opportunities of the future.

In another area, we are pursuing a concept that we call "ultra-service parks," which willinclude upgraded electric service to businesses that need to minimize power interrup-tions. Electricity will be supplied to these parks by two separate

lines, turing facilities in PP&L's service area also could qualify for credits.

Since we first established these EDI rates in 1983, we have found them to be an important. incentive to attracting new investment in industrial facilities in our service area. Innova-tions like these have helped make Central Eastern Pennsylvania an attractive place for new business'and industry.

We'e also encouraging innova-tion in the residential market. Our ground source heat pumps, which use the earth's thermal energy as a heat source, are becoming an increasingly popular choice for electric heating and-thus minimizing the probability of power interruptions. Upgraded tele-communications technology also will be featured. These parks willoffer first-class locations to advanced tech-nology and research operations as well as corporate offices. At this point, we are working on three ultra-service park locations.

Another example of our market-ing efforts is found in our special rates that encourage employment growth.

During 1992, we introduced the fourth phase of what we call our Economic Development Incentive rates. Under this phase, rate credits are given to industrial customers who increase production or expand their plants.

Industries establishing new manufac-cooling in our service area.

And, even though we won't need to build another power plant for a number of years, we are not forgetting about the future of electricity genera-tion. We are one of the utilityspon-sors of a research program that is working on a standard design for the next generation of nuclear power

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plants. Our experience with the Susquehanna plant has convinced us that nuclear power should be pre-served as an option in America's future energy mix.

These initiatives give you a good indication that we are not just sitting back, waiting to be swept along with the tides of change in the industry.

We are committed to shaping that

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decade, the three lifts willreopen more than 200 miles of the river to the historic spring shad migration.

Q q'Ir~ Three PP&L employees visit a customer service office at Chugoku Electric Power Co. In Japan as part of PP&L's ongoing exchange program with the utility.The PP&L employees, Sue Johnson, Tom Funk and Gary Miller, were asked to evaluate Chugoku's customer service operations. ~ A major federal exercise with an estimated 2,000 participants and 300 visitors from around the world, planned at the Susquehanna plant to demonstrate how the federal government would support local and state governments during a serious nuclear emergency, is can-celed. Because, of several hurricanes and other disasters nationwide, the U.S. Federal Emergency Manage-ment Agency is unable to participate. ~ A ribbon-cutting ceremony marks the opening of the first phase of PP&L's new System Facilities Center in Hazleton. When the project is com-plete in 1994, the center willhouse PP&L's chemical laboratories and several other service departments. Customer Service Representative Lucinda Erdman, with a helping hand from Supervisor Sharon Armbruster, takes one of the 1.7 million calls that came In to PP&L's Customer Contact Center in 1992. + Frank A. Long, senior vice president-System Power & Engineering, is appointed executive vice president and chief operating officer, effective Jan. I, 1993. November ~ Unit 2 at the Susquehanna nuclear plant returns from a nine-week refueling shut-down. ~ A total of $90 million worth of Pol-lution Control Revenue Bonds are sold through the Lehigh County Industrial Development Authority, to redeem authority bonds issued at higher rates in the early 1980s, thereby reducing PP&L's cost of financing pollution control equip-ment. December ~ PP&L's five fossil-fueled power plants turn in their best annual perfor-mance since 1970, as measured by their availability to generate power, a key performance indicator. + The National Nuclear Accrediting Board renews accreditation of the Susquehanna nuclear plant's technical training programs after a thorough review by the Institute for Nuclear Power Operations, an independent organization created to improve quality in the cornmer-Dr. Bert Wolfe (center) and Warren Owen (right), two members of the Nuclear OversIght Committee Advi-sory Board, talk with Unit Supervisor James Hufford In the control room of the Susquehanna nuclear plant. The advisory board Is made up of three nuclear Industry experts who advise the five members of the Nuclear Oversight Committee of the board of directors. ~I ) cial nuclear power industry. ~ PP&L crews work around the clock to restore electric service after high winds from one of the worst storms ever to hit the company's service area left 138,000 customers without power. ~ Frank A. Long, who becomes executive vice president and chief operating officer Jan. I, 1993, is elected to the PP&L board of directors, effective the same date. ~ Robert G. Byram, vice president-Nuclear Operations, is named senior vice president-System Power & Engineering, effective Jan. I, 1993. ~ John T. Kauffman, chairman and chief executive officer, retires as an active employee after 42 years with PP&L. Kauffman willremain on the board of directors. William F. Hecht becomes chairman, president and chief executive officer Jan. I, 1993. I ~+A 9oooooooo 4 J o "* gw* I E r ~,J PL 4il 0 0' 6 11 ii, 9 J +$ 0 r J 0 0 o Qj' d C l s o o o o o o o o ]2 CD'hh, oooooooo ~ FOCUSING ON CUSTOMER SATISFACTION 40440400000000040000000000000004000040044 thousands of links in the customer service chain. Shareowners, too, are part of that linkage. When PP8:L meets the competition head on, when sales and earnings are strong, when stock dividends continue to grow, then the share-owners'nvestment has added value. In a very real sense, every shareowner is a "customer" of every employee at PP%L. We'e working to involve every employee in helping to improve quality and efficiency'and sharpen our customer-driven focus. Through our Continuous Performance Improvement Process, employees at all levels will be better able to participate in the decisions that will guide this company into the future. Serving the customer well. It's what PP8:L is all about. We'e working hard to do every-thing our customers expect of us, and more. We want every employee, every company depart-ment, to be focused on satisf'ying the customer every hour of every day. We'e building our reputation for excellence link by link, piece by piece. Because it's superior customer service that willset PAL apart. 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In short, it's keeping the customer in mind in everything we do. Customer service is a delicate linkage of relationships between PAL employees and customers. A customer calls to report a power outage. A customer service representative logs the information. Dispatchers send a crew to the scene. Service is restored. Each event is a link in the chain, a piece of the jigsaw puzzle; each part is important to the whole. The goal excellent customer service and customer satisfaction cannot be achieved unless each piece falls neatly into the right place at the right time. At PPKL, we recognize that customer service is internal as well as external. Not every employee deals directly with our electric service customers. But every employee from the power plants to the corporate offices has a "customer" inside PAL depending on him or her to do quality work, to meet a deadline, to deliver a key piece of information, or to provide any one of the ]3 a a a 0 a ~ 0 ~ FINANCIALREVIEW ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 4 ~ ~ ~ Review ofthe Comyany's I'inaneial All common stock earnings and other per share amounts presented in this review have been adjusted for the two-for-one common stock split effective April 22, 1992. Results of Operations Earnfngs Earnings per share of common stock were $2.02 in 1992, $ 2.01 in 1991 and $ 1.97 in 1990. Earnings improved slightly during 1992 as the region's economy continued to recover and the Company made pro-gress in controlling costs. Milder-than normal weather during the first t uarter of 1992 and cooler-than. normal summer weather, adversely af-ected earnings. Ifweather had been normal, earnings would have been 7 cents per share higher. The weather affects sales and earnings as heating and cooling demands change. To make valid comparisons of financia performance, the Company adjusts the figures to reflect "normal" conditions as determined by historical weather data. . The Company made progress during 1992 in controlling its operating and maintenance expenses. However, increasing deprecia-tion charges for the Company s Susquehanna nuclear generating sta-tion adversely affected earnings. The cost of a generating station is normally spread out evenly over a number of years by recording charges against income. In the formula the Company uses for the Sus-quehanna generating station, annual depreciation charges are not equal, but increase incrementally each year. The increase in deprecia-tion of the Susquehanna, generating station in 1992 adversely affected earnings by 5 cents per share of common stock. Earnings for 1991 and 1990 were also affected by extremely mild weather. Varnings per share would have been higher by 6 cents in 1991 and 13 cents in 1990 had there been normal weather in the Company's service territory. Earnings per share over the last five years increased at an annual growth rate of about 4.0%. However, over the past few years, earn. t ings have essentially been flat, reflecting in part a slowdown in the rate of growth of energy sales. The Company willcontinue its ag-gressive marketing and economic development programs aimed at in. creasing energy sales, willcontinue to emphasize effective cost management and willalso continue to take advantage of favorable financial market conditions to refinance long-term debt and preferred, or preference stock with lower cost securities to reduce interest ex-pense and dividends on those stocks as steps to achieve continued earnings growth. Efeclrfc Energy Sales System, or service area, sales were 29.8 billion kwh in 1992, an in-crease of 719 million kwh, or 2.5%, over 1991. Improvement in the EARNINGS PER SHARE WEATHERNORMALIZEDVS. ACTUAL ~ ~ ~ ~ ~ ~ 4 ~ ~ ~ ~ ~ ~ ~ ~ Dollars r share Condition and Results ofOperations service area economy in 1992 contributed to higher system sales. However, milder-than. normal weather depressed system sales in both 1992 and 1991 primarily due to reduced use of electricity for heating by residential and commercial customers. System sales were down an estimated 334 million kwh in 1992 and 287 million kwh in 1991 due to milder-than-normal weather. The Company estimates that ifnormal weather had been experienced in both years, system sales for 1992 would have increased by 766 million kwh, or 2.6%, over 1991. Actual sales to residential and commercial customers in 1992 in-creased 219 million kwh, or 2.1%, and 178 million kwh, or 2.0%, respectively, over 1991. The Company estimates that under normal weather conditions for both years, sales to residential and commercial customers in 1992 would have increased 189 million kwh, or 1.8%, and 245 million kwh, or 2.7%, respectively, over 1991. Industrial sales in 1992 increased 290 million kwh, or 3.4%, over 1991. This increase is attributed to an improvement in the service-area economy from the depressed economic conditions in 1991 when sales to industrial customers declined by 3.0 percent. System sales in 1993 are currently forecasted to be approximately '0.6 billion kwh, an increase of 855 million kwh, or 2.9%, over 1992 actual system sales, and a 521 million kwh, or 1.7%, increase over 1992 weather-normalized sales. Marketing and economic development continues to be a key cor-porate initiative. One of the Company's goals is to achieve a specified annual level of additional energy sales from its marketing and economic development programs. These additional sales generally will be realized over at least a two.year period, and possibly longer ifa major commercial or industrial customer is involved. The level of additional sales estimated from these programs in 1992 was 435 million kwh. The Company's 1993 marketing and economic development goal is to achieve annual net sales growth of 523 million kwh. The 1993 goal reflects an increased emphasis being placed on marketing activities ~ with existing industrial customers. Competition from other fuel sources for certain energy applications has increased in recent years. The Company's electric heat market share in new residential construction has dropped from 69% in 1990 to 66% in 1992. The Company's goal for 1993 is a 70% electric heat market share in Itew residential construction. Certain large customers have considered self-generation of electrici-ty over the past several years. However, the Company has lost no significant load to customer-owned generation. Total electric energy sales, which include contractual sales to other utilities and interchange povter sales, were 42.2 billion kwh in 1992, a Cosli~loN STQGK BQQK VALUE Vs. MARKET PRICE ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Dollars r share 25 1,50 1.00 .50 \\ ~ 20 15 10 88 89 90 91 92 CI Actual earnings per share C) Weather normalized earnings per share 88 89 90 91 92 ~ Book value per share ~ Market price per share ~ ~ ~ o ~ o o e']g ]5oooooooo Tariffs subject to PUC ju'risdiction accounted for approximately 81% of the Company's revenues from energy sales in 1992. The remaining 19% of such revenues resulted from sales regulated by the FERC and include the Company's PJM interchange power sales. Billings to customers under PUC jurisdiction include: (i) base rate charges; (ii) the ECR which is a supplemental charge or credit for fuel and other energy costs over or under the levels included in base rates; (iii)a state tax adjustment surcharge (STAS) which adjusts retail customers'ills for the effects of changes in state tax rates; and (iv) beginning in 1991, a special base rate credit adjustment (SBRCA) that flows through to customers the effects of certain nonrecurring items. The'ompany has an objective of not increasing PUC jurisdictional base rates for electricity until at least the 1994-1995 period. This price stability will help foster prosperity among communities served and, at the same time, enhance the Company's financial strength and com-petitive position through increased energy sales. The last base rate in. crease for PUC jurisdictional customers went into effect in April 1985. Billings to FERC jurisdictional customers (excluding contractual sales to other utilities, PJM interchange power sales and capacity-related and transmission entitlement transactions) include base rate charges and a supplemental charge or credit for fuel costs over or under the levels included in base rates. In December 1991, the FERC accepted a settlement agreement between the Company and its wholesale customers with respect to a $ 4.1 million base rate increase. for those customers that FERC permitted to become effective in May 1991. Under the terms of the settlement agreement, the Company agreed not to file any wholesale base rate requests that would propose an ef-fective date before August I, 1994. The FERC regulates contractual sales to other utilities, PJM inter-change power sales and capacity-related and transmissio'n entitlement transactions. Sales to Atlantic, BG8tE and JCP&L are made at a price covering the Company's cost of service, including a return on invest-ment. Energy sales relating to the reservation of output from the Mar-tins Creek units are generally made at a price equal to the cost of fuel plus an amount to reflect foregone interchange savings. PJM inter- , change wer sales are made at a price equal to the midpoint be-tween the sellers'ctual costs and costs that the buyers would have incuried to produce the energy. Capacity. related and transmission en-titlement transactions are made at prices negotiated by the Company and the purchaser, subject to a price cap accepted by the FERC. Fuel expense Fuel expense for 1992 decreased by $ 41.0 million from 1991. The decrease was due to reduced output from the Company's generating units. Output from the Company's generating units in 1992 was 2.4 billion kwh lower than 1991. This decrease in generation was primari~ ly due to lower nuclear and oil fired generation partially offset by an increase in coal. fired generation. Nuclear generation decreased 2.1 billion kwh in 1992 as a result of two refueling and inspection outages in the year compared to one in 1991, and oil-flired generation decreased due to lower PJM interchange power sales. Power Purchases In 1992, power purchases were $275.5 million, an increase of $ 19.2 million over 1991. The increase was the result of additional purchases from non utility generating companies and PJM and other electric utilities. Other Operation, hfalntenance and Depreclatlon The reduction in revenues resulting from flowing the benefits of a settlement with General Electric Company of certain claims arising from construction of the Susquehanna station through to customers in the. SBRCA is offset by a credit to other operation expense on the Consolidated Statement of Income (see Financial Note 5). Excluding this credit, other operation expense remained essentially unchanged in 1992 compared to 1991. Lower costs associated with operating the Company's nuclear-fueled generating station and a decrease in the provision for uncollectible accounts were offset by increases in wages and benefits. The Company intends to reduce the number of full.time employees by approximately 6.8% from 8,043 at year.end 1991 to about 7,500 by the'mid.1990s. This is one of the actions being taken to contain costs and keep the price of the Company's electric service com-petitive. This reduction is expected to come primarily from normal at-trition. As of year-end 1992, the number of full.time employees was 7,882. The amortization of the deferred iricome effect of adopting the in. ventory method of accounting for power plant spare parts is credited to maintenance expense on the Consolidated Statement of Income (see Power Plant Spare Parts on page 19). Excluding this amortization, maintenance expenses remained essentially unchanged in 1992 com-pared to 1991. Higher depreciation in 1992'reflects the scheduled annual increase associated with the method of depreciating the Susquehanna station and the depreciation of new property, plant and equipment placed in service. As approved by the PUC and the FERC, depreciation'expense SOURCES OF CAPITAL ~ ~ ~ ~ ~ ~ ~ 4 ~ 4 ~ ~ ~ ~ ~ Si ~hlllllons of dollars CAPITAL REQUIREMENTS ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Si ~ hlilllons of dollars I 200 88 89 90 9l 92 E3 Other (principally capital lease oblisatlons) C3 Outside financing (sales of debt and <<qulty securities) C3 Internal sources (principally from operations plus equity AFUDC less dividends) 88 89 90 9I 92 Cj Other C3 Security retirements C3 Construction, nuclear fuel and other leased property e e u e e ~ ~ e ]8 decrease of 1.5 billion kwh, or 3.5%, compared to 1991. Contractual sales to other utilities include energy sold to Atlantic City Electric Company (Atlantic), Baltimore Gas & Electric Company (BG&E) and Jersey Central Power & Light Company QCP&L) pursuant to bulk power contracts whereby these utilities purchase a specified percentage of the capacity and related energy from Company. owned generating units and energy sold on a short. term basis to other elec-tric utilities. Contractual sales to other utilities were about 7.3 billion kwh in 1992, or 2.0% higher than 1991. The Company began to record interchange power sales to Pennsylvania. New Jersey-Maryland Interconnection companies (PJM) as operating revenues instead of a credit to operating expenses, effective January 1, 1992, in accordance with a Federal Energy Regulatory Com. mission (FERC) order. The energy sold to PJM is now included in the Company's total electric energy sales. Prior periods have been restated to conform to the current presentation. The change in accounting for these sales had no effect on income. PJM interchange power sales were about 5.2 billion kwh in 1992, or 31.7% lower than 1991. The decrease was primarily due to an increase in the availability of nuclear generating capacity of other PJM utilities, which reduced the operation of certain of the Company's generating units. In addition, higher sales to the Company's retail customers resulted in less energy being available for sale to interconnected utilities. transacnons dunng 1993. The Company is continuing to look for opportunities to derive ad-ditional revenues due to its strong generating capacity position. The amount of revenues from these types of transactions depends on many factors, and it is difficultto predict the amount of revenues the Company willultimately realize from these transactions. Certain industrial customers have requested that the Pennsylvania Public UtilityCommission (PUC),investigate the Company's capacity-related and transmission entitlement transactions, contending that the revenues from these sales should be credited against the ECR, These transactions began in 1989 and the associated revenues, net of foregone PJM interchange savings, have totaled $ 126.1 million through December 31, 1992. Operating Revenues 'otal operating revenues increased $ 3.4 million, or 0.1%, in 1992 over 1991. Details of changes in operating revenues from the prior year are shown in the schedule below. Changes in Operating Revenues 1992 1991 1990 (Millionsof Dollars) Capacity-Related and Bansmtsston Entitlement 2transactions The Company's strong generating capacity position has enabled it to enter into a number of capacity. related transactions with other electric utilities. These transactions include: (i) the sale of capacity credits but no energy to other utilities in the PJM to enable them to satisfy their PJM contractual capacity obligations; (ii) agreements with both PJM and non.PJM utilities for the reservation of output during certain periods from the Company's Maitins Creek units with the op-tion to purchase energy from those units; and (iii)arrangements whereby other PJM utilities can purchase the Company's entitlements to use the PJM transmission system to import energy from utilities outside the PJM. Revenues from the sale of capacity credits, the reservation of output from the Martins Creek units and the sale of transmission entitle-ments, net of foregone PJM interchange savings which are in. eluded in the Company's Energy Cost Rate (ECR), totaled $35.0 million in 1992, $35.4 million in 1991 and $32.3 million in 1990. The . Company currently expects about $30 million of revenues from these Recovery of fuel and energy costs............ Change in customer usage................. State tax adjustment surcharge............,. Special base rate credit adjustment............. Wholesale rate increase............,.. Capacity. related and transmission entitlement transactions............ Contractual sales to other utilities........... PJM interchange power sales.................. Other Total................ 20.6 22.2 (22.6) 1.7 38.2 (14.4) 22.0 (16.7) 2.4 (0.4) 3.1 7.7 9.1 8.9 (3.3) (68.8) I.O $.3.4 (37 0) (37 8) $ 102.8 5.0 $ 44.0 $ 79.9 $ 55.3 'OURCES OF ENERGY ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ So Billions of kwh DISPOSITION OF ENERGY ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 30 Billions of kwh 40 40 30 30 20 20 10 10 88 89 90 91 92 C) klydro and purchased power ~ Oil fired generation and other CI Nuclear generation W Coal fired generation 88 89 90 9l 92 W Company use, line losses and other CI Inteichange power sales C3 Contractual sales to other utilities W System sales to customers 17 0 4 4 4 4 4 ~ 4 tests. To enhance financing flexibility,the Company has credit ar-rangements aggregating $205 million with various banks to provide back-up for the Company's commercial paper and short-term borrow-iny of certain subsidiaries. No borrowiny were outstanding at December 31, 1992 under these arrangements. Allowancefor Funds Used Durfng Construction The allowance for funds used during construction (AFUDC), a non. cash credit to income, accounted for about 5/o of earnings in 1992. AFUDC is expected to remain low through 1993. Beginning in 1994, AFUDC is expected to increase as the Company willbe making capital expenditures to comply with clean air legislation. The amount of AFUDC recorded willdepend on the timing and level of construction work in progress as well as the rate treatment afforded the capital ex-penditures required to comply with the clean air legislation. Penn-sylvania law currently allows construction work in progress to be claimed in rate base for such expenditures. Financfal Indfcators The Company earned a 13.11/o return on average common equity during 1992, down slightly from the 13.42/0 earned in 1991. The ratio of the Company's pretax income to interest charges increased slightly from 3.1 times in 1991 to 3.2 times in 1992. The Company increased common stock dividends from an annual per.share rate of $ 1.55 in 1991 to $ 1.60 in 1992. The book value per share of common stock in-creased 2.8/0 from $ 15.15 at the end of 1991 to $ 15.58 at the end of 1992. The ratio of the market price to book value of common stock was 175/0 at the end of 1992 compared with 174/0 at the end of 1991. \\ Termbtatfon ofCoal-ftflnlng Operatfons The Company has ceased its subsidiary coal-mining operations due principally to the depletion of coal reserves and the high cost of mined coal as compared to the price of coal purchased on the open market. One of the three operating mines closed at the end ofJune 1991. A second operating mine closed at the end of March 1992, and a third mine, scheduled to close in June 1992, was temporarily idled and then sold in September 1992. In this regard, the Company re-quested that the PUC determine that the Company's proposed pur-chase of coal from the third mine for a period of seven months after the sale of the mine is in the public interest and that the Company willbe permitted to recover the idle mine costs and purchased coal costs through the ECR. The PUC granted the Company's request in August 1992. The Energy Policy Act of 1992 (Energy Act) imposed a new liability on the Company or its coal-mining subsidiaries for the health care of retired coal miners previously employed by those subsidiaries. The estimated liabilityamounts to approximately $69 million. At the time coal. mining operations ceased, subsidiary mining companies had ac-crued $32 million for anticipated payments to the miners'ealth care trust tunds to provide for health care benefits of retired miners. Under the Energy Act, the Company or its subsidiaries willbe directly liable for these benefits.and the $32 million willnot have to be paid to the trust funds. The Company intends to use the accrual to pariial-ly offset the new liability. 'n December 1992, the Company recorded an additional liabilityof approximately $37 million representing the balance of the liabilityim-posed by the Energy Act for health care benefits for retired coal miners. The charge to expense was deferred because the Company in-tends to file a request with the PUC to recover these costs through the ECR over a five-year period. In the event the PUC does not permit recovery of this amount, the Company would incur a one-time charge against income of approximately $ 21 million, net of related taxes. Clean AlrLeglslatfon and Other Envfronmentaf batters IriNovember 1990, federal clean air legislation was enacted that deals, in, part, with acid rain, attainment of federal ambient ozone standards and toxic air emissions. The acid rain provisions, which are contained in Title IV of the legislation, specify Phase, I sulfur dioxide emission limits on about 55/0 of the Company's coal-fired generating capacity by January I, 1995, and more stringent Phase II sulfur diox-ide emission limits for all of the Company's fossil fired generating units by January I, 2000. The Company expects to meet the 1995 Phase I sulfur dioxide stan-dards by the use of lower sulfur coal, additional processing of coal through cleaning plants, and the installation of scrubbers at the Con-emaugh station, in which the Company has an 11.39/o ownership in. tercst. The Company may also choose to limit the generation of cer-, tain units and to,bank or trade emission allowances among its generating units or with other utilities, to the extent permitted by the legislation. The acid rain provisions also require installation of low nitrogeri oxide burners on each unit by the same date that sulfur dioxide limits apply to that unit. In addition, the ambient ozone attainment provi~ sions contained in Title I of the legislation specify other nitrogen oxide emission reductions. In this regard, the legislation defines a Northeast Ozone Transport Region that includes all of Pennsylvania in addition to all states in the Northeast from northern Virginia to Maine. All major stationary sources within the region must install reasonably available control technology (RACT) for nitrogen oxide emissions by May 1995., The Company expects to meet this RACT requirement by installing low nitrogen oxide burners on the Phase I units as required by the acid rain title and on the remaining Phase II units by advancing the installation of low nitrogen oxide burners, where technically feasible, that would have been required in 2000 by the acid rain title. The Company currently estimates that the cost of compliance with the Phase I sulfur dioxide standards and installation of the low nitrogen oxide burners willrequire capital expenditures of about $260 million (in estimated 1993 dollars) and an increase in customer rates of about 1.5/0 (based on 1992 revenue levels). To meet the Phase II acid rain sulfur dioxide emission standards, 'he Company expects to install flue gas desulfurization (FGD) on up to 65/o of its coal-fired generating capacity, to continue to purchase lower sulfur coal for its remaining generating capacity, and to bank or trade emission allowances among its generating units or with other utilities to the extent permitted by the legislation. The exact mix of lower sulfur fuel, emission allowance purchases,'ales or trades, and the amount and timing of FGD willbe determined later based on FGD installation costs, fuel cost and availability, and emission allowance prices. The Company currently estimates that the cost of compliance with the Phase II sulfur dioxide standards willrequire additional capital ex-penditures in the later half of the 1990s of $600 million (in estimated 1993 dollars) and an increase in customer rates (based on 1992 revenue levels) of about 4/0 above the increase expected to result from Phase I compliance with the sulfur dioxide standards of the legislation and installation of low nitrogen oxide burners. The ambient ozone attainment provisions also require modeling of nitrogen oxide and volatile organic compound emissions in the North. east Ozone Transport Region to determine what further reductions are needed beyond the RACT requirements to achieve ambient ozone s ~ ~ ~ ~ ~ ~ e ~ 20 for the Susquehanna station willincrease annually through the year 1998. In 1992, the amount of depreciation expense applicable to the Susquehanna station exceeded the amount that would have been recorded using the straight. line method, resulting in an amortization of previously deferred depreciation. Beginning in 1999, depreciation is scheduled to change to the straight. line method at a level substantially less than the amount expected to be recorded in 1998. Tcxes In August 1991, Pennsylvania enacted legislation that increased the Company's state taxes by approximately $38 million on an annual basis. The Company is recovering substantially all of the increased state taxes through application of a surcharge on billings to retail customers and through billings for the contractual sale of capacity and related energy to other utilities. On April I, 1993, the tax sur-charge is expected to be rolled into the Company's base rates; Ffnancfng Costs The Company has continued to take advantage of opportunities to reduce its financing costs during the years 1990-1992 by the retire-ment of long.term debt and preferred and preference stock with cash from operations and with the proceeds from the sales of securities at a lower cost. Interest on long.term debt and dividends on preferred and preference stock have decreased by S23 million from $304 million in 1989 to $ 281 million in 1992. Power Plant Spare Parts Effective January I, 1991, the Company began to account for certain power plant spare parts using a deferred (inventory) method. Under this method, purchases of spare parts under inventory control are in-cluded in an inventory account and then charged to the appropriate capital or expense accounts when the parts are used or consumed. Prior to 1991, power plant spare parts were generally either-capitalized or charged to expense at the time of purchase. The January I, 1991 cost of these spare parts was $ 116.8 million. That amount was recorded as an increase in the materials and sup. plies inventory account on the balance sheet at January I, 1991. The associated income statement effect was deferred and is being amor-tized as a credit to expense over a five-year period. The annual amor-tization applicable to retail customers is included in the SBRCA credit applied to customers'ills, and the annual amortization applicable to wholesale customers is reflected'in the base rate increase effective May 1991. Financial Condition Capital Expendfture Requfrements The schedule below shows the Company's actual capital expen. ditures for electric utilityoperations for the years 1990-1992 and cur-rent projections for the years 1993-1995. Construction expenditures during the years 1990-1992 totaled about $ 1.0 billion and are expected to be about $ 1.3 billion during the years 1993-1995. Ffnanclng and Lfrfufdfty For the years 1990-1992, the Company issued $540 million of long-term debt and about $24 millionof common stock and also incurred $ 189 millionof obligations under capital leases (primarily nuclear fuel). In 1992, the Company sold $300 million principal amount of first'mortgage bonds in a public offering, $90 millionof first mort-gage pollution control bonds, increased its short. term debt by $ 12 million and issued $6 millionof common stock to the Employee. Stock Ownership Plan. During the year, the Company retired $346 million of long-term debt and $47 millionof preferred stock. After the payment of dividends, internally generated funds during the years 1993 1995 are currently expected to provide approximately 75/0 of the Company's construction expenditures. Sales of securities willbe undertaken during the 1993-1995 period as needed to meet the Company's capital requirements, to meet a total of $ 195 millionof long.term debt maturities and preferred stock sink-ing fund requirements and to provide funds for the early retirement of high.cost securities ifsuch retirements are determined to be ap-propriate in the light of market conditions and other factors. As part of this program, in February 1993, the Company sold $300 million principal amount of first mortgage bonds consisting of $ 100 million principal amount, 67//0 Series due 2003 and $200 million principal amount, 2//0 Series due 2023; and redeemed three series of first mortgage bonds aggregating $305 million through the maintenance and replacement fund provisions of the mortgage: the 9sft/o Series 'ue 2005, the 9)4/0 Series due November I, 2005 and the 9/',/0 Series due 2004. Additionally, the Company plans to redeem in 1993 three series of first mortgage bonds aggregating $375 million through early retirement provisions: the 9g%%d Series due June 1998, the 9'/o Series due October 2016 and the 9~/,/o Series due March 1998. However, the exact timing willdepend on the Company issuing additional first mortgage bonds to provide the funds necessary for.the redemptions. The Company's ability to issue securities during the 1993.1995 period is not expected to be limited by earnings or other, issuance Capital Expenditure Requirements (a) Actual Projected 1990 1991 1992 1993 1994 1995 (Millionsof Dollars) Construction expenditures Generating facilities........ Transmission and distribution facilities,.... Environmental Other... $ 101 $ 124 $ 136 148 165 186 16 11 13 23 37 52 288 337 387 $ 130 $ 107 $ 70 189 197 176 81 208 84 38 32 28 438 544 358 'uclear fuel owned and leased 53 41 42 65 49 66 Other leased property................. 18 17 20 28 23 26 Total. $359 $395 $449 $ 531 $616 $450 (a) Capital expenditure phns are revised from time to time to reflect changes in conditions. Actual expenditures may vary from those projected because of changes, in plans, cost fluc-tuations, environmental reguhtions and other factors. Construction expenditures include AFUDC which is expected to be less than $25 million tn each of the years 1993-1995. ]9e a'e ~ ~ e ~ ~ participating in 'the current research effort to determine whether EMF 'auses any human health problems and is taking steps to reduce EMF, where practical, in the design of new tia'nsmission and distribution facilities. The Company is unable to predict what effect the EMF issue might have on Company operations and facilities. In complying with statutes, regulations and actions by regulatory bodies irivolvingenvironmental matters, including the areas of water and air quality, hazardous and solid waste handling and disposal and toxic substances, the Company may be required to modify, replace or cease operating certain of its facilities. The Company may also incur substantial capital expenditures and operating expenses in amounts which are not now determinable. Industry Restructurtng Inftfatlves The Energy Act willhave a significant impact on the Company and the electric utilityindustry. The Energy Act includes, among other things, amendments to the Public UtilityHolding Company Act of 1935 (PUHCA) to increase competition in the generation of electricity, mainly by creating a new class of independent power producers that would be exempt from PUHCA regulations; rules addressing access to electric transmission systems; incentives for the development of elec-tric vehicles and provisions that streamline the nuclear power plant licensing process. The Energy Act also includes provisions to en-courage resolution of the high.level nuclear waste disposal issue, per-form global climate change studies, promote increased energy efficien-cy and provide funding for an EMF research program. The Company is unable to predict the ultimate impact that these provisions of the Energy Act or other initiatives may ultimately have on the Company's operations. However, the Company believes that its strong generating capacity position, competitively priced electricity and good customer service place it in a good position to adapt to changes in the industry. The Energy Act established the Uranium Enrichment Decontamina-tion and Decommissioning Fund (Fund) and provides for an assess-ment on domestic utilities with nuclear power operations, including the Company. Assessments are based on the amount of uranium a , utility had processed for enrichment prior to enactment of the Energy Act and are expected to be paid to the Fund by such utilities over a 15-year period. Amounts paid to the Fund are to be used for the ultimate decontamination and decommissioning of the U.S. Depart-ment of Energy's uranium enrichm'ent facilities. The Energy Act states that the assessment shall be deemed a necessary and reasonable cur-rent cost of fuel and shall be fully recoverable in rates in all jurisdic-tions in the same manner as the utility's other fuel costs. In December 1992, the Company accrued an estimated liabilityfor its total assessment in the amount of approximately $39 million, sub-ject to adjustment for inflation. The charge to expense was deferred because the Company willinclude its annual payments to the Fund of approximately $2.6 million, subject to adjustment for inflation, in the ECR included in the Company's PUC tariffs and the fuel adjustment clause included in the Company's FERC tariffs. As a result, the'Com. pany does not expect the assessment to have an adverse effect on net income. For discussion of the effects of the Energy Act on the Company's liabilityfor health care costs of retired miners previously employed by the Company's coal. mining subsidiaries, see "Termination of Coal-Mining Operations" on page 20. Accountfng Statements Adopted After December 31, 1992 - The Financial Accounting Standards Board (FASH) has issued two ac-counting statements that the Company adopted effective January I, 1993: Statement of Financial Accounting Standards (SFAS) 109, "Ac-counting for Income Taxes," and SFAS 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions." Under the provi-sions of SFAS 109, the Company recorded in January 1993 an increase of approximately $ 1.1 billion in its deferred tax liabilityfor tax benefits previously flowed through to customers and for other tem-porary differences. The increased tax liability was offset by a cor-responding asset representing the future revenue expected through the ratemaking process to pay for the taxes based on the established regulatory practice and legislative history in Pennsylvania permitting recovery of actual taxes payable. (See Financial Note 10.) The second statement, SFAS 106, establishes new rules for account-ing for the costs of postretirement benefits other than pensions. The statement requires accrual, during the years that the employees render the necessary service, of the expected cost of providing those benefits. In 1991, caps were established on the amount the Company willpay for retiree health care cost for all employees who retire on or

• after April I, 1993. The Company's transition obligation on January I, 1993 amounted to about $ 174 million and its accrued cost for postretirement benefits other than pensions willbe about

$25 million in 1993, including amortization of the transition obligation over a 20.year period. This compares to estimated cash payments of about $8 million for those benefits in 1993. In November 1992, the PUC issued an order that denied the joint petition by several utilities requesting that the PUC issue a declaratory order to permit deferral and future recovery through rates of the in-crease in costs for retiree benefits otlier than pensions that would oc-cur when SFAS 106 was adopted. The PUC's order cited concerns about a joint petition approach and stated that the appropriate amount of retiree benefit costs to be allowed in rates would be de-cided on a case. by-case basis. In December 1992, the Company filed a petition with the PUC requesting permission to defer the in. crease in its retiree benefit costs incurred from January I, 1993 until such costs are recognized in customer rates. Recovery of the deferred costs would be requested in the Company's next retail base rate pro-ceeding. Under'current accounting'rules, the Company could defer the costs for about five years ifthe PUC approves the petition. (See Financial Note 5.) In the event the PUC does not permit the Company to,defer these costs, the Company would incur a charge against net income each year until such'costs are reflected in customer rates.'nder those circumstances, the Company estimates that the charge against net income in 1993 would be approximately $ 7.1 million, net of related taxes. A third accounting statement, SFAS 112, "Employer's Accounting for Postemployment Benefits," is effective for fiscal years beginning after December 15, 1993. SFAS 112 requires the accrual of the expected cost of providing benefits to former or inactive employees after employment but before retirement. The Company is assessing the statement, but at this time is unable to estimate what impact SFAS 112 willhave on its results of operations. The Company intends to adopt SFAS 112 on its effective date. 4 ~ ~ ~ 4 4 4 ~ pp attainment. Ifthe results indicate further reductions are needed in power plant nitrogen oxide emissions, the Company may be required to install additional nitrogen oxide reduction equipment, such as selective catalytic reduction, on some or all of its fossil units around 2000. The Company's preliminary estimates indicate that the cost of compliance could require additional capital expenditures of up to $600 million (in estimated 1993 dollarsj and a further increase in customer rates of as much as 4/o (based on 1992 revenue levels). In addition to acid rain and ambient attainment provisions, the legislation requires the Environmental Protection Agency (EPA) to con. duct a study of hazardous air emissions from power plants. Adverse flndings from this study could cause the EPA to mandate additional ultra high efficiency particulate removal baghouses or specialized flue gas scrubbing to remove certain vaporous trace metals and certain gaseous emissions. Ifit is determined that the installation of such ad. ditional equipment is required, the Company's preliminary estimates indicate that the cost of compliance could require additional capital expenditures of up to $300 million (in estimated 1993 dollars) and a further increase in customer rates of as much as 2/o (based on 1992 revenue levels). Under current Pennsylvania law, construction work in progress for non-revenue producing assets, such as capital expenditures for pollu-tion control equipment, can be claimed in rate base. In March 1992, the PUC opened a generic investigation into the trading and usage of, and the ratemaking treatment for, emission allowances by Pennsylvania electric utilities. On February 3, 1993, the PUG adopted a policy statement regarding these issues. The policy statement determines, among other things, that the PUC willnot re-quire approval of specific transactions, utilities willnot be required to sell allowances to non-utility generating companies and allowances willbe recognized as energy-related power production expenses and recoverable through the ECR. In June 1992, the Pennsylvania Air Pollution Control Act was amended to implement the 1990 federal clean air legislation. The state legislation essentially requires that, new state air emission standards be no more stringent than federal standards. This legislation has no effect on the Company's plans for compliance with the 1990 federal clean air legislation. Until action has been taken by the appropriate regulatory bodies, the Company willnot be able to determine the exact method of com-pliance with the acid rain and ozone provisions of the legislation, or the cost thereof and its impact on customer rates. In July 1992, the Pennsylvania Department of Environmental Resources (DER) published regulations governing the handling and disposal of industrial (or residual) solid waste. These regulations re-quire the Company to submit detailed information on waste genera-tion, minimization and disposal practices. They also require that the Company upgrade and repermit existing ash basins at all of its coal. fired generating stations by applying updated standards for waste disposal. Ash basins that cannot be repermitted are required to close within five years. Any groundwater contamination caused by the basins must also be abated. Any new ash basin must meet the rigid site and design standards set forth in the final regulations. In addition, the siting of future facilities at Company facilities could also be affected. The ash basin at the Martins Creek station and the dry fly ash disposal area at the Montour station are expected to comply with the DER regulations. However, the fly ash basins at other fossil generating stations, bottom ash basins at all fossil generating stations and the coal refuse basin at the Brunner Island station do not meet the new-re-quirements and must be retired by July 1997. The Company, in ad. dressing the requirements of these regulations, plans to install dry fly ash handling systems at Brunner Island, Sunbury and Holtwood sta-tions and plans to construct a lined landfill at the Brunner Island sta-tion for disposal of coal ash and mill rejects. The Company, with siting assistance from a public advisory group, also plans to use the dry fly ash from the Sunbury and Holtwood stations to reclaim aban-doned mines in the anthracite coal region. Groundwater degradation has occurred at the Brunner Island station due to fuel oil which had leaked from underground facilities and to seepage from coal refuse and disposal areas and coal storage piles. Similar but less substantial groundwater degradation may exist at some other generating stations. Many requirements of the new DER regula-tions address these groundwater degtadatlon issues at the Company's generating stations. The Company has reviewed its remedial action plans with the DER and has started remedial work at the Brunner Island station. Remedial work also may be required at other generating stations. The DER has adopted regulations to implement the toxic control provisions of the Federal Water Quality Act of 1987 and to advance Pennsylvania's toxic control program. These regulations authorize the DER to use both biomonitoring and a chemical-specific approach in National Pollutant Discharge Elimination System (NPDES) permits to 'ontrol toxics and support the imposition of stricter limits in NPDES permits. In this regard, the NPDES permits for the Montour and Sun-bury generating stations, which became effective October I, 1989 for a period of about five years, contain increased monitoring re-quirements and requirements to study and, ifnecessary, control tox-icity. These studies are being performed at the two stations and are expected to begin at other generating stations in the near future. These studies are expected to result in plant modifications to recycle and reduce waste water streams and installation of chemical treatment facilities to treat water discharges. Such remedies are being integrated with the residual solid waste disposal modifications and groundwater protection activities. The Company currently estimates that about $258 millionof capital 'xpenditures could be required to comply with the residual waste regulations and to correct groundwater degradation problems at the Brunner Island station and to address waste water control problems at other Company facilities. Such expenditures during the years 1993.1995 could total about $92 millionof which about $63 million is included in the Company's estimate of 1993.1995 construction expen-ditures shown on page 19. Actions taken to correct the Brunner Island groundwater degradation problems, to comply with the DER's regula-tions and to address waste water control problems are also expected to result in increased operating costs in amounts which are not now determinable but could be substantial. The issue of potential polychlorinated biphenyl (PCB) contamina-tion at certain of the Company's substations and pole sites is currently being pursued by the DER. In this regard, the DER sent the Company a proposed Consent Order under which the Company would assess and, ifnecessary, remediate sites where PCB contamination may exist. The Company is continuing to negotiate with the DER. The costs of addressing these PCB issues are not now determinable but could be substantial. The Company does not anticipate that the costs, which willbe charged to operating expense, for work currently planned to clean up or remediate known sites involving the removal of hazardous or toxic substances'will be material in amount. However, future clean-up or remediation work at sites currently under review, or at sites currently unknown, may result in substantial operating costs which the Com-pany cannot reasonably estimate at this time. Concerns have been expressed by some members of the scientific community and others regarding the potential hea! th effects of elec-tric and magnetic fields (EMF). These fields are emitted by all devices carrying electricity, including electric transmission and distribution lines and substation equipment. Federal, state and local officials are focusing increased attention on this issue. The Company is actively Consolidated Statement ofIncome 1992 1991 1990 P'laousands ofDollars) Operating Revenues (Notes 1, 3, 4, 5 and 9) $2,744,122 $2,740,715 $2,637,922 Operating Expenses Operation Fuel; Power purchases Other Maintenance Depreciation(Notes 1 and 6).. Amortized (deferred) depreciation (Notes 1 and 6).. Income taxes (Note 10). 'axes, other than income(Note 10) 545,361 275,499 452>999 201,254 258,357 3,563 228,340 205,318 586,325 256,320 461,921 206,861 246,212 (7,047) 217,366 190,426 579,272 228,336 431,340 223,528 234,252 (15,707) 196,301 170,234 Operating Income 2,170,691 573,431 2,158,384 2,047,556 582,331 ~ 590,366 Other Income and(Deductions) Allowance forequity funds used during construction(Note 1) Income tax credits (expense) (Note 10). Othernet Income Before Interest Charges 6,771 ~ (322) 12,337 18,786 592,217 2,961 903 7,616 11,480 593,811 3,512 2,174 5,903 11,589 601,955 Interest Charges Long-term debt Short-term debt and other Allowance forborrowed funds used during construction and interest capitalized(Note 1) Net Income Dividends on Preferred and Preference Stock Earnings Applicable to Common Stock Earnings Per Share ofCommon Stock (a) (b) 240,260 13,402 (8,169) 245,493 346,724 40,495 S 306,229 2.02 232,092 239,250 22,254 27,559 (8,949) (8,760) 245,397 258,049 348,414 343,906 44,687 46,125 303,727 297,781 2.01 1.97 Average Number ofShares Outstanding (thousands) (a).. Dividends Declared Per Share ofCommon Stock (a)..... (a) Aftertwo-for-onestocksplit(Note2). 'b) Based on average number ofshares outstanding. 151,676 1.60 151,382 150,924 1.55 1.49 See accompanying Notes to Flnanclal Statements. eoeeo ~ oa24 INDEPENDENT AUDITORS'EPORT 0 0 4 0 ~ 4 4 4 0 4 4 4 4 4 4 4 0 4 4 4 4 ~ 0 4 0 0 4 0 0 0 4 0 0 0 0 To the Shareowners and Board of Directors of Pennsylvania Power & Light Company: We have audited the accompanying consolidated balance sheets and statements of preferred and preference stock and long term debt of Pennsylvania Power & Light Company and its subsidiaries as of December 31, 1992 and 1991, and the related consolidated statements of income, shareowners'ommon equity, and cash flows for each of the three years in the period ended December 31, 1992. These financial stateinents are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Pennsylvania Power & Light Company and its subsidiaries at December 31, 1992 and 1991, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1992 in conformity with generally accepted accounting principles. Parsippany, New Jersey February 3, 1993 MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIALSTATEMENTS The management of Pennsylvania Power & Light Company is responsible for the preparation, integrity and objectivity of the con-solidated 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 transac-tions based upon currently available facts and circumstances. Manage-ment believes that the financial statements are free of material misstatement and present fairly the financial position, results of open-tions and cash flows of the Company. The Company's consolidated financial statements have been audited by Deloitte & Touche, independent certified public accountants, whose report with respect to the financial statements appears above. Deloitte & Touche's appointment as auditors was previously ratified by the shareowners. Management has made available to Deloine & Touche all the Company's financial records and related data, as well as the minutes of shareowners'nd directors'eetings. Management believes that all representations made to Deloitte & Touche during its audit were valid and appropriate. The Company maintains a system of internal control designed to provide reasonable, but not absolute, assuratlce 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 ex-ceed 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 ap-propriate segregation of duties, the utilization of written policies and procedures and the continual monitoring of the system for com-pliance. In addition, the Company maintains an internal auditing pro-gram to evaluate the Company's system of internal control for ade-quacy, application and compliance. Management considers the internal auditors'nd Deloitte & Touche'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 the Company's system of internal control is adequate to accomplish the objectives. discussed in this report. The Board of Directors, acting through iis Audit Committee, oversees management's responsibilities in the preparation of the finan-cial statements. In performing this function, the Audit Committee, which is composed of four independent directors, meets periodically with management, the internal auditors and the independent certified public accountants to review the work of each. Deloitte & Touche and the internal auditors have free access to the Audit Committee and to the Board of Directors, without management present, to discuss in-ternal accounting control, auditing and financial reporting maners. Manageinent also recognizes its responsibility for fostering a strong ethical climate so that the Company's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the Company's Stan-dards of Integrity, which is publicized throughout the Company. The Standards of Integrity addresses: the necessity of ensuring open com-munication within the Company; potential conflicts of interest; proper procurement activities; compliance with all applicable laws, including those relating to financial disclosure; and the confidentiality of pro-prietary information. The Company maintains a systematic program to assess compliance with these policies. William F. Hecht Cbairtnan, President and Chief Executive Officer C,f (~Jl C. E. Russoli Executive Vice President and Chief Financial Officer 23 ~ ~ ~ ~ 0 0 ~ ~ Consolidated Statement ofCash Flows Cash Flows From Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities. Depreciation Amortization ofproperty under capital leases Amortization ofcontract settlement proceeds and deferred cost ofpower plantspare parts Deferred income taxes and investment tax credits........ Equity component ofAFUDC.. Change in current assets and current liabilities Accounts receivable Unbilled and refundable electric revenues Fuel inventories. Materials and supplies Accounts payable.. Accrued interestand taxes. Other.. Other operating activitiesnet Net cash provided by operating activities $ 346,724 $ 348,414 $ 343,906 270,048 81,916 261,180 96,565 242,661 90,704 (31,973) (17,818) 18,309 52,118 (6,771) (2,961) 81,509 (3,512) 16,010 (37,865) 16,997 9,071 41,790 4,525 (11,876) 52,985 769,890 (14,380) (45,725) 25,887 1,200 (11,835) 17,858 8,012 49,432 767,947 15,627 (5,042) (85,379) 1,793 9,397 (14,086) ~ 33,015 42,760 - 753,353 1992 1991 1990 (Thousands ofDollars) Cash Flows From Investing Activities Property, plant and equipment expenditures. Proceeds from sales ofnuclear fuel to trust Financial investments Other investing activitiesnet Net cash used in investing activities (422,209) 42,77S (17,796) 4,509 (392,718) (374,397) 48,914 (50,876) 4,191 (372,168) (337,995) 30,014 (43,052) 7,093 (343,940) Cash Plows From Pinancing Activities Issuance oflong-term debt. Issuance ofcommon stock Retirement oflong-term debt Retirement ofpreferred and preferencestock Payments on capital lease obligations Dividends paid Net increase(decrease) inshort-term debt Costs associated withissuance and retirement ofsecurities Other financing activitiesnet.. Net cash used in financing activities 390,000 6,151 (346,400) (46,753) (85,733) (282,209) 12,178 (16,682) (126) (369,574) 150,000 8,401 (37,460) (19,100) (100,227) (277,323) (118,770) (2,136) (160) (396,775) 9,371 (182,335) (26,300) (94,461) (269,186) 170,511 (13,347) 95 (405,652) Net Increase (Decrease) inCash and Cash Equivalents.. Cash and Cash Equivalents at Beginning ofPeriod.. Cash and Cash Equivalents at End ofPeriod.. 7,598 7,512 15,110 (996) 8,508 7,512 3,761 4,747 8,508 Supplemental Disclosures ofCash FlowInformation Cash paid during the year for Interest(net ofamount capitalized) . Incometaxes $ 249,303 $ 197,594 $ 229,066 $ 154,136 $ 252,325 $ 117,597 See accompanying Notes to Financial Statements. 25 ~ eo ~ ~ e ~ ~ o Consolidated Balance Sheet at December 31 Assets 1992 1991 (Tbousarids ofDollars) Property, Plant and Equipment Electric utilityplant inserviceat original cost Accumulated depreciation (Notes 1 and 6) Deferred depreciation(Notes 1 and 6).. $8,591,544 (2,495,972) 296,285 6,391,857 $8,300,914 (2,304,266) 299,848 6,296,496 Construction workin progress at cost Nuclear fuel owned and leased net ofamortization (Note 1 3) ~ ~. Other leased propertynet ofamortization (Note 13) ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Electric utilityplantnet ~ Other propertynet ofdepreciation, amortization and depletion(1992, $64,286; 1991, $135,050)............. 21 1,534 1 74,368 76,974 6,854;733 1 64,77 1 7,019,504 183,242 197,794 76,351 6,753,883 1 75,695 6,929,578 Investments 'ssociated companyat equity Nuclear plant decommissioning trust fund (Notes 1 and 8) ~ ~ Financial investments (Notes 1 and 1 1) Otherat cost or less (Note 1 1) 1 7,088 65,159 12 1,500 33,657 237,404 17,115 58,043 1 13,951 7,511 1 96,620 Current Assets Cash and cash equivalents (Note 1). Accounts receivable (less reserve: 1992, $27,660; 1991, $27,655) Customers Interchange power sales ~ ~ Other ~ Unbilled revenues ~ Fuel (coal and oil)at average cost Materials and supplies at average cost (Note 18) ~. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Common stock held fordividend reinvestment planat cost(Note 12) Other ~ 15,1 10 184,149 7,261 14,128 1 09,906 142,374 139,360 14,383 58,929 685,600 7,512 1 83,735 18,332 19,489 72,285 159,371 148,431 12,225 44,266 665,646 Deferred Debits Utilityplant carrying charges,netofamortization(Note 1) ~. Unamortized debt expense and reacquired debt costs ~ ~ ~. ~ ~ Assessment fordecommissioning uranium enrichment facilities (Note 5) Retired miners'ealth care benefits (Note 5) ~ Other ~ 24,965 83,999 38,925 36,600 64,77 1 249,260 $8,191,768 25,757 69,321 47,673 142,751 $7,934,595 See accompanying Notes to FinancialStatements. oe ~ eaooao26 Liabilities 1992 1991 (Thotrsands ofDollars) Capitalization Common equity Common stock.. Capital stock expense Earnings reinvested $ 1,364,148 (11,969) 1,014,760 2,366,939 $ 1,358,091 (12,187) 952,106 2,298,010 Preferred and preference stock Withsinking fund requirem'ents Withoutsinking fund requirements Long-term debt 325,600 223,612 2,620,720 5,536,871 364,590 231,375 2,575,794 5,469,769 Current Liabilities Commercial paper (Note 15).. Bank loans (Note 15). Long-term debt due withinone year Capital lease obligations due withinone year (Note 13) Accounts payable Taxes accrued.. Interest accrued Dividends payable Accruedmineclosingcosts Other 67,000 92,348 6,439 86,899 147,001 63,067 59,429 70,556 20,296 91,105 704,140 74,000 73,170 6,439 80,489 105,211 48,521 69,450 69,615 13,225 105,596 645,716 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits (Note 10) Deferred income taxes (Note 10) Capital lease obligations (Note 13).. Unamortized cost ofpower plant spare parts (Note 18)........ Accrued nuclear plant decommissioning costs(Notes 1 and 8).. Accrued mine closing costs Contract settlement proceeds to be credited to customers(Note 5).. Accrued pension costs (Note 16) Accrued assessment fordecommissioning uranium enrichment facilities (Note 5) Accrued retired miners'ealth care benefits (Note 5)......... Other 255,823 1,079,744 164,159 75,457 67,435 61,841 55,794 73,902 39,600 36,600 40,402 1,950,757 269,852 1,040,429, 191,487 98,968 59,963 55,244 55,843 47,324 1,819,110 Commitments and Contingent Liabilities(Note 19) $ 8,191,768 $7,934,595 See accompanying Notes to Financial Statements. 27 0 ~ ~ 4 4 ~ 4 0 I Consolidated Statement ofShareowners'ommon Equity 'ommon Stock Outstanding Capital Stock Earnings Shares(a)(b) Amount Expense(c) Reinvested (Tbousands ofDollars) Total BalanceatDecember31, 1989..... Netincome Cash dividends declared Preferred stock............... Preference stock Common stock($ 1.49) (b)....... Stock redemption costs........... Employeestockownershipplan(d) Other Balance atDecember 31, 1.990.... Net income Cash dividends declared .Preferred stock Preference stock Commonstock($ 1.55)(b)....... Stock redemption costs........... Employee stock ownership plan(d) Other Balance at December 31, 1991.... Net income Cash dividends declared Preferred stock Preference stock Common stock($ 1.60) (b)....... Stock redemption costs............ Employee stock ownership plan(d) Other Balance at December 31, 1992.... 150,845,478 $ 1,340,224 $(12,596) $ 811,710 $2,139,338 343,906 343,906 452,462 10,822 151,297,940 $ 1,351,046 (36,485) (9,640) (224,850) (1,479) 147 $(12,449) '883,162 '48414. (36,485) (9,640) (224,850) (1,479) 10,822 147 $2,221,759 348,414 357,328 7,045 262 (35,047) (9,640) (234,626) (157) (35,047) (9,640) (234,626) (157) 7,045 262 (30,855) (9,640) (242,655) (920) 230,067 6,057 218 151,885,335 $ 1,364,148 $(11,969) $ 1,014,760 (30,855) (9,640) (242,655) (920) . 6,057 218 $2,366,939 151,655,268 $ 1,358,091 $(12,187) $ 952,106 $2,298,010 346,724, 346,724 (a) Nopar value, 170,000 000 shares authorized. Each sharc entitles the holders to one vote on any question presented to any shareowners'eeting. (b) Shares ofcommon stock and per share amounts have been adjusted forthe two-for-one stock split effective April22, 1992. (c) Includes the net unrealized loss applicablc to markctablc securities. (d) Includes employee subscriptions. Consolidated Statement ofPreferred and Preference Stock at December 31 Outstanding 1992 1991 (Tbousands ofDollars) Shares Outstanding Shares 1992 Authorized Preferred Stock $ 100 par, cumulative (a) 4th% Series.. $ 53,019 381,193 $434,212 $ 53,019 530,189 629,936 427,946 3,811,926 10,000,000 $480,965 Preference Stockno par, cumulative(a).. $ 115,000 I $ 115,000 1,150,000 5,000,000 See accompanying Notes to Flnanclal Statements. I ~ 444 ~ ~ 0428 Details ofPreferred and Preference Stock (b) Optional Redemption Shares Price Per Outstanding Outstanding Share 1992 1991 1992 1992 (Thousands ofDollars) Slnkhtg Fund Provisions (c) Shares to be Redeemed Redemption Annually Period WithSinking Fund Requirements Series Preferred 6.875% (d).. 7.00% (d) (e) 7.375% (d)... 7.40% 7.82% (d)...:....... 7.927%.. 8.00% 8.75% (d). 9.24% $ 50,000 100,000 501000 17,600 50,000 3,000 25,000 30,000 $ 50,000 100,000 50,000 19,200 50,000 6',000 27,500 36,000 25,890 500,000 1,000,000 500,000 176,000 500,000 30,000 250,000 300,000 $ 103.44 103.50 104.92 101.78 103.91 100.00 102.00 103.58 100,000 200>000 25,000 16,000 100,000 30,000 25,000 30,000 1993-1997 1993-1997 1993-2012 1993-2003 1993-1997 1993 1993-2002 1993-2002 Without Sinking Fund Requirements 4th% Preferred.............. Series Preferred 3.35% 4.40% 4.60% 8.60% 9.00% Preference $8.00 $8.40 $8.70 $ 325,600 $364,590 4,178 22,878 6,300 221237 4,178 22,878 6,300 22 237 7,763 41,783 228,773 63,000 222,370 103.50 102.00 103.00 101.00 35,000 40,000 40,000 35,000 350,000 101.00 40,000 400,000 101.00 40,000 400,000 101.00 $ 223,612 $231,375 $ 53,019 $ 53,019 530,189 $ 110.00 Decreases inPreferred and Preference Stock(Thousands ofDollars) h 1992 1991 1990 Shares Amount Shares Amount Shares Amount Series Preferred Stock 7.40% 7 927% 8.00% 8.75% 9.00% 9.24% Preference Stock (16,000) (30)000) (25,000) (60,'000) (77,630) (258,900) $(1,600) (3,000) (2,500) (6,000) (7,763) (25,890) (16,000) (30,000) (25,000) (60,000) $(1,600) (3,000) (2,500) (6,'000) (16,000) (30,000) (25,000) (30,000) (1,600)'3,000) (2,500) (3,000) (60,000) (6,000) (60,000) (6,000) $8.625 (102,000) (10,200) Decreases in Preferred and Preference Stocks represent: (i)the redemption ofstock pursuant to sinking fund requirements, or (ii) shares redeemed pursuant to optional redemption provisions. ( a ) Each share ofpreferred and preference stock entitles the holders to one vote on any question presented to any sharcowners'eeting. ( b) The involuntary liquidation price ofthe preferred and preference stock is $ 100 per share. The optional voluntary liquidation price is the optional redemption price per share ineffect, except for the 4 Vi% Preferred Stock forwhich such price is $100 per share (plus ln each case any unpaid dividends). Liquidation payments on preferred stock have priorityto such payments on the preference stock. (c) The aggregate amount ofsinking fund redemption requirements through 1997 are(thousands ofdolhrs): 1993, $52,600; 1994, $49 600; 1995, $49,600; 1996, $49,600; 1997, $49,600. (d) On certain sinking fund redemption dates, additional shares may be redeemed up to the number ofshares required to be redeemed annually. ( e ) InJanuary 1993, the Company redeemed through sinking fund provisions at $ 100 per share 200000 shares of700% Series Preferred Stock. See accompanytng Notes to Ffnancfal Statements. 29 e e e e o e o e ~ NOTES TO FINANCIALSTATEMENTS 04 ~ 4 ~ ~ ~ ~ 444 ~ 0404 Accountfng Records Accounting records for utilityoperations are maintained in accor-dance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC) and adopted by the Penn-sylvania Public UtilityCommission (PUC). (See Note 3.) Ffnancfal Investments Marketable equity securities are carried at the lower of their ag-gregate cost or market value, determined at the balance sheet date. Noncurrent marketable debt securities are carried at amortized cost. Current marketable debt securities are carried at the lower of amor-tized cost or market value. Gains and losses on the sale of marketable securities are recognized upon realization utilizing the specific cost identification method. Investments in financial limited partnerships are accounted for using the equity method of accounting and venture capital investments are recorded at cost. (See Note 11.) Prlncfples ofConsolfdatfon Allwholly owned subsidiaries (principally involved in holding coal reserves, oil pipeline operations and passive financial investments) have been consolidated in the accompanyirig financial statements and all significant intercompany-transactions have been eliminated. Income and expenses of subsidiaries not related to utilityoperations have been classified under other income and deductions on the Con-solidated Statement of Income. The investment in Safe Harbor Water Power Corporation (Safe Har-bor), of which the Company owns one-third of the outstanding capital stock representing one-half of the voting securities, is recorded using the equity method of accounting. The Company's principal transaction with Safe Harbor is the purchase of electricity amounting to (millions of dollars): 1992, $9.4; 1991, $9.3 and 1990, $9.5. Under equity accounting, the operations of Safe Harbor resulted in addi-tional income to the Company of (millions of dollars): 1992, $ 2.1;

1991,

$2.2 and 1990, $2.5. Premium on Reacqufred Long-Term Debt As provided in the Uniform System of Accounts, the premium paid and expenses incurred 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. Allouance for Funds Used Durfng Constructfon As provided in the Uniform System of Accounts; the cost of funds used to finance construction projects is capitalized as part of con. struction cost. The components of allowance for funds used during construction (AFUDC) shown on the Consolidated Statement of In-. come under other income and deductions and interest charges are non.cash items equal to the cost of funds capitalized during the period. AFUDC serves to offset on the Consolidated Statement of Income the interest charges on debt and dividends on preferred and preference stock incurred to finance construction. In addition, a return on common equity used to finance construction is imputed. UtNty Plant and Deprecfatlon Additions to utility plant and replacement of units of property are capitalized at cost. The cost of units of property retired or replaced is removed from utility plant accounts and charged to accumulated depreciation. Expenditures for maintenance and repairs of property and the cost of replacing items determined to be less than units of property are charged to operating expense. For fin'ancial statement purposes, depreciation is being provided over the estimated useful lives of property and is computed using a straight. line method for all property except for property placed in ser-vice prior to January I, 1989 at the nuclear-fueled Susquehanna steam electric station. Current PUC and FERC rate orders provide for an in-creasing amount of annual depreciation for property placed in service prior to January I, 1989 at the Susquehanna station until the late 1990s, at which time depreciation is scheduled to change to the straight-line method. Provisions for depreciation, as a percent of average depreciable property, approximated 3.2/0 in 1992, 3.1/0 in 1991 and 2.9/0 in 1990. Capftal Leases Leased property capitalized on the Consolidated Balance Sheet is recorded at the present value of future lease payments and is amor-tized so that the total of interest on the lease obligation and amor-tization of the leased property equals the rental expense allowed for ratemaking purposes. (See Note 13.) J

1. Summary of Significant Accounting Policies

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ reactors. The Company currently pays DOE a fee for future disposal ~ services and recovers such costs in customer rates. UtllltyPlant Carrying Charges Carrying charge accruals on certain facilities for the Susquehanna and Martins Creek stations are recorded as deferred debits in accor-dance with a FERC order. These amounts are being amortized to ex-pense over the remaining lives of the stations. Nuclear Decommlssfonlng and Fuel Disposal An annual provision for the Company's share of the future decom. missioning of the Susquehanna station, equal to the amount allowed for ratemaking purposes, is charged to operating expense. Such amounts are invested in a trust fund which can be used only for future decommissioning costs. (See Note 8.) The U.S. Department of Energy (DOE) is responsible for the perma-nent storage and disposal of spent nuclear fuel removed from nuclear Revenues Electric revenues are recorded based on the amounts of electricity delivered to customers through the end of each accounting period. This includes amounts customers willbe billed for electricity delivered from the time meters were last read to the end of the, respective period. The Company's PUC tariffs contain an Energy Cost Rate (ECR) under which customers are billed an estimated amount for fuel and other energy costs. Any difference between the actual and estimated amount for such costs is collected from or refunded to customers in a subsequent period. Revenues applicable to ECR billings are recorded at the level of actual energy costs and the difference is recorded as payable to or receivable from customers. The Company's PUC tariffs include a Special Base Rate Credit Ad. justment (SBRCA) that currently credits retail customers'ills for three nonrecurring items related to: (i) the use of an inventory method of 3I ~ ~ ~ ~ ~ ~ ~ ~ ~ accounting for certain power plant spare parts; (ii) the sale of capacity and related energy from the Company's wholly owned coal. fired sta. tions to Atlantic City Electric Company (Atlantic); and (iii) the pro-ceeds from a settlement with General Electric Company of outstand-ing contract claims arising from construction of the Susquehanna station. (See Note 5.) In August 1991, Pennsylvania enacted legislation that increased the Company's state taxes. The Company is recovering the increase in taxes applicable to retail customers through a State Tax Adjustment Surcharge (STAS) which provides for the recovery of new or increased state taxes. (See Note 5.) Income Tares The Company and its wholly owned subsidiaries file a consolidated federal income tax return. Income taxes are allocated to operating ex-penses and other income and deductions on the Consolidated State-merit of Income. Deferred income taxes are recorded for timing differences between book and taxable income to the extent they are permitted in rate determinations by regulatory agencies. The principal item for which deferred taxes are not currently recorded is the difference between tax depreciation and book depreciation related to property placed in service prior to 1981. Investment tax credits were deferred when utilized and are amor-tized over the average lives of the related property. The investment tax credit was repealed effective December 31, 1985. The Financial Accounting Standards Board (FASB) has issued new accounting rules that willaffect deferred income taxes recorded by the Company. (See Note 10.) Pension Plan The Company has a noncontributory pension plan covering substantially all employees, and subsidiary mining companies have a noncontributory pension plan for substantially all non.bargaining full-time employees. Funding is based upon actuarially determined com-putations 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. (See Note 16.) Cash Eqnfvalents The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Recfassiffcatfon Certain amounts from prior years'inancial statements have been reclassified to conform to the current year presentation.

2. Common Stock Split ~

~ ~ ~ ~ ~ ~ o ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ On April 22, 1992, the Company's shareowners approved an in-crease in the number of authorized shares of common stock from 85,000,000 to 170,000,000 and a split of the outstanding shares of common stock on a two-for-one basis, resulting in 151,659,356 shares outstanding after the stock split. All common stock earnings and other per share amounts presented in these notes have been adjusted for the two.for-one common stock split.

3. Reclassification of Interchange Power Sales 'to Operating Revenues

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Effective as ofJanuary I, 1992, pursuant to a FERC order, the Com-pany began to record interchange power sales to Pennsylvania. New Jersey IIaryland Interconnection (PJM) member companies as operating revenues, instead of.a credit to operating expenses, on the Consolidated Statement of Income. Such interchange power sales for 1991 and 1990 of (thousands of dollars) $ 181,019 and $218,205, respectively, have been reclassified from a credit to operating ex-penses'o operating revenues to conform with the current presenta. tion. The reclassification had no effect on net income.

4. Sources of Revenues

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~' ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ The Company is an operating electric utilityserving approximately 1.2 million customers in a 10,000 square-mile territory of central eastern Pennsylvania with a population of approximately 2,6 million persons. Substantially all of the Company's operating revenues are derived from the sale of,electric energy subject to PUC and FERC regulation. Customers are generally billed for electric service on a monthly basis after electricity is delivered. During 1992, about 98%%d of total operating revenues was derived from electric energy sales with 33/o coming from residential customers, 27/0 from commercial customers, 20/o from industrial ~ ~ ~ ~ ~ ~ ~ - ~ ~ 32 customers, 4% from interchange power sales to members of the PJhf, 13% from contractual sales to other utilities and 3% from others. The Company's largest industrial customer provided about 1.5% of revenues from energy sales during 1992. 7tventy-nine industrial customers, whose billinyexceeded $3 million each, provided about 7.7% of such revenues. Industrial customers are broadly distributed among industrial classifications.

5. Rate Matters

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 4 ~ ~ ~ ~ ~ 4 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 4 ~ ~ ~ 4 ~ ~ ~ ~ ~ Certain industrial customers have filed complaints with the PUC against the Company's ECR for the 1990 91, 1991-92 and 1992-93 ECR periods. The PUC permitted the ECRs to become effective, as filed, subject to the pendinp complaints. The industrial customers generally oppose the Company s recovery on a current basis through the ECR of the cost of output purchased from certain non.utility generating companies or question the manner in which the cost of such pur-chases is recovered through the ECR. The Company included the cost of output purchased from non.utility generating companies in its ECR filinyon the basis of prior PUC orders that determined such costs were just and reasonable and could be recovered by the Company on a current basis through the ECR. The industrial customers have also requested an investigation by the PUC into the Company's ratemaking treatment of revenue received from sale of capacity credits, reserva-tion of output and sale of transmission entitlements (capacity-related transactions). Certain of the industrial customers contend that the revenues from these capacity-related transactions should be credited against the ECR. These transactions are discussed in Note 9. In November 1991, the PUC accepted the recommended decision of an Administrative Law Judge (ALJ) that dismissed a complaint filed by a group of the Company's industrial customers against the Company's 1991-92 ECR with respect to the ECR recovery of the cost of output purchased from non utilitygenerating companies. This decision was consistent with prior PUC actions dismissing similar complaints with respect to the ECR for the 1988-89 and 1989-90 periods. At the same time, however, the PUC accepted the ALJ's recommendation to hold heariny regarding capacity-related transactions made possible by pur-chases from non.utility generating companies. Hearings have not yet been scheduled regarding capacity-related transactions and the ECR. Revenues from all capacity-related transactions, net of foregone PJM interchange saviny included in the ECR, have aggregated $ 126.1 million from 1989 through 1992.. In March 1992, the Pennsylvania Oflice of Consumer Advocate (OCA) filed a complaint against the Company's ECR for the 1992-93 period, contending that revenues from capacity-related transactions should be credited against the ECR. The PUC has consolidated the OCA complaint with the complaint filed by that group of industrial customers against the 1991-92 ECR. In October 1991, a group of industrial companies located throughout Pennsylvania petitioned the PUC to institute a generic in. vestigation of the procedures and policies of jurisdictional electric utilities with respect to their ECRs and to issue appropriate regulations governing the practices and procedures of jurisdictional electric utilities with respect to their ECRs. The Company filed an answer in opposition to the petition in November 1991 and this matter remains pending before the PUC. In November 1992, the PUC issued an order that denied the joint petition by several utilities requesting that the PUC issue a declaratory order to permit deferral and future recovery through rates of the in-crease in costs for retiree benefits other than pensions that would oc-cur when Statement of Financial Accounting Standards (SFAS) 106, "Employer's Accounting for Postretirement Benefits Other Than Pen-sions," was adopted. The, PUC's order cited concerns about a joint petition approach and stated that the appropriate amount of retiree benefit costs to be allowed in rates would be decided on a case-by-case basis. In December 1992, the Company filed a petition with the PUC requesting permission to defer the increase in its retiree benefit costs incurred from January I, 1993 until such costs are recognized in customer rates. Recovery of the deferred costs would be requested in the Company's riext retail base rate proceeding. Under current ac-counting rules, the Company could defer the costs for about five years ifthe PUC approves the petition. In the event the PUC does not permit the Company to defer these costs, the Company would incur a charge against net income each year until such costs are reflected in customer rates. Under those circumstances, the Company estimates that the charge against net income in 1993 would be approximately $ 7.1 million, net of related taxes. The Energy Policy Act of 1992 (Energy Act) imposed a new liability on the Company or its coal. mining subsidiaries for the health care of retired coal miners previously employed by those subsidiaries. The estimated liabilityamounts to approximately $69 million. At the time coal mining operations ceased, subsidiary mining companies had ac-crued $32 million for anticipated payments to the miners'ealth care trust funds to provide for health care benefits of retired miners. Under the Energy Act, the Company or its subsidiaries willbe directly liable for these benefits and the $32 million willnot have to be paid to the trust funds. The Company intends to use the accrual to partial. ly offset the new liability. In December 1992, the Company recorded an additional liabilityof approximately $37 million representing the balance of the liabilityim-posed by the Energy Act for health care benefits for retired coal miners. The charge to expense was deferred because the Company in. tends to file a request with the PUC to recover these costs through the ECR over a five-year period. In the event the PUC does not per-mit recovery of this amount, the Company would incur a one-time charge against income of approximately $21 million, net of related taxes. The Energy Act established the Uranium Enrichment Decontamina-tion and Decommissioning Fund (Fund) and provides for an assess. ment on domestic utilities with nuclear power operations, including the Company. Assessments are based on the amount of uranium a utility had processed for enrichment prior to enactment of the Energy Act and are expected to be paid to the Fund by such utilities over a 15-year period. Amounts paid to the Fund are to be used for the ultimate decontamination and decommissioning of the DOE's uranium enrichment facilities. The Energy Act states that the assessment shall be deemed a necessary and reasonable current cost of fuel and shall be fully recoverable in rates in all jurisdictions in the same manner as the utility's other fuel costs. In December 1992, the Company accrued an estimated liabilityfor its total assessment in the amount of approximately $39 million, sub. 'ect to adjustment for inflation. The charge to expense was deferred ecause the Company will include its annual payments to the Fund of approximately $2.6 million, subject to adjustment for inflation, in the ECR included in the Company's PUC tariffs and the fuel adjustment clause included in the Company's FERC tariffs. As a result, the Com. pany does not expect the assessment to have an adverse effect on net income. 33 ~ ~ ~ ~ ~ ~ ~ ~ The Company cannot predict the ultimate outcome of the various rate matters pending before the PUC. The SBRCA has been in effect since April I, 1991, and currently reduces retail customers'ills for the effects of three nonrecurring items. The first is the annual amortization of a credit to income associated with reporting the cost of spare parts recorded as an in-crease in the materials and supplies inventory account when the Com. pany began using an inventory method of accounting for those spare parts. (See Note 18.) The amortization is being included in the SBRCA over a five-year period. The second item relates to costs that are being recovered from Atlantic pursuant to the sale of 125,000 kilowatts of capacity (summer 'ating) and related energy from the Company's wholly owned coal-fired stations beginning October I, 1991. The costs recovered from Atlantic are currently reflected in retail base rate tariffs. Accordingly, the Company included a credit in the SBRCA for the costs, except energy costs, recovered from the sale of coal. fired capacity and related energy to Atlantic The change in energy costs associated with the sale is reflected in the ECR. The third is the proceeds from the settlement of outstanding con. tract claims against General Electric Company arising from construc-tion of the Susquehanna station. In accordance with approval of the settlement by the PUC, the Company began on April I, 1992 to return the settlement proceeds to retail customers through the SBRCA at the rate of $ 11 million per year for five years. In addition, the proceeds from the settlement applicable to wholesale and bulk power customers are being credited to those customers. The SBRCA reduced revenues from retail customers by about $39.1 million in 1992 and $ 16.7 million in 1991. The reductions in revenues due to the SBRCA do not adversely affect the Company's net income. In August 1991, Pennsylvania enacted legislation that increased the Company's state taxes by approximately $38 million on an annual basis. Certain of these tax increases were effective as ofJanuary I, 1991. The Company's retail rates include a provision for a STAS which provides for recovery of costs associated with new or increased state taxes, and the Company is recovering the increased taxes applicable to retail customers through application of the STAS. In August 1991, the Company deferred approximately $21.4 million of the increased taxes which represented the retroactive portion of the increased taxes, and the amount deferred was amortized to expense and recovered through application of the 1991.92 STAS. The Company expects that the STAS willbe rolled into base rates on April I, 1993. The portion of the in-creased taxes applicable to the Company's contractual sales of capaci-ty and related energy to other utilities is recovered as a cost of pro-viding such service. In December 1991, the FERC accepted a settlement agreement between the Company and its wholesale customers with respect to a $ 4.1 million base rate increase for those customers that the FERC per-mined to become effective htay 19, 1991. Under the terms of the set-tlement agreement, the Company agreed not to file any wholesale base rate requeststhat would propose an effective date before August I, 1994.

6. Rate Phase-in Plan

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ o ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~. ~ Consistent with PUC and FERC rate orders, the annual depreciation for property placed in service at the Susquehanna station prior to January I, 1989 was lower through 1991 than the amount that would have been recorded using straight-line depreciation. The amount of depreciation recorded increases each year through 1998 when the cumulative amount of depreciation recorded willequal the amount that would have been recorded using straight-line depreciation. The I cumulative difference between the amount of depreciation recorded for Susquehanna and the amount that would have been recorded us-ing straight-line depreciation is shown as deferred depreciation on the Consolidated Balance Sheet. The annual difference is shown as deferred or amortized depreciation on the Consolidated Statement of Income.

7. Deferral of Susquehanna Operating and In accordance with orders of the PUC, tlie Company deferred cer-tain operating and capital costs, net of energy savings, associated with Units I and 2 at the Susquehanna station. The costs deferred were in-curred from the date the units were placed in commercial operation until the effective dates of the rate increases reflecting operation of Carrying Costs

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ the units. The deferred costs plus related deferred income taxes totaled $39.2 million at December 31, 1992. The Company expects to ultimately recover this amount in rates charged to customers. Such recovery willbe subject to PUC review and approval. No return is be-ing accrued on the deferred costs.

8. Nuclear Decommissioning Costs

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ The Company's most recent study indicates that its share of the total estimated cost of decommissioning the radioactive portion of the Susquehanna station is approximately $350 million in 1988 dollars. Under current rates, the Company collects about $6.9 million an. nually from customers for the cost of decommissioning the Sus-quehanna station. The amounts collected, less applicable taxes, are deposited in an external trust fund for investment and can be used only for future decommissioning costs. The market value of securities 0 4 ~ ~ ~ ~ ~ ~ ~ 34 held and accrued income in the trust fund at December 31, 1992 aggregated approximately $69.1 million. The most recent estimated cost of decommissioning Susquehanna is higher than the estimate used to determine the amount currently col-lected in retail rates. As a result, the Company would expect to re-quest recovery of a higher level of decommissioning expense in its next retail base rate proceeding.

9. Sales to Other Electric Utilities

~ ~ ~ e ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ The Company provided Atlantic with 126,000 kilowatts of. the Com-pany's share of capacity and related energy from the Susquehanna sta-tion from 1983 through September 30, 1991. Another agreement pro-vides Atlantic with 125,000 kilowatts of capacity (summer rating) and related energy from the Company's wholly owned coal. fired stations from October I, 1991 through September 2000. On October I, 1991, immediately following the expiration of the agreement with Atlantic, the Company began providing Baltimore Gas and Electric (BG&E) with 126,000 kilowatts of the Company's share of capacity and related energy from the Susquehanna station. Sales to BG&E willcontinue through hlay 2001. The Company provides Jersey Central Power and Light (lCP&L) with 945,000 kilowatts of capacity and related energy from all of the Company's generating units. Sales to JCP&L began in 1985 and will continue at the 945,000 kilowatt level through 1995, with the amount then declining uniformly each year until the end of the agreement in 1999. These agreements provide that sales are to be made at a price equal to the Company's cost of providing service, which includes a return on the Company's investment in generating capacity. In addition to these bulk power contractual sales, the Company has entered into several agreements with other electric utilities in the PJh1 for the sale of capacity credits from the Company's system capacity. These capacity credits are used by the other utilities to meet their in-stalled capacity obligation in the PJM. The price received for these sales is based on a percentage of the rate the utilities would have paid to purchase installed capacity under the PJM agreement. The length of these agreements and the amount of capacity credits sold vary. The longest agreement currently in effect is scheduled to terminate in the year 2001. The Company has entered into arrangements with several utilities both inside and outside the PJM for the reservation of output from either the oil.fired or coal. fired units at the hlartins Creek station dur-ing certain periods of time. Specific deliveries of energy are requested by the purchasing utility as needed during the reservation period. One utility'as agreed to purchase a maximum of 10 megawatt hours per hour of the output the Company purchases from non-utility generating companies for the period June 1990 through hiay 1995. The Company includes as a credit to the ECR the revenue received for deliveries of energy from hiartins Creek, the revenue received for deliveries of output from non-utility generating companies and the foregone PJM interchange saviny that were not realized when inter-change sales are reduced because of reservation agreements. Arrangements also have been entered into whereby PJM utilities can purchase a portion of the Company's entitlement to use the PJM transmission system to import energy from utilities outside the PJM. These transactions are made through negotiated prices for various periods of time. The Company iricludes, as a credit to the ECR, the foregone PJM interchange saviny that were not realized when the sale of transmission entitlements reduces the amount of energy the Com. pany imports and sells to other utilities. Revenues from the sale of capacity credits, the reservation of output from the Martins Creek units and the sale of transmission entitlements (net of foregone interchange saviny included in the ECR) totaled $35.0 million in 1992, $35.4 million in 1991 and $32.3 million in 1990. For information relating to proceediny pending before the PUC with respect to capacity-related sales, see Note 5. l0 Taxes 4 4 ~ 4 ~ 4 4 ~ ~ ~ ~ 4 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ In August 1991, Pennsylvania enacted legislation that increased the Company's state income and other taxes retroactive to January I, 1991. See Note 5 for information concerning the recovery of these in-creased taxes. During 1991, the Company utilized the remaining $ 16 million of previously unused tax credits to reduce its federal income tax liability. In accordance with PUC rate treatment, the Company has not recorded deferred income taxes for certain timing differences. The cumulative net amount of such timing differences for which deferred income taxes have not been recorded approximated $ 552 million at December 31, 1992. The Company would expect to recover through electric revenues the taxes when due in future years. In January 1993, the Company adopted SFAS 109, "Accounting for Income Taxes." SFAS 109 establishes new accounting rules that change ~ ~ ~ ~ ~ 4 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 4 ~ ~ ~ ~ ~ ~ ~ 4 ~ ~ ~ the manner in which income tax expense is determined for account-ing purposes. Prior accounting rules utilized a deferred method, while SFAS 109 utilizes a liability method under which deferred tax liabilities are recorded and adjusted for the effect of a change in tax law or rates. In connection with the adoption of SFAS 109, the Company re-corded in January 1993 an increase of approximately $ 1.1 billion in its deferred tax liabilityfor tax benefits previously flowed through to customers and for other temporary differences. The increased tax liabilitywas offset by a corresponding asset representing the future revenue expected through the ratemaking process to pay for the taxes based on the established regulatory practice and legislative history in Pennsylvania permitting recovery of actual taxes payable. 35 ~ ~ ~ ~ o ~ ~ ~ e Details of the components of income tax expense and a reconciliation of federal income taxes derived from statutory tax rates applied to income from continuing operations for accounting purposes are as follows (thousands of dollars): Income Tax Expense Included in operating expenses ProvisionFederal State Deferred Federal State Investment tax credit, netFederal Included in other income and deductions Provision (credit)Federal. Sute Deferred Federal Sute Total income tax expense Federal Sute Detail of deferred taxes in operating expenses Tax depreciation Reacquired debt costs. Unbilled revenues Other Reconciliation of Income Tax Expense Indicated federal income tax on pretax income at statutory tax rate (34%). 1992 $ 144,546 64,G4s 209,194 3o,654 2,521 33)175 (14)029) 228,340 676 4S3 1)159 (441) (396) (837) 322 161,4o6 67,256 $228)662 $ 38)026 5,4o5 (10)256) $ 33)175 $ 195)631 1991 $ 114,904 49,534 iQ,438 51,547 225 51,772 i,i56 217,366 (126) 33 (93) (Qo) (170) (810) (903) 166,S4i 49,622 $2i6,463 $ 72,113 (1,938) (18,403) $ 51,772 $ 192,058 1990 $ 86,950 30,564 ii7,5i4 68,593 310 68,903 9,884 196,301 (4,46i) (435) (4,896) 2,673 49 2,722 (2,174) 163,639 30,488 $ 194,127 $ 93,367 3,672 (8,142) (19,994) $ 68,903 $ 182,931 Increase (decrease) due to: State income taxes Depreciation differences not normalized. Amortization of investment tax credit AFUDC (Note I). Other Total income tax expense Effective income tax rate 44,575 6,so5 (14)029) (21302) (21018) 33)031 $2281662 39.7% 34,319 9,080 (15,048) (1,007). (2,939) 24,4o5 $2i6,463 38.3% 20,970 12,220 (14,261) (1,194) (6,539) ii,i9G $ 194,127 36.1% Taxes, other than income, consist of the following (thousands of dollars): 'Ihxes, Other Than Income State gross receipts State utility realty State capital stock Social security and other $ 94,926 4S,511 37,279 24,6o2 $205)318 $ 91,504 43,432 32,579 22,911 $ 190,426 $ 88,304 34,115 24,S75 22,940 $ 170,234 ~ ~ ~ ~ ~ ~ o ~ ~ )6

11. Financial Instruments

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ o ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~' ~ ~.. ~ ~ ~ ~. ~.. ~ The carrying amount and the estimated fair value of the Company's financial instruments are as follows (thousands of dollars): December 31, 1992 Carrying Fair Amount Value Assets Nuclear plant decommissioning trust fund (a)....... Financial investments (b). Other investments (a). Cash and cash equivalents (c). Marketable debt securities and other assets included in other current assets (a) Liabilities Preferred stock with sinking fund requirements (d).. Long.term debt (d) Commercial paper and bank loans (c). Taxes and interest accrued, dividends payable and other liabilities included in other current liabilities (c). Accrued nuclear assessment (c) 65)159 121,500 33,657 15,110 16,842 325)600 2,627,159 159,348 222,338 39,600 69,104 124,203 33,638 15,110 16,s62 334,090 2,891,285 159,348 222,338 39,600 (a) The fair value generally is based on established market prices. For a minor portion, the fair value approximates thc carrying amount. (b) The fair value is based on <<stabllshed market prices. For venture capital investments included in linandal innstments, fair value is determined in good faith by managem<<nt of the venture capital entity. (c) The fair value approximates the carrying amount. (d) Thc fair value is based on quoted market prices for the security or similar securities where available and estimates based on current rates offered to the Company where quoted market prices are not available. Financial investments consist of the following (thousands of dollars): December 31 1992 1991 hlarketable equity securities hlarketable debt securities Financial limited partnerships. Venture capital investments Less marketable debt securities included in other current assets (at the lower of amortized cost or market value).. Total $ 11,320 78,942 39,256 6,393 135,911 14,411 $ 121,500 9,192 63,155 35,069 6,535 113,951 $ 113,951 Marketable equity securities at December 31, 1992 and 1991 are stated at the lower of aggregate cost or market. The market value of marketable equity securities was $ 11,546,000 at December 31, 1992 and $9,364,000 at December 31, 1991. The market value of marketable debt securities at December 31, 1992 was $80,588,000. At December 31, 1992, the Company temporarily held 527,108 shares of common stock which were acquired in the open market

12. Stock Held For Dividend Reinvestment Plan

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ These shares were distributed to participants in the Dividend Reinvestment Plan in January 1993. 37 ~ ~ 4 ~ 4 ~ ~ ~ 4 13. 1A.ase$ 4 o 4 ~ ~ ~ 4 ~ 4 4 ~ 4 ~ o ~ ~ ~ ~ 4 o ~ 4 ~ ~ ~ 4 ~ 4 ~ ~ ~ ~ ~ 1 0 0 4 ~ 4 ~ ~ 0 4 4 4 4 4 4 4 ~ ~ ~ ~ ~ The Company and a subsidiary have entered into capital leases consisting of the following(thousands of dollars): December 31 1992 1991 Nuclear fuel, net of accumulated amortization (1992, $ 191,002; 1991, $238,876) Vehicles, oil storage tanks and other property, net of accumulated amortization (1992, $93,730; 1991, $83,254) Net property under capital leases $ 171,901 79,157 $251,058 $ 192,596 79,379 $271,975 Capital lease obligations incurred for the acquisition of nuclear fuel and other property were (millions of dollars): 1992, $64.8; 1991, $69.5 and 1990, $54.3. Nuclear fuel lease payments, which are charged to expense as the fuel is used for the generation of electricity, were (millions of dollars): 1992, $70.4; 1991, $95.5 and 1990, $92.6. Future nuclear fuel lease payments willbe based on the quantity of electricity produced by the Susquehanna station. The maximum amount of unamortized nuclear fuel leasable under current arrangements is $200 million. Future minimum lease payments under capital leases in effect at December 31, 1992 (excluding nuclear fuel) would aggregate $ 91.6 million, including $ 12.5 million in imputed interest. During the five years ending 1997, such payments would decrease from $24.9 million per year to $8.5 million per year. Interest on capital lease obligations was recorded as operating ex-penses on the Consolidated Statement of Income in the following amounts (millions of dollars): 1992, $ 10.5; 1991, $20.5 and 1990, $23.0. Generally, capital leases contain renewal options and obligate the Company and a subsidiary to pay maintenance, insurance and other related costs. Various operating leases have also been entered into which are not material with respect to the Company's financial position.

14. Coal-Mining Operations

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ The Company has ceased its subsidiary coal. mining operations due principally to the depletion of coal reserves and the high cost of mined coal as compared to the price of coal purchased on the open market. One of the three operating mines closed at the end ofJune 1991. A second operating mine closed at the end of March 1992, and a third mine, scheduled to close in June 1992, was temporarily idled and then sold in September 1992. In this regard, the PUC, in response to the Company's request, determined that the Company's proposed purchase of coal from the third mine for a period of seven months after the sale of the mine is in the public interest and that the Com. pany willbe permitted to recover the idle mine costs and purchased coal costs through the ECR. The Company purchased coal from certain subsidiaries at prices equal to the cost of mining. These purchases totaled approximately $ 109 million in 1992, $ 188 million in 1991 and $ 184 million in 1990. The cost of coal purchased was included in the energy costs collected from customers. The cost of coal purchased from subsidiaries (par-ticularly coal from the Greenwich mines) had generally been higher than the cost of coal purchased from other sources. All the coal produced at the now closed Greenwich mines was delivered to the Company's Montour generating station. The PUC has adopted a standard based on the cost of coal purchased by other Pennsylvania electric utilities against which the cost of all coal delivered to Montour is measured. The standard covers the three-year 'eriod from April I, 1990 through March 31, 1993. The Company an-ticipates that the net amount of any costs in excess of the standard at the end of this three-year period willbe returned to PUC customers through the Company's 1994-95 ECR, Data as to the standard is available for the period April I, 1990 through October 31, 1992. For this period, the cost of coal delivered to hlontour was $9.6 million more than the standard. The Company expects that the excess of the cost of coal delivered to Montour over the standard willdecrease so that at the end of the three-year period the cost of coal delivered to Montour willapproximate the standard. Accordingly, no provision has been made at December 31, 1992 for a possible return of costs in ex-cess of the standard to PUC customers through the ECR. The Company replaced the coal produced by its subsidiaries with coal acquired through new contracts with non-affiliated suppliers and open market purchases. The Energy Act imposed a new liabilityon the Company or its coal. mining subsidiaries for the health care of retired coal miners previously employed by those subsidiaries. This new liabilitycould have an adverse impact on the Company's earnings. (See Note 5.) o o ~ a a o a o ~ 38

15. Credit Arrangements 4

4 4 4 ~ 4 ~ ~ 4 ~ 4 4 4 4 4 4 ~ ~ 4 ~ 4 ~ ~ ~ ~ ~ ~ 4 4 ~ ~ ~ 4 ~ ~ ~ ~ ~ ~ 4 4 ~ ~ The Company issues commercial paper and, from time to time, bor-rows from banks to provide short. term funds required for general cor-porate purposes. In addition, certain subsidiaries also borrow from banks to obtain short-term funds. Bank borrowings generally bear in-terest at rates negotiated at the time of the borrowing. A $ 140 million revolving credit arrangement is maintained with a group of banks in return for the payment of commitment fees. The line of credit is maintained principally as a back-up for the Company's commercial paper. Any loans made under this credit arrangement would mature on June 30, 1995 and, at the option of the Company, interest rates would be based upon certificate of deposit rates, Eurodollar deposit rates or the prime rate. In November 1992, the Company established an additional credit arrangement with another group of banks in return for the payment of commitment fees. The banks have committed to lend the Company up to S60 million under this credit arrangement at interest rates based upon Eurodollar deposit rates or the prime rate. This credit arrangement matures on October 29, 1993 with provisions to extend every six months. When com-bined with the Company's existing revolving credit arrangement, this new arrangement produces a total $200 million of lines of credit to provide back-up for the Company's commercial paper and the short-term borrowings of certain subsidiaries. No borrowings were out. standing at December 31, 1992 under these credit arrangements. The Company also maintains a $5 million line of credit with a bank in return for the maintenance of a compensating balance No borrow-ings were outstanding at December 31, 1992 under this line of credit. The Company leases its nuclear fuel from a trust funded by sales of commercial paper. The maximum financing capacity of the trust under existing credit arrangements is $200 million. Commitment fees incurred were (millions of dollars): 1992, $0.4; 1991, $0.4 and 1990, $0.3.

16. Pension Plan and Other Postretirement and Postemployment Benefits

~ ~ ~ ~ ~ ~ ~ ~ The Company has a noncontributory defined benefit pension plan (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. The Company also has two supplemental retirement plans for cer-tain management employees and directors. Benefit payments pursuant to these supplemental plans are made directly by the Company. At December 31, 1992, the projected benefit obligation of these sup. plemental plans was approximately $ 11.1 million. The components of the Company's net periodic pension cost for the three plans were (thousands of dollars): Service cost-benefits earned during the period.. Interest cost Actual return on plan assets................. Net amortization and deferral.........,...... Net periodic pension cost.. 1992 $29)967 44,2o3 (95,969) 40)251 $ 18,452 1991 $28,188 4o,6o5 (182,956) 134,268 $20,105 1990 S26,712 36,993 4,968 (50,227) $ 18,446 The net periodic pension cost charged to operating expenses was $ 11.6 million in 1992, $ 12.6 million in 1991 and $ 12.1 million in 1990. The balance was charged to construction and other accounts. The funded status of the Company's Plan was (thousands of dollars): December 31 1992 1991 Fair value of plan assets Actuarial present value of benefit obligations: Vested benefits. Nonvested benefits Accumulated benefit obligation. Effect of projected future compensation.... Projected benefit obligation Flan assets in excess of projected benefit obligation Unrecognized transition assets (being amortized over 23 years). Unrecognized prior service cost Unrecognized net gain Accrued expense $ 877,887 4o7,164 '1,119 408,283 201,594 609)877 268)010 (76,836) 36,731 (295,543) $ (67,638) s 8o4,21o 358,676 1,228 359,904 198,734 558,638 245,572 (81,356) 29,392 (244,225) $ (50,617) 39 ~ ~ ~ ~ ~ ~ ~ ~ ~ The weighted average discount rate used in determining the ac-tuarial present value of projected benefit obligations was 7.5/0 on December 31, 1992 and December 31, 1991. The rate of increase in future compensation used in determining the actuarial present value of projected benefit obligations was 6.2/0 and 6.4/o, respectively, on December 31, 1992 and December 31, 1991. The assumed long.term rate of return on assets used in determining pension cost in 1992 and 1991 was 8.0/0 and 7.75%%d, respectively. Plan assets consist primarily of common stocks, government and corporate bonds and temporary cash investments. Subsidiary mining companies have a noncontributory defined benefit pension plan covering substantially all non bargaining, full. time employees which is fully funded primarily by group annuity contracts with insurance companies. Substantially all union employees of these subsidiaries are covered by a pension plan administered by the Trustees of the United Mine Workers of America (UMWA)Health and Retirement Funds. The pension cost for non-bargaining employees together with retirement contributions to the UMWA Health and Retirement Funds for 1992, 1991 and 1990 aggregated $2.0 million, $ 5.4 million and $4.8 million, respectively. Subsidiary mining 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. The actuarially determined ex. pense for black lung benefits for 1992, 1991 and 1990 was $0.2 million, $0.5 million and $0.6 million, respectively. Substantially all employees of the Company and its subsidiaries will become eligible for certain health care and life insurance benefits upon retirement. Through December 31, 1992, the Company recognized the cost of these benefits for retired employees when payments were made. Subsidiary mining companies had accrued the estimated payment they expected to make to the UMWAhealth trust funds for future retiree health care. However, the Energy Act imposed an additional liabilityof approximately $37 million on the Company or its subsidiary coal-mining companies for health care of retired miners. The Company deferred this charge and intends to file a re-quest with the PUC to recover this cost in its ECR over a five-year period. (See Note 5.) The cost of retiree health and life insurance benefits recognized as expense by the Company and its subsidiaries was approximately (millions of dollars): 1992, $5.5; 1991, $72 and 1990, $ 5.2.'ffective January I, 1993, the Company adopted SFAS 106, "Employer's Accounting for Postretirement Benefits Other Than Pen-sions," which establishes new rules for accounting for the costs of postretirement benefits other than pensions. The statement requires accrual, during the years that the employees render the necessary ser-vice, of the expected cost of providing those benefits. In 1991, caps were established on the amount the Company willpay for retiree health care cost for all employees who retire on or after April I, 1993. The Company's transition obligation on January I, 1993 amounted to about $ 174 million and its accrued cost for postretirement benefits other than pensions willbe about $ 25 million in 1993, including amortization of the transition obligation over a 20.year period. This compares to an estimated cash payment of about $ 8 million for those benefits in 1993. For information relating to recovery of the increased cost of postretirement benefits, see Note 5. The Company has an Employee Stock Ownership Plan (ESOP) for all full.time employees having more than one year of service. Con-tributions to the ESOP have been funded with investment and payroll-based tax credits previously available to the Company under federal law to acquire shares of the Company's common stock. Contributions funded with these tax credits were completed in 1991. Since 1990, all dividends on shares credited to participants'ccounts have been paid in cash. The Company deducts the amount of those dividends for in-come tax purposes and contributes to the ESOP shares having a cost equal to the tax savings resulting from that deduction and contribution. In November 1992, the FASB issued SFAS 112, "Employer's Account-ing for Postemployment Benefits." SFAS 112 is effective for fiscal years beginning after December 15, 1993 and requires the accrual of the ex-pected'cost of providing benefits to former or inactive employees after employment but before retirement. The Company is assessing the statement, but at this time is unable to estimate what impact SFAS 112 willhave on its results of operations. The Company intends to adopt SFAS 112 on its effective date.

17. Jointly Owned Facilities

~ ~ ~ ~ ~ ~ ~ o ~ ~ 4 ~ 4 ~ 4 4 0, ~ o ~ 0 4 ~ 4 ~ ~ 4 ~ 0...... ~. ~ ~ ~ At December 31, 1992, the Company or a subsidiary owned undivided interests in the following facilities (millions of dollars): Ownership interest Electric utility plant in service.. Other property Accumulated depreciation...... Construction work in progress.. 492 62 24 23 1 14 Generating Stations Susquehanna 'eystone Conemaugh 90.00/o 12.34/o 11.39/o $3,962 $ 52 $49 Merrill Creek Reservoir 8.37~/0 $ 21 4 Each participant in these facilities provides its own financing. The Company receives a portion of the total output of the generating sta-tions equal to its percentage ownership. The Company's share of fuel and other operating costs associated with the stations is reflected on the Consolidated Statement of Income. The Merrill Creek Reservoir provides water during periods of low river flow to replace water from the Delaware River used by the Company and other utilities in the production of electricity. 4 4 ~ ~ 4 ~ ~ ~ ~ /IP

18. Power Plant Spare Parts

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Effective January I, 1991, the Company began to account for certain power plant spare parts using a deferred (inventory) method. Under this method, purchases of spare parts under inventory control are in-cluded in an inventory account and then charged to the appropriate capital or expense accounts when the parts are used or consumed. Prior to 1991, power plant spare parts'were generally either capitalized or charged to expense at the time of purchase. The January I, 1991 cost of these spare parts was $ 116.8 million. That amount was recorded as an increase in the materials and sup-plies inventory account on the balance sheet at January I, 1991. The ~ 4 ~ ~ ~ 4 ~ 4 ~ 4 4 ~ 0 0 4 ~ ~ ~ ~ ~ 4 ~ 0 4 4 4 4 0 4 4 associated income statement effect was deferred and is being amor-tized as a credit to expense over a five-year period. The annual amor-tization applicable to retail customers is included in the SBRCA credit applied to customers'ills and the annual amortization applicable to wholesale customers is reflected in the base rate increase effective May 1991. (See Note 5.) The Company has received Internal Revenue Service permission to use this method of accounting for income tax purposes and willin-clude the cost of the spare parts as ofJanuary I, 1991 in taxable in-come over several years.

19. Commitments and Contingent Liabilities ~

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 0 ~ 0 0 ~ ~ ~ ~ 0 0 0 0 0 0 The Company's construction expenditures are estimated to ag. gregate $438 million in 1993, $544 million in 1994 and $358 million in 1995, including AFUDC. For discussion pertaining to construction expenditures, see Review of the Company's Financial Condition and Results of Operations under the caption 'Financial Condition-Capital Expenditure Requirements" on page 19. In complying with statutes, regulations and actions by regulatory bodies involving environmental matters, including the areas of water and air quality, ha'zardous and solid waste handling and disposal and toxic substances, the Company may be'required to modify, replace or cease operating certain of its facilities. The Company may also incur substantial capital expenditures and operating expenses in amounts which are not now determinable. For further discussion pertaining to environmental matters, see Review of the Company's Financial Condition and Results of Opera-tions under the caption "Financial ConditionClean Air Legislation and Other Environmental Matters" on page 20. The Company is a member of certain insurance programs which provide coverage for property damage to members'uclear generating stations. Facilities at the Susquehanna station are insured against prop-erty damage losses up to $2.6 billion under these programs. The Company is also a member of an insurance program which provides'nsurance coverage for the cost of replacement power during pro-longed outages of nuclear units caused by certain specified condi ~ tions. Under the prope'rty and replacement power insurance prograins, the Company could be assessed retrospective premiums in the event the insurers'osses exceed their reserves. The maximum amount the Company could be assessed under'these programs at December 31, 1992 was about $ 15.6 million. ~ Nuclear Regulatory Commission regulations, as amended, require that in the event of an accident, where the estimated cost of stabiliza. tion and decontamination exceeds $ 100 million, proceeds of property damage insurance be s'egregated and used, first, to place and maintain the reactor in a safe and stable condition and, second, to complete re-quired decontamination operations before any insurance proceeds'ould be made available to the Company or the trustee under the mortgage. The Company's on.site property damage insurance policies for the Susquehanna station conform to these regulations. The Company's public liabilityfor claims resulting from a nuclear incident at the Susquehanna station is limited to about $7.8 billion under provisions of The Price Anderson Amendments Act of 1988 (the Acc). The Company is protected against chis liabilityby a combination of commercial insurance and an industry assessment program. A utili-ty's liabilityunder the assessment program willbe indexed not less than once during each five.year period for inflation and will be sub- 'ect to an additional surcharge of 5/0 in the evenc the total amount of public claims and costs exceeds the basic assessment. In the event of a nuclear incident at any of the reactors covered by the Act, the Com. pany could be assessed up to $ 126 million per incident, payable at a rate of $20 million per year, plus the additional 5/0 surcharge, if applicable. In August 1991, a group of 21 fuel oil dealers in the Company's ser-vice area filed a complaint. against the Company in United States District Court for the Eastern District of Pennsylvania (Court) alleging that the Company's promotion of electric heat pumps and off-peak thermal storage systems had violated and continues to violate the federal antitrust laws. The complaint also alleged that the Company's use of a cash grant program to developers and contractors for the in. stallation of high efficiency heat pumps violated and continued to violate the Racketeer Influenced and Corrupt Organizations Act (RICO). 1 The complaint requested judgment against 'the Company for a sum in excess of $ 10 million for the alleged antitrust violations, treble the damages alleged to have been sustained by the plaintiffs over the past four years. Separately, the complaint requested judgment for a sum in excess of $ 10 million for the alleged RICO violations, treble the damages alleged to have been sustained by the plaintiffs over the past'our years. Finally, the complaint requested a permanent injunction against all activities found to be illegal, including the cash grant program. In April 1992, a fuel oil dealer in ihe Company's service area filed a class action complaint against the Company in the Court alleging, as did the August 1991 complaint, that the Company's promotion of electric heat pumps and off-peak thermal storage systems had violated and continued to violate the federal antitrust laws. The complaint did not allege any violation of RICO, but did allege that the Company engaged in a civil conspiracy and unfair competition in violation of Pennsylvania Iaw. The plaintiffsought to represent as a class all fuel oil dealers in the Company's service area. The complaint requested a permanent injunc-tion against all activities found to be illegal and treble the damages alleged to have been sustained by the class. No specific damage amount was set forth in the complaint. This second antitrust com-plaint was consolidated with the August 1991 complaint. In September 1992, the Court granted the Company's motion for summary judgment and dismissed both suits filed against the Com-pany. The Court denied the plaintiffs'equest for reconsideration of its decision, and the plaintiffs have appealed the decision to the United States Court of Appeals for the Third Circuit. The Company cannot predict the ultimate outcome of these proceedings. At December 31, 1992, the Company had guaranteed $ 15 million of the debt obligations of Safe Harbor. The Company does not expect to fund the guarantee and has'concluded that it is impractical to deter-mine the fair value of the guarantee. 4] ~ 0 ~ 0 ~ ~ 0 ~ ~ SELECTED FINANCIALANDOPERATING DATA 1992 1991 1990 1989 CONSOLIDATEDOPERATIONS Income Itemsthousands Operating revenues (a) Operating income Net income Earnings applicable to commonstock............ Balance Sheet Itemsthousands (b) Electric utilityplant inservice net.............. Construction workin progress Other property, plant and equipment net........ Total assets Long-term debt Preferred and preference stock Withsinking fund requirements Withoutsinking fund requirements............ Common equity. Short-term debt. Total capital provided by investors........"...... Financial Ratios Return on average common equity%........... Embedded cost rates (b) Long-term debt%. Preferred and preference stock%............ Times interest earned before income taxes........ Ratio ofearnings to fixed charges total enterprise basis (c) Depreciation as % ofaverage depreciable property.. Common Stock Data Number ofshares outstanding thousands Year-end (d) Average (d). Numberofshareowners(b) Earnings per share (d). Dividends declared per share'(d).............,.. Book value per share (b) (d) Market price per share (b) (d).. Dividend payout rate% Dividend yield'%e) Price earnings ratio (e) $2,744, 122 573,43 1 346,724 '06,229 $6,391,857 21 1,534 416,1 13 8, 191,768 2,627,159 325,600 223,612 2,366,939 159,348 5,702,658 13.11 9.36 7.36 3.18 3.15 3-2 1515885 1 5 1,676 129,394 $ 2.02 $ 1.60 $ 1 5.58 2 7'/4 79 6.07 13.05 $6,296,496 183,242 449,s40 7,934,595 2,582,233 364,590 231,375 2,298,010 147,170 5,623,378 >>.42 9.72 7.51 3.06 3.04 3.1 $6,240,608 143,084 510,529 7,735,442 2,470,596 383,690 231,375 2,221,759 265,940 5,573,360 13.65 9.69

7. 54 2.s6 2.81 2.9 151,655 151,382 127,272

$ 2.01 1.55 $ 15.15 26s/s 77 6.69 1 1.55 151,298 150,924 130,719 1.97 $ 1.49 $ 14.6s 2 1 r/ 76 7.15 10.56 $2,740,71 5 $2,637,922 582,33 I 590,366 348,414 343,906 303,727 297,781 $2,632,91 5 '61 s,'s50 353,436 305,018 $6, 198,693 1 15,799 552,150 7,598,968 2,650,276 409,990 231,375 2,139,338 95,429 5,526,408 14.62 9.80 7.62 2.78 2.69 2.7 150,845 150,628 132, 197 $ 2.02 1.43 $ 14.18 21 t/ 71 7 33 9.63 ELECTRIC OPERATIONS Revenue Data By class ofservice thousands Residential Commercial Industrial Other energy sales System sales Contractual sales to other utilities...... PJM interchange powersales(a) Total from energy sales billed(a)..... Unbilled revenues net.. Other operating revenues (a) Total electric operating revenues (a).. Average price per kwh billedcents Residential Commercial Industrial Total forultimate customers Total forsystem sales 876,53 1 713,406 523,367 85,456 842,771 687,632 506,038 83,630 800,587 776,673 647,949 612,762 503,806 488,691 78,489 80, 144 2, 198,760 330,017 1 1 1,602 2,640,379 36,567 64,670 2,120,071 322,298 180,434 2,622,803 47,022 6s',s6s 2,030,83 I 313,207 217,430 2,561,468 5,043 69,725 1,958,270 316,508 255,245 2,530,023 39,628 61,5ss 8.27 7.89 5.98 7.4s 7.39 8.12 7.76 5.98 7.39 7.30 7.92 7.59 5.78 7.17 7.08 7.72 7.40 5.60 6.97 6.89 $2,741,616 $2,738,693 $2,636,236 $2,631,239 ( a ) Years prior to l992 have been restated to rellect interchange power sales b instead ofa credit to operating expenses inaccordance with a Federal Ener (b) Atyear-end. eing recorded as elec gy Regulatory Com tricoperating revenues and electric energy sales mission order. ~ oaoaaaao42 1988 1987 1986 1985 1984 1983 1982-1992 1982 % Change $2,495,640 605,051 332,o42 279,865 $6,056,723 177,333 607,528 7,524,648 2,626,784. 438,290 231,375 2,049,831 201,652 5,547,932 $2,457,153 590,637 302,461 248,035 $5,970,000 141,960 655,254 7,457,346 2,587,500 495,590 231,375 1,969,971 298,321 5,582,757 $2,480,006 597,529 300,108 231,051 $ 5,815,838 224,426 691,820 7,413,105 2,849,972 475,239 231,375 1,915,649 243,588 5,715,823 $2,566,288 -536,115 290,613 199,327 $ 5,776,687 161,6s4 699,448 7,255,918 2,664,564 691,010 23'1,375 1,905,700 247,26o 5,739,909 $2,212,482 418,689 318,903 226,758 $3,856,738 2,020,780 733,002 7,231,058 2,674,o36 738,027 231,375 1,896,987 278,652',819,077 $ 1,991,773 300,563 296,011 210,173 $3,842,826 1,730,223 670,239. 6,744,180 2,477,700 714,830 231,375 1,767,949 351,194 5,543,048 $ 1,523,653-236,43o 278,886 210,572 $2,107,651 2,923,744 582,740 6,152,976 2,417,244 621,634 231,375 1,643,695 324,664 5,238,612 80.1 142.5 24.3 454 203.3 (28 ) (92.8) 331 8.7 (47.6) (3 4) 44.o (50.9) 8.9 13.s6 10.15 7.66 2.65 2.57 2.6 10.31 7.77 2.62 2.53 2.5 10.53 8.33 2.69 2.58 2.3 12.78 12.11 1o.42 11.23 10.02 2.28 2.19 2.3 12.30 11.11 9.94 2.24 2.o6 2.7 12.29 10.98 9.66 2.20 2.05 2.9 '3.60 10.80 9.41 1.94 1.81 34 (3.6) (13.3) (21.8) 63.9 74.o (5.9) 150,497 15o,141 137,450 s 1.s6 1.38 $ 13.62 18ys 74 7.70 9.61 149,945 149,289 . 141,843 $ 1.66 1.34 $ 13.13 S 16/ 81 7.37 10.95 149,026 149,026 147,611 1.55 S 1.29 $ 12.85 18/tg 83 7.30 11.39 149,026 149i026 151,025 1.34 1.28 $ 12.79 14~s/ 9.81 9.76 149,026 145,534 162,903 1.56 '1.24 $ 12.73 S 12s/s 80 11.00 7.24 14o,67o 137,284 169,142 $ 1.53 1.20 $ 12.56 10$ 79 10.48 7.48 132,922 125,617 169,127 1.68 1.16 $ 12.37 10/ta 70 11.95 5.79 14.3 20.7 (23.5) 20.2 37.9 25.9 159.5 12.9 (49.2) 125.4 768,051 592,023 495,968 75,507 1,931,549 277,971 268,526 2,478,046 (18,187) 34,073 $2,493,932 634,669 492,686 438,427 64,223 591,922 441,651 411,533 59,526 714,753 557,216 473,488 74,o47 737,066 572,623 492,491 74,228 1>504,632 52,724 623,328 1,630,005 255,875 556,926 1>819,504 299,663 .282,259 1,876,408 282,799 359,449 2,180,684 (9,725) 33,657 2,442,so6 78,545 38,163 2,401,426 52,344 25,033 2,518,656 (84,888) 21,900 $2,455,668 $2,478,803 $2,559,514 $2,204,616 529,911-3s6,617 367,950 47,275 1,331,753 39,012 72O,462 2,091,227 (119,539) 13,694 $ 1,985,382, 503,557 363,233 347,726 47,731 1,262,247 1'1,775 290,499 1,564,521 (61,652) 12,708 $ 1,515,577 74.1 96.4 50.5 79.0 74.2 2702.7 (61.6) 6s.s 159 3 408.9" 80.9 7.79 7.46 5.64 7.02 6.91 8.05 7.68 5.84 '7.23 7.12 8.15 7.78 593 7.34 7.25 7.60 7.32 5.55 6.s5 6.77 7.00 6.77 5.07 6.3o 6.23 6.51 6.32 4.s3 5.91 5.83 6.26 6.11 4.75 5.74 5.66 32.1 29.1 25.9 303 3o.6 (c ) Computed using earnings and fixed charges ofthe Company and all ofits affiliated companies. Fixed charges consist ofinterest on shon-and long-term debt, other interest charges, interest on capital lease obligations and the estimated interest component ofother rentais. (d) Years 1982 through 1991 have been adlusted forthe two forwne split ofthe Company's common stock effective April22, 1992. (e) Basedonaverageofmonth~dmarket prices. 43 ~ e e ~ ~ e ~ e Selected Financial and Operating Data ELECTRICOPERATIONS (Continued) Sales Data Customers (a) (b) Average annual residential kwh use Electric energy sales billedmillionsofkwh Residential Commercial Industrial Other System sales Contractual sales to other utilities......... PJM interchange power sales (a) Total electric energy sales billed(a)...... Sources ofenergy soldmillionsofkwh Generated Coal-fired steam stations.. Nuclear steam station (c).. Oil-firedsteam station Combustion turbines and diesels (oil).... Hydroelectric stations Power purchases Companyuse, linelossesandother Total electric energy sales billed (a).. Generation Data Net system capacitythousands ofkw (b) (d)... Winter peak demand thousands ofkw(e)..... Generation by fuel source % Coal Nuclear(c) Oil Hydroelectric Steam station availability% Coal-fired................ Nuclear(c) Oil-fired. Steam station capacity factor% Coal-fired.. Nuclear(c) Oil-fired. Fuel Cost Data Cost per kwh generated cents Coal-fired steam stations Nuclear steam station (c). Oil-firedsteam station Combustion turbines and diesels (oil)........ Average Cost offossil fuel received at steam stations Coalper ton Residual oilper barrel'. Capitalization Ratios% (b) Long-term debt Short-term debt Preferred and preference stock.............. Common equity Times Interest Earned Before Income Taxes.. Employees (b) 1992 1,186,682 10,207 10,604 9>039 8,746 1,366 29,755 7j327 5,160 42,242 25,153 12,216 1,057 10 750 39,186 5,347 (2i291) 42,242 7,802 6,130 64.2 31.2 2-7 1.9 81.7 73.7 94.8 68.8 73.0 73 1.74 0.54 3.73 7.50 1.42 $41.44 $ 16.56 46.7 1.2 9.8 42.3 3.2 1 7,981 1991 1,173,680 10,101 10,385 8,861 8,456 i,334 29,036 7,183 7,553 43,772 24,805 14,271 1,939 15 521 41,551 4,542 (2,321) 43,772 7,797 5,974 59.7 34.3 4.7 1.3 78.1 86.3 86.7 68.2 85.8 13 5 1.75 0.57 3.58 7.52 i.43 $42.87 $ i8.76 46.3 1.3 10.8 41.6 3.11 8,144 1990 1,161,232 9,947 10,103 8,538 8,716 1,315 28,672 7,028 8,971 44,671 26,409 13,254 i,442 33 804 41,942 4,634 (I 905) 44,67i 7,912 5,661 63.0 3i.6 3.5 1.9 82.5 80.2 82.8 72.7 80.1 10.0 i.66 0.59 4.i8 7.68 1.41 $40.64 $21.52 44 5 3.8 11.2 40.5 293 8,149 1989 1,143,593 i0,064 i0,06i 8,285 8,723 1,333 28,402 6,956 9,234 44,592 27,104 11,916 3,817 107 7i4 43,658 3,586 (2,652) 44,592 7,864 6,000 62.i 273 9.0 i.6 81.1 72.1 76.3 74.6 72.0 26.6 i.6i 0.58 3 03 595 i.46 $39.04 $ 17.71 48.3 0.2 11.9 39.6 2.88 8,108 ng recorded as electric operating revenues and electric energy sales instead of ry Commission order. e 8, 1983 and the second unit on February 12, 1985. ( a ) Years prior to 1992 have been restated to reflect interchange power sales bci a credit to operating expenses inaccordance witha Federal Energy Regulato (b) Atyear.end. ( c) The Company's first nuclear unit was placed incommercial operation onJun o e o e e e e o 44 1988 1987 1986 1985 1984 1983 1982-1992 1982 %Change 1,122,633 1,097,522 10,059 ~ 9,565 1,073,151 9 344 1,055,550 9,034 1,039,385 9,282 1,026,149 9,051 1,013,626 9,039 17.1 12.9 9,856 7,932 8,799 1,360 27,947 6,268 10,855 45,070 9,157 7,457 8,438 1,285 26,337 6,201 12,682 45,220 8,771 7,159 7,986 1,170 25)086 5,602 11,018 41,706 8,354 6,728 7,907 1,082 24,071',850 15,433 44,354 8,454 6,527 8,117 1,043 24,141 1,002 14,732 39,875 8,138 6,119 7,623 968 22;848 845 15,769 39,462 8,045 5,946 7,324 982 22,297 348 6,552 29,197 31.8 52.0 19.4 39.1 33.4 2005.5 (21.2) 44 7 26,607 12,867 4,186 57 573 44,290 3,027 (2,247) 45,070 26,465 13,285 4,095 28 689 44,562 2,707'2,049) 45,220 25,151 10,151 5,453 17 739 41,511 2,032 (1,837) 41,706 26,237 11,534 4,316 18 612 42,717 3,716 (2,079) 44 354 26,695 6,295 4,121 32 747 37,890 3,765 (1,780) 39,875 26,885 4,509 5,581 45 700 37,720 3,880 (2,138) 39,462 25,477 293 3,186 13 612 29,581 1,414 (1,798) 29,197 40 93 (66.8) (23.1) 22.5 325 278.1 (27.4) 44 7 7,479 5,566 60.1 29.0 9.6 1.3 81.3 77.7 90.1 73.1 77.7 '9.1 ',499 5,591 59.4 29.8 9.3 1.5 83.3 80.4 84.7 72.9 80.5 28.5 7,519 5,154 60.6 24.4 13.2 1.8 78.8 61.7 84.7 69.3 61.3 38.0 7,513 4,981 61.4 27.0 10,2 78.6 70.7 87.2 72.3 70.5 30.0 7,484 5,519 70.4 16.6 11.0 2.0 75.2 66.7 68.0. 733 65.7 28.6 7 494 4,869 71.3 11.9 14.9 1.9 78.8 67.7 75.8 74.0 67.5'8.8 6,546 4,489 86.1 1.0 10.8 2.1 79.1 80.4 70.2 22.2 19.2 36.6 (25.4) 3020.0 (75.0) (9 5) 3.3 17.9 (2 0) (67.1) 1.64 0.56 2.76 5.89 1.44 $39.52 $ 15.95 1.63 0.56 323 6.51 1.46 $39.30 $ 18.51 1.67 0.58 2.96 7.81 ~ 1.57 $40.17 $ 16.83 '.78 0.61 5.02 931 1.81 $42.00 $28.42 1.75 0.54 5.31 9.82 1.98 $42.75 $31.32 1.68 0.66 5.23 10.21 2.15 $39.37 $29.79 1.77 5.62 10.74 2.20 $42.32 $30.94 (1.7) (33.6I (35.5) (2 1) (46.5) 47.9 46.9 50.4 47.1 46.7 1.7 3.1 2.1 1.7 1.9 12.4 13.5 12.8 16.7 17.4 38.0 36.5 34.7 34.5 34.0 2.73 2.7.1 2.80 '2.37 2.35 8,306 8,301, 8,339 8,433 8,386 (d) Total generating capacity plus firmcapacity purchases less firmcapacity sales. ( e) Except for 1989, the winter peaks shown were reached early in the subsequent year. 45.1 3.6 17.9 33.4 2.29 8,160 46.7 32 17.1 330 2.05 8,208 0.0 (62.5) (42.7) 28.2 56.6 (2.8) 45 4 ~ ~ ~ 4 ~ ~ 4 ~ SHAREOWNER ANDINVESTOR INFORMATION The followinginformation is pro-vided as a service to shareowners and other investors. For any questions you may have or ad-ditional information you may require about PP &Lor your in-vestments inthe company, please feel free to call the toll-free number listed below, or writeto: George 1. Kline, Manager lrivestor Services Department Pennsylvania Power 6 LightCo'. TwoNorth NinthStreet Allentown, Pa. 18101-1179 Toll-Free Phone Number: For information regardin'g your in-vestor account, or other inquiries, call toll-free: 800-345-3085. Annual Meeting: The annual meeting ofshareowners is held each year on the fourth Wednes-day ofApril.The 1993 annual meeting willbe held at 1:30 p.m. on Wednesday, April28, 1993, at the Harrisburg Marriott, 4650 Lin-dle Road, Harrisburg, Pa. Areserva-tion card formeeting attendance is included withshareowners'roxy material. Proxy Material: Aproxy state-ment, a proxy and a reservation card forthe company's annual meeting are mailed in a package that includes this report. This material was mailed beginning March 15, 1993, to allshareowners ofrecord as ofMarch 10, 1993. Dividends: For 1993, the dates the declaration ofdividends is con-sidered by the board, or its execu-tive committee are: February 24, May 26, August 25 and November 24, forpayment on April1,July 1 and October 1, 1993, and January 1, 1994, respectively. Dividend checks are mailed ahead ofthose dates withthe intention they arrive as close as possible to the payment dates. Record Dates: The 1993 record dates fordividends are March 10, June 10, September 10 and December 10. DirectDeposit ofDividends: Shareowners may choose to have their dividend checks deposited directly into their checking or sav-ings account. Quarterly dividend payments are electronically credited on the dividend date,'r the firstbusiness day thereafter. Dividend Reinvestment Plan: Shareowners may choose to have dividends on their common, preferred or preference stocks reinvested in PP&Lcommon stock instead ofreceiving ihe dividend by check. Certificate Safekeeping: Shareowners participating in the Dividend Reinvestment Plan may choose to have their common stock certificates forwarded to the company forsafekeeping. These shares willbe registered in the name ofthe company as agent for plan participants and willbe credited to the participant's ac-count. Dividends paid on any shares held in the plan willbe reinvested. Lost Dividend or Interest Checks: Dividend or interest checks lost by investors, or those which may be lost in the mail, will be replaced ifthe check has not been located by the 10th business day followingthe payment date. Transfer ofStock or Bonds: Stock or bonds maybe transferred from one name to another or to a new account in the name of another person. Please call or write regarding transfer instructions. Bondholder Information: Much ofthe information and many ofthe procedures detailed here for, shareowners also apply to bond-holders. Questions related to bondholder accounts should be directed to Investor Services. Lost Stock or Bond Certifi-cates: Please call or write to In-vestor Services foran explanation ofthe procedure to replace lost stock or bond certificates. Publications: Several publica-tions are prepared each year and sent to all investors ofrecord and to others who request their names be placed on our mailing lists. These publications are: AnnualReportpublished and mailed to all shareowners ofrecord in mid-March. Sbareowners'Newsletter an easy-to-read newsletter containing current items ofinterest to share-owners published and mailed at the beginning ofeach quarter. Ad-ditionally, a special year-end edi-tion containing unaudited results ofthe year's operations is mailed in early February. Quarterly Reviewpublished in May, August and November to pro-vide quarterly financial informa-tion to investors. Periodic Mailings: Letters from the company regarding new in-vestor programs, special items of interest, or other pertinent infor-mation are mailed on a non-scheduled basis as necessary. Duplicate Mailings: Annual reports and other investor publications are mailed to each investor account. Ifyou have more than one account, or there is more than one investor in your household, you may call or write to request that only one publica-tion be delivered to your address. Please provide account numbers forall duplicate mailings. Form 10-Kand PP &LProfile: The company's annual report, filedwiththe Securities and Ex-change Commission on Form 10-K, is available about mid-March. The PP&LProfile, a 10-year statistical review contain-ing in-depth information about the company, is available in May. Investors may obtain a copy of these publications, at no cost, by calling or writingto Investor Services. eee ~ ~ ~ ~ oa46 Listed Securities: Nezv YorkStock Exchange Common Stock(Code: PPL) 4i/,% Preferred Stock (Code: PPLPRB) 4.40% Series Preferred Stock (Code: PPLPRA) 8.60% Series Preferred Stock (Code: PPLPRG) Preference Stock, $8.00 Series (Code: PPLPRJ) Preference Stock, $8.40 Series (Code: PPLPRH) Preference Stock, $8.70 Series (Code: PPLPRI) Pbfladelpbfa Stock Exchange Common Stock 4i/,% Preferred Stock 3.35% Series Preferred Stock, 4.40% Series Preferred Stock 4.60% Series Preferred Stock 8.60% Series Preferred Stock Preference Stock, $8.00 Series Preference Stock, $8.40 Series Preference Stock, $8.70 Series Fiscal Agents: Stock Transfer Agents and Registrars First Chicago Trust Co. ofNew York P.O. Box398I Church Street Station New York, New York I0008-3981 Pennsylvania Power &LightCo. Investor Services Department DfvfdendDisbursing Officeand DfvfdendReinvestment Plan Agent Pennsylvania Power &LightCo. Investor Services Department Mortgage Bond Trustee Morgan Guaranty Trust Co. ofNew York Corporate Trust Operations 55 Exchange Place Basement 'A" New York, New YorkI0260-0023 Bond Interest Paying Agent Pennsylvania Power 6 LightCo. Investor Services Department Quarterly Financial, Common Stock Price and DividendData(Unaudited) For the Quarters Ended(a) March 31 June 30 Sept. 30 Dec. 31 (Thousands ofDollars, Except Per Share Amounts) 1992 Operating revenues Operating income Net income Earnings applicable to common stock.... Earnings per common share(b) (c) Dividends declared per common share(c) (d).. Price per common share (c) High Low 1991 Operating revenues (e) Operating income Net income Earnings applicable to common stock Earnings per common share(b) (c).. Dividends declared per common share(c) (d).. Price per common share (c) High. Low $756,834 170,505 113,025 102,603 0.68 0.40 26t/a 23~/s $721,547 169,960 110,382 99,036 0.65 0.3875 22 1/2 207/s $645,093 128,162 69,790 59,686 0.39 0.40 26t/s 241/s $655,071 131,049 72,475 61,189 0.40 0.3875 23 I/ 21>/s $655,912 128,061 72,900 62,825 0.41 0.40 28t/q 25$/~ $671,199 139,615 80,851 69,733 0.46 0.3875 24 21>/g $686,283 146,703 91,009 81,115 0.53 0.40 27~/s 257/s $692,898 141,707 84,706 73,769 0.49 0.3875 26$/, 23$/s ( a ) The Company's electric utilitybusiness is seasonal in nature withpeak sales periods genenlly occurring in the winter months. Accordingly, com-parisons among quarters ofa year may not be indicative ofovenll trends and changes lnoperations. (b) The sum ofthe quarterly amounts may not equal annual earnings per share due to changes in the number ofcommon shares outstanding during the year or rounding. c ) Earnings, dividends declared and price per common share for 1991 and the quarter ending March 31, 1992 have been adjusted forthe two.for-one stock split effective April22, 1992. (d) The Company has paid quarterly cash dividends on its common stock inevery year since 1946. The dividends paid per share in 1992 and 1991 were $ 1.5875 and $ 1.535, respectively. The most recent regular quarterly dividend paid by the Company was 40 cents per share (equivalent to $ 1.60 per annum) paidJanuary 1, 1993. Future dividends willbe dependent upon future earnings, financial requirements and other factors. ( e) Operating revenues for 1991 have been restated to reflect the reclassiflcation ofinterchange power sales from a credit to openting exp<<nses to openting revenues. 47 4 4 4 ~ ~ 4 4 o ~ OFFICERS oo ~ ~ o ~ oooo WILLIAMF. HECHT 49 (28), Chairman, President and Chief Executive Officer FRANCIS A. LONG 52 (29), Executive Vice President and Chief Operating Officer CHARLES E. RUSSOLI 59 (37), Executive Vice President and Chief Financial Officer ROBERT G. BYRAM 47 (16), Senior Vice President-System Power and Engineering GENNARO D. CALIENDO 52 (24), Senior Vice President, General Counsel and Secretary HAROLD W. KEISER 49 (12), Senior Vice President-Nuclear JOSEPH C. KRUM 55 (33), Senior Vice President-Division Operations LINDACURRY BARTHOLOMEW44 (22), Vice President-Public Affairs JOHN R. BIGGAR 48 (23), Vice President-Finance STEVEN H. CANTONE 49 (13), Vice President-Northeast Division JOHN M. CHAPPELEAR 54 (14), Vice President-Investments and Pensions ROBERT S. GOMBOS,49 (27), Vice President-Human Resource 6 Development RONALD E. HILL 50 (28), Vice President and Comptroller JOHN P. KIERZKOWSKI 53 (21), Vice President and Treasurer GRAYSON E. MCNAIR 52 (30), Vice President-Lehigh Division JOHN R. MENICHINI45 (24), Vice President-Harrisburg Division CLAIR W. NOLL 59 (32), Vice President-Information Services EDWARD F. REIS 62 (36), Vice President-Corporate Planning JOHN H. SAEGER 54 (32), Vice President-Lancaster Division ROBERT J. SHOVLIN 52 (30), Vice President-Power Production & Engineering JEAN A. SMOLICK 58 (40), Assistant Secretary RAYMOND F. SUHOCKI 47 (19), Vice President-Susquehanna Division HELEN J. WOLFER 64 (45), Assistant Secretary and Assistant Treasurer Numbers indicate age and years of service ( ) as of March 1, 1993. CORPORATE MANAGEMENTCOMMITTEE: William F. Hecht, chairman; Francis A. Long, Charles E. Russoli, Robert G. Bytam, G. D. Caliendo, Harold W. Keiser and Joseph C. Krum, with Edward F. Reis serving as the committee's executive secretary. BOARD COMMITTEES Executive Committee: William F. Hecht, chairman; Jeffrey J. Burdge, John T. Kauffman, Norman Robertson and David L. Tressler. Audit Committee: David L. Tressler, chairman; WilliamJ. Flood, Daniel G. Gambet and Ruth Leventhal. h Corporate Responsibility Committee: Daniel G. Gambet, chairman; Stuart Heydt, Clifford L. Jones, Robert Y. Kaufman and Ruth Leventhal. Management Development and Compensation Committee: Edward Donley, chairman; E. Allen Deaver, Elmer D. Gates and Norman Robertson. Nominating Committee: Jeffrey J. Burdge, chairman; Edward Donley, WilliamJ. Flood and Clifford L. Jones. Nuclear Oversight Committee: Elmer D. Gates, chairman; E. Allen Deaver, Stuart Heydt, John T. Kauffman and Robert Y. Kaufman. ,>oooo ooo48 DIRECTORS OOOODOOO4004 Outside Directors as of December 31, 1992 ~ p~t-,> I r tt 'l 0 o."~ 'jj t jg% j 0 I Gambet Deaver Burdge Heydt Flood Gates Donley Robertson Tressler Leventhal Kaufman Jones JEFFREY J. BURDGE 70 (10), Camp Hill, Former Chairman of tbe Board, Harsco Corporation. Manufacturer ofprocessed and fabricated metals E. ALLEN DEAVER 57 (2), Lancaster, Executive Vice President, Armstrong tPorld Industries Inc Manufacturer ofinteriorfurnishings and specialty products EDWARD DONLEY 71 (10), Allentown, Former Chairman, AirProducts and Chemicals Inc Manufacturer ofindustrial and commercial gases and chemicals WILLIAMJ. FLOOD 57 (3), Hazleton, Secretary-Treasurer, Highway Equipment &Supply Co. Supplier of heavy equipment for highway construction and industry REV. DANIELG. GAMBET, O.S.ES. 63 (6), Center Valley, President, Allentown College ofSt. Francis de Sales ELMER D. GATES 63 (3), Bethlehem, Vice Chairman, Fuller Company. Manufacturer ofplants, machinery and equipment for industry WILLIAMF. HECHT 49 (2), Allentown, PP&L Chairman, President and Chief Executive Officer STUART HEYDT 53 (2), Danville President and Chief Executive Officer, Geisinger Foundation. Parent company of Geisinger Health Care System CLIFFORD L. JONES 65 (4), Mechanicsburg Former President, Pennsylvania Chamber of Business and Industry JOHN T. KAUFFMAN66 (14), Allentown, Former PP&L Chairman and Chief Executive Officer ROBERT Y. KAUFMAN68 ('), Potomac Md., President, Yogi, Inc Consultant RUTH LEVENTHAL52 (4), Middletown, Provost and Dean, Penn State Harrisburg (The Capital College) FRANCIS A. LONG 52 (*), Allentown, PAL Executive Vice President and Chief Operating Officer NORMAN ROBERTSON 65 (23), Pittsburgh, Former Senior Vice President and Chief Economist, Mellon Bank, N.A. CHARLES E. RUSSOLI 59 (6), Allentown, PAL Executive Vice President and Chief Financial Officer DAVIDL. TRESSLER 56 (11), Scranton, Executive Director of the Joseph M McDade Center for Technology and Applied Research at the University of Scranton Numbers indicate age and years of service ( ) on PP&L board as of March i, 1993. 'Less than one year as a director. cQ CL E00 O) 1 0 0 6$c c5 COCC CL CO 0 5 ID crZa -NOTICE-THE ATTACHED FILES ARE OFFICIAL RECORDS OF THE INFORMATION 8 REPORTS MANAGEMENT BRANCH. THEY HAVE BEEN CHARGED TO YOU FOR A LIMITED TIME PERIOD AND MUST BE RETURNED TO THE RE-CORDS 8 ARCHIVES SERVICES SEC-TION P1-22 WHITE FLINT. PLEASE DO NOT SEND DOCUMENTS CHARGED OUT THROUGH THE MAIL. REMOVAL OF ANY PAGE(S) FROM DOCUMENT FOR REPRODUCTION MUST BE RE-FERRED TO FILE PERSONNEL. IC o ~S </i~e 0 0 4 ',rr:C 'J ~> "j lffr )fj@P / ) ~rg e~~E~p~)~ C ccr cor m crc ceo '? cn cre-e ~O e e e c Cll rr. ~ o o~ a 42 o ccc CO ccc o gg e o ccc ~C oc o'cc Qooce a ccc e o eocn m ccc ~ o)gg ~m e e c o e ln a co e o gA o~-e Em R e crc Ol EJ) cA4 e aa vn oV L o ~e o 0 e CO cco <e Ql < Eco co >co e =Ol, g e ~ ~~ o= oc yo~& r g e4 CJ ~ Z 4 cL 8 0 m +<A)leg qy leCtl'lC COO I'1, C. & <<0-o" Mqy, g,ling~, co~. ~ $ AJM Ca~, Phvldg ~ W7 %+Oft 1992 ' Ik~f Q

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I)4-."4h441 4 '/0++ Ij4444 '&f'414hh)+4r)'I I I p, Ir. w))4 11 I I r I 'I 44 y'hi" )a")r)~iea~r 'j'i~'s '~v')),44 qq~.'p ~ I'~&v4 rhr))14h .'41 rg 141hrr)4, I "141+ ~ 1144.~ y irj& ( Ij ,I> r 4 t'ftlliltlllI V Ik -.,'h'; r ] fig~ il'u%.4L'L rI r Mi~ ~ i; titbit't[ kr ~ I 'I Il Hllh Ir itH'II' I )'Jl !it I ' 'l I ' I I I I I I I 'II' I I I I Ill' I I I I I Pl ~@4 4, )Qlt'~ ,~.~J,>Prl> ~@go~ 'V.rt+Ir.Vl~m. rqI8.'W tr ' 4>r - ~W > T~+ rr~ r 4 + C~ ~ ~<+Mr. . )')" gQaw y(g g F$ / t J, I 4 I / )i I 1 j ,",) ~ I'able of Contents Message From The President and Chairman........... 3 Transmission Projects. ~. Bulk Power Sales. ~..... Load Management.. ~.. Raystown Hydroelectric Project s ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Power Authorityof The State of New York ~ ~. ~ ~ ~ ~ ~ 6 ~ ~ ~ s 9 ~..12 ~ 17, ...20 Susquehanna Steam Electric Station......... 24 -Allegheny Board of Directors. ~ ~ ~. ~..... ~ 26 Allegheny Management earn.................. 28 T Financials............ 37 4pi ir C g Ig pcr kilowatt-hour, a 2 pcrccnt decrease from 1992 actual rates. Allcghcny achieved the dccreasc thc fourth in thc bst five years by taking a number offinancial, account-ing, litigation and power supply initiatives. Aggressive marketing of SSES power saved our mcm-bcr coopcrativcs S4.6 million. Allcghcny also rcpriccd ap-proximately $ 123 millionin high-intcrcst Federal Financing Bank loans, providing a nct savings of$1.42 millionin 1993 and an additional S18 million over thc tcrin of the loans. Success in opposing various private power company rate incrcascs for purcliascd power have also contributed to Al-Iegllclly s ra'tc-coiltrol cITorts. Allcghcny held thc line on rates even though its 1993 budgctcd tax and government fee burden increased sub-stantially. As budgctcd, thc Pennsylvania Gcncral Assem-bly raised thc state's Public UtilityRealty Tax, which in-crcascd our tax load by $826,134. An increase in thc state's Gross Rccipts Tax is expected in 1993, which willforce the co-op to pay at least S170,000 more annually for purchased power. Under new federal legislation, nuclear power dy pe Pd ~P 0 Jesse C. Tilton III, president (right) and Dave E. Turner, chairman plants, such as SSES, willbe asscsscd fees to help the U.S. government clean up nuclear enrichment facilities. Alleghe-ny's 1993 assessmcnt for that amounts to approximately $410,000. Without thcsc ncw and projcctcd levies, the net billed avcragc power cost or what member cooperatives would pay in 1993 would have fallen 3.6 percent. We also scored scvcral legislative victories in 1992. The U.S. Congress approved a national cncrgy bill that funda-mentally rcstructurcs the clcctric industry. Ainong thc major energy bill provisions important to rural electric co-operatives is a transmission access provision that brings us closer to thc whccling rights Allcghcny has long advocated. Under thc bill, thc Fcdcral Energy Regulatory Coininis-sion will have clear authority to order utilities that own transmission lines to allow other utilities access to those lines for a just and rcasoiiablc fcc. Thc measure was a prior-ity for consumer-owned rural electric co-ops facing prob-lems in moving wholcsalc power they generate or purchase at reasonable rates. Thc provision will put Allegheny and the nation's other co-ops on a morc equal footing with large private power companies. Another success involved payments consuincrs receive from utilities (including co-ops) forbuying cncrgy-cfflcicnt cquipmcnt. These now willbc made tax free. Previous In-ternal Rcvcnue Scrvicc rulings had found such conservation rcbates to constitute taxable incoinc. We are proud ofour achievcmcnts and anticipate a bright future that includes using our cxpcrtise, influcncc and standing to do wliat thc coopcrativcs have ahvays done: help rural residents acquirc and retain the benefits, scrviccs and opportunitics offcrcd by changing technologies and tililes. Wc believe our continued progress toward the organiza-tion's goal providing rural clcctric coopcrativc con-sumer-meinbers with adequate and reliable supplies ofrea-sonably-priced clcctricity is a vital component in ensuring rural rcsidcnts willkccp pace in a changing world. Q, Klaaaxge %~ere 7l'5e Ckal~~am kmdl P~eeMeet During 1992, Allegheny continued and expanded its ef-forts to assist its mcmbcrs in augmenting existing busi-nesses and attracting new industries. Aggrcssivc efforts by Allegheny and its member coopcrativcs over the past few years have rcsultcd in the creation ofscvcn economic dcvcl-opment projects in five diffcrcnt cooperative tcrritorics. Eight others arc in various stages ofdevelopment. Fostering economic devclopmcnt is a natural extension of our commitmcnt to thc communitics and residents wc serve. These dcvelopmcnt activities not only help provide job opportunitics, they also stabilize the economic base of rural Pennsylvania and Ncwjersey and benefit all rural resi-dents. Our primary task in maintaining and improving the cli-mate for business and industry in our region's rural areas is the delivery of rcliablc electric power at reasonable rates. Energy particularly electricity is the lifeblood of modern economic activity. We have devised and implemented a strategy aimed spe-cifically at holding the line on rates and I am pleased to re-port Allcghcny Electric Cooperative, Inc. is cntcring its sixth straight year ofrate stability. The rate stability period of1987-1992 followed nine years when rates climbed at an average of 11.3 percent pcr year. This rate stability was hard-earned, coming amid significant pressures which could have driven rates much higher. The challenge Allegheny faced in 1987 and in the follow-ing years was how to control rates amid expcnsc burdens. These burdens included construction risk from commit-ments to our load management and Raystown Hydroelec-tric projects, Susquehanna Steam Electric Station (SSES) capacity entering our rate base and continuing litigation over declining power allocations from the Power Authority ofthe State ofNew York (PASNY). In addition, Allegheny expected substantial increases in purchased power costs from private power companies. In 1987, Allcghcny had only two-thirds ofits SSES ca-pacity 140 out of210 megawatts rolled into its rate base. Thc rest ofthe capacity was added in increments each year through 1991. Also, during these years, thc Raystown Hydroelectric Project was under construction and Allegheny faced both construction cost overrun and operating risks once thc proj-ect came on line. Also, litigation over low-cost PASNY power allocations continued and the possibility that we might lose additional capacity from that very affordable source ofpower remained. Allcghcny absorbed some significant private power company wholesale rate increases during the period. For example, Mct-Ed's wholesale rate increased 42 percent dur-ing the period and West Penn's increased 33 percent. Despite those and other rate-driving forces, Allegheny has held rates steady. During the six-year period from 1987 L through Allegheny's budgeted rate for 1993, thc avcragc net billed power cost for member cooperatives has in-creased only 1.1 percent per year as compared to the 11.3 percent pcr year increase for the period from 1978 through 1987. This is a dramatic improvement all six years'n-creases combined are only one-half as much as that experi-enced injust one ofthe previous nine years. In 1993, Allegheny's net billed rate will be 61.24 mills m s tt~g-y ~ ' ~ e r tm., lj'; I 1, ~e ~ 4 ) I .h~(. oZ~i'>g~hAIIejhe~ny',",but]t,the,'line",.)ts thffodltra'n'smisslon>project;tto e'n'abje one of jts inembeirs'ysternq,,Be'dfoid;,gyral~<-""=. '-;'~+p. "~~~>~~m~~~~tQ:-.,'P " -'Ia;..

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",r' ', 4i .'.;~,,," j,.~ '><,ale'CmtrlCiCOOperatiVe,'- I'nC'j~kO.SIfim'j,a;TetryS gaStern.gaeSf COmnreS<O'rnSt@IOn and.'Im'prO'Vi!rejrablllty~fOr:CO.Op@i'em>~~.'.;~<<ts,.".."> j>@~~i.'Q~'g'g<j>> 5 r'sc%irPtuangmgsfr'uctron&trjofonjjr Rmo'rft'tis~wglYegnrojectof'th'Isrtrarnitunii'nro'util tjrPtca'[lji'tel/a'atjeasttg$ '~r."; r '<<~':artsd'~erforurt 1 'hen u h 4 a',$ '.se) Ol e 'o ects:durlngl 'ei q he nlnep" go~-"4;trany~gsl, i%92 Allegheny Electric Cooperative, Inc. Annual Report conomic development. Everyone from President BillClinton to local township supervisors and Chaznbers ofCommerce say nezvjobs, plus growing bzzsiness and industry, are vital to ourfuture. While everyone agrees on the importance ofan expandingjob base, few organizations are positioned to assist in making those goals a reality. But the nation's rural electric cooperatives are. The reasons are sinzple. Electric cooperatives are an integral part ofthe communities they serve. They are, infact, owned by the nzembers ofthose communities, not by absentee stock-holders zzzzazvare oflocal needs. In addition, electric co-ops build and nzaintain one ofthe znore complex and inzportant components oflocal infrastructures: the electric lines zuhich provide electricity to power rural business, i>zdustries and residential developznent. In Pennsylvania, rural electric cooperatives own and maintain about 12.5 percent ofthe electric utilitylines in the Co>nznonwealth, covering nearly one-third ofthe state's land area izz 41 couzzties. In rural Pennsylvania and Nezv Jersey, the expertise zzsed to overcozne tlze econoznic, politi-cal and engineering hurdles ofsupplying reliable, reasonably-priced electricity to the states'ural areas also provides a strozzgfoundatiozz to support rural developnzent efforts. Allegheny Electric Cooperative, Inc., the wholesale supplier ofelectricity to tlze 14 electric cooperatives in Pennsylvania and NewJersey, works hard to znaintain a climate conducive to developnzent within its menzbers'ervice territories. with annual increases ofonly 1.1 percent per year, a rate far below that ofinflation. In con-trast, the region's private power companies have increased their retail rates by an average of 25.17 percent between 1988 and 1992. Those increases ranged from a low of2.4 percent to a high of54.2 percent. Allegheny's flat rate, however, has not been accompanied by a corresponding lack ofsystem improvements. The cooperative has provided transmission facilities to iinprove service for existing co-op members and ensure that the infrastructure is sufficient to meet new growth and developinent in areas served by its inember cooperatives. Allegheny marked its most recent milestone October 15 with the completion ofthe Bedford North-South transmission project. Allegheny built the 11.6-inile, 115 kilovolt(kV) trans-mission line, its third transmission proj ect, to enable Bedford Rural Electric Cooperative, Inc. to serve a Texas Eastern gas coinpressor station. Only 19 months passed between the proj ect's approval by the Allegheny Board ofDirectors and its successful completion. While a project ofthis inagnitude would typically take at least tu o years, Allegheny successfully expedited many aspects ofthe project due to the iinportance ofthe new industrial load it serves. When the second unit is added in the summer of1993 to bring the facility up to a 12 MWdemand, this load wiiibe larger by itselfthan that oftwo Allegheny member cooperatives. The coinpleted linejoins two other dedicated transinission projects built by Allegheny. The first, the 5.5-mile, 69 k VFairfield-MillCreek project in Lycoming County, entered service inJuly 1990. The second, the 7.5-mile, 138 k VDonegal-Seven Springs project, was com-pleted in Noveniber 1991. 10 Allegheny developed the Donegal-Seven Springs project to provide a more economical and reliable source ofelectricity to the rapidly growing Seven Springs area which covers portions ofSo>nerset, Fayette and Westmoreland counties. The Allegheny Board ofDirectors has also paved the wayfor two new transinission proj-ects, one that willserve increasing load requirements in the Sussex Rural Electric Coopera-tive area and one that williinprove reliability in one section ofUnited Electric Cooperative's service territory. The Sussex project includes construction ofabout a mile of34.5 k Vtransmission line. Allegheny willacquire the necessary mile ofline starting at an existing transmission facility to provide service to a distribution substation after completion ofconstruction by Sussex Rural Electric Cooperative. The United Electric Cooperative project includes the construction ofa nine-mile, 34.5 kV linefrom private power company facilities to United's new Cooksburg substation. The proj-ect willprovide improvement in service and reliabilityfor co-op members who live in the area. These proj ects continue Allegheny's commitment to its members and the communities they serve without sacrificing Allegheny s six-year trend ofrate stability. H%ile the transmission and delivery system is vital to the economic health ofrural areas, so is a reliable source ofpower. As rural areasgrow, so does the need for an adequate power supply not dependent on purchases from private power companies or any single source. s ,~.r~ ffffttoe. ~ ' Qi'~~C@ VltL.AA ~ J crace ~ et eeeeooe 1 ~ ~ 111 ~ oooo 'O ~ 1 ~ 1 ~ ~ 1 ~ 1 ~ O ~ oe/cage ~ o~ oo jeoeoeeo ~ oe(e jeee ~ ~ 1 ~ ~ ~ 1 beefeoeOV ~ OOOO ~ OJ egoogoo ~ ee ~ 11 ~ 111 ~ 1 ~ OO ~ 1 ~re o ~ 1 1 1 1 1 ~ 1 ~ 1 ~ 1 ~ 1 1 1 1 1 o ~ 1 ~ ~ 1 ~ ep ~ 1 ~ 1 1 ~ 1 ~ 1 ~ 1 ooeeeeeeaJ"o 1 ~ ~ er ~ ~ ~ 1 1 ~ 11 ~ 1 ~ ~ Ooepo 1 1 ~ 1 1111 e 1 oooooeo ~ 1 1 1 1 " 1 lr ep P.',t vatW e~ 'ULK POWER SALES ', Allegheny expanded its presence in the wholesale power eneficial sales to Niagara Mohawk Power Corporation in Mew or tatraJrobbc Service Electric & Gas Company of Mew Jersey, , e nsylvania Electric Company and Pennsylvania Power and Light

y. Savings from these transactions amounted to $4.6 million.

<Jb'W 'elt Bulk p wer sales allow Allegheny to market its projected excess summer energy from the Susquehanna Steam Electric Sta-v tion, a nuclear power station, and provide net benefits to its member co-ops. Bulk sales helped Allegheny keep the lid on rates fttthe sixth consecutive year. Allegheny is continuing its discussions with other companies interested in purchasing additional capacity and energy. 12 -I r LOAD MANAGEMENT As part of the nation's contiriuing efforts to manage, con-serve and gain greater efficiency from its energy supply, most util-e...'Ity'yeguiatl8K agtenCles are now reguirin% +east.cost planning" by regu-fa+4gtilities+arty of+ese%gulatid'ns cb'ntzlln a-stryng:demand-side-mahagemerit component... Because Pennsylvania's consumer-owned coyeratlvps are self-regulated by their consumer-members, they are not under oversight by the Pennsylvania Public UtilityCommission. Allegheny does, however, recognize the importance of demand-side management and has taken voluntary actions to implement a systemwide program. Allegheny and its member cooperatives launched the load management program in Jatq 1986 to reduce peak demand at individual substations. By the end of the 1992 fiscal year, more than 25MO.id54con 'ceivers (which switch off the heating element ln water heateis and certain heating appliances during peak hours)'had been.tns a Ied'In ge homes of volun-teer consumer-members. Participating cooperatives reported gross power cost savings of over $2.6 million during the year and a total savings to date of more than $8.9 million in the six years since the program began. By shifting electricity use of residential water heaters, electric thermal storage (ETS) unitsgnd,dual fuel home heating sys-tems from peak demand periods to times of lesser demand, the Coordinated Load Management System improves system effi-ciency, lessens the costly demand charges Allegheny must pay for purchased power and red8As tRe need foi new generating

capacity, In October 1989, load management coordinating system computers were instdg5Ptl~'(dggenf h~edquarfeMhe coordinat-ing system receives electric use and climate data from cooperative member~ste'ms'and usA it,for load forecasting and sys-te'rhwide load control, Allegheny has also worked with its wholesale power snppllers and has devetogrdRaaan's whish'allow the eo-op to mont-tor suppliers'oad conditions, as well as conditions on member systems. use, remi emen$ 4~ill enhance the ability to control Purchased Power costs and helP Allegheny maintain rate stability for its mefnbers~anan.e jamPle, EllgheOg ParticiPated in Metropolitan Edison's curtailable load program during the company's high de Qhe oui metlgFoducing additional power cost savings.

4. I. ~ .0 0 I 1%)" ~ ~ ~ ~)(TWAS;,~~ E conomic development i projects+ react the diversity of a co=op,'sp~ service

area, but are targeted to<

meet the ~nee of:s 'eciiic secto'nd businesses. Some, like'theres taurant at, the Dubois-Jefferson Counly

Airport, Po

'double "duty'. Iyhile they Lcreate ammediate im act b 'o~erin 'obs=lo-loca ~res~ y, gj 'idents, they alsoI'foster I long-tenn ~ 'benefits by improving:facilities-~ 'such as airports required or business expansion. This restau-rant "got off the ground" ufith the help of a $100,000, zero-interest PEA loan provided, ivith help from-,,; Unfted Electric Cooperative, Inc.,;., =, "-'r8'lp(-, ) I h rr I +i s> ~j A '~c) 4 IP '1 yllI < ~ ~ t, V 4r r S ,'r ~ S~ 4 g'. h f-C ~', g 5 ~ ~ Ih I 1 v'i t ~<<m-arM.m I 1 ..~/ h, g- 'fAt 'fAt .4In Ir .q 4q 4 K ~ 1 1 I ~ 'g g 5.4 V ~+ ($ 55 I r 'v. ~ ' r~ i "P ~ r "Q a rA~ c / V ~, +C..'," p 4 O ne of rural Pennsylvania's most abundant resources is its for- 'sts and,the timber they provide. Direct assistance to logging compa-nies combined with support 'of manufacturers of finished wood products ensures economic and employment growth. This Clarion County logging

firm, Beary Log-

ging, received a

F00,000 zero-", interest REA loan with help from Central Electric Cooperative, Inc. The inf?ux'f needed funds helped expand the company's work force and kept log loaders like this one moving. ~ c ~ ~4 P 13 Back in 1966', Allegheny anticipated future needs and began building a franiework ofdi-versified power sources. As a preference customer, it began purchasing hydropower generated at the publicly-owned Niagara Power Project from the Power Authority ofthe State ofNew York (PASNY). This extremely low-cost hydropower has saved Allegheny niore than 8219 million compared to the cost ofpower it would have needed to buy from private utilities. ingfor a distance learning program, fundingfor a ~nedical linkprogran> to in<prove rural health care, and expansion ofthe rural and urban teacher forgiveness prograni. 15 In 1977, Allegheny continued developing reliable energy sources when it contracted for 10 percent ownership in the Susquehanna Steam Electric Station (SSES). SSES is a 2,100-megawatt, two-unit nuclear power plant located near Berwick, Pa. The facilitysupplies 53 percent ofAllegheny's energy needs. Allegheny continued its commitment to low-cost generation with the Raystown Hydroelec-tric Project, WilliamF. Matson Generating Station which began conimercial operation in 1988. Named for the firstpresident ofAllegheny, Matson Station is the cooperative's first wholly developed and operated generating plant. Itsupplies 4.5 percent ofthe energy deliv-ered by Allegheny to its member cooperatives. Stable rates and reliable power supplies are only part ofthe cooperative's efforts to attract business and expand opportunities for those livingin rural Pennsylvania and NewJersey. In recognition ofthe unique role played by rural electric cooperatives, the federal government designated them as point agencies in rural development programs contained in the 1990 Farm Bill. The Rural Investment Partnership Program, for exainple, provides capital for economic development in rural areas. Allegheny and its sister organization, the Pennsylvania Rural Electric Association (PREA), also support state legislation and initiatives designed tofoster growth in rural areas. Some ofthe initiatives endorsed by Allegheny and contained in the Pennsylvania state budget include a grant program which provides money to improve rural water supplies, fund- R ural development loans and grants obtained with the help of rural electric cooperatives provide an economic base for rural commu-nities. They also provide jobs for skilled workers like these mechan-ics and truck assemblers who are putting the finishing touches on an emergency vehicle at the New Lex-ington Fire Equipment Company in Somerset

County, Pa.

The facility opened in 1991 thanks to a $100,000 zero-interest REA loan obtained with help from Somerset Rural Electric Cooperative, Inc. 19 The teacher forgiveness program, for example, encourages newly-graduated teachers to work in targeted districts including rural areas byforgiving all or a portion ofthe stu-dent loans ofthose ivho agree to participate. The need for many ofthese progranis zuas deterniined through the activities ofthe Center for Rural Pennsylvania, a legislative policy and research agency ofthe state General Assein-bly. T/ze Ceizter, iv/zic/z PREA /zelped create through its lobbyiizg efforts and now partici-pates iiz, deternzines needs wit/zizz rural coininunities and charts the effects policies have on rural state residents. Allegheny is also sponsoring a study in a four-county area in central Pennsylvania to deter-inine specific busiiiess needs wit/zizz the region. The results ofthe stiidy willenable its nieniber co-ops to apply resoiirces precisely to gain the niaxiinuin possible benefit for the area's indzzs-tries and residents. The cooperative also supports use ofstate developinent prograins like PENN VES T, w/zich provides loans and grants to upgrade sniall coininiinity water and sewer facilities. Pro-granis like this are designed to benefit all rural residents, notjust those who belong to niral electric co-ops. Rural developments efforts also take place on the federal level, too. REA's distance learn-ing and medical linkgrant prograni, authorized in the Rural Developnient Act of1990, is designed to provide rural schools, hospitals and medical centers wit/z rapid access to more spe- // c'n v4 Cga.-u ,n /I sr OF NEW Y 'I/ I s, ~) g J / r ral electric cooperatives and legitimate municipal elec-ems within economical transmission distance have y st right, or preference, to 50 percent of the electric power pro-du roject by the Power Authority of the State of New York,(PASNY). A Ja ract extended Allegheny's rights to this low-cost hydro power through iune 20, des a clause permitting an extension of service through October 31, 2003. on, uccessful conclusion in 1991 of a Iong-standing dispute between Allegheny and guarantees the continued availability of an additional 7.7 megawatts of Niagara power for r e cooperative. Allegheny's total share of PASNY power now stands at 44 megawatts. The Niagara projed produces electricity at a low cost. It is among the least expensive in the U.S. Since Allegheny began purchasing it in 1966, PASNY power has saved the cooperative more than $219 million compared to the cost of purchasing the same amount of electricity from private rsvp power companies. In 1'992, Allegheny's PASNY savings amounted to $5.1 million. The extra 7.7 megawatt alloca-tion alone shaves $893,000 annually from Allegheny's purchased power costs, based on current tes wh/ch are subject toghange by the Federal Energy Regulatory Commlsston. 1 21 cialized training and information through the use oftelecomniunications, coniputer networks and other advanced technologies. To directly assist in rural economic developinent, Pennsylvania and NewJersey rural elec-tric cooperatives help secure zero-interest loans and grantsfro>n REA tofinance projects in rural areas. These projects are designed to benefit the entire rural conununity, notjust those persons served by an electric cooperative. The goal isj ob creation and stimulation oflocal econoini es. The efforts are paying off Seven projects infive different rural co-op territories are up and ,running. Eight others are in various stages ofdevelopment. For example, inJefferson County, Pa., a $100,000 zero-interest REA loan helped fi-nance a $2 inillionairport terniinal restoration. That project does double duty by providing construction and staffingjobs now as well as enhancing the localfacilitiesin this case, an airport which willhelp attract future business and corporate development. In Clearfield County, Pa. two separate $100,000 zero-interest REA loans helped fund a portion ofthe start-up costs for the Sawmill Center for the Arts and a custom hardwood fur-niture manufacturer. The Sawinill Center strengthens a major rural industry tourismwhileproviding an outletfor local artists and crafts people. And, by helping local wood products industries, both the logging and rural manufacturing base is supported. 'I8 H arvesting timber is only part of the economic potential offered by Pennsylvania forests. The Tim-ber Line, pictured

here, typilies a host of small lirms across the state ivhose activities add value to an already important natural re-source.

The Timber Line, located in Ciearfield

County, buys locally-grown hardwood lumber and fash-ions it into fine custom furniture and cabinetry.

IVilh the assistance of a $100,000 zero-interest REA loan provided through United Elec-tric Cooperative, Inc., the firm has grown horn a garage-based hobby shared by two couples into an im-portant business employing 12 full-time and six part-lime workers. 24 r r e ';~' 'UERANNA STEAM ELEC ~c,, '<<9 ",A-I~'Ip%kil. rthe susjftelianna stqanrgf~ r,ag~'LsfrrSJrrSft;Tlfffgegattdtf qvlfPuqit,'nualeJJR 'ef lii;,aah be ~tllly~&inris)f nba'P@b'rrrt Light Company (,=~~ ~:m ~ htiht ,~a Jffrvg~t~fras~gbflentownPa,, ,o,vms the rem qtfv rf à e'hfr rraorraiJI mtesJtlsafiaiffpg@afer,fadtfiy'.I, l I r pk fhtt.~fry hesf.tfethndysqd'Stffrrfor a fear in svjdch tmtfr SSE+unjfs

"I-Igl

~v /, I r fantfffff fusil @pip@pe oNfages. Ette4!nuftffapcrIIIgact.foglrlit p 'afrfapgfTAW pkrcpog'Whkn Som', this so.j, rm tpfiiff"te " 'f', .'ce, Thfsffgure was wkly E p+pk'sfovfrCM dkwjd'mpar Son'urrage or.b~ ,.undegwp '";vyas 68.PS

Brq1,

,m Is 'J . sQc4f '.:>.'~mg w ., 'n lseety~gy~p 'vi htfrpnjgfi ad I grldtI fo Afleghenp'f"', v'di deciidrrgives, which equates Percrfrtrof Afleghfnfps total,sysjern err'- =" ' e " Sj mfnjnirds t cofliect aoc~o~rctoqsotth t+fiqkdnffdrgutgtotyfsdihcek'. At a June meetln~ Nuclear ~Rg story commlssijp lNRcl senior'ujanjgers cited ssEE'.ftvrts high level of safety~prfnaiice.; .nd 'inr'smarts at thetnqetlng, James M. Taylor, NRC executive dlrdftifc forjsperatlo'rmf +eh that the pldpt's-~ exemplary record w&fheVslto~Q Involvegent by plant m4'agepk~n aH-.~s of operation, dedP cated and knowledgeable staff and tlie overall commitment fp, safety.by1~ecrating the facility. SSES is 'd / ~ one of only five nuclear power plants in the nation so recogonlzecd, In addition, the full NRC has again ranked SSES among the best operated plants in the nation. In its Systematic Assessment of Licensee Performance (SALP), the NRC gave SSES the highest possible rating in six of seven evaluation categories operations, security and safeguards, maintenance/surveillance, emergency preparedness, safety assessment and engineering support. The evaluation, covering the period from December 1, 1990 through April 18, 1992, ranked SSES ninth among 75 plants na-tionally and first among 26 boiling water reactors. The plant has never received a rating below Category 2 the second high-est possible in any SALP evaluation. SSES also scored the second-highest possible rank in an Institute of Nuclear Power Operations (INPO) evaluation completed in October. INPO is an industry group which promotes safety and efficiency at nuclear power plants. INPO gave the plant high marks for the performance of its personnel, the stable experienced plant staff, the excellent mo-rale, and the cooperation between work groups. On a scale of 1 to 5, with 1 being the best, SSES was awarded a 2. 23 In Clarion County, Pa. a $100,000 zero-interest REA loan assisted a logging business in its expansion. Another S100,000 zero-interest REA loan helped develop an incubator in Somerset County, Pa. tofoster business development in effect "hatch" new economic growth from fertile ideas. Once those fledgling businesses are sound, they move on to make room in the facilityfor another new enterprise. A Somerset County fire truck and equipment >nanufacturing plant is also successfully oper-ating with the help provided by a $'100,000 zero-interest loan. Infact, Blaine Stockton, REA assistant ad>ninistrator ofeconomic development and technical services, has praised the New Lexington Fire Equipment Company as one ofthe shining successes ofthe zero-interest rural development loan program. Thefinn, which opened in the summer of1991, was pro-jected to have 20 employees on board afterfive years. Afterjust 18 months, the conipany has 41 employees and is still expanding. In 5'arren County, Pa. a $1.6 million waste recycling plant recently began operation. Allegheny and PREA are also helping to obtain a $100,000 zero-interest REA loan to partiallyfund a S3 million municipal airport expansion project in Bradford County, Pa. In Clarion County, a $77,000 REA grant willhelp convert an unused bridge into a commercial developinent. In Sussex County, NewJersey, plans for a tourism expansion project are being discussed. Of irector Ilegheny--., s Board, -..=-. .( 1 (" '(( Dave Turner Chairman Warren EC Alston Teeter Vice Chairman Tri-County REC (1+W Lr I I I f >>'g RZq f I, x'LA,~ Lowell Friedline Secretary Somerset REC ,r< C,~ I John Looser Treasurer Adams EC Ralph Fischer Bedford REC (1 ) (. I ( n ( 't 0 I fI gl 25 With the help ofAllegheny, PREA and their member cooperatives, these projects willpo-tentially create an estimated 120 directjobs and stimulate existing businesses in their local economies. Allegheny's rural development efforts continue a 50-year tradition ofcommitment'o the needs ofrural citizens and businesses. That tradition began with the goal ofenabling every-one to have the advantages and comfort electric power provides. It continues today in egorts to provide equal opportunities injobs, education and health care to all residents regardless of where they choose to live. 28 kIjtIIglemyMmljgeweITijltremm 4i: Allegheny's management team: From left, Rob A. Seide, director of communications; Frank M. Betley, director of power supply & enginering; Anthony C. Adonizio, general counsel & assistant secretary; Jesse C. Tilton III, president; William E. Mowatt, vice president; Robert S. Horn, risk manager; Laurence V. Bladen, director, financial & administrative services. Winston Donaldson Central EC John B. Drake Claverack REC John Ritchey New Enterprise REC ,0

a. +'-

(,Q 3+ ~ Py Harold Hines Northwestern REC Sarg Eckenrod Southwest Central EC John Anstadt Sullivan County REC James Henderson Sussex REC Anson Brosius United EC Harold Ritchey Va/ley REC 30 mMIEilEilKQ00'P OOPOSF'EIR300MN Adams Bedford Central Claverack New Enterprise Northwestern Somerset Southwest

SUMMARY

OF OPERATIONS Operating rcvcnue

$29.002.766

$8.5C)2,G70

$ 19,G29,986 SIG,SI 1.7Ci(i

$3,~>,C)43 SI7,637,~~

$12,373,773

$23,432,769 OPERATING EXPENSES Purcliascd power Operations 6: nlaintcnancc Depreciation Taxes Interest Cost ofElectric Service Operating Margins Nonoperating nlargins b: capital credits Net margins

$ 19.G32,198

$4,904,020

$ 1,513,294

$255,926

$ 1,784,382

$33,089,821

$912,945

$ 134638

$ 1,041,583

$5.G11,676

$ 12.083,3C)7

$ 1.507,502

$377,232

$75,54()

$314,776

$4,282,86

$1,011,911

$ 143,803

$1,074,496

$9,742.7()8

$3,905,498

$ 1.099,321

$23C).217

$914,5Ci3 S675,93S

$62.774

$738,712

$1,033.800

$190,202

$ 1,224,002

$913,399 5 1 "~,783

$ 1.03C),182

$7,886.732

$ 18,596,186i

$ 15,898,3C)7 S2,4C) l,&8

$887,054 SIC)2,000 S30,931

$0

$3,541,193

($307,551)

$40.011

($267,539)

$ 11,447,471

$3,531,337

$945,801 S230,(i24

$9&s,924

$9,126),670

$ 17.3()3. I I5

$2,033,520 S594.854 5152,331

$718,156

$3,438,()00

$923,378 Si()4,824 5 I,OCi3,55Ci

$558,070 5')s'7 540

$780,610

($2)51,758)

$ 144,826 (SIN).932)

$479,29G

$ 131,738

$6il1,034

$ 17,079,158

$ 12.()2)5,531

$22,953.473 ASSETS Total Utilityplant Less accumulated depreciation Nct utilityplant Other property ru investments Current tt: accrued assets Deferred debits Total assets

$ 12,2) 58,082

$41,012,272

$7,G74,515

$4,814,210

$96,936

$4,481,017

$9.718,011 S8,927,730

$ 10,121,527

$2S,311,899

$27,142,SIC)

$2.25(),269

$2,037,176

$71,761

$5,310,457

$5.512,828 5103,011

$4,1 "s.543

$2,5G2.467

$298,131

$53.597,933

$ 14,486,732 539.%8,195

$34, IÃ.957

$53,270,353 S14,602.543

$38.029,910

$3C),070,546

$3,426,169

$2,080.492

$ 1.345 C)77 S829.353

$308,278

$2.483,309

$9.Qi4.817

$5,2()7,118

$6,05'j,07(i

$25,3()3,116

$18,034,182

$29.298,739

$5,673,1()6

$2,510,550

$509,934

$4,243,238

$3,336,831

$30,103 SG,192,671

$2,156,281

$71,458

$34.056.766

$25,644,354

$37,7t9,149

$35.027.933

$23,301,300

$35,357,815 LIABILITIES Margins S: equities Long tcfnl debt Current 5: accrued liabilities Other credits Sl reserves Total Liabilities

$ 19,904,882

$31,255.867

$2.4s&,016

$ 12.168

$7,177,290

$ 15,651,752 S I2.117,00G

$6,268.719

$21,272,306 S I8,985,838 S72'),578

$2,049.319

$2,978,371

$318,145

$264,818

$44,742

$53,597.933

$14,48G,732

$39,238,195 S34,125,957

$2,2)85,066

$0

$ 198,244

$0

$2,483,309

$ 14.473.939 SI 0,858,404

$17,956.624 S17.653.970

$ 13.G52,986 S17,829,146

$1,874,512

$54,345

$996,982

$ 1.877,G19

$ 135,982

$55.760

$34,056,766

$25,644,354

$37,719,149 OTHER STATISTICS Miles ofLine Consumers served Consumers pcr mile Kwhsold per consumer Mwh sales Annual rcvenuc pcr consumer Plant investment per consumer Itcvenuc pcr mile oflinc 2,491 9.2 12,861 295,853

$ 1,261

$ 1,783 SI I,G43 1,154 7,841 6.8 10,764 84,401

$ 1,092

$ 1,291

$7,421 2,949 7.5 8,141 179,653

$ 1,283

$6,656 2,432 15,479 9,958 154,142

$ 1,086 51,754

$6,913 375 2,98()

I I,G50 34,788

$ 1,083

$451

$8,ti23 2,361 16.610 10.445 173,492 SI,OG2

$ 1,527

$7,469 1,852 11,240 6.1 143,808 SI, IOI

$1,604

$6,681 2,431 19,G98 8.1 12,545 247,107

$ 1,190

$ 1,487

$9,639

~

"/

~/

.J~~W~

/1

'et 95 k

J f

I',/

k

't 1

32 ooo ASSETS:

General Plant Construction Work in Progress TOTAL PLANT Accumulated provision for depreciation Gr amortization NET PLANT Non-Utilityproperty - net Capital Credits - NRUCFC Invcstmcnts in associated orgallizatiotls Other Invcstmcnts Casll gelleral fullds Cash - construction fimd Temporary invcstmcnts Special funds Notes rcccivablc Accounts rcccivablc Materials and Supplies-Other Prcpaymcnts Other current ter accrued assets Deferred debits TOTAL ASSETS LIABILITIES Depreciation Memberships Patronage npital Donated npital Long-term debt - REA Long-term debt - other Notes payable Accounts payable Cost of service adjustment Accrued taxes Accrued interest Other current itr accrued liabilities Deferred credits Operating Reserves TOTAL LIABILITIES MEMBERS REVENUES Ad~ms Bedford Celltral Claverack New Enterprise Northwestern Somerset Southwest Central Sullivan Sussex Tri-County United Valley Warren TOTAL MEMBER REVENUES 1992 648,947,342 14,214,117 663,161,459 167,818,423 495,343,036 4.910,988 141,530 3,878,851 5,197,077

-99,816 48,G95 23,226,222 1,874,311 3,367,637 10,350.153 4,947,032 5,250,031 2,266,810 3,706,835 574,072,928 804,908 2,800 14,390,760 50,730 7,395,044 508,080,384 0

6,183,734 4,290,26G 3,815,257 3,052,458 1,720,611 17,926,2G7 7,164,617 574,072,929 19,370,0IS 5.533,837 11,978,857 9,611,069 2,429,876 11,186.990 9,793,753 17,142,056 2,619,316 6,778,523 7,906,010 8,279,835 11,694,928 3,159,357 127,484,459 1991 640.405.919 11.495,759 651,901,G79 154,58 1, IG9 497,320,510 5,010,441 125,292 3,879,055 4,628,G98 640,291 1,889 36,895,537 1,889,548 3,G95,755 13,766,227 4,694,020 1,133,323 1,047,743 2,643,004 577,371,333 804,907 2,800 12,012,827 50,730 7,413,005 508,537,784 0

16,830,638 2,541,259 1,81S,246 3,509,277 507,177 18.130,598 6,019,991 577,371,332 18,201,477 5,180,139 11,410,378 8,901,042 2,301,401 10,484,591 9,106.826 16,166,475 2,390,777 6,534,524 7,450,527 7,948,551 11 ~ 122,999 3,180,782 120,380,490 1990 633,120,217 5,903,441 639,023,GSS 137,581,537 501,442,121 4,970,628 296,167 3,879,261 4,012,303 M7 12.103 47,019,705 1,901

~ 112 4,148,632 11,549,G90 I ~ 113,921 I ~ 113,921 574,342 499,200 582,S32.219 801,907 2.800 3,504,255 50,730 5,715,056 526,410,577 15,245,4G2 15,245,462 6,416,815 545,874 3,502,011 683,332 19,341,385 577,322.375 596,663,760 IG,920,011 4,948,332 11,170,252 8,739,960 2,214,818 10,323,184 8,737,337 14,825,514 2,345,952 6,312,906 7,199,562 7,664,418 10,650,759 3,084,646 115,137,651 1989 616,987,394 9,240,232 62G,227,626 88,725,714 537,501,912 5,055,971 322,609 3,879.452

<57,634 1,483 35,078,414 1,903,823 13,734,646 1,052,028 1,052,028 342,028 1,350,929 600,817,689 804,768 2,800 38,941,810 50,730 4,010,892 522,511,395 4,893,235 4,287,707 4,893,235 551,844 3,348,615 664,308 20,502,325 584,156,571 604,658,896 16.459,643 4,934,084 11,123,585 8,678,763 2,183,582 10,375.739 8,772,896 14,548,709 2,344,198 6,333,850 7,194,547 7,814.898 10,555,639 3,114,060 114,434,194 1988 609,034,277 6,938,574 615,972,851 70,828,954 545,143,897 5,083,843 344,133 3,811

~ 153 1,296,372 251,664 39,577,723 2,071,952 14,411,035 1,030,083 1,030,083 333,278 848,811 615,234.027 801,477 2,800 36,387,453 50,730 501,601,153 30,318,791 5,180,000 8,801,704 5,330.430 346,221 3,577,179 12,751 22,594,732 591,609,212 614,203,944 15,450,524 4,717,574 10,795,933 8,348,586 2,066,695 9,994,179 8,351,506 14,005,635 2,193,827 6,004,249 6,887,205 7,709,440 9,955,957 3,051,498 109,532,808

31 Q

o p

o Sullivan Sussex Tri County United Valley Warren TOTAL

$4.161,509

$12,534,093

$ 14,124,954

$14,061,325

$17,fi68,423

$5,134,178 SI98,369,082

$2,679,357

$789,5]2

$273,796

$40,038

$225,783

$4,008,488

$ 153.021

$36,586

$189.607

$6,871,464

$2,439,989

$743,421

$ 1,291,304

$722,335

$ 12.068,513

$465,580

$122,637

$588.217

$8,111,419

$3,244,323

$894,568

$ 184,471

$ 1,042,402

$ 13,477,183

$647,771

$ 115,091

$762,862

$8,387,488

$3,056,836

$912,858

$97,792

$1,250,028

$13.705,002

$35G,323

$177,479

$533.802

$11,837,427

$3,287,248

$ 1,035,616

$159.653

$754,162

$ 17,074,10G

$594,317

$ 167,221

$761,538

$3.199.045

$1,080,098

$321,fi65

$57,2fiG

$ 132,270

$4,790,343

$343,834

$60,738

$404,572 5128.554,<i73

$38,388,146

$ 10,809,715

$3,120,72G

$ 10,920,835

$191,794,09fi

$6,574,98G

$1,723,264

$8,298,250

$9,420,447

$3,097,594 56,322,852

$ 1,25G,775

$593,535

$33,032

$8,206,194

$24,259,490

$5.893,301

$ 18,366,189

$2,704,128 S2,696,016

$306,718

$24.073,051

$35,030,024

$8,497,345

$2G,532,679

$3,680,377

$2,085,828

($26,878)

$32,272.00G

$35,830,083

$9,567,611

$26,262,472

$4,843,255

$3,036,849

$237,009

$34,379,585

$36,924,440

$ 10.369.967

$26,554,473

$4.639,041

$4.698,650

$21,281

$35,913,445

$ 11,612.972

$3.813,911

$7,799,06il

$1,705,574

$ 1 ~ 145,480

$480,021

$ 11,130,13fi

$392,164,025

$99,696,071

$292,46i7,954

$55,131,3'

$37,494,979

$2,232. 517

$387,326,812

$3,083,809

$4,770,120

$352.076

$ 189

$8,206,194

$8,441,882

$ 13.451,229

$2.134,570

$45,370 S24,073,051 S12,285,223

$ 18,112,358

$ 1,836,353

$38,072

$32,272,00G

$ 11,282,666

$21,523,773

$1,1G4,740

$408,406

$34,379.585

$ 18,536,355

$ 15,105,129

$1,907,G15

$364,345

$35,913,445

$7,559,954

$3,130.422

$188,475

$251,285

$11,130.136

$ 161,61 4,853

$203,011,863

$20,706,470

$ 1,993,627

$387,32G,813 5,015 6.2 7,658 38,407

$ 1,261

$5,186 612 9,975 16.3 10,356 103,303 Sl,257

$ 1,841 S20,467 2,916 16,140 5.5 6,898 111,329

$875

$1,644

$4,844 2,631 IG,134 7,226 116,577

$872

$ 1,628 55,344 17,903 7.4 9,671 173,143

$987

$1,483

$7,334 1,016 8,574 8.4 5,162 44,258

$599

$910

$5,055 26,432 192,665 7.3 9,863 1,900,260

$ 1,030

$ 1,518

$7,505

34 PROMPT ACTION RESULTS IN SIGNIFICANTSAVINGS n Febriiary 28, 1992 Allegheny learned through a trade press report that the federal Rural Electrification Adniinistration (REA) ivoiildfor the first tinie permit geiieration and trans-mission cooperatives, srich as Allegheny, to reprice certaiu outstanding high-cost Federal Financ-ing Bank (FFB) loans. By agreeiug to pay the governnieut a prepaynient preinium equal to one year's iuterest on the loans being repriced, REA-financed electric systenis could rediice the interest rate for the reniaining life ofthe loans to the then-current FFB interest rate.

At its March 5, 1992 mccting, the Allegheny Board of Directors authorized submission of a repricing application. Thanks to this speedy action, Allcghcny was one of only 14 borrowcrs to receive REA approval to reprice a portion of its long-term FFB debt during 1992. Nearly $ 123 million of FFB loans carrying intcrcst rates ranging from 8.28 to 13.8 pcrccnt werc rcpriccd by Allegheny on August 31, 1992 to new interest rates averaging 6.78 pcrccnt.

Thc repricing is expected to provide a nct savings in rates of S1.42 million during thc first year and S19.07 million over thc remaining term of thc loans. By timing the repricing to take advantage of falling interest rates, Allegheny rnaxirnizcd the savings available. Any deby in submitting the repricing request would have liarmcd Allegheny since REA limited the rnimber of repricings permit-ted during 1992.

The interest cost savings achieved by thc repricing werc incorporated into the 1993 Purchased Power Cost Projections and Mcrnbcr Coopcrativc Rate Study. Thus thc expected nct savings were passed on to Allegheny's mcmbcr coopcrativcs.

33 0 ~

t3 0

0 ELECTRIC ENERGY SALES:

Mcmbcrs Non-members TOTAL RECEIPTS Cost of power Wheeling RAYSTOWN:

Operation ftt Maintcnancc Intcrcst Transmission Taxes OTHER PROjECTS:

Operation tent Maintcnancc Transmission Depreciation Taxes SSES:

Gcncration Operation gr Maintcnancc Fuel Unamort. Debt itr Extraordinary Loss Dcprcciation Taxes Transmission Maintcnancc Intcrcst Intcrcst charged to Construction - Credit Gcncral A'dministrative TOTAL OPERATION EXPENSE Dcprcciation Taxes Other deductions TOTAL EXPENSES 1992 127,484,460 5,935,149 133,419,609 34,447,974 10,1G8,786 2.231

~ 109 128,693 23,918 23.293 290,689 62,549 588,886 18.912 19,697,503 7,263,452 9,663,536 10.931,235 4,282,906 272,597 39,608,659

-1,143,974 5,716,858 135,395,660 186,884 169,063

-410,374 135,341,233 1991 120,380,490 24,966,421 145,34fn 911 43,054,251 8,880,653 2,320,G00 0

206,809 19,385 300,322 15,401 509,847 3,352 20,958,143 8,452,974 9,9G7,034 4,243,498 293,213 42,319,156

-I,0II,SI4 5,559,603 146,871,542 159,064 141,581 M2,593 14G,509,594 1990 115,108,723 14,138,882 129,247,605 32,085,914 9,249,841 2,560,147 0

183,550 IG,884 0 123,GG3 24,052 466,190 18,024,408 9,512,667 9,034,865 3,437,242 216.007 43,018,285

-909,146 5,315,694 133,167,671 131,397 136,143 30,417,247 163,852,458 1989 114,434,195 16,057,630 130,491

~ 825 33,358,887 8,345,773 2,346,261 0

200,521 18,518,905 9,413,177 9,376,144 3,429,845 317,266 42,724,066

-1,233.918 5,153,748 132.772,327 134,988 109,750

-701,433 132,315,632 1988 109,532,808 24,347,984 133,880,792 40,119.659 7,441,025 736,696 116,970 0

19,490,190 8,634,341 8,694,096 3,608,751 207,431 44,147,039

-2,318,873 3,980,637 135,662,439 120,533 102,094

<72,383 135,212,G83 Operating margins Interest income Other - proftt/Joss) net Other capital credits

-1,921,624 2,845,352 1,397,724 55,068 0

-1,162,683 3,691,751 10,081 29,912 44,604,853 4,636,182 1,462,261 21 ~ 184

-1,823,807 4,328,040 28,940 23,825

-1,331,891 2.924,868 59G.398 NET MARGINS 2,376,520 2,539,148

-28,476,498 2,554,357 2,213,200

36 TAXABILITY:Allegheny has a private letter ruling from thc Internal Revcnuc Scrvicc providing for the cooperative to remain taxable until an application is made to bccomc a tax-cxcmpt organization again. Allegheny cxpccts to )iavc tax losses to carry forward to oA'sct regular tax liability for thc foreseeable future. Allcghcny contimies to bc subject to thc Altcrnativc Minimum Tax (AMT) provi-sions of the Internal Revenue Code. Allegheny bclievcs that thc tax liabilities arising from thc AMT will remain ncgligiblc.

REGULATION: Unlike for-profit, investor-owned utilitics, Allcghcny and its member cooperatives arc consumer-owned and non-profit. They are self-rcgulatcd by their consumer-mcmbcrs acting through a democratically-clcctcd board of directors and thus arc not under thc jurisdiction of the Pennsylvania Public UtilityCommission or thc Ncw Jcrscy Board of Public Utilities. However, REA does review thc cooperative's rate making and operating practices.

Allegheny's board of directors arc democratically clcctcd. One director is sclcctcd from each of Allegheny's mcmbcr cooperatives.

Thc board governs all policics, including thc cstablishmcnt of rates. Board review of thc rate-making process and approval of each rate change assures thc mcmbcr cooperatives that the price they pay for electricity is fair and reasonable.

ALL-REQUIREMENTS CONTRACT: Each of thc 14 cooperatives scrvcd by Allcghcny lias cntcred into a Wholesale Power and Power Cost Pooling Contract, commonly rcfcrrcd to as an All-Rcquirc-ments Contract. As a condition for approval of loans to Allcghcny, REA rcquircd Allcghcny's mem-ber co-ops to execute thcsc contracts. All gcncration and transmission coopcrativcs borrowing money from REA are required to have substantially similar contracts signed by their mcmbcr distribution systems.

By signing this contract, Allcghcny's mcrnbcr distribution coopcrativcs agree to purchase all their power supply needs from Allegheny. They also agree to adjust their retail rates to mcct all costs and TIER rcquiremcnts.

In January 1977, each of Allegheny's member coopcrativcs execu(cd an arncndmcnt to thc origiiial 1965 contract to cover Allegheny's purcliasc of 10 pcrccnt of SSES. The aincndmcnt cxtcndcd thc contract through Dcccmbcr 31, 2025 to cover thc life of thc plant.

TERRITORIAL INTEGRITY: The Unincorporated Area Ccrtificd Territory Law of 1990, originally signed into law in July 1975 and codified in 1990, assigns exclusive tcrritorics for all of Pennsylvania's rural electric cooperatives and private power companies in areas outside thc corporate limits of cities and boroughs. The law states that each electric supplier has thc cxclusivc right and duty to provide service within its own territory.

This law helps avoid costly duplication of clcctric lines and facilities, waste of materials and natural resources, plus improves electric system cAiciency by allowing electric utilities to inakc long-term contracts for power and plan necessary capital improvcmcnts. It also allows cooperatives to retain large loads such as businesses, factories and retail centers that move into co-op territory. These addi-tional loads help the cooperatives, which primarily serve sparsely-populated areas, to moderate rates by spreading their costs over grcatcr sales.

35 MARGINS Thc 1992 margins of $2,376,520 mct Allcghcny's Times Interest Earned Ratio (TIER) goal of 1.06.

Additional margins of $4,290,266 in excess of this TIER requirement earned during 1992 willflow back to member coopcrativcs in 1993 through Allcghcny's Annual Operating Adjustment.

FINANCING The largest cxpcnse item for Allcghcny is interest on long-term debt. In 1992, it accounted for morc than 28 percent of total cxpcnscs.

To help control intcrcst costs, every effort is made to obtain the lowest-cost financing vehicles available. These have included pollution control bonds, commercial paper, lines of credit, REA in-sured and guarantccd loans, and lcvcragcd leasing. As of October 31, 1992, Allcghcny's dollar wcightcd average interest rate on outstanding debt (excluding leveraged lease debt) was 7.68 percent.

POLLUTION CONTROL BONDS: Allegheny has been able to achieve very attractive interest rates by using variable rate tax-exempt pollution control revenue bonds to finance a portion of the pollu-tion control facilitics at thc Susquclianna Stcam Electric Station (SSES). In 1992, thc average yield on thc bonds, which bear intcrcst at wcckly and monthly variable rates, was 3.4 percent. These bonds-issucd though the Lchigh County Industrial Devclopmcnt Authorityarc backed by irrevocable Ict-tcrs of credit from Rabobank Nederland.

COMMERCIAL PAPER: Allcghcny maintains a commercial paper program to supplement short-tcrm project financing. Moody's Investors Services has assigned its Prime-2 rating to this program.

No commercial paper was issued or outstanding during 1992.

LINE OF CREDIT: In fiscal year 1992, Allcghcny had a $21.4 million line of credit with the Na-tional Rural Utilitics Coopcrativc Finance Corporation (CFC). When needed, this line of credit is used to supplement project financing. The coopcrativc did not draw on these funds in 1992.

REA INSURED AND GUARANTEED LOANS: A traditional blend of REA insured and REA guar-anteed loans, which makes up thc majority of Allegheny's debt portfolio, continues to be Allegheny's primary source of financing. REA guarantccd loans made by the Federal Financing Bank (FFB) are used to finance certain additions to SSES. Approximately 17 percent of the $476.5 million of the out-standing FFB loans bear short tcrin interest rates of two years. Thc remaining FFB loans have 35 year niaturities and bear a weighted average intcrcst rate of 7.67 percent. Allcghcny utilizes REA in-sured loans to finance transmission and load managcmcnt projects. Bearing interest at 5 percent, these loans arc an attractive low-cost source of financing.

LEVERAGED LEASE: Thc lcvcragcd leasing of the Raystown Hydroelectric Project has ensured the cost of power produced by thc project is lower than thc cost of the purchased power it replaced.

Under the lease agrccmcnt, Allcghcny controls thc placcmcnt of the $20.5 million debt portion of thc lease. To take advantage of thc continuing dcclinc in interest rates, Allegheny has pbced 60 pcr-ccnt of thc lease debt in various maturitics ranging from 30 days to 4 years. This resulted in a blended intcrcst rate of 7.09 pcrccnt in 1992. Compared to placing the total lcasc debt in a two-year maturity, an intcrcst savings of $ 197,000 was rcalizcd for fiscal year 1992.

CFC: In addition to providing Allegheny with a linc of credit, CFC has provided financing for thc Locust Court Building (Allegheny headquarters) plus loans of $4.4 million for load management and transmission facilities.

lRQpDQOPR 09 0

0 0

0 0

Coo ers 8Ly rand REPORT OF INDEPENDENT ACCOUNTANTS To the Board ofDirectors Allegheny Electric Cooperative, Inc.

We liave audited the accompanying balance sheets ofAllegheny Electric Cooperative, Inc. (Allegheny) as of October 31, 1992 and 1991 and the rclatcd statements ofoperations, equitics, and cash flows for the years then ended. These financial statements are the responsibility ofAllegheny's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statcmcnts arc free ofmaterial misstatement. An audit includes exainining, on a test basis, cvidcncc supporting the amounts and disclosures in the financial statcmcnts. An audit also includes assessing the accounting principles used and significant cstimatcs made by management, as well as evaluating the overall financial statement prcscntation.

We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position ofAllegheny Electric Cooperative, Inc. as ofOctober 31, 1992 and 1991, and the results ofits opera-tions and its cash flows for thc years then ended in conformity with generally acccptcd accounting principles.

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40 STATEMENTS OF OPERATIONS for the years ended October 31, 1992 and 1991 (in thousands)

Operating rcvcnuc, including sales to mcmbcrs of

$ 127,495 in 1992 and $120,380 in 1991 OPERATING EXPENSES:

Purchased power Transmission operation Transmission maintcnancc Production operation Production maintenance Fuel Depreciation, net Taxes Administrative and gcncral Operating nlargin bcforc intcrcst and other deductions

$133,438 34,448 10,531 98 15,674 6,258 7,263 12,511 4,336 6,186 97,305 36,133

$145,347 43,054 9,319 69 15,556 7,731 8,453 11,441 4,279 5,994 105,896 39,451 INTEREST ANDOTHER DEDUCTIONS (INCOME):

Interest cxpcnse, net ofallowance for funds used during construction of$1,144 in 1992 and

$ 1,042 in 1991 Other deductions (income), nct Operating deficit 38,465 (965) 37,500 (1,367) 41,277 14 41,291 (1,840)

NONOPERATING MARGINS:

Nct nonoperating rental loss ln'tcl'cst lnconlc Other'et margin (21) 2,840 924 3,743 S

2,376 (72) 3,657 794 4,379 2,539 See accompanying notes tofinancial stateinents.

39 BALANCESHEETS as ofOctober 31, 1992 and 1991 (in thousands)

I I

I I

) I C&r ASSETS Electric utilityplant:

In service Construction work in process Nuclear fuel in process Less accumulated depreciation and amortization OTHER ASSETS ANDINVESTMENTS:

Nonutilityproperty, at cost (nct ofaccumulated depreciation of$1,847 in 1992 and $1,656 in 1991)

Investments in associated organizations Notes rcccivable from members, less current portion Other investments Other noncurrcnt assets CURRENT ASSETS:

Cash and cash equivalents Accounts receivable, including accounts receivable from mcmbcrs of$9,729 in 1992 and $10,081 in 1991 Inventories Other current assets Deferred charges EQUITIES:

Memberships Donated capital Patronage capital Other margins and equities LONG-TERMDEBT~ LESS CURRENT PORTION

$644,429 14,214 4 511 663,154 167 818 495 336 4,916 4,069 3,368 6,994 522 19 869 23,391 9,920 4,947 3 339 41 597 13 370

$570,172 S

3 51 37,952 23 561 14 445 504 127

$632,559 11,496 7 847 651>902 154 581 497 321 5,010 4,068 3,693 6,427 554 19 754 37,117 13,374 4,694 2 470 57 655 2 643

$577,373 S

3 51 37,952 25 937 12 069 513 218 CURRENT LIABILITIES:

Current portion oflong-term debt Accounts payable and accrued expenses Accounts payable to members 11,348 10,686 4 475 26 509 13,645 11,550 2 741 27 936 OTHER LIABILITIESANDDEFERRED CREDITS:

Accrued nuclear decommissioning Deferred income tax benefits from safe harbor lcasc Other deferred credits See accoinpanying notes tofinancial statenients.

7,165 10,711 7 215 25,091

$570,172 6,020 11,454 6 676 24,150

$577,373 I~

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42 STATEMENTS OF CASH FLOWS for the years ended October 31, 1992 and 1991 (in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Nct margin Adjustments to reconcile nct margin to net cash provided by operating activities:

Depreciation and fuel amortization Amortization ofdcfcrred clrargcs and deferred credits Gain on sale ofother investments Increase (decrease) in cash duc to changes in operating assets and liabilities:

Accounts rcccivablc Invcntorics Other current and noncurrent assets Dcfcrrcd charges Accounts payable and accrued expenses Accounts payable to members Other liabilities and dcfcrrcd credits Net cash provided by operating activities S 2,376 19,053 (3,585)

(200) 3,454 (253)

(855)

(33)

(864) 1,734 3,603 24,430 S 2,539 19,218 (859)

(116)

(2,329)

(224)

(438)

(361)

(1,885)

(3,799) 687 11,059 CASH FLOWS FROM INVESTINGACTIVITIES:

Additions to electric utilitypbnt and nonutility property Purchase (redemption) ofinvestments in associated organizations Payments rcccived on notes receivable from members Purchase ofother investmcnts Proceeds from sale ofother investments Net cash used in investing activi'ties (16,991)

(I) 362 (8,604) 8,209 17,025 (15,359) 182 322 (12,514) 12,281 15,088 CASH FLOWS FROM FINANCINGACTIVITIES:

Proceeds from long-term debt Payments on long-term debt Payment ofdebt rcpurchasc premium Retirement ofcapital credits Nct cash used in financing activities Dccrcasc in cash and cash equivalents Cash and cash equivalents at beginning ofyear Cash and cash cquivalcnts at end ofyear 4,531 (15,919)

(9,743)

(21,131)

(13,726) 37,117

$23,391 3,933 (9,196)

(622)

(5,885)

(9,914) 47,031

$37,117 See acconipanying notes tofinancial stateinents.

41 STATEMENTS OF EQUITIES for the years ended October 31, 1992 and 1991 (in thousands) ts rvq~sg Donated Patronage Memberships Capital Capital Unrealized Other Loss on Margins Marketable and Equity Equities

~

Securities Total Balance at November 1, 1990

$3

$51

$38,574

$(28,476)

$(177)

S 9,975 Change in unrealized loss on markctablc equity sccuntics 177 177 Nct nlargin 2,539 2,539 Retirement ofcapital credits (622)

(622)

Balance at October 31, 1991 51 37,952 (25,937) 12,069 Net margin Balance at October 31, 1992

$3 2,376

$51

$37,952

$(23,561) 2,376

$14,445 4

ct See aeeonipanying notes tofinancial statements.

9i.2o

43 NOTES TO FINANCIALSTATEMENTS

1. Summary of Significant Accounting PoIicles:

Allegheny Electric Cooperative, Inc. (Allegheny) is a rural clcctric coopcrativc utilitycstablishcd under the laws ofthe Commonwealth ofPennsylvania. Financing assistance is provided by thc U.S. Dcpartmcnt of Agriculture, Rural Electrification Administration (REA) and, therefore, Allegheny is subject to certain rules and regulations promulgated for rural electric borrowcrs by REA. Allcghcny is a gcncration and transmis-sion cooperative, providing power supply to fourtccn owner/members who are rural clcctric distribution cooperative utilitics providing clcctric power to consumers in certain areas ofPennsylvania and Ncwjersey.

Allcghcny maintains its accounting records in accordance with the Federal Energy Regulatory Cominis-sion's chart ofaccounts as modified and adopted by REA.

Electric UtilityPlant and Depreciation:

Electric utilityplant is stated at cost, which includes an allowance for funds used during construction. Depre-ciation for nuclear utilityplant and production assets is provided on the modified sinking fund method under the amcndcd phase-in plan adopted to conform to Financial Accounting Standards Board Statement No. 92, "Regulated Enterprises-Accounting for Phase-in Plans" (Statcmcnt No. 92). The straight-line method is used for all other assets, except nuclear fuel. The cost ofunits ofproperty retired or rcplaccd is removed from utilityplant accounts and cliargcd to accumulated depreciation.

Nuclear Fuel:

Nuclear fuel is charged to fuel expcnsc based on thc quantity ofheat produced for clcctric generation. Under the Nuclear Waste Policy Act of 1982, the U.S. Dcpartmcnt ofEnergy (DOE) is responsible for thc perma-nent storage and disposal ofspent nuclear fuel removed from nuclear reactors. Allegheny currently pays to Pennsylvania Power Bc Light Company (PP&L), co-owner ofSusquehanna Steam Electric Station (SSES), its portion ofDOE fees for such future disposal services.

Cost of Decommissioning Nuclear Plant:

The estimated cost ofdecommissioning Allegheny's portion ofSSES is approximately S36.4 millionand is being accrued over the estimate useful lifeofthe plant. Decommissioning costs are included in rates to the extent rcquircd to meet thc funding schedule approved by the Nuclear Regulatory Commission (NRC).

Differences between amounts accrued and amounts collcctcd in current rates are dcfcrred for future rccovcry in accordance with the funding schedule. As ofOctober 31, 1992 and 1991, dcfcrrcd charges included $2.8 million and S1.8 million, respectively, ofdeferred nuclear decommissioning costs.

As rcquircd by the NRC, Allcghcny cstablishcd a Decommissioning Trust Fund (Trust Fund B) which is restricted for use to ultimately dccoinmission SSES. In accordance with the NRC funding schedule, S0.9 millionand S0.8 millionwas funded to the Trust Fund B for the years ended October 31, 1992 and 1991, rcspcctivcly. Allegheny's Board ofDirectors has rcstrictcd as ofOctober 31, 1992 and 1991, S3.4 millionand S3.8 million, rcspcctivcly, ofTrust Fund A for future payments to Trust Fund B. Trust Fund A and B are included in other investments.

Accrued nuclear decommissioning as ofOctober 31, 1992 and 1991 was S7.2 millionand S6.0 million, respectively.

44

1. Summary of Significant Accounting Policies, continued:

Allowance for Funds Used During Construdion:

Allowance for funds used during construction reprcscnts thc cost ofdirectly rclatcd borrowed funds used for construction ofor additions to an clcctric utilityplant. Thc allowance is capitalized as a component ofthc cost ofclcctric utilityplant while under constructioi).

Investments in Associated Organizations:

Investmcnts in associated organizations arc carried at cost.

Preliminary Surveys:

Costs ofpreliminary surveys for potential dcvelopmcnt projects are rccordcd as dcfcrrcd charges. Ifcon-struction ofa project results from such surveys, thc dcferrcd charges arc transfcrrcd to thc cost ofthe facili-tics. Ifa preliminary survey is abandoned, thc costs incurred are charged to operations.

Cash Equivalents:

For purposes ofthc statcmcnts ofcash flows, Allcghcny considers all highly liquid investmcnts with an orig-iiial maturity ofthrcc months or less when purchased to bc cash equivalents. Cash cquivalcnts arc carried at cost, plus accrued intcrcst, which approxiniatcs market value.

Inventories:

EffcctivcJanuary I, 1991, Allcghcny began to account for certain power plant spare parts using a dcfcrrcd inventory method. Under this method, purchases ofspare parts under inventory control arc included in an inventory account and then charged to thc <<ppropriatc capital or cxpcnsc accounts when the parts arc used or coi1sui11ed.

The value ofthese spare parts was $4.5 millionand was recorded as an increase in inventory on thc bal-ance shcct. Thc associated income statcmcnt effect was rccordcd as a dcfcrred credit and willbc amortized as a credit to cxpensc over a three-year period consistent with the nternaking treatment.

In May 1992, Allcghcny rcccivcd permission from thc Intcnial Rcvcnuc Scrvicc to use this method of accounting for income tax purposes. Therefore, Allegheny willinclude thc value ofthese spare parts in taxa-ble income over a six-year period beginning with the tax year cndcd October 31, 1991.

Invcntorics are carried at the lower ofcost or market value, cost being dctermincd on the average cost 111cthod.

Other Investments:

Other investmcnts include U.S. govcrnmcnt obligations, corporate obligations, and common stocks (mar-kctablc equity securities). The U.S. govcrnmcnt and corponte obligations are stated at amortized cost which approximates niarkct value. Markctablc equity securities arc carried at thc lower oftheir aggregate cost or market value'. Clianges in net unrealized losses on noncurrcnt marketable equity securities are recorded di-rectly in a separate cquitics'ccount and arc not included in thc determination ofnct margin. Rcalizcd gains and losses arc dctcrmincd on a specific identification basis.

Patronage Capital and Other Margins and Equities:

Allcghcny had cstablishcd an unallocated cqiiityaccount, Other Margins and Equitics, as a result ofa charge against income in connection with thc adoption ofStatcmcnt No. 92. This charge against income was re-corded as a dclicicncy in an unallocated equity account since the amount is not allocable to Allegheny's rncrnbcrs. Allmargins recognized by Allcghcny arc rcquircd by REA to bc used to rcducc this deficiency.

2. Electric UtilityPlant In Service:

Electric utilityplant in service consists ofthc followingas ofOctober 31, 1992 and 1991:

Depreciation/

Amortization, Lives/Rates 1992 1991 (in thousands)

Nuclear UtilityPlant:

Production Transmission General plant Nuclear fuel 39 years 2.75%

3% -12.5%

Heat production

$516,345 35,444 859 84,670

$516,391 32,193 859 76,314 Non-Nuclear UtilityPlant 3% -33%

637,318 7,111 625,757 6,802 Total

$644,429

$632,559

3. Susquehanna Steam Electric Station:

Allegheny owns a 10% undivided interest in SSES. PPBcL owns the remaining 90%. Both participants pro-vide their own financing. Allcghcny's portion ofSSES'ssets, which included electric utilityplant in service, construction and nuclear fuel in progress, totalled $645 millionand $639 millionas ofOctober 31, 1992 and 1991, respectively. Allegheny's share ofanticipated costs for ongoing construction and nuclear fuel for SSES is estimated to be approximately $63 millionover thc next five years. Allegheny rcccivcs a portion ofthe total SSES output equal to its percentage ownership. The balance sheets and statements ofoperations reflect Allcghcny's respective sharc ofassets, liabilities and operations associated with SSES.

4. Investments in Associated Organizations:

investments in associated organizations, at cost, consists ofthe following as ofOctober 31, 1992 and 1991:

NATIONALRURAL UTILITIESCOOPERATIVE FINANCE Corporation (CFC) Subordinated Term Ccrtificatcs, bearing interest from 0%

to 5%, maturing January 1, 2014 through October 1, 2080 1992 1991 (in thousands)

$3,860

$3,860 NATIONALRURAL UTILITIESCOOPERATIVE FINANCE Corporation Capital Term Ccrtificatcs 142 125 NATIONALBANKfOR COOPERATIVES:

Stock ccrtificatcs OTIIER 48 63 19 20

$4,069

$4,068 Allcghcny is required to maintain thcsc investments pursuant to certain loan and guarantee agreements.

2

45

1. Summary of Significant Accounting Policies, continued:

Rates:

Thc Board ofDirectors ofAllegheny has fullauthority to establish clcctric rates subject to approval by REA.

Revenues:

Rcvcnucs from the sale ofelectricity arc recorded based on billings to members and on contracts and sched-uled power usages, as appropriate.

Income Taxes:

Net operating losses for financial and tax reporting purposes differ as a result oftiming diffcrcnces relating primarily to depreciation. Investment tax credits, other than those sold through thc safe liarbor lease arrangc-mcnt, arc accounted for under the flow-through method whereby credits arc rccognizcd as a reduction of income tax expense in the year in which the credit is utilized for tax purposes.

Thc Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No. 109, "Accounting for Income Taxes" (Statcmcnt No. 109), which requires a change, cffcctivc for the fiscal year beginning November I, 1993, from the current method ofaccounting for income taxes pursuant to Ac-counting Principles Board Opinion No. 11, to the liabilitymethod. Management expects that thc adoption ofStatement No. 109 willnot have a material impact on Allegheny's nct margin or financial position.

Margin Stabilization Plan and Annual Operating Adjustment Plan:

During 1992 Allcghcny cstablishcd an annual operating adjustmcnt pbn, which has been approved by REA, to rcplacc the margin stabilization plan which was terminated as ofOctober 31, 1991. Under thc provisions ofboth plans, Allcghcny develops a budgctcd margin each year based on a targeted Times Intcrcst Earned Ratio (TIER) of1.06. Ifthc actual margin rcalizcd is in excess ofthe TIER, Allegheny records the diffcrcncc as a reduction ofthe current year's operating revenue and as a liabilityto its mcmbcrs.

The plans differ in that under the margin stabilization plan ifthc actual margin realized was less than the TIER, Allegheny was permitted to record the diffcrcnce as an addition to the current year's operating reve-nue and as a receivable from its members. Under the annual operating adjustment program, Allegheny is not permitted to record the difference by which actual margins realized arc less than the TIER as an addition to the current year's operating revenue and as a receivable from members. Thc liabilityto members, ifany, recorded at the end ofeach year is incorporated into Allegheny's rate structure for the following year through a cost-of-service billingadjustmcnt made by Allegheny to its mcmbcrs.

For the years ended October 31, 1992 and 1991, operating revenues were reduced by 84.3 million and S2.5 million, respectively, due to actual margins exceeding thc TIER. These amounts are included in accounts payable to members as ofOctober 31, 1992 and 1991.

In accordance with REA requirements the aforementioned margin stabilization plan ceased as ofOctober 31, 1991, with credits to members for the October 31, 1991 liabilitycontinuing through October 31, 1992.

Reclasslflcatlon:

The 1991 financial statcmcnts have been reclassified to conform with the current year presentation.

48

8. Long-Term Debt:

Long-term debt consists principally ofadvances under mortgage notes payablc for electric utilityplant to REA and to the United States ofAmerica acting through the Federal Financing 13ank (FFB) and guarantccd by REA. Substantially all the assets ofAllegheny arc pledged as collateral. Long-term debt consists ofthe following as ofOctober 31, 1992 and 1991:

1992 1991 (in thousands)

Advances under mortgage notes payable to FFB at intcrcst rates varying from 4.879% to 10.734%

in 1992 and 6.418% to 13.820% in 1991, due in varying amounts through 2021 Pollution Control Revenue Bonds, payablc semi-annually, including intcrcst through 2014.

Variable rates ranged from 1.75% to 6.50%

in 1992 and 3.75% to 6.0% in 1991 Mortgage loan payable to CFC, payable in various quarterly installments, including intcrcst through January 2015. Variable rates ranged from 5.00% to 6.625% in 1992 and 6.625% to 9.125% in 1991 Notes payable to CFC, payable in various quarterly installments, including interest through October 2019. Variable rates ranged from 5.00% to 6.625% in 1992 and 6.625% to 9.125% in 1991 5% mortgage notes payable to REA due in varying amounts through 2019 26,600 27,000 1,939 1,973 3,075 3,101 7,399 7,513

$476,462

$487,276 Less current portion 515,475 11,348 526,863 13,645

$504,127

$513,218 Allcghcny has the option on advances under long-term mortgage notes payablc to FFB to clcct (subject to REA approval) a short-term intcrcst rate with an interim maturity date oftwo years after the date ofthc advance. At the date ofthe advance or on the maturity ofan interim advance, Allcghcny may also designate that it desires a long-term interest rate with a long-term maturity up to a maximum of34 years from the end ofthe calendar year in which thc note was issued. As ofOctober 31, 1992 and 1991, Allegheny had elected short-term interest rates and interim maturitics on advances under these mortgage notes payables to FFB of

$82.6 millionand $92.2 million, respectively. The remaining advances under mortgage notes payable to FFB have previously been converted to long-term interest rates and maturities. As ofOctober 31, 1992, Alle-

5. Notes Receivable From Members:

Notes receivable from members arise from the lease ofload managcmcnt equipment to thc member coopera-tives. Such notes bear interest at a variable rate (5.189% and 5.761% as ofOctober 31, 1992 and 1991, rc-spectivcly) and mature at various dates through September 30, 2000.

6. Other Investments:

Other investments consists ofthe followingas ofOctober 31, 1992 and 1991:

1992 Cost Market (in thousands) 1991 Cost Market (in thousands)

DECOMMISSIONINGTRUST FUND A:

Money market funds U.S. Government securities Corporate bonds Common stocks S

103 1,161 1,088 1 055 3 407 103 1,187 1,104 1 153 3 547 S

64 1,824 913 990 3 791 S

64 1,874 935 1 095 3 968 NRC MANDATEDDEcoMMIssIQNING TRUsT FUND 8:

Money market funds U.S. Government securities Corporate bonds 39 1,403 315 1 757 39 1,427 313 1 779 33 779 812 33 793 826 DEBT SERYIcE REsERYE FUND:

U.S. Government securities 1 796 1 796 1 775 1 775 Accrued interest receivable 34 34 49

$6,994

$7,156

$6,427

$6,618 4

cI The gross unrealized gains and losses in thc value ofcommon stocks were $172 and $74, respectively, as of October 31, 1992 and S144 and $39, rcspcctively, as ofOctober 31, 1991.

7. Deferred Charges:

Deferred charges consists ofthe following as ofOctober 31, 1992 and 1991:

1992 1991 (in thousands)

Unamortized FFB debt repurchase premium Nuclear decommissioning costs Low level radiation waste facilitycosts Safe harbor lease closing costs Preliminary surveys S 9,664 2,838 502 242 124

$1,796 349 254 244

$13,370

$2,643 cod~ r~ Do~mrt.

~ NAI&fzLIP&'ro &~I', Q" d

'i)&AQ&g,I.lpr plsD vfoplp'r 2

CI

I I

I I

9'&e

+x 1992 1991 (in thousands)

SSES inventory adjustmcnt 1992 cash settlement (Sce Note 12)

Raystown Icasc gain Deferred compensation arrangement with PREA Other S2,980 S4,469 2 333 1,741 1,786 161 248 173

$7,215

$6,676

10. Income Taxes:

As ofOctober 31, 1992, Allcghcny had available nonmember net operating loss carryforwards of$ 190.0 millionfor tax reporting purposes expiring through 2006 and investment tax credit carryforwards ofapprox-imately $22.1 millionexpiring through 2003. Allegheny also had operating loss carryforwards attributable to mcmbcr activities ofS129.2 millionfor tax reporting purposes which may be carried forward indefinitely.

11. Related Party Transactions:

Allegheny has an arrangcmcnt with an associated organization, Pennsylvania Rural Electric Association (PREA), under which PREA provides Allegheny with certain management, gcncral, and administrative ser-vices on a cost rcimburscment basis. Total costs for the services provided for the years ended October 31, 1992 and 1991 werc approximately $4.0 millionand S3.6 million, respectively.

12. Commitments and Contingencies:

Insurance:

Allegheny and PPRL arc members ofcertain insurance programs which provide covcragc for property dam-age to members'uclear gcncrating plants. Allegheny's portion ofthe facilitics at SSES is insured against property damage losses up to S21.5 millionunder thcsc programs. Allegheny is also a mcmbcr ofan insur-ance program which provides covcragc for thc cost ofreplacement power during prolonged outagcs ofnu-clear units caused by certain specified conditions. Under the property and rcplaccment power insurance pro-grams, Allcghcny could bc assessed retrospective premiums in the event the insurers'osses cxcccd their rcscrvcs. The maximum amount Allcghcny could bc assessed under thcsc programs durin'g the current pol-icy year is S0.9 million.

Allegheny's public liabilityfor claims resulting from a nuclear incident is currently limited to $780.7 mil-lion under provisions ofthc Price-Anderson Amendments Act of 1988 (Act), which extended the Price-Andcrson Act to August I, 2002. Allegheny is protcctcd against this potential liabilityby a combination of commercial insurance and an industry retrospective assessment program.

In thc event ofa nuclear incident at any ofthe facilities owned by others and covcrcd by thc Act, Alle-gheny could bc assessed up to S12.6 million per incident, but not morc than S2.0 millionin a calendar year.

50

8. Long-Term Debt, continued:

During 1992 and 1991, Allcghcny incurred interest costs of$39.6 millionand S42.3 million, respectively, ofwhich S1.1 millionand S1.0 million, respectively, was capitalized as part ofthe construction ofthe electric utilityplant. Intcrcst paid, net ofamounts capitalized, was $39.0 millionand $41.3 million, respectively.

9. Deferred Credits:

Defcrrcd credits consists ofthc following as ofOctober 31, 1992 and 1991:

x n,'

<<HF-r'F pl J

r j~~'5 t

78 l

r]

4 Cl J

lg COAJSCT ~ POW~IC NAtefz LIPID ro B~l sr. Q

~Ariz. f.f4' f'i&LAv&PfFg ri

49

8. Long-Term Debt, continued:

gheny had $25.5 millionofadvances which are scheduled to mature and have interest rates reset within one year. Allegheny intends to roll these advances over for additional two-year periods or to extend them to long-term maturities, in accordance with the mortgage agreement.

EAective August 31, 1992, Allegheny executed a three-party agreement modifying promissory note with FFB and REA resulting in a one-time reduction ofthe interest rates on certain advances made to Allegheny by FFB under thc original mortgage notes. Total outstanding advances modified under thc agreemcnt amounted to $122.0 million. Under terms ofthe agrecmcnt, Allegheny was required to pay a repurchase premium, as calcubtcd by REA, of$9.7 million. This premium was recorded as a defcrrcd charge and will be amortized over thc remaining term ofthe advances modified by thc agreement.

Long-term Pollution Control Revenue Bonds (Bonds) were issued by an industrial development author-ity on Allegheny's behalf. The Bonds are subject to purchase on demand ofthe holder and remarketing on a "best efforts" basis until the Bonds are converted to a fixed interest rate at Allegheny's option. Ifa fixed intcrcst rate is established for thc Bonds, thc Bonds willccasc to be subject to purchase by the rcmarkcting agent or the trustee. Thc Bonds are collatcralizcd by irrevocable letters ofcredit from Rabobank Ncdcrland which are backed by a five-year credit facilityin thc event the bondholdcrs tender thc Bonds prior to thc conversion to a fixed interest rate and thc Bonds cannot be remarketed. Thc stated amount ofthe letters of credit arc equal to thc amount ofoutstanding Bonds plus an amount equal to sixty-fivedays'nterest accrued on thc Bonds at 12%. The indcnturc agrccmcnt contains various redemption provisions with redemption prices ranging from 100% to 103%. Included in other investments, at both October 31, 1992 and 1991, are S1.8 millionofinvcstmcnts which rclatc to a debt scrvicc reserve fund required under thc bond indenture.

FUTURE MATURITIESOF ALLLONG-TERM DEBT FOR THE NEXT FIVE YEARS ARE AS FOLLOWS (IN THOUSANDS):

1993

$11,348 1994 12,014 1995 12,527 1996 13,045 1997 13,703 The above maturity schedule rcflccts managcmcnt's intent to convert advances under mortgage notes payable to FFB with interim maturity dates to long-terin debt.

Allegheny lias a short-term line ofcredit available with CFC ofS21.4 million. There were no amounts outstanding as ofOctober 31, 1992 or 1991. The interest rate is generally at prime plus 1%. Restrictions are imposed under the line ofcredit arrangement including, among other things, maintenance ofratio require<<

ments under existing long-term debt arrangements and limitations oftotal short-term indebtedness.

As ofOctober 31, 1992, Allegheny had unadvanccd portions ofcertain existing REA, FFB and CFC long-term commitmcnts of$40.7 million.

Allegheny is rcquircd by mortgage covenants to maintain certain Icvcls ofintcrcst coverage and annual debt service coverage. Allegheny was in compliance with such rcquircments as ofOctober 31, 1992 and 1991.

Certain ofAllcghcny's long-term debt is at variable intcrcst rates and is therefore subject to various mar-ket and interest rate fluctuations.

13. Sale/Leaseback Arrangement, continued:

Thc leaseback ofthe Facility is accounted for as an operating lease by Allegheny. As ofOctober 31, 1992, future minimum lease payments under this lease, which can vary based on the interest paid on thc debt used by Ford to finance the transaction, arc estimated as follows (in thousands):

1993 S 2,361 1994 2,361 1995 2,361 1996 2 237 1997 2,078 Thcrcaftcr 50 737 Total minimum lcasc paynicnts S62,135 Thc future minimum lease payments shown above are for thc initial lease term and the five-year rcncwal period. Thcsc payments arc based on an assumed intcrcst rate of8.8% alld may fluctuat based on diKrcnccs bctwccn thc future intcrcst rate and thc assumed intcrcst rate.

Rental expense for this lease totalled S1.8 million for each ofthc years ended October 31, 1992 and 1991, rcspcctivcly.

14. Concentrations of Credit Risk:

Allcghcny is comprised ofmember rural electric cooperatives, whose operations arc located in I'cnnsylvania and NcwJersey. The member cooperatives'rimary service areas arc sniall communitics located throughout much ofrural Pennsylvania and NcwJcrscy.

Allegheny's invcstmcnts are invested in a variety offiriancial instruments. Thc rcbtcd values as prescntcd in thc financial statements are subject to various market fluctuations which include changes in thc equity niarkcts, interest rate environment and thc gcncral economic conditions.

15. Government Regulations:

Thc Energy Policy Actof1992 established, among other things, a fund to pay for the dccontarnination and decornrnissioning ofthree nuclear cnrichmcnt facilitics operated by DOE. A portion ofthc fund is to bc collcctcd from electric utilities that have purcliascd enrichment services from DOE and willbe in the form of annual special asscssmcnts for a period not to exceed morc than 15 years. Thc special asscssmcnts willbc based on a formula that takes into account thc amount ofcnrichmcnt scrviccs purchased by thc utilitics in past periods.

As ofOctober 31, 1992, the financial statements do not rcflcct the additional liabilityand rclatcd dcfcrrcd

,charge. Allcghcny recorded its share ofthe liabilityin Dcccmber 1992 in connection with PAL's recogni-tion ofthc liabilityin accounts ofSSES. Allegheny's share ofthc liabilityis S4.4 millionwhich willbc paid over a period of 15 years.

2

51

12. Commitments and Contingencies, continued:

Safe Harbor Leases:

Allcghcny previously sold certain investinent and energy tax credits and depreciation deductions pursuant to a safe liarbor lease. The proceeds from the sale, including intcrcst earned thereon, have been deferred and are being recognized on thc statements ofoperations over thc 30-year term lease. The nct procccds and related intcrcst werc rcquircd by REA to be used to retire outstanding FFI3 debt.

Under thc term ofthe safe harbor lease, Allegheny is contingently liable in varying amounts in thc event thc lessor's tax bcncfits arc disallowed and in thc event ofcertain other occurrcnccs. Thc maximum amount for which Allcghcny was contingently liable as ofOctober 31, 1992 was approximately S18.0 million. Pay-ment ofthis contingent liabilityhas been guarantccd by CFC.

Litigation:

In thc normal course ofbusiness, there are various claims and suits pending against Allegheny. In the opinion ofAllcghcny's nianagcment, thc amount ofsuch losses that might result from these claims and suits, ifany, would not affect inatcrially thc financial statcmcnts.

Settlements:

In May 1992, Allcghcny received a settlement ofS3.5 millionin cash. Allcghcny recorded thc S3.5 million cash senlcment as dcfcrrcd rcvcnue to be recognized as income over thrcc years. The amount ofrevcnuc recognized during 1992 rcbtcd to thc scttlemcnt was S1.2 million. In addition, Allegheny willrcceivc S4.5 millionthrough noncash discounts on purchases ofcapital cquipmcnt.

I InJuly 1991, a scttlcmcnt was reached bctwccn Pennsylvania Electric Company (Pcnclcc) and Allegheny for excess energy whcclcd through and used by the Penelec systein. Under thc settlement agreement Pcnclcc rciinbursed Allegheny S2.5 million for thc cxccss energy rcccivcd. Allcghcny rccognizcd thc fullamount of thc scttlcment in 1991.

13. Sale/Leaseback Arrangement:

Allcghcny previously completed a sale and leaseback ofits hydroelectric gcncration facilityat the Raystown Dam (the Facility). The Facility was sold to a trustee bank rcprcscnting Ford Motor Credit Company (Ford) for $32 inillionin cash. Under terms ofthc arrangement, Allegheny is leasing the Facility from Ford's trustee for an initial term of30 years. Payments under the lease are duc in semi-annual installments which com-mcnccd January 10, 1989. At thc cnd ofthc 30-year term, Allegheny willhave the option to purchase the Facility for an amount equal to thc Facility's fair market value or for a certain amount fixed by the transaction documents (detcrmincd by 1988 appraisal ofthe then forcsecable residual value at the cnd ofthe lease term),

whichever is less.

Allegheny also has the option to renew thc lcasc for a five-year fixed rate renewal and three fair market renewal periods, each ofwhich may not be for a term ofless than two years. Payments during the fixed rate rcncwal period arc 30% ofthe average semi-annual installments during the initial lease term. Allcghcny will retain co-liccnscc status for the Facility throughout the term ofthc lease. The gain ofS1.9 million rclatcd to the sale is being recognized over thc lease term in thc same proportion that the annual rental payments relate to total rental payments.

The payments by Allegheny under this lease were determined in part on the assumption that Ford willbe cntitlcd to certain income tax bcncfits as a result ofthe sale and leaseback ofthc Facility. In the event t)iat Ford were to lose all or any portion ofsuch tax benefits, Allegheny would be required to indemnify Ford for thc amount ofthe additional fcdcral income tax payable by Ford as a result ofany such loss.

ALLEGHENYELECYRlC CQQPERAYIVE, INC.

1992 Annual Report

-Blueprints to the Future-Errata Sheet These pages replace pages 52 & 55 of the Allegheny Electric Cooperative, Inc.

1992 Annual Report which contained a printing error.

AI)egheny Elleetif'IIC COOPer~tlVe, ln(:.

ASSETS General Plant Construction Work in Progress 1992

$648,947,342

$ 14,214,117 1991

$640,405,919

$11,495,759 1990

$633,120,217

$5,903,441 1989

$616,987,394

$9,240,232 1988

$609,034,277

$6,938,574 TOTALPLANT Accumulated provision for depreciation & amortization NET PLANT

$663,161,459

$167,818,423

$495,343,036

$651,901,679

$154,581,169

$497,320,510

$137,581,537

$88,725,714

$501,442,121

$537,501,912

$639,023,658

$626,227,626

$615,972,851

$70,828,954

$545,143,897 Non.utility property - net Capital credits - NRUCFC Investments in associated organizations Other investments Cash - general funds Cash - construction fund Temporary investments Special funds Notes receivable Accounts receivable Materials and supplies - other Prepayments Other current & accrued assets Unamort. debt disc. & EO losses Deferred debits

$4,910,988

$ 141,530

$3,878,851

$5,197,077

($99,816)

$48,695

$23,226,222

$1,874,311

$3,367,637

$10,350,153

$4,947,032

$5,250,031

$2,266,810

$9,663,536

$3,706,835

$5,010,441

$ 125,292

$3,879,055

$4,628,698

$640,291

$ 1,889

$36,895,537

$ 1,889,548

$3,695,755

$13,766,227

$4,694,020

$1,133,323

$1,047,743

$0

$2,643,004

$4,970,628

$296,167

$3,879,261

$4,012,303

($887)

$12,103

$47,019,705

$ 1,901,112

$4,148,632

$11,549,690

$0

$ 1,113,921

$574,342

$0

$499,200

$5,055,971

$322,609

$3,879,452

$0

($457,634)

$1,483

$35,078,414

$1,903,823

$0

$ 13,734,646

$0

$1,052,028

$342,028

$0

$1,350,929

$5,083,843

$344,133

$3,811,153

$0

$1,296,372

$251,664

$39,577,723

$2,071,952

$0

$14,411,035

$0

$1,030,083

$333,278

$0

$848,811 TOTALASSETS LIABILITIES

$574,072,929

$577,371,333

$581,418,298

$599,765,661

$614,203,944 Memberships Patronage capital Donated capital Long.term debt - REA Long.term debt - other Notes payable Accounts payable Cost of service adjustment Accrued taxes Accrued interest Other current & accrued liabilities Deferred credits Operating reserves

$2,800

$ 14,390,760

$50,730

$7,395,044

$508,080,384

$0

$6,183,734

$4,290,266

$3,815,257

$3,052,458

$ 1,720,611

$17,926,267

$7,164,617

$2,800

$ 12,012,827

$50,730

$7,413,005

$508,537,784

$0

$16,830,638

$2,541,259

$1,815,246

$3,509,277

$507,177

$18,130,598

$6,019,991

$2,800

$9,921,071

$50,730

$5,623,571

$516,407,133

$0

$ 18,923,576

$6,416,815

$545,874

$3,502,011

$683,332

$15,187,468

$4,153,917

$2,800

$38,941,810

$50,730

$4,010,892

$522,511,395

$0

$4,287,707

$4,893,235

$551,844

$3,348,615

$664,308

$20,502,325

$0

$2,800

$36,387,453

$50,730

$501,601,153

$30,318,791

$5,180,000

$8,801,704

$5,330,430

$346,221

$3,577,179

$12,751

$22,594,732

$0 TOTALLIABILITIES MEMBER REVENUES

$574,072,929

$577,371,333

$581,418,298

$599,765,661

$614,203,944 Adams Bedford Central Claverack New Enterprise Northwestern Somerset Southwest Central Sullivan Sussex Tri-County United Valley Warren

$19,370,045

$5,533,837

$ 11,978,858

$9,611,069

$2,429,877

$11,186,991

$9,793,753

$17,142,057

$2,619,317

$6,778,523

$7,906,011

$8,279,836

$11,694,928

$3,159,358

$18,201,477

$5,180,138

$ 11,410,378

$8,901,042

$2,301,401

$10,484,591

$9,106,826

$16,166,475

$2,390,777

$6,534,524

$7,450,527

$7,948,551

$11,123,000

$3,180,783

$16,920,011

$4,948,332

$11,170,252

$8,739,960

$2,214,818

$10,323,184

$8,737,337

$14,825,514

$2,345,952

$6,312,906

$7,199,562

$7,664,418

$10,650,759

$3,084,646

$16,459,644

$4,934,084

$11,123,586

$8,678,763

$2,183,582

$10,375,739

$8,772,896

$14,548,709

$2,344,198

$6,333,850

$7,194,547

$7,814,898

$10,555,639

$3,114,060

$15,450,524

$4,717,574

$10,795,933

$8,348,586

$2,066,695

$9,994,179

$8,351,506

$14,005,635

$2,193,827

$6,004,249

$6,887,205

$7,709,440

$9,955,957

$3,051,498 TOTALMEMBER REVENUES

$127,484,460

$120,380,490

$115,137,651

$114,434,195

$109,532,808 F'iVe-yeeiI lI-[ee~ciell StI:element ELECTRIC ENERGY SALES:

Members Non-Member 1992

$127,484,460

$5,935,149 1991

$ 120,380,490

$24,966,421 1990

$115,137,651

$14,109,954 1989

$114,434,195

$16,057,630 1988

$109,532,808

$24,347,984 TOTALRECEIPTS

$ 133,419,609

$145,346,911

$129,247,605

$130,491,825

$133,880,792 Cost of Power Wheeling RAYSTOWN:

Generation Operation & Maintenance Interest Transmission Taxes OTHER PROJECTS:

Operation & Maintenance Transmission Depreciation Taxes SSES:

Generation Operation & Maintenance Fuel Depreciation Taxes Transmission Maintenance Depreciation Interest Interest charged to Construction - Credit General &Administrative

$34,447,974

$10,168,786

$2,231,109

$0

$ 128,693

$23,918

$290,689

$62,549

$588,886

$18,912

$ 19,697,503

$7,263,452

$ 10,931,235

$4,282,906

$272,597

$804,908

$39,608,659

($1,143,974)

$5,716,858

$43,054,251

$8,880,653

$2,320,600

$0

$206,809

$23,293

$300,322

$15,401

$509,847

$3,352

$20,958,143

$8,452,974

$9,967,034

$4,243,498

$293,213

$804,907

$42,319,156

($1,041,514)

$5,559,603

$32,085,914

$9,249,841 2,560,147

$0

$ 183,550

$19,385

$ 123,663

$24,052

$466,190

$0

$ 18,024,408

$9,512,667

$9,034,865

$3,437,242

$216,007

$804,907

$43,018,285

($909,146)

$5,315,694

$33,358,887

$8,345,773

$2,346,261

$0

$200,521

$ 16,884

$0

$0

$0

$0

$18,518,905

$9,413,177

$9,376,144

$3,429,845

$317,266

$804,768

$42,724,066

($1,233,918)

$5,153,748

$40,119,659

$7,441,025

$736,696

$116,970

$0

$0

$0

$0

$0

$0

$19,490,190

$8,634,341

$8,694,096

$3,608,751

$207,431

$804,477

$44,147,039

($2,318,873)

$3,980,637 TOTALOPERATION EXPENSE

$135,395,660

$146,871,542

$133,167,671

$132,772,327

$135,662,439 Depreciation Taxes Other Deductions

$186,884

$169,063

($410,374)

$159,063

$141,582

($662,593)

$131,397

$136,143

$30,417,247

$134,988

$109,750

($701,433)

$120,533

$ 102,094

($672,383)

TOTALEXPENSES

$ 135,341,233

$ 146,509,594

$163,852,458

$132,315,632

$135,212,683 Operating Margins Interest Income Other - profit/(loss) net Other capital credits NET MARGINS

($1,921,624)

$2,845,352

$1,397,724

$SS,068

$2,376,520

($1,162,683)

$3,691,751

$10,081

$0

$2,539,149

($34,604,853)

$4,636,182

$1,462,261

$29,912

($28,476,498)

($1,823,807)

$4,328,040

$28,940

$21,184

$2,554,357

($1,331,891)

$2,924,868

$596,398

$23,825

$2,213,200

gled ELECTRIC COOPERATIVE, INC.

212 Locust Street

~ P.O. Box 1266

~ Harrisburg, Pa. 17108-1266