ML18017A270
| ML18017A270 | |
| Person / Time | |
|---|---|
| Site: | Susquehanna  |
| Issue date: | 12/31/1993 |
| From: | Hecht W PENNSYLVANIA POWER & LIGHT CO. |
| To: | |
| Shared Package | |
| ML17158A264 | List: |
| References | |
| NUDOCS 9405110337 | |
| Download: ML18017A270 (168) | |
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Pennsylvania Power & Light Company, 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 PPRL 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 500-mile radius.
SUSQUEHANNA DIVISION NORTIIEAST DIVISION cranton likes-Barr
~Wiltlamsport IIARRISBURG DIVISION
)Iarrisbury Iaalcto Bgth hcm Allc town Lancaster DIVISION LANCASTER Vll N PPRL's 1994 annual meeting willbe held April27 at the F. M. KirbyCenter for the Performing Arts, Public Square, Wilkes-Barre, Pa. See page 46 for details.
6 8
12 20 20 21
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.............42
.46
............48 Inside Back Cover Financial/Operating Highlights Chairman's Letter Our Changing Industry Competition & Deregulation..
Our Response to the Changing Rules Meeting Competition Head-On Our Continuous Performance Improvement Process How PP&L IPi'll Change Year In Review Financial Review.
Independent Auditors'eport Management's Report on Responsibility for Financial Statements..
Financial Statements Notes to Financial Statements Selected Financial and Operating Data Shareowner and Investor Information Officers Directors Printed on Recycled Paper and is Recyclable
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r
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r Operating Data (in thousands)
Total Energy Sales, Kilowatt-hours.........
System Energy Sales, Kilowatt-hours(a).....
Contractual Sales to Other Utilities, Kilowatt-hours PJM Interchange Power Sales, Kilowatt-hours..
Electricity Generated, Kilowatt-hours.......
Net System Capacity, Kilowatts(b)(c).......
Winter Peak Demand, Kilowatts(d).........
I'inancial Data(in thousands)
Operating Revenues Operating Income Net Income Common Dividends Declared.............
Common Equity(b)
Capital Provided by Investors (b)...........
Construction Expenditures.
Construction Workin Progress(b).........
Property, Plantand EquipmentNet(b).....
Total Assets(b)
Per Common Share Earnings Dividends Declared Marker Price(b)..
Bookvalue(b)
Other Information Return on Average Common Equity........
Times Interest Earned Before Income Taxes...
Number ofCustomers Electric(b)........
Common Shares Outstanding(b)..........
Number ofCommon Shareowners (b).......
Number ofEmployees Electric(b)........
1993 42,333,831 31,050,172 7,142,189 4,141,470 39,245,835 7,802 6,403
$2,727,002
$ 562,808
$ 348,126
$ 250,611
$2,425,835
$ 5,797,040
$430,672
$ 238,600
$ 7,145,581
$9,454,113
$ 2.07
$ 1.65
$ 27
$ 15.95 13 06%
3.33 1,203,139 152,132,089 130,677 7,765 42,242,334 29,755,211 7,326,845 5,160,278 39,186,425 7,802 6,130 0.2 (2.5)
(19.7) 0.2 0.0 43,772,159 29,036,169 7,182,642 7,553,348 41,551,242 7,797 5,974
$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 (0.6)
(1 9)
$2,740,715
$ 582,331 0.4
$ 348,414 3.3
$234,626 2.5 '2,298,010 1.7 11.2 12.8 1.8 15.4
$ 5,623,378
$ 336,741
$ 183,242
$6,929,578
$7,934,595
$ 2.02 2.5
$ 1.60 3.1
$ 27 t/g (0.9)
$ 15.58 2.4
$2.01
$ 1.55
$ 26>/s
$ 15.15 13.11%
3.18 1,186,682 151,885,335 129,394 7,981 (0 4) 47 1.4 0.2 1.0 (2 7) 13.42%
3.06 1,173,680 151,655,268 127,272 8,144 1993-1992 1992
%Change 1991 ower sales.
paclty sales.
( a ) Excludes cont tactual sales to other utilitiesand PJM interchange p (b) Atyear-end.
( c ) Total generating capacity plus firmcapacity purchases less firmca (d) Winter peaks were reached early in the subsequent year.
WHERE THE PP8rL INCOME DOLLARWENT IN 1993 0BCQ+6:UKKQ)~t ea9Cad9xzmaCNCRS 29e Fuel and power purchases 17e Other operation 7e Maintenance 10e Dcprcciatlon 164'axes 94'nterest 10e Dividends 2e Earnings rcinvested
ou-get the future for which you plan.
At PP&L, we believe that adage but we also believe that plans don't amount to much unless you do a good job in executing them. I'm pleased to report to you that we are implementing plans that will enable us to take full advantage of the changes that are shaping a new elec-tric utility industry. Provisions of the National Energy Policy Act of 1992 have altered the very nature of the electric business in the United States.
Opportunities abound for companies that are prepared to move.
During the past year, we have begun work on initiatives that will help us shape a successful future for PP&L customers, for PP&L investors and for PP&L employees.
Also, we are implementing a Continuous Performance Improve-ment Process.
We are continuing our aggressive cost-reduction effort. And, we are responding to the new com-petition in our industry with a re-newed commitment to high quality service and reasonable prices.
A series of initiatives, many of which stem from the new rules in our business, will lead to new sources of revenue for the company and willallow us to compete effectively as some of our markets are deregu-lated. Several of our initiatives in-volve cost-reduction measures that are necessary to solidify our position as a low cost supplier of electricity.
Some of these initiatives involve ex-panding operations in our traditional business to gain new revenues.
- And, still other initiatives involve PP&L reaching out beyond the confines of our present service area. These initia-tives are detailed on page 5 of this report.
While we remain sharply fo-cused on providing high quality service at reasonable prices to the people of Central Eastern Pennsyl-vania, we also are convinced that William F. Heeht there are growth opportunities for PP&L in the worldwide power market. We are establishing a sub-sidiary to take advantage of emerg-ing opportunities in the United States and in other countries op-portunities in the electric power business that are outside the scope of the traditional utilitystructure.
To take advantage of such op-portunities, in February our board of directors gave approval to form a holding company. During this year, we will be seeking regulatory ap-provals for the holding company ar-rangement. Ifappropriate approvals are granted, the process willculminate in our asking you for approval of the holding company at next year's annual meeting.
The holding company structure is a visible demonstration of the dra-matic changes that we see coming to PP&L. A similar dramatic change is under way in the way we work.with each other in the company. That' the reasoning behind our Continuous Performance Improvement Process.
CPIP, which was developed by a union-management team, heralds a new era of partnership and employee participation at PP&L. Our success in the future willcome from the ideas and the enthusiasm of every PP&L employee.
CPIP will be the catalyst that will bring more of those ideas and that enthusiasm to the surface.
For more details on CPIP, see the arti-cle on page 6.
These changes come none too soon because, in many ways, the fu-ture already is here.
New competition has arrived in our "wholesale" business.
Each year, about
$44 million in revenues have come from our sales to small utilitiesmunicipals, cooperatives and investor-owned that don't operate their own generating facili-ties. The 1992 energy act specifically says that this group is no longer bound to their traditional utilitysupplier and is now free to "shop around" for electricity.
This led to significant opportunity for us.
We reacted in two ways: First, w began to explore the additional "mar-kets" those customers located in other utilities'ervice areas. Second, we took action to renegotiate the sales agreements that we had with municipal and small utilities located in Central Eastern Pennsylvania.
The results were good. We are talking with several potential buyers about sales agreements and we were able to retain as customers those small utilities that we have been sell-ing to for years. These new agree-ments are subject to Federal Energy Regulatory Commission approval.
The wholesale market was not the only place in which we can report success in 1993. Sales to our service area customers were up by 4.4 per-cent for the year. It is especially signifi-cant that industrial sales also in-creased by 4 percent. Even when accounting for an unusually hot sum-mer, which tends to increase residen-tial and commercial sales, the stron~
sales performance indicates an en-couraging underlying growth in our service area economy.
Earnings for 1993 were $2.07 per share, an increase of 5 cents per share over the previous year. A full discussion of earnings can be found on page 12.
The news also was good for our customers in 1993. Our rates contin-ue to hold steady. At the end of 1993, PP&L rates were roughly the same as they were in 1986, an im-pressive record when you consider that the Consumer Price Index has increased by more than 20 percent over that same period.
1993 also was a good year for financing. Taking advantage of favor-able interest rates, we sold $ 1.15 bil-lion in securities and redeemed
$ 1.09 billion of high-cost securities, in each case more than in any year in our history. This reduced our costs by lowering our interest charges and
'vidends on preferred stock. Also he financial front, at year's end i e expressed a fond farewell to a man who was involved in the com-pany's financial operations for nearly four decades.
Charles E. Russoli, ex-ecutive vice president and chief fi-nancial officer, retired. Charlie also retired from his position on the com-pany's board of directors.
The 12 months of 1993 also were productive ones for our power plants. Our fossil plants exceeded their goal as they were available to produce electricity 82 percent of the time during the year. Our Susquehanna nuclear plant fell just short of its goal for the year.
Our marketing and economic de-velopment program had another suc-cessful year, exceeding its goals by accounting for 556 million kwh in increased annual sales.
We continued our environmental efforts in 1993, publishing our first-ever environmental annual report.
report, which is available upon est, provides details of the com-pany's environmental efforts and of the impact of its operations.
In other environmental news, the company signed an agreement with federal and state agencies as well as private sporting groups to restore shad to the Susquehanna River. Under the agreement, we willinstall fish lifts at our Holtwood hydro plant by the spring of 1997. Also, PP&L's Comfort Home program was recognized as a "model of excellence" by a group of environmental organizations.
The news was not so good in the safety area during 1993. Tragical-ly, a Distribution Department employ-ee from our Susquehanna Division died of complications resulting from injuries he suffered when he came in contact with a 7,200-volt under-ground line. Francisco Garcia, 48, was a PP&L employee for 15 years.
This was the first job-related fatality of a PP&L employee since 1988.
We also failed to reach our safety goals in 1993 as lost-time accidents, no-lost-time accidents and motor ve-hicle accidents all exceeded targets.
Reacting to the clearly subpar safety performance during the year, we ap-pointed a union-management team to examine the problem and make recommendations for improvement.
After talking to hundreds of employ-ees throughout the company, the team made dozens of recommenda-tions for improvements, on which we are now acting.
Our performance in 1993, our initiatives for the more competitive future and the promise of our CPIP effort give us great confidence in the future a future that we are now working to shape.
PP&L is a solid investment today and will continue to be in the new competitive future.
A look at our history tells you why we are optimistic:
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We have been a leader in the competitive bulk power sales market. In the last five years, we have sold more than 71 billion kwh to other utility companies, about 32 percent of the electrici-ty we have available for sale.
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We have been a leader in attract-ing business and industry to Cen-tral Eastern Pennsylvania, despite intense competition. Over the past five years, we have been in-volved in attracting a net in-crease of more than 30,000 jobs to Central Eastern Pennsylvania.
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In the face of a strong challenge from other fuels, electricity con-tinues to be the heating source of choice for new home builders in Central Eastern Pennsylvania.
About 69 percent of the homes built in our service area in the past five years are all-electric.
We have been successful in the competitive markets in which we have been involved. And, while the new challenges are unlike those we have seen in the past, we feel confi--
dent we will be able to meet the com-petitive challenges in the future as well.
Our experiences give us a com-petitive advantage.
We have put together a cohesive strategy for the future. We are empowering PP&L people to meet the challenge.
We are trimming down to face the competition.
These are the reasons that we look with confidence to the opportu-nities created by the new rules in our business.
These are the reasons that PP&L will be one of the winners in the new electric power business.
On behalf of all of us at PP&L,.I thank you for your continued support.
Respectfully submitted, William F. Hecht March I, 1994
Qm 8(S SQS 8$'8 I CIISQ$$
ince the passage of the
<~National Energy Policy Act of 1992, there has been a great deal of discussion about changes in the utility business.
At PAL, we are convinced that the new rules in our industry present tremendous opportunity.
The 1992 act changes the nature of the electric utility busi-ness a business in which PAL has been a major player. Because of changes in the regulations, to remain a force in Energy Act empowers all utilities, including those that do not now generate their full requirements, the opportunity to shop around for a wholesale supplier, rather than being limited to purchasing their needs from their traditional supplier.
What does this ntean?
It means we have enhanced opportunities to market PP8cL electric service beyond the bound-While this competition affects only about 3 percent of our total sales today, we think that will change.
Although the National Energy Act requires open access to the transmission system for these wholesale energy sales, it does not provide such opportunity for retail industrial and commercial customers.
It does not, however, prohibit states from doing so. Already, several states have legislation being con-sidered that the electric power industry, we are expanding our operations be-yond the borders of Central Eastern Pennsylvania.
The new regulations provide PP8cL with new market-ing opportunities.
For instance, we are negotiating to sell electricit to would do exactly that.
Competitio in the retail market, starting with the indus-trial and com-mercial sector, will dramatical-ly alter our industry.
While we don't know when this retail competition will occur, we are convinced it will come. That's why we are taking actions that willenable us to be successful in a more competitive environment.
To take advantage of the new opportunities in a restructured utility industry, we are reducing our employment levels, we are aggressively reducing our costs and we are vigorously implementing productivity gains. Initiatives that ~
we have put in place in 1993 involve an increase in these activi-ties as well as other actions.
aries of our traditional operating territory. It also means that another utility company, or a non-utility generator, could attempt to sell electricity to utilities that are now receiving service from us.
We are reacting aggressively to this change in our marketplace. In addition to negotiating with poten-tial customers outside of Central Eastern Pennsylvania, we have successfully renegotiated long-term agreements with a number of small utilities that we have served for years.
small utilities in a'reas beyond those we have traditionally served.
Also, we will be seeking opportunities in power plant construction and operation outside our service territory and outside the United States (see article on next page).
The changes in our industry usher in a new era of competition, the likes of which we have not seen before. Exactly how does this competition come about?
The answer is very simple:
Among other things, the 1992 Since the passage of the National Energy Policy Act of 1992, there has been a great deal of discussion about changes in the utilitybusiness.
At PAL, we are convinced that the new rules in our industry present tremendous opportunity.
QSS 8$8(SQK 88il -
$S ncreased competition in the
~udtky industry will make PPtkL a healthier corn an p
We are well positioned, with reasonable costs, excellent employ-ees, abundant capacity and a history of being innovative in the competi-tive energy business.
But, we are not standing still. PP8rL is working to take advantage of the opportunities that the new rules present.
Our initiatives are in three basic areas: resource management in the traditional business; revenue en-hancement in the traditional business; expanded business growth ortunities.
Resource Management in tbe Traditional Business We are developing ways to be more productive in all our opera-tions.
At our power plants, we have established cost targets based on the future prices that will be set by the marketplace (see previous article on competition). Employee teams at each of our plants are undertaking activities to meet those targets.
Power plants are not the only area in which we are developing productivity improvements.
We are establishing stretch goals, based on the best practices in the industry, for our transmission and distribution operations.
As a third part of the resource agement initiative, the compa-service organizations are im-proving operational processes and lowering costs.
In all cases, employee teams in the spirit of the company's Continu-ous Performance Improvement Process are helping to establish stretch goals and to implement improvements.
(See following article.)
By taking these aggressive cost-reduction measures, and by estab-lishing new plateaus in customer service, the company will be in an excellent position to take advantage of the opportunities offered by the new regulatory rules.
Revenue Enbancement in tbe Traditional Business We are also developing ways to raise revenues from new sources in the traditional business.
This involves a concerted effort to develop new products and services for customers.
For example, the company is piloting the rental of a whole-house surge protection device to customers in the Allentown area. Along with this device, for a fee, comes insurance against damage to electronic appliances from chang-es in voltage. This is just one exam-ple of new "products" that we will offer to customers.
And, this effort is not confined to our residential market. There are opportunities in the industrial and commercial market. For instance, we are now offering energy-manage-ment services to our larger business customers.
Other utilities are another mar-ket. We recently sold to several other utilities substation control computer software that PP8cL people had developed for our use. In addition, we are marketing to other utilities a videotape that describes the benefits of a ground source heat pump.
In our revenue enhancement effort, the key is to identify areas in which we can provide new services, or better services, at a lower cost than is being provided by others.
As part of this initiative we have named a business growth manager for the company a person who will be responsible for assessing ideas that might bring new revenues into the traditional business.
Expanded Grotvtb Opportunities PP&L always has been a leader in the electric power business.
We have every intention of remaining so.
Prior to the National Energy Act of 1992, the electric power business and the electric utility business were essentially the same thing. But the changing rules of our business have separated the two. The generation portion of the electric power busi-ness is being opened up to all companies, not just utilities.
That means that any company now can build and operate a power plant, selling the electricity to utility companies.
A utility that does not aggressively enter the marketplace willno longer be in the electric power business.
Its opportunities for growth will be very limited.
We are not satisfied with the prospect of limited growth.
We believe that we bring some special abilities to the worldwide power market, so we have decided to step outside the boundaries of Central Eastern Pennsylvania.
This willallow us to take full advantage of the new opportunities in the electric power business.
Therefore, our initiatives involve expanding beyond our traditional boundaries.
In addition to the worldwide power effort, we are investing in allied businesses enterprises that we understand but are outside our traditional scope. Any such allied businesses also would be operated outside the normal utility environ-ment.
We do plan, however, to stay within areas akin to the energy business.
We willnot consider, for A utilitythat does not aggressively enter the marketplace willno longer be in the electric power business.
Its opportunities for growth willbe very limited.
hen you strip away all
~the jargon, the Contin-
> ~uous Performance Im-provement Process is just common sense.
It's common sense that the people who are closest to the work those who are doing it-would have the best ideas regard-ing how to improve. It's common sense that a team with diverse strengths willoutperform any one individual.
It is that belief that has driven the development of CPIP.
The process was developed by a joint union-management team, which talked to hundreds ~
of employees before making recommendations.
In a year-long study, the team consid-ered a wide variety of options and talked with hundreds of peo-ple from other businesses and in-dustries about implementing quality programs.
That team, in setting up the structure for the process, devel-oped a guiding premise:
We have completed a business plan for PAL's entry in the world-wide power market. The plan calls for some small investment initially, which enables us to get experience in the market and devel-op the skills necessary to be a major player.
While the worldwide power initiative could include projects in the United States, our study shows that, at this time, broader opportuni-ties exist outside North America.
example, getting into the food service industry or building theme parks, or any other business about which we know little. Our expertise is in energy and allied businesses.
We willcontinue to concentrate our efforts here.
The initiatives that we have kicked off over the past year put in place the key elements that will permit PAL to prosper in the future, as we have for the past seven decades.
XVe willachieve excellence and ongoing success for customers, employees and shareowners through con-tinuous improvement by:
- 1. Serving our customers.
With the changes taking place in the utility industry, customer satisfaction will be crucial to the continued suc-~
cess of PP8i:L. To ensure our~
long-term financial health, "serving our customers" must
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become an obsession and the focus of everything we do.
tion of the corporate vision and business direction'is crucial to the success of CPIP and the company.
operational decisions as possi-ble.
- 2. Striving to meet customer, em-ployee and shareowner ex-pectations by being a cost-competitive producer.
The fundamental and underlying purpose of CPIP is to enable the company to progress from its current level of performance to a higher future level. The interests
- 5. Leaders role-modeling the behavior they expect from others.
We look to our leaders to "live" our shared values, both in the be-havior they demonstrate and in the behavior they recognize and support.
of PP8cL's primary stakeholders-employees, customers and shareowners are served by our ability to be a cost-competitive producer.
- 3. Measuring and assessing per-formance constantly.
When things are not measured, they usually don't improve. Mea-surement and assessment will provide valuable information in establishing ongoing improve-ment plans.
Ensuring that all employees nderstand and support stra-tegic and operational plans.
A clear, consistent communica-
- 6. Creating a climate of trust.
Trust is not an issue that needs to be addressed only between man-agers and non-managers.
It is something that needs to be a pri-ority for all employees in all relationships.
Each individual needs to evaluate his or her own actions in regard to improving the level of trust in the organiza-tion.
- 7. Empowering people to think and act.
The concept of empowerment, in its simplest terms, means that people who are closest to the work have the authority and the responsibility to make as many We willachieve excellence and ongoing success for customers, employees and shareowners through continuous improvement.
- 8. Creating a high level of team-work throughout the organi-zation.
In the competitive environment, our greatest opportunity for suc-cess clearly lies in the collective efforts of all employees.
The po-tential of all people working to-gether is far greater than the most significant individual efforts.
The team selected a butterfly as a symbol for the change that PAL must undergo to successfully implement this process.
CPIP, like a butterfly, is about metamorphosis about totally changing the face of PP8tL.
We are making progress. A joint union-management team is over-seeing the process.
Continuous Improvement Managers have been appointed in each. of the major de-partments to provide support for the effort. Every employee in the com-pany is receiving CPIP orientation in the first quarter of 1994.
At the heart of the process will be employee teams looking for a better way to serve customers and to improve productivity. During 1994, we expect that teams will be estab-lished throughout the organization.
CPIP is crucial to the com-pany's future.
While our strategic initiatives provide us with the direction for the future, CPIP provides us with a method to get there. CPIP provides the framework to change the very culture of PAL.
January
~ President and Chief Operating Officer William R Hecht assumes the additional titles of chairman and chief executive officer Jan.
1, succeeding John T. Kauffman, who retired Dec. 31, 1992.
~ Frank A. Long, senior vice president-System Power & Engi-neering, becomes executive vice president and assumes the duties and title of chief operating officer from Hecht, effective Jan.
1.
~ Robert G. Byram, vice president-Nuclear Operations, is named senior vice president-System Power & Engineering and becomes a member of the Corporate Management Committee, effective Jan.
1.
~ PP&L offers $300 million of first mortgage bonds to the public, and, using funds supplied by the company, redeems
$305 million of first mortgage bonds having a higher interest rate.
February
~ A cold snap leads to a new win-ter peak record for electricity use. In a one-hour period, cus-tomers use 6,130,000 kilowatt-hours of electricity.
~ A plan to reclaim open pit mines with power plant ash, providing economic and environmental benefits for PP&L and the com-munities it serves, is outlined to the public.
~ The quarterly common stock dividend is increased by 3.1 per-cent, from 40 cents a share to 41.25 cents a share. PP&L has increased the common stock dividend every year since 1979.
March
~ Helen J. Wolfer retires as assis-tant secretary and assistant trea-surer, effective March I, after 45 years with PP&L.
~ A fierce winter storm knocks out electric service to 153,000 cus-tomers. Most service is restored within 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br />. A week later, the Blizzard of '93 buries the service territory in a blanket of deep snow, but advance prepa-ration and long hours by PP8cL employees minimize service in-terruptions.
Distribution employee Francisco Garcia dies from injuries sus-tained when he accidentally touched a 7,200-volt under-ground power line in February.
It is the first job-related fatality at PP&L since May 1988.
Harold W. Keiser, senior vice president-Nuclear since 1988, resigns to accept a position at another utility. Robert G. Byram, senior vice president-System Power & Engineering, is named senior vice president-Nuclear.
ril PP8cL offers $275 million of first mortgage bonds to redeem
$250 million of first mortgage bonds with higher interest rates.
Raymond F. Suhocki, vice presi-dent-Susquehanna Division, is
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I
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'T An employee belps dig out from tbe Blizzard of '93. Advance plannbig and bard worl.
Srougbout tbe company mbsbrstzed service interruptions to cssstomers.
A rail car fiilloflow-sulfiircoal from outside Pennsylvania is dumped at PAL's Bninner Island power plant, as part ofa test bans to belp Se company identify options to meet new clean.air requirements.
Swollen by beavy rain and melting snoiv tbe Susqaebarsna River spilled over its basil,s in late Istarcb and early April, causing floodb~
at Se company's Holtwood bydroelectric ~
power plant.
amed vice president-System Power, effective April 1.
~ Robert M. Geneczko, manager-System Planning, is named vice president-Susquehanna
- Division, succeeding Suhocki.
~ Customers get a $6 million de-crease in their electricity rates because of adjustments to ac-count for changing energy costs and state taxes the second rate decrease in 2 years.
~ PP8tL marketing personnel con-tinue their excellent showing in the annual Pennsylvania Electric Association marketing competi-tion by winning half of the avail-able awards. Later in the year, similar performance was exhib-
- ited in the national Edison Electric Institute marketing competition.
Additionally, PAL's ground source heat pump program won op residential program honors.
May
~ A national independent review board renews accreditation for six training programs for Susquehanna nuclear power plant operators.
~ Top business leaders, nationally recognized experts and mem-bers of PP8tL management gath-er at PAL's first Key Executives Forum to discuss Pennsylvania's business future.
~ PAL extends through 1998 an employee and information ex-change agreement with Japan's Chugoku Electric Power Co.
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PP8cL offers $ 100 million of se-ries preferred stock, using the proceeds to retire four series of preferred stock with higher divi-dend rates.
~ A new state-of-the-art control room simulator, used to train the people who operate the compa-ny's Susquehanna nuclear plant, is dedicated and placed in service.
~ The Idea Home at Bent Creek in Lancaster County, a showcase of residential electric and thermal technology built by PAL in partnership with a local builder and more than 100 other firms, opens to the public June
~ Harold G. Stanley and George T.
Jones are named vice president-Nuclear Operations and vice president-Nuclear Engineering, respectively, effective June 1.
The restructuring of the Nuclear Department sharpens the focus on day-to-day operations at the Susquehanna nuclear plant.
~ Chairman Bill Hecht joins offi-cials of federal and state agen-cies and private sporting groups in signing an agreement to re-store the American shad to the Susquehanna River. PP&L's Holtwood hydroelectric dam will get two fish lifts by spring 1997.
~ The Susquehanna nuclear plant earns the highest possible rating in a performance evaluation by the Institute for Nuclear Power Operations, an independent in-dustry organization.
l h
j I
C Kobt Tada, president ofJapan's Cbugobu Electric Power Co. (left), and PAL Cbairman Hecbt (rigbt), with interpreter, sign five-extension of an employee-and informa-n.excbange agreement bettveen tbe Iwo companies.
Procurement analyst 1tarl Tbomas (left) is one of tbe PAL volunteers wbo tutor cbildren at an Allentown elementary scbool as part ofPAL 2000, tbe company's business-education partnership effort. In Sis photo, be discusses Se program at tbe Lebigb Valley Dusbtess-Education Sbowcase.
Pennsylvania Gov. Robert Casey (rigbt) and iltaryland Gov. 1Villiam Donald Scbaefer release a sbad into tbe Susquebanna
- River, symbolizing tbe return of Se migratory fisb to Se river as tbe result ofPALand other utilities commiting to buildfisb lifts at bydroelectric dams.
~ PP&L offers $ 125 million of first mortgage bonds. Proceeds are used to redeem
$ 125 million of first mortgage bonds with a higher interest rate.
~ The Susquehanna nuclear plant is named to the Nuclear Regula-tory Commission's list of the na-tion's top safety performers be-cause of its "sustained high level of safety performance." It is the third straight appearance for Susquehanna on the NRC's bian-nual good performer list.
~ The Pennsylvania Public Utility Commission rates PP&L's con-sumer complaint performance the best among the state's major electric utilities for the eighth straight year.
July
~ The Pennsylvania-New Jersey-Maryland Interconnection, the regional power pool to which PP&L belongs, becomes an inde-pendent association. The pool coordinates bulk power operations to better serve customers of its 11 member utilities.
~ Heavy air conditioner use during a summer heat wave leads to a new record for customer sum-mer electricity demand 5,409,000 kilowatt'-hours during a one-hour period.
~ Turbine damage discovered after an automatic shutdown of Unit 1
at the Susquehanna nuclear plant sidelines the generating unit for seven weeks.
August
~ Clair W. Noll, vice president-In-formation Services, retires after 33 years with PP&L. Michael D.
Hill, manager-System Operation, is named vice president-Informa-tion Services to replace Noll, ef-fective Aug. 1.
~ Edward F. Reis, vice president-Corporate Planning, retires, ef-fective Aug. I, after 37 years with PP&L
~ PP&L offers $ 115 million of se-ries preferred stock. The pro-ceeds are used to retire three se-ries of preference stock with higher dividend rates.
~ Joining other utilities nation-wide, PP&L pledges to cooper-ate with the U.S. Department of Energy in helping formulate a national policy on greenhouse gas emissions.
September
~ The company's Comfort Home program is recognized as a "mod-el of environmental excellence" by a group of 30 American envi-ronmental organizations.
~ PP&L begins exploring options to expand interim storage of spent uranium fuel from the Susquehanna nuclear power plant while awaiting federal gov-ernment action on a permanent storage facility. '
PP&L offers $85 million of series preferred stock, using the pro-ceeds to retire two series of pre-ferred stock with higher divi-K>I,
(
L
, <<>e~y ~!>>>
~IOl NN 01NV r >~~
kWOI10 ABACA
'-t i)i attt IP.. r Tbe company's new Nortbeast Division beadquarters and ltledta Operations Center for tbe Susquebanna nuclear plant was a unique fast.traclz project managed by PAL and completed on lime and under budget.
Herb K'oodesbick, special assistant to tbe president for tbe Susquehanna nuclear power plant, mabes a point durbtg one of tbe plant's etnergency drills at tbe company's new iltedia Operations Center. Nuclear safety engbteer Ricb flenry acted as a resource person for tr~oodesbtck.
Ray Subocl,i, vice president-System
- Potver, outlines PP&L's strategy for tbe future to a group of employees from System Operating~
Tbe strategy was explained by top executit~
to 7,700 employees in several bundred snralt.
group meetings Ibrougbout tbe company.
10
dend rates.
~ The company's new Northeast Division headquarters and Media Operations Center for the Susquehanna nuclear plant opens near Wilkes-Barre.
October
~ Quality land management prac-tices and environmental educa-tion earn PP8cL national recogni-tion as the 1993 recipient of an Edison Electric Institute land management award.
~
PP8cL and General Motors an-nounce an electric vehicle test drive program in Harrisburg.
About 80 PP8cL customers will be selected to test-drive GM's electric "Impact" for two-and four-week periods in 1994.
~
PP8cL offers $ 150 million of first mortgage bonds, using the pro-eeds to redeem
$ 125 million of first mortgage bonds having a higher interest rate, and to retire short-term debt. IVith this trans-action, securities sales reach
$ 1.15 billion, making the year PP8'cL's biggest ever for selling new stocks and bonds to re-deem higher-cost issues.
~ A series of fuel-handling prob-lems during refueling of Unit 1 at the Susquehanna nuclear power plant leads to a Nuclear Regulatory Commission inspec-tion and a series of corrective actions by PP8cL. The unit's re-turn to service is delayed further by a decision to replace metal supports for reactor pumps after similar components developed cracks at a nuclear plant in
'ississippi.
~ Richard S. Barton, president of U.S. Customer Operations for Xerox Corp., and a corporate vice president of Xerox, is elected a director of PP8'cL, effec-tive Jan.
1, 1994.
November
~ Pennsylvania Mines Corp.,
a PP8cL subsidiary, transfers ownership of a coal-processing facility to a Pitts-burg-based company, complet-ing the phase-out of subsidiary mining operations.
December
~ Nance K. Dicciani, vice presi-dent and business director of the Petroleum Chemicals Division of Rohm and Haas Company, is elected to PP8tL's board of direc-tors, effective Feb. I, 1994.
~ A partnership agreement with the Ministry of Energy and Elec-trification of Ukraine is signed, calling for study tours and ex-change visits.
~ Charles E. Russoli, executive vice president and chief financial officer, retires as an employee and a director, ending a 38-year career at PP8'cL. Ronald E. Hill, vice president and comptroller, is named senior vice president-Financial, effective Jan. I, 1994, to replace Russoli as head of the Financial Department. Hill also joins the Corporate Management Committee.
pl5+
+II J.
I, s
(
~ J Doug Rebrer, manager-Safety and ifeallb Services, reminds meter installer Lesler Dielricb be Lancaster Service Center about tbe ortance ofsafe driving. Tbe company oosted its safety au areness efforts during 1993 after a disturbing increase in employee accidents.
During 1993, PAL produced ilsfirsl compre-bensive enviromnental report for sbareowners, customers, employees and tbe public. Tbe report, titled "Energy br iiarrnony Witb tbe Environment," explains borv tbe company provides reliable and economfcal electric service ublle protecting tbe environment.
Frank Lorrg, PAL's executfve vice president and cbief operating officer pejt), and Vfadfrnfr Paffmov oftbe Ukraine ftffnfstryofEnergy and Electrificatfon, sign an agreement under wbfcb PAL rvillhelp Ul.raine a former Sovfet Republic meet ils energy challenges.
REVIEW OF THE COMPANY'S FINANCIAL Results of Operations Earnings Earniny per share of common stock were $2.07 in 1993,
$ 2.02 in 1992 and $2.01 in 1991. Increasing economic activity in central eastern Pennsylvania and the effects of hotter. than. normal weather during the summer were the main reasons for the earniny improve-ment. Ifweather had been normal, earniny would have been 2 cents per share lower in 1993. Weather conditions affect sales and earnings as heating and cooling demands change. To make valid comparisons of financial performance, the Company adjusts the figures to reflect "normal" conditions as determined by historical weather data.
Earniny also benefited from continuing efforts to control operating and maintenance costs and by the continuing refinancing of higher cost securities to take advantage of favorable market conditions.
In the fourth quarter of 1993, the Company recorded charges against income that, in the aggregate, adversely affected net income by about
$ 18 million or 12 cents per share of common stock. The charges related to: (i) credits to be included in the Company's Energy Cost Rate (ECR) due to entering a settlement agreement with corn.
plainants against the Company's ECR; (ii) the write-offof certain deferred retiree benefit costs; and (iii) the recognition of certain employee benefit costs in connection with the adoption of a new ac-counting standard. These matters are discussed in more detail in the remainder of this review.
Earniny for 1992 and 1991 were affected by extremely mild weather. Earnings per share would have been 7 cents higher in 1992 and 6 cents higher in 1991 had there been normal weather in the Company's service territory.
Earnings per share over the last five years have essentially been flat, generally reflecting a slowdown in the rate of growth of energy sales, higher Susquehanna depreciation and increased competition. To achieve continued earnings growth and to respond to this increased competition, the Company has begun strategic initiatives as explained under "Increasing Competition" on page
- 19. In addition, the Com.
pany willcontinue its aggressive marketing and economic develop.
ment programs aimed at increasing energy sales, willcontinue to em-phasize effective cost reduction and willalso continue to take advan-tage of favorable financial market conditions to refinance long.term CONDITION AND RESULTS OF OPERATIONS debt and preferred stock with lower cost securities to reduce interest expense and dividends on preferred stock.
Electric Energy Sales System, or service area, sales were 31.1 billion kwh in 1993, an in-crease of about 1.3 billion kwh, or 4.4%, over 1992. The effects of hotter weather during the summer, which resulted in higher air condi ~
tioner use, and the increased economic activity in central eastern Pennsylvania were the primary reasons for the increases in system sales. Sales in all major customer categories were higher in 1993 than in 1992. hlilder.than. normal weather depressed system sales in 1992 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 due to milder-than-normal weather. The Com-pany estimates that if normal weather had been experienced in both years, system sales for 1993 would have increased by 855 million kwh, or 2.8%, over 1992.
Actual sales to residential and commercial customers in 1993 in-creased 439 million kwh, or 4.1%, and 334 million kwh, or 3.7%,
respectively, over 1992. The Company estimates that under normal weather conditions for both years, sales to residential and commercial customers in 1993 would have increased 167 million kwh, or 1.5%,
and 189 million kwh, or 2.1%, respectively, over 1992.
Industrial sales, which are not affected by weather conditions, in.
creased 354 million kwh in 1993, or 4.0%, over 1992. The continued growth trend in this category is an encouraging sign of increased in-dustrial activity.
System sales in 1994 are currently forecasted to be approximately 31.7 billion kwh, an increase of 665 million kwh, or 2.1%, over 1993 actual system sales, and a 771 million kwh, or 2.5%, increase over 1993 weather. normalized sales.
Additional energy sales from marketing and economic development efforts is a key corporate initiative. These additional sales generally willbe realized over at least a two.year period, and possibly longer if a major commercial or industrial customer is involved. The level of additional sales estimated from these programs in 1993 was 556 million kwh. The Company's 1994 marketing and economic develop-ment goal is to achieve annual net sales growth of 650 million kwh.
Competition from other fuel sources for certain energy applications EARNINGS PER SHARE WEATHERNORhfALIZEDVS. ACTUAL Dollars r share COhfhfON STOCK BOOK VALUE VS. hfARKETPRICE Dollars r share 25 1.50 20 l5 0.50 l0 00.0 f6 90 9i 92 93
~ Acruat earninSS per share
~ Wearher normalized earninas per share 89 90 9l 92 93
~ Book balue per share
~ Marker price per share 12
has increased in recent years. The Company's 'electric heat market hare in new residential construction has dropped from 69% in 1991 o 65% in 1993. The Company's goal for 1994 is a 68% electric heat market share in new residential construction.
c 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 power sales, were 42.3 billion kwh in 1993, an increase of 0.1 billion kwh, or 0.2%, compared to 1992.
Contractual sales to other major utilities include: (i) energy sold to Atlantic City Electric Company (Atlantic), Baltimore Gas & Electric Company (BG&E) and Jersey Central Power & Light Company OCP&L) pursuant to long-term contracts under which these utilities purchase a
specified percentage of the capacity and related energy from Company-owned generating units; and (ii) energy sold on a short term basis to other electric utilities. Contractual sales to other utilities were about 7.1 billion kwh in 1993, or 2.5% lower than 1992.
Interchange power sales to Pennsylvania. New Jersey Itlaryiand Inter-connection Association (PJM) utilities were about 4.1 billion kwh in 1993, or 19.7% lower than 1992. The decrease was primarily due to increased system sales and an increase in the availability of nuclear generating capacity of other PJM utilities, which reduced the opera.
tion of certain of the Company's generating units.
Capactty-Related and Transmlsslon Entitlement Transactions The Company's strong generating capacity position has enabled it o enter into a number of capacity-related transactions with other lectric 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 Martins 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 tbiartins Creek units and the sale of transmission entitle-ments, net of foregone PJM interchange savings which are included in the Company's ECR, totaled $35.0 million in 1993, $35.0 million in 1992 and $35.4 million in 1991. The Company currently expects about $35 million of revenues from these transactions during 1994.
Increased competition involving capacity credit transactions has reduced the price received for such sales.
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 difficult to predict the amount of revenues the Company will ultimately realize from these transactions.
The Company, the Pennsylvania Office of Consumer Advocate (OCA) and certain industrial customers have reached a settlement agreement resolving all complaints pending against the ECR. The agreement provides, among other things, for crediting the 1994-95 ECR with a portion of the receipts from capacity credit sales.
See "Rate Matters" below for additional information.
Rate Matters The OCA and certain industrial customers filed complaints against the Company's ECR for the last four years. The complainants argued, among other things, that the Company should not be able to recover the cost of energy purchased from non utilitygenerating companies on a current basis, and that revenues from the sale of capacity. related and transmission entitlement transactions should be credited against the ECR.
As a result of discussions which began in late 1993, the Company and the complainants to the Company's ECR reached a settlement agreement having major provisions that credits the 1994-95 ECR with a portion of the receipts from capacity credit sales from April 1990 through December 31, 1993; credits a portion of the receipts from future capacity credit sales to the ECR; excludes from recovery through the ECR a portion of the Pennsylvania Public UtilityCommis-sion (PUC)-jurisdictional amount of deferred retired miners'ealth care benefits costs; and settles all pending complaints against the Company's 1990-91 through 1993-94 ECRs.
This agreement is subject to PUC approval. As a result of this agree-ment, in the fourth quarter of 1993, the Company recorded a charge to expense of $ 17.1 million, which after income taxes, reduced net in-come by approximately S9.7 million or 6.4 cents per share of SOURCES OF ENERGY 30 Biltio of kwh DISPOSITION OF ENERGY 30 Billions of kwh 40 40 30 30 20 10 I
I 20-
>, brae Cii IO 0
09 90 9l 92 93
~ Hydro and purchased power
~ Oil fired generation and other C3 Irucfear generation W Coal.fired generation 09 90 9l 92 93
~ Compsny use, line losses and other
~ interchange power sales C3 Contractual sales to other utilities W S>stem sales to customers.
13
Operating Revenues Total operating revenues decreased
$ 17.1 million, or 0.6%, in 1993 from 1992. Details of changes in operating revenues from the prior year are shown in the schedule below.
Changes in Operating Revenues 1993 1992 1991 (8fillionsof Dollars)
Recovery of fuel and energy costs...
ECR credits to be applied in 1994...
Change in customer usage.........
Roll.in of state taxes into base rates..
State tax adjustment surcharge......
Special base rate credit adjustment...
Wholesale rate increase............
Capacity. related and transmission entitlement transactions..........
Contractual sales to other major utilities..................
PJM interchange power sales........
Other
$ (20.0)
(12.7) 58.9 26.4 (32 0)
(5 4)
$ 44.0
$ 79.9 20.6 38.2 22.2 22.0 (22.6)
(16.7) 2.4 (0.4) 3.1 (16.4) 7.7 9.1 (14.8)
(68.8)
(37.0)
Total
$ (17.1) 3.4
$ 102.8 common stock. The Company estimates that about $ 8 million of 1994 capacity credit sales willbe credited to the ECR.
The Company has negotiated new five-year, lower.priced sales con-tracts with certain small utilities it currently serves. The contracts are subject to Federal Energy Regulatory Commission (FERC) approval and will reduce rates to these small utilities by about
$3.6 million in 1994 and 1995 and by about an additional
$ 4.1 million for the years 1996 through 1998.
In connection with the new contlacts, in the fourth quarter of 1993, the Company wrote off $6.6 million of deferred retired miners'ealth care benefits costs and $2.3 million of postretirement benefits other than pensions applicable to FERC-jurisdictional services. The charge to expense amounted to $8.9 million, which after income taxes, reduced net income by $ 5.1 million or about 3.4 cents per share of common stock.
Tariffs subject to PUC jurisdiction accounted for approximately 82%
of the Company's revenues from energy sales in 1993. The remaining 18% of such revenues resulted from sales regulated by the FERC and include the Company's PJhi 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) a
~
special base rate credit adjustment (SBRCA) that flows through to customers the effects of certain nonrecurring items.
The last base rate increase for PUC-jurisdictional customers went in.
to effect in April 1985. The Company is unable to predict the timing of its next PUC-jurisdictional base rate filing, but intends to delay that filingfor as long as possible.
Billings to utilities are subject to FERC jurisdiction. In the case of certain small utilities, billings include base rate charges and a sup.
plemental charge or credit for fuel costs over or under the levels in-cluded in base rates. See "Rate Matters" on page 13 for additional in.
formation concerning rates for these customers.
The FERC also regulates contractual sales to other major utilities, Pjhi interchange power sales and capacity-related and transmission en.
titlement transactions.
Sales to Atlantic, BG&E and JCP&L are made at a price covering the Company's cost of service, including a return on investment. Energy sales relating to the reservation of output from the thiartins 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 power sales are made at a price equal to the midpoint be-tween the sellers'ctual costs and costs that the buyers would have incurred 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 1993 decreased by $38.5 million from 1992. The decrease was primarily due to lower unit fuel costs for coal-fired generation, partially offset by higher oil-fired generation and the write.offof $ 11.0 millionof the deferred cost of retired miners'ealth care benefits. For 1993, the cost of coal delivered to the Company's generating stations declined to $36.23 per ton from $41.44 per ton for 1992.
SOURCES OF CAPITAL hlilgons of dolhrs I
l,800 I,S00 l,400 200 I
I I I l,000 USES OF CAPITAL
>2~ hiiliions of douars l,800 l,600 l,400 l,200 1,000 14 89 90 9l 92 93
~ Other (prindpally capital tease obligations)
C3 Outside rtnandng (sales of debt and equity securities)
~ internal sources (principally from operations plus equity AFVDC less dividends) 89 90 9l 92 93
~ Other
~ Security retirements C3 Construction, nuclear fuel and other teased property
Potver Purchases In 1993, power purchases were $278.8 million, an increase of $3.3 million over 1992. The increase was the result of additional purchases from other electric utilities and the PJM, partially offset by a lower vel of purchases from non.utility generating companies.
Other Operation, ilfatntenance and Depreciation The reduction in revenues resulting from flowing the benefits of a settlement of certain claims arising from construction of the Sus-quehanna station through to customers in the SBRCA is offset by a credit to other operation expense on the Consolidated Sutement of Income (see Financial Note 3). The credit was $ 14.3 million in 1993 and $8.5 million in 1992.
During 1993, the Company recorded an estimated minimum liability of $ 4.4 million for the cost of environmental remediation at several sites. At December 31, 1993, the estimated minimum liabilityrecorded for such remediation totaled $5.2 million. The Company's share of ac-tual remediation costs may be greater than the minimum amounts ac-crued, but the Company at this time cannot reasonably estimate its expected cost.
During 1993, the Company wrote off $9.1 million of obsolete and excess materials and supplies at its fossil fueled steam generating sta-tions. Of this amount,
$2.2 million was charged to other operation expense and $6.9 million was charged to maintenance expense.
In December 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) 112, "Employers'ccounting for Postemployment Benefits," as discussed in Financial Note 13. The adoption of SFAS 112 resulted in a $ 5.5 million charge to other opera.
tion expense.
Excluding the credits associated with the SBRCA, the accruals for the environmental remediation costs, the recognition of obsolete and xcess materials and supplies and the expense associated with the doption of SFAS 112 discussed above, other operation expense re-mained essentially unchanged in 1993 compared to 1992.
The Company intends to reduce the number of full.time employees by approximately 6.8/0 from 8,043 at year.end 1991 to about 7,500 by the mid-1990s. This is one of the actions being uken to contain costs and keep the price of the Company's electric service corn.
petitive. This reduction is expected to come primarily from normal at-trition and close examination of the need to fillvacancies.
As of year-end 1993, the number of full time employees was 7,677.
The amortization of'the deferred income 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 Financial Note 3). Excluding this amortization, which amounted to 524.3 million in 1993 and 523.5 million in 1992, and the write off of obsolete and excess materials and supplies as discussed
- above, maintenance expense decreased by 514.1 million, or 6.3/o, in 1993 compared to 1992. The reduction in maintenance expense resulted primarily from lower costs associated with maintaining the Company's generating stations.
Higher depreciation expense in 1993 reflects the 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 for the Susquehanna station will increase annually through the year 1998. In 1993, 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 f previously deferred depreciation. Beginning in 1999, depreciation vill change to the straight-line method at a level substantially less than the amount expected to be recorded in 1998. The amount of depreciation applicable to that portion of the Susquehanna station subject to an annual increasing amount of depreciation was $ 116 million in 1993 and willincrease annually to $ 192 million in 1998 and then decline to $ 102 million in 1999.
Taxes Effective January I, 1993, the Company adopted SFAS 109, "Ac-counting for Income Taxes." Under the provisions of SFAS 109, the Company, in January 1993, recorded an increase of approximately
$ 1.1 billion in its deferred tax liability for tax benefits previously flowed through to customers and for other temporary differences. The in.
creased ux liability was 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.
In August 1991, Pennsylvania enacted legislation that increased the Company's state taxes by approximately
$38 million on an annual basis. The Company recovered 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. Except for recovery of a prior undercollec-tion, the tax surcharge was rolled into the Company's base rates effec-tive April I, 1993.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 was enacted, which contains a provision that increased the Company's federal income tax rate from 34/o to 35/o retroactive to January I, 1993. This higher tax rate increased the Company's federal income tax expense for 1993 by about
$5.9 million. Additionally, the Company recorded an increase in deferred income tax liabilities and taxes recoverable through future rates of $79.5 million due to the increase in the federal tax rate.
Ftnanctng Costs The Company has continued to take advanuge of opportunities to reduce its financing costs by the retirement of long.term debt and preferred and preference stock 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 $25 million from 5285 million in 1990 to $260 million in 1993. Additionally, interest on short. term debt has decreased by 513 million for the same period.
Financial Condition Financing and Ltqutdtty For the years 1991-1993, the Company issued 51.39 billion of long.
term debt, $300 millionof preferred stock and about 521 million of common stock, and also incurred $218 million of obliytions under capiul leases (primarily nuclear fuel). In 1993, the Company sold 5850 million principal amount of first mortyge bonds and 5300 millionof preferred stock, increased its short. term debt by $ 43 mil-lion and issued 57 millionof common stock to the Employee Stock Ownership Plan. During the year, the Company retired $809 million of long term debt and $343 million of preferred and preference stock.
After the payment of dividends, internally generated funds during the years 1994 1996 are currently expected to provide approximately 86%%d of the Company's construction expenditures.
Sales of securities willbe undertaken during the 1994.1996 period as needed to meet the Company's capital requirements, to meet a total of $ 166 million of 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. The 15
Company expects to issue
$ 55 million of common stock in 1994 through its Dividend Reinvestment Plan. In addition, depending on market conditions and other factors, the Company plans to issue up to an additional $ 150 million of preferred stock through the end of 1994, of which about
$80 million is expected to be used to refinance higher cost preferred stock at a lower cost and the balance is to pro-vide financing for the Company's capital requirements. The Company also plans to issue up to an additional $750 million principal amount of first mortgage bonds through the end of 1994, which is expected to be used to refinance higher cost first mortgage bonds at a lower cost. Of this amount,
$300 million is expected to be redeemed through the provisions of the maintenance and replacement fund under the Company's Mortgage. In addition, 'the Company expects to arrange for the refinancing of $ 169 million of higher cost tax-exempt securities issued to provide pollution control and solid waste disposal facilities at the Company's generating stations.
The Company's ability to issue securities during the 1994-1996 period is not expected to be limited by earnings or other issuance tests. To enhance financing flexibility,a $ 140 million revolving credit arrangement is maintained with a group of banks and is used prin-cipally as a back.up for the Company's commercial paper and $60 million in credit arrangements are maintained with a group of banks to provide back-up for the Company's commercial paper and short-term borrowings of certain subsidiaries. The Company also maintains a $5 million bank line of credit. No borrowings were outstanding at December 31, 1993 under these arrangements.
Capital Expenditure Requirements The schedule below shows the Company's actual capital expen.
ditures for electric utility operations for the years 1991-1993 and cur-rent projections for the years 1994-1996. Construction expenditures during the years 1991.1993 totaled about $ 1.2 billion and are expected to be about
$ 1.3 billion during the years 1994-1996.
Allowance for Funds Used Durbig Construction The allowance for funds used during construction (AFUDC), a non.
cash credit to income, accounted for about 5/0 of earnings in 1993.
In 1994, AFUDC is expected to increase as the Company accelerates capital expenditures to comply with clean air legislation. The amount of AFUDC recorded willdepend on the timing and level of construc-tion work in progress as well as the rate treatment afforded the capital expenditures required to comply with the clean air legislation. Under current Pennsylvania law, construction work in progress for non-revenue producing assets, such as capital expenditures for pollution control equipment, can be claimed in rate base.
Fbiancial Fndleators The Company earned a 13.06/o return on average common equity during 1993, down slightly from the 13.11/o earned in 1992. The ratio of the Company's pretax income to interest charges increased slightly from 3.2 times in 1992 to 3.3 times in 1993. The Company increased common stock dividends from an annual per share rate of $ 1.60 in 1992 to $ 1.65 in 1993. The book value per share of common stock increased 2.4/0 from $ 15.58 at the end of 1992 to $ 15.95 at the end
'f1993. The ratio of the market price to book value of common stock was 169/0 at the end of 1993 compared with 175/0 at the end of 1992.
Termbtation of Coal-ijfbting 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 was sold in September 1992. A coal processing and loading facility was sold in November 1993, completing the planned phase-out of coal. mining operations.
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
$68 million on a net pre~
sent value basis. At the time coal. mining operations ceased, subsidia~
mining companies had accrued
$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 in-tends to use the amount accrued by its subsidiary mining companies to partially offset the new liability, Capital Expenditure Requirements (a)
Actual Projected 1991 1992 1993 1994 1995 1996 (1fillionsof Dollars)
Construction expenditures Generating facilities......
Transmission and distribution facilities...
Environmental Other 165 186 173 11 13 65 37 52 51 337 387 431 183 183 192 135 55 105 59 53 51 471 398 422
$ 124
$ 136
$ 142
$ 94
$ 107
$ 74 Nuclear fuel owned and leased Other leased property.
Total.
41 42 64 44 58 82 17 20 20 27 22 23
$395
$449
$515
$542
$478
$527 (a) Capital expenditure plans 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 regulations and other factors. Construction expenditures include AFUDC which is expected to be less than S25 million in each of the years 1994-1996.
In December 1992, the Company recorded an additional liabilityof approximately
$36 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. The net PUC-urisdictional amount of this liability is $30 million, and in 1993 the UC permitted the Company to begin recovery of these costs ap-plicable to retail customers through the ECR over ten years. The OCA and certain industrial customers liled complaints against the Com.
pany's 1993.94 ECR opposing, among other things, the Company's recovery of these costs.
In the fourth quarter of 1993, the Company charged to expense
$ 11.0 millionof the deferred cost of retired miners'ealth care benefits representing all of the FERC-jurisdictional portion of the deferral and part of the PUC-jurisdictional portion of the deferred costs. The write-off was related to the ECR agreement and the agreements to reduce rates to certain small utilities discussed on page 13 under the caption "Rate Matters." The Company expects to recover the remaining PUC jurisdictional amount of deferred retired miners'ealth care benefits costs of $24.1 million through the ECR.
Clean AfrLegislation anti Other Environnrental Matters The Federal Clean Air Act Amendments of 1990 deal, 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 dioxide emission limits for all of the Company's fossil-fueled 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.
maugh station, in which the Company has an 11.39/o ownership in.
crest. 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 nitrogen ox-ide 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 ox-ide 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 by advancing the installation of low nitrogen oxide burners on certain Phase II units, 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
$200 million (in estimated 1994 dollars) and additional operating expenses which will result in an increase in customer rates of about 1.5/o (based on 1993 revenue levels).
To meet the Phase II acid rain sulfur dioxide emission standards, the Company expects to install flue gas desulfurization (FGD) on up 60/. of its coal. fired generating capacity, to continue to purchase ower 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, sales or trades, and the amount and timing of FGD willbe determined based on FGD in-stallation 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 will require additional capital ex-penditures in the later half of the 1990s of $400 million to $500 million (in estimated,1994 dollars) and additional operating expenses which will result in an increase in customer rates (based on 1993 revenue levels) of about 3/0 above the increase expected to result from Phase I compliance with the sulfur dioxide standards of the legislation and installation of low nitrogen oxide'urners.
The ambient ozone attainment provisions also require modeling of nitrogen oxide and volatile organic compound emissions in the Northeast Ozone Transport Region to determine what further reduc-tions are needed beyond the RACT requirements to achieve ambient ozone attainment. Ifthe results indicate further reductions are needed in power plant nitrogen oxide emissions, the Company may be re-quired to install additional nitrogen oxide reduction equipment, such as selective catalytic reduction, on some or all of the 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 1994 dollars) and additional operating expenses which will result in a further increase in customer rates of as much as 4/0 (based on 1993 revenue levels).
In addition to acid rain and ambient ozone attainment provisions, the legislation requires the Environmental Protection Agency (EPA) to conduct a study of hazardous air emissions from power plants.
Adverse findings from this study could cause the EPA to mandate ad-ditional 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 additional equipment is required, the Coinpany's preliminary estimates indicate that the cost of compliance could require additional capital expenditures of up to $400 million (in estimated 1994 dollars) and additional operating expenses which will result in a further in-crease in customer rates of as much as 2%%d (based on 1993 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 February 1993, the PUC adopted a policy statement regarding the trading and usage of, and the ratemaking treatment for, emission allowances by Pennsylvania electric utilities. The policy statement determines, among other things, that the PUC willnot require ap.
proval of specific transactions and the cost of allowances will be recognized as energy-related power production expenses and recoverable through the ECR.
The Pennsylvania Air Pollution Control Act, as amended, im-plements 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 Federal Clean Air Act Amendments of 1990.
Until action has been taken by the appropriate regulatory bodies, the Company will not be able to determine the exact method of com-pliance with the acid rain, ambient ozone and hazardous air emission provisions of the legislation, or the cost thereof and its impact on customer rates.
The Pennsylvania Department of Environmental Resources (DER) regulations governing the handling and disposal of industrial (or residual) solid waste require the Company to submit detailed informa.
tion on waste generation, minimization and disposal practices. They also require the Company to upgrade and repermit existing ash basins 17
at all of its coal. fired generating stations by applying updated stan.
dards for waste disposal. Ash basins that cannot be repermitted are re-quired to close by July 1997. Any groundwater contamination caused by the basins must also be addressed.
Any new ash basin must meet the rigid site and design standards set forth in the regulations. In addi-tion, the siting of future facilities at Company facilities could be affected.
The fly 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 fueled generating stations, bottom ash basins at all fossil.fueled generating stations and the coal refuse basin at the Brunner Island station do not meet the new requirements and must be retired by July 1997. The Company, in addressing the requirements of these regulations, plans to install dry fly ash handling systems'at the Brunner Island, Sunbury and Holtwood stations. The Company, with siting assistance from a public advisory group, plans to use the dry fly ash from the Sunbury and Holtwood stations to reclaim strip mines in the anthracite coal region. The Company is exploring opportunities to beneficially use coal ash from Brunner Island in various roadway construction pro-jects in the vicinityof the plant that may delay or preclude the need for a new disposal facility.
Groundwater degradation related to fuel oil leakage from underground facilities and to seepage from coal refuse disposal areas and coal storage piles has been identified at several generating sta-tions. Many requirements of the DER regulations address these groundwater degradation issues. The Company has reviewed its remedial action plans with the DER. Remedial work has begun at one generating station, and remedial work may be required at others.
The DER has adopted, and recently revised, regulations to imple-ment the toxic control provisions of the Federal Water Quality Act of 1987 and to advance Pennsylvania's toxic control progtam. These regulations authorize the DER to use both biomonitoring and a water quality based chemical-specific approach in National Pollutant Discharge Elimination System (NPDES) permits to control toxics. In the third quarter of 1993, the Company received a new NPDES permit for the Montour and Holtwood stations. The Montour permit contains very stringent limits for certain toxic metals and increased monitoring requirements.
More toxic reduction studies willbe conducted at Mon-tour before the permit limits become effective. Additional water treat-ment facilities may be needed at Montour, depending on the results of the studies. At Holtwood, toxics are required to be monitored at the fly ash basin until its closure in 1997. No limits have been set at this point. The Company will therefore comply with an implementation schedule for such closure and for construction of a new dry ash handling system at Holtwood.
The Company currently estimates that about
$238 million of capital expenditures could be required to comply with the residual waste regulations, correct groundwater degradation at fossil.fueled generating stations and address waste water control at Company facilities. Such expenditures during the years 1994.1996 could total about
$ 137 million, of which about $68 million is included in the Company's estimate of 1994-1996 construction expenditures shown on page
- 16. Actions taken to correct groundwater degradation, to comply with the DER's regulations and to address waste water control are also expected to result in increased operating costs'in amounts which are, not now determinable but could be material.
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 material.
At December 31, 1993, the Company had accrued
$ 5.2 million, representing the minimum amount the Company at this time can reasonably estimate it willhave to spend to remediate sites in.
volving the removal of hazardous or toxic substances.
The Company is involved in several other sites where it may be required, along with other parties, to contribute to such remediation. Some of these sites have been listed by the EPA under the federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (Superfund), and others may be candidates for listing at a future date. Future clean-up or remediation work at sites currently under review, or at sites currently unknown, may result in material additional operating costs which the Company cannot estimate at this time.
Concerns have been expressed by some members of the scientific community and others regarding the potential health 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 participating in the current research effort to determine whether or not EMF causes any human health problems and is taking steps to reduce EMF, where practical, in the design of new transmission 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 involving environmental 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 material capital expenditures and operating expenses in amounts which are not now determinable.
Uranium Enrichment Decontamination and Decommissioning Fnnd 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 Ene'rgy 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 ltimate decontamination and decommissioning of the Department of
'nergy'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.
As of December 31, 1993, the Company's recorded liability for its total assessment amounted to about
$34.5 million, The liability is sub-ject to adjustment for inflation. The corresponding charge to expense was deferred because the Company includes its annual payments to the Fund of approximately
$2.6 million, subject to adjustment for in-flation, in the ECR which is in the Company's PUC tariffs and in the fuel adjustment clause which is in the Company's FERC tariffs. As a result, the Company does not expect the assessment to have an adverse effect on net income.
former or inactive employees after employment but before retire-ment. In connection with the adoption of SFAS 112, the Company recorded a charge to operating expense of $5.5 million, which after income taxes, reduced net income by $3.1 million or about 2.1 cents per share of common stock.
Acconntfng Statement Adopted After December 31, 1993 Effective January I, 1994, the Company adopted SFAS 115, "Ac-counting for Certain Investments in Debt and Equity Securities."
SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all in.
vestments in debt securities. The adoption of SFAS 115 did not have a material effect on the Company's net income.
Postretfrement Benefits Other Than Pensions and Postemployment Benefits Effective January I, 1993, the Company adopted SFAS 106, "Employers'ccounting for Postretirement Benefits Other Than Pen-sions." SFAS 106 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. Caps have been established on the amount the Company willpay for retiree health care costs for all employees who retire on or after April I, 1993. The Company's transition obligation on January I, 1993 amounted to 173.8 million and is being amortized over a 20.year period. The in-rease in the cost of retiree benefits attributable to PUC-jurisdictional customers due to the adoption of SFAS 106 is being deferred in accor-dance with a PUC order. Recovery of the PUC-juristictional deferred costs will be requested in the Company's next base rate proceeding.
Current accounting rules permit deferral of the costs for about five years. At December 31, 1993, the deferred costs totaled $ 14.9 million.
In the fourth quarter of 1993, the Company charged to expense
$2.3 million of the cost of postretirement benefits other than pensions at-tributable to FERC-jurisdictional service, which, net of applicable in-come taxes, reduced earnings by 0.9 cents per share of common stock. See "Rate Matters" on page 13 and Financial Note 13 for addi ~
tional information.
The Company provides health and life insurance benefits to dis-abled employees and income benefits to eligible spouses of deceased employees. In December 1993, the Company adopted SFAS.112, "Employers'ccounting for Postemployment Benefits," which requires the Company to accrue, during the years that the employees render the necessary service, the expected cost of providing benefits to Increasfng Competftfon The Energy Act will,have a significant impact on the Company and the electric utility industry, primarily through amendments to the Public UtilityHolding Company Act of 1935 that creates a new class of independent power producers, and amendments to the Federal Power Act that opens access to electric transmission systems for wholesale transactions.
These changes increase competition in the wholesale energy supply market.
In response to the increased competition, the Company has under-taken initiatives to strengthen its position in the wholesale market, The Company entered into new five-year supply agreements at re-duced prices with its existing wholesale customers.
These agreements are subject to FERC approval. The Company is actively participating in negotiations and proceedings involving the sale of electricity to wholesale customers currently served by other electric utilities. These wholesale customers are generally small utilities that do not have their own generating capability and purchase electricity from others.
While there is currently no comparable competition in the retail electric market, the Company anticipates that it will face similar com-petitive pressures in the industrial and large commercial sectors of that market in the future.
The Company's strategic initiatives also include an assessment of entering power-related businesses outside of the Company's service territory, both domestically and in foreign countries. Any expansion by the Company into these areas would be methodical and deliberate.
To take advantage of these new business opportunities, in February 1994 the Company's Board of Directors approved a plan to (i) make an initial investment of $ 50 million in these new businesses; and (ii) pursue the formation of a holding company structure to facilitate such investment, subject to the receipt of appropriate regulatory approvals and, ultimately, shareowner approval at the 1995 annual meeting.
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0 To the Shareowners and Board of Directors of Pennsylvania Power R 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, 1993 and 1992, 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, 1993. These financial statements 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 8r Light Company and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Notes 5 and 13 to the consolidated financial statements, in 1993 the Company changed its method of accounting for postretire-ment benefit costs, income taxes and postemployment benefits to conform with Statements of Financial Accounting Standards Numbers 106, 109 and 112, respectively.
Parsippany, New Jersey February 3, 1994
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The management of Pennsylvania Power K 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 K Touche, independent certified public accountants, whose report with respect to the financial statements appears above.
Deloitte 5 Touche's appointment as auditors was previously ratiTied by the shareowners.
Management has made available to Deloitte 8~
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, assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The concept of reasonable assurance recognizes that the cost of a system of internal control should not 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 K 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 its Audit Committee, oversees management's responsibilities in the preparation of the flinan-cial statements.
In performing this function, the Audit Committee, which is composed of five independent directors, meets periodically with management, the internal auditors and the independent certified public accountants to review the work of each. Deloitte 8'ouche 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 matters.
Management 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 law, 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.
6Vau~ r=,k~
William F. Hecht Cbairntan, President and Cbief Executive Officer R. E. Hill Senior Vice President-Financial 20
Consolidated Statement ofIncome Pennsylvania Power 8r LightCompany and Subsidiaries 1993 1992 1991 P'J>onsands ofDollars)
Operating Revenues (Notes 1, 2, 3 and 4)..
$2,727,002
$2,744,122
$2,740,715 Operating Expenses Operation Fuel..
Power purchases Other Maintenance...........
Depreciation (Notes 1 and 10).
Amortized (deferred) depreciation (Notes 1 and 10)..
Income taxes (Note 5)..
Taxes, other than income (Note 5).,
506,900 278,800 460,482 193,242 271,390 14,249 235,164 203,967 545,361 275,499 452,999 201,254 258,357 3,563 228,340 205,318 586,325 256,320 461,921 206,861 246,212 (7,047) 217,366 190,426 Operating Income 2,164,194 2,170,691 2,158,384 562,808 573,431 582,331 Other Income and (Deductions)
Allowance forequity funds used during construction(Note 1)..
Income tax credits (expense) (Note 5)..
Othernet 7,981 1,280 8,700 17,961 6,771 (322) 12,337 18,786 2,961 903 7,616 11,480 580,769 592,217 593,811 Interest Charges Long-term debt Short-term debt and other Allowance forborrowed funds used during construction and interest capitalized(Note 1) 225,800 14,443 (7,600) 240,260 13,402 232,092 22,254 (8,169)
'8,949)
Net Income Dividends on Preferred and Preference Stock Earnings Applicable to Common Stock 232,643 245,493 245,397 348,126 346,724 348,414 44,687 33,885 40,495 314,241 306,229 303,727 Earnings Per Share ofCommon Stock(a) 2.07 2.02 2.01 Average Number ofShares Outstanding(thousands)
Dividends Declared Per Share ofCommon Stock..
(a) Based on average numberofshares outstanding.
151,904 151,676 151,382 1.65 1.60 1.55 See accontpanying Notes to Financial Statements.
21
Consolidated Balance Sheet at December 31 Pennsylvania Power &LightCompany and Subsidiaries Assets 1993 1992 (Thousands ofDollars)
Property, Plant and Equipment Electric utilityplant in service at original cost Accumulated depreciation (Notes 1 and 10)
Deferred depreciation(Notes 1 and 10).
Construction workin progress at cost Nuclear fuel owned and leased net ofamortization(Note 9)
Other leased propertynet ofamortization (Note9)........
Electric utilityplantnet Other propertynet ofdepreciation, amortization and depletion(1993,
$49,166; 1992, $64,286)...........
$ 8,912,473 (2,686,967) 282,115 6,507,621 238,600 174,979 75,630 6,996,830 148,751 7,145,581
$8,591,544 (2,495,972) 296,285 6,391,857 211,534 174,368 76,974 6,854,733 164,771 7,019,504 Investments Associated company at equity Nuclear plant decommissioning trust fund (Notes 1 and 6)..
Financial investments (Notes 1 and 7).
Otherat cost or less (Note 7) 17,069 76,913 140,569 31,249 265,800 17,088 65,159 121,500 33,657 237,404 Current Assets Cash and cash equivalents (Note 1)
Accounts receivable(less reserve: 1993, $29,429; 1992, $27,660)
Customers..
Interchange power sales Other Unbilled revenues Fuel (coal and oil)at average cost Materials and supplies at average cost Common stock held fordividend reinvestment planat cost(Note 8)
Deferred income taxes (Note 5)
Other 8,271 183,364 17,502 120,589 95,702 125,676 15,937 12,688 37,083 616,812 15,110 184,149 7,261 14,128 109,906 142,374 139,360 14,383 6,776 52,153 685,600 Deferred Debits Utilityplant carrying charges net ofamortization (Notes 1 and 10)
Reacquired debt costs (Notes 1 and 10)
Assessment fordecommissioning uranium enrichment facilities (Notes 3 and 10)
Retired miners'ealth care benefits (Notes 3 and 10).........
Taxes recoverable through future rates (Notes 5 and 10)......
Fostretirement benefits other than pensions (Notes 10 and 13)
Other 24,097 101,836 33,710 24,096 1,166,118 14,855 61,208 1,425,920
$9,454,113 24,965 78,917 38,925 36,'600 69,853 249,260
$8,191,768 See accompanying Notes to Financial Statentents.
22
t Liabilities Capitalization Common equity Common stock Capital stock expense Earnings reinvested
$ 1,370,783 (10,906) 1,065,958
$ 1,364,148 (11,969) 1,014,760 1993 1992 (TI>ottsands ofDollars)
Preferred and preference stock Withsinking fund requirements Withoutsinking fund requirements Long-term debt 2,425,835 335,000 171,375 2,618,031 5,550,241 2,366,939 325,600 223,612 2,620,720 5,536,871 Current Liabilities Commercial paper (Note 12).
Bank loans(Note 12)..
Long-term debt due withinone year..
Capital lease obligations due withinone year (Note 9)
Accounts payable Taxes accrued Interest accrued..
Dividends payable Accrued mine closing costs Other 117,000 85,260 44,539 78,740 156,992 62,721 60,373 70,410 7,842 88,791 772,668 67,000 92,348 6,439 86,899 147,001 63,067 59,429 70,556 20,296 91,105 704,140 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits (Note 5)
Deferred income taxes (Note 5)..
Capital lease obligations(Note 9)
Unamortized cost ofpower plant spare parts(Note 3).........
Accrued nuclear plant decommissioning costs (Notes 1.and 6)..
Accrued mine closing costs Contract settlementproceeds to be credited to customers (Note 3)
Accrued pension costs(Note 13)
Accrued assessment fordecommissioning uranium enrichment facilities (Note 3)..
Accrued retired miners'ealth care benefits (Note 3).........
Accrued postretirement benefits other than pensions and postemployment benefits (Note 13).....
Other..
242,317 2,269,648 170,285 51,147 78,947 55,876 43,894 92,024 31,871 38,751 9,862 46,582 3,131,204 255,823 1,079,744 164,159 75,457 67,435 61,841 55,794 73,902 39,600 36,'600 40,402 1,950,757 Commitments and Contingent Liabilities(Note 15)
$9,454,113
$8,191,768 Seeaccompanytng Notes to Financla!Statemettts.
23
Consolidated Statement ofCash Flows Pennsylvania Power 8c LightCompany and Subsidiaries 1993 1992 (TI>ousands ofDollars) 1991 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 plant spare 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 interest and taxes Other.
Other operating activitiesnet Net cash provided by operating activities...........
$ 348,126 289,055 79,437 (38,602) 12,229 (7,981) 4,672 (10,291) 46,672 4,541 9,991 598 1,630 29,656 769,733
$ 346,724 270,048 81,916 (31,973) 18,309 (6,771) 16,010 (37,865) 16,997 9,071 41,790 4,525 (11,876) 52,985 769,890
$ 348,414 261,180 96,565 (17,818) 52,118 (2,961)
(14,380)
(45,725) 25,887 1,200 (11,835) 17,858 8,012 49,432 767,947 Cash Flows From Investing Activities Property, plant and equipment expenditures Proceeds from sales ofnuclear fuel to trust Financial investments..
Other investingactivities net..
Net cash used in investing activities (487,836) 63,431 (705) 6,825 (418,285)
(422,209) 42,778 (17,796) 4,509 (392,718)
(374,397) 48,914 (50,876) ~
4,191 (372,168)
Cash Flows From Financing Activities Issuance oflong-term debt Issuance ofcommon stock Issuance ofpreferred stock..
Retirement oflong-term debt Retirement ofpreferred and preference stock 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 850,000 6,635 300,000 (809,000)
(342,837)
(83,868)
(284,642) 42,912 (37,448)
(39)
(358,287) 390,000 6,151 (346,400)
(46,753)
(85,733)
(282,209) 12,178 (16,682)
(126) 150,000 8,401 (37,460)
(19,100)
(100,227)
(277,323)
(118,770)
(2,136)
(160)
(369,574)
(396,775)
Net Increase (Decrease) in Cash and Cash Equivalents..
Cash and Cash Equivalents at Beginning ofPeriod Cash and Cash Equivalents at End ofPeriod (6,839) 15,110 8,271 7,598 7,512 15,110 (996) 8,508 7 5'12 Supplemental Disclosures ofCash FlowInformation Cash paid during the year for Interest(net ofamount capitalized).
Income taxes See accompauyfttg Notes to FlttattcfafStatements.
$ 205,090
$ 221,049
$ 249,303
$ 197,594
$ 229,066
$ 154,136 24
Consolidated Statement ofLong-Term Debt at December 31 Pennsylvania Power &LightCompany and Subsidiaries Company First Mortgage Bonds (a) 4'is%
5$/s%
6>/%
9/4%
5 t/2%
9$/s%
6% to 9%
6/a% to 9$/4%..
9% to 9/,%
6$/4% to 10%
First Mortgage Pollution Control Bonds (a) 5$/s% SeriesA 10$/s% Series E.
10$/,% Series F.
9$/s% Series G 6 4~0% Series H..
30,000 30,000 30,000 150,000 720,000 375,000 1,025,000 30,000 30,000 30,000 125,000 125,000 495,000 555,000 250,000 675',000 15,500 37,750 115,500 55,000 90,000 15,500 37,750 115,500 55,000 90,000 Outstanding 1993 1992 thousands ofDollars) hfaturity(b)
March 1, 1994 June 1, 1996 November 1, 1997 March 1, 1998 April1, 1998 June 1, 1998 1999-2003 2004-2008
'2014-2018 2019-2023 (c)
March 1, 2014 September 1, 2014 July 1, 2015 November 1, 2021 Miscellaneous promissory notes.
Unamortized(discount) and premiumnet..
Less amount due withinone year Subsidiaries
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~
Notes(d)..
Less amount due withinone year Total long-term debt 2,673,750 77 2,673,827 (24,857) 2,648,970 30,939 2,618,031 13,600 13,600
$2,618,031 2,628,750 116 2,628,866 (19,307) 2,609,559 39 2,609,520 17,600 6,400 11,200
$2,620,720 1994-1995
( a ) Substantially all owned electric utilityplant is subject to the lienofthc Company's firstmortgage.
( b)
Aggregate long.term debt maturities through 1998@re
(thousands ofdollars): 1994, $44,539; 1995, $938; 1996, $30,900; 1997, $30 900; 1998, $ 150,900. hlaximum sinking fund rcqulremcnts aggregate
$25.8 millionthrough 1998 and may be met withproperty additions or retirement ofbonds.
( c ) Bonds mature annually on hlay I as follows(thousands ofdollars): 1994.2002, $900; 2003, $7,400.
(d) Fixed rates ranging from 9% to 12%. During 1993, a subsidiary company retired $4.0 millionofmaturing notes. InJanuary 1994, a subsidiary company repaid $ 13.6 millionofits notes.
See accompanying Notes to Financial Statements.
25
Consolidated Statement ofShareowners'ommon Equity Pennsylvania Power &LightCompany and Subsidiaries Balance atDecember 31, 1990....
Net income Cash dividends declared Preferred stock...............
Preference stock..............
Commonstock($ 1.55).........
Stock redemption costs...........
Employee stock ownership plan (b),.
Other..
Balance at December 31, 1991....
Net income....................
Cash dividends declared Preferredstock...............
Preferencestock..............
Commonstock($ 1.60).........
Stock redemption costs...........
Employee stock ownership plan(b)
Other Balance at December 31, 1992....
Netincome..
Cash dividends declared Preferredstock...............
Preferencestock..............
Common stock($ 1.65).........
Stock redemption costs...........
Employee stock ownership plan....
Other Balance at December 31, 1993....
357,328 7,045 151,655,268
$ 1,358,091 230,067 6,057 151,885,335
$ 1,364,148 246,754 6,635 152,132,089
$ 1,370,783 (35,047)
(35,047)
(9,640)
(9,640)
(234,626)
(234,626)
(157)
(157) 7,045 262 262
$(12,187)
$ 952,106
$2,298,010 346,724 346,724 (30,855)
(9,640)
(242,655)
(920) 6,057 218 218 S(11~969~$
1 014760 82 366 939 348 T2 348, f2 (29,065)
(4,820)
(250,611)
(12,432)
(29,065)
(4,820)
(250,611)
(12,432) 6,635 1,063 1,063
$(10,906)
$ 1,065,958
$2,425,835 Common Stock Outstanding Capital Stock Earnings Shares (a)
Amount Expense Reinvested Total (Thousands ofDollars) 151,297,940
$ 1,351,046
$(12,449)
$ 883,162
$2,221,759 348,414 348,414 (a) No par value, 170,000,000 shares authorized. Each share entitles the holders to one vote on any question presented towny shareowners'eeting.
(b) Includes employee subscriptions.
Outstanding 1993 1992 (Tbotrsands ofDollars)
Consolidated Statement ofPreferred and Preference Stock at December 31 Pennsylvania Power &LightCompany and Subsidiaries Shares Outstanding Shares 1993 Authorized Preferred Stock
$ 100 par, cumulative (a) 4th%
Series Preference Stockno par, cumulative (a)..
$ 53,019 453,356
$ 506,375 5,000,000
$ 53,019 530,189 629,936 381,193 4,533,556 10,000,000
$434,212
$ 115,000
( a )
Each sharc ofpreferred and preference stock entitles the holders to one vote on any question presented to any shareowners'eeting.
(b) The involuntary liquidation price ofthe preferred stock is $ 100 per share. The optional voluntary liquidation price is the optional redemption price per share ineffect, except forthe 4 V2 % Preferred Stock forwhich such price is $ 100 per share (plus in each case any unpaid dividends),
( c) The aggregate amount ofsinking fund redemption requirements through 1998 are(thousands ofdollars): 1994, $30,000; 1995, $30,000; 1996, $30,000; 1997, $30,000; 1998, none.
(d) This series ofpreferred stock Is not redeemab! e priorto 2003.
( e ) Shares to be redeemed annually on October I as follows:2003-2007, 57,500; 2008, 862,500.
( f) Shares to be redeemed annually onJuly I as follows:2003.2007, 50,000; 2008, 750,000.
(g) On certain sinking fund redemption dates, additional shares may be redeemed up to the number ofshares required to bc redeemed annually.
(h) InJanuary 1994, the Company redeemed through sinking fund provisions at $ 100 per share 200 000 shares of7 00% Series Preferred Stock.
See accompanying Notes to Financial Statentents.
26
Details ofPreferred and Preference Stock (b)
Outstanding l993 l992 (TI>ottsands ofDollars)
Optional Redemption Shares Price Per Outstanding Share l993 l993 Sinking Fund Provisions (c)
Shares to be Redeemed Redemption Annually Period WithSinking Fund Requirements Series Preferred 6.125%
6.33%..
6.875% (g).
7.00% (g) (h) 7.375%
7.40%..
7.82%..
7.927%
8.00%..
8.75%..
$ 115,000 100,000 40,000 80,000
$ 335,000 1,150,000 1,000,000 S 50,000 400,000 100,000 800,000 50,000 17,600 50,000 3,000 25,000 30,000
$325,600 (d)
(e) 2003-2008 (d)
(f) 2003-2008
$ 101.72 100,000 1994-1997 101.75 200,000 1994-1997 Without Sinking Fund Requirements 4~/z% Preferred.............
Series Preferred 3.35%..
440%..
4 60%
6 75'.60%..
Preference
$8.00
$ 8.40
$8.70
$ 53,019 4,178 22>878 6,300 85,000
$ 171,375 S 53,019 4,178 22,878 6,300 22 237 35,000 40,000 40,000
$223,612 41,783 228,773 63,000 850,000 103.'50 102.00 103.00 (d) 530,189
$ 110.00 Increases (Decreases) inPreferred and Preference Stock (Thousands ofDollars) l993 Shares Amount 1992 Shares Amount l99l Shares Amount Series Preferred Stock 6.125%
6.33%..
6 75%
6.875%
7.00%..
7.375%
7 40'.82%..
7.927%
8.00%..
8.60%
8.75%..
9.00%..
9.24%..
Preference Stock
$8.00
$8.40
$8.70 Decreases in Preferred and Preference St shares rcdeemcd pursuant to optional red
$ 115,000 100,000 85,000 (10,000)
(20,000)
(50,000)
(17,600)
(50,000)
(3,000)
(25,'000)
(22,237)
(30,000) 1,150,000 1,000,000 850,000 (100,000)
(200,000)
(500,000)
(176,000)
(500,000)
(30,000)
(250,000)
(222,370)
(300,000)
(30,000)
(25,000)
(3,000)
(2,500)
(3,000)
(2,500)
(30,000)
(25,000)
(60,000)
(77,630)
(258,900)
(6,000)
(7,763)
(25,890)
(60,000)
(60,000)
(6,000)
(6,000)
(350,000)
(35,000)
(400,000)
(40,000)
(400,000) 40,000) ks represent: (i)the redemp fstock king fund rcquircments, or (ii) oc tiono pursuant tosin emption provisions.
See accompanying Notes to Financial Statements.
(16,000)
$(1,600)
(16,000)
S(1,600) 27
1.
Summary of Significant Accounting Policies 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).
Prfncfples of Consolfdatlon Allwholly owned subsidiaries (principally involved in holding coal reserves, oil pipeline operations and passive financial investments) have been consolidated in the accompanying financial statements and all significant intercompany transactions have been eliminated. Income and expenses of subsidiaries not related to utility operations 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): 1993, $9.9; 1992, $9.4 and 1991, $9.3. Under equity accounting, the operations of Safe Harbor resulted in addi ~
tional income to the Company of (millions of dollars): 1993, $ 2.1; 1992, $2.1 and 1991, $2.2.
UtflltyPlant and Deprecfation 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 utilityplant 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 financial 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 through 1998, at which time depreciation willchange to the straight-line method. Pro-visions for depreciation, as a percent of average depreciable property, approximated 3.3% in 1993, 3.2% in 1992 and 3.1% in 1991.
UtflftyPlant 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 Decomniissfonfng and Fuel Dfsposal 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 6.)
The U.S. Department of Energy (DOE) is responsible for the perma-nent storage and disposal of spent nuclear fuel removed from nuclear reactors. The Company currently pays DOE a fee for future disposal services and recovers such costs in customer rates.
Financial 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 7)
Premfum 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.
Allowancefor 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.
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 9.)
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.
28
The Company's PUC tariffs include a Special Base Rate Credit Ad.
ustment (SBRCA) that currently credits retail customers'ills for three nonrecurring items related to: (i) the use of an inventory method of 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 of outstanding contract claims arising from construction of the Susquehanna station. (See Note 3.)
In April 1993, the Company rolled into base rates the level of in-creased state taxes recovered since August 1991 through a State Tax Adjustment Surcharge (STAS) and revised the STAS to collect an under-collection of state taxes during the period April 1992 through hlarch 1993. (See Note 3.)
Income Taxes 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-ment of Income.
In January 1993, the Company adopted Statement of Financial Ac-counting Standards (SFAS) 109, "Accounting for Income Taxes." SFAS 109 requires a change from the deferred method to the asset and liability method of accounting for income taxes. (See Note 5.)
The provision for deferred income taxes included on the Con.
solidated Statement of Income represents the amount of deferred tax expense reflected in rates established by the PUC and FERC. The dif-ference in the provision for deferred income taxes determined under
'FAS 109 and the amount recorded based on ratemaking procedures adopted by the PUC and FERC is deferred and included in taxes recoverable through future rates on the Consolidated Balance Sheet.
(See Note 5.)
Investment tax credits were deferred when utilized and are amor-tized over the average lives of the related property. The investment tax credit was repealed effective December 31, 1985.
Pension Plan and Other Postretirenient and Postemployment Benefits 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 13.)
In January 1993, the Company adopted SFAS 106, "Employers'c.
counting for Postretirement Benefits Other Than Pensions."
SFAS 106 requires the Company to accrue, during the years that the employees render the necessary service, the expected cost of providing retiree health care and life insurance benefits. (See Note 13.)
In accordance with a PUC order, the Company is deferring the ac-crued cost of the PUC-jurisdictional portion of retiree health and life insurance benefits in excess of actual claims paid pending recovery of the increased costs in retail rates.
In December 1993, the Company adopted SFAS 112, "Employers'ccounting for Postemployment Benefits." SFAS 112 requires the ac.
crual of the expected cost of providing benefits to former or inactive employees after employment but before retirement. (See Note 13.)
Accounting Statement Adopted After December 31, 1993 Effective January I, 1994, the Company adopted SFAS 115, "Account-ing for Certain Investments in Debt and Equity Securities."
SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all in-vestments in debt securities. The adoption of SFAS 115 did not have a material effect on the Company's net income.
Unusual Items Recognized in tbe Fourth Quarter In the fourth quarter of 1993, the Company recorded charges against income that, in the aggregate, adversely affected net income by about $ 18 million or 12 cents per share of common stock. The charges related to: (i) credits to be included in the Company's ECR due to entering a settlement agreement with complainants against the Company's ECR; (ii) the write-offof certain deferred retiree benefits costs; and (iii) the recognition of certain employee benefit costs in connection with the adoption of a new accounting standard.
(See Notes 3 and 13.)
Cash Equivalents The Company considers all highly liquid debt instruments pur-chased with original maturities of thiee months or less to be cash equivalents.
Reclassification Certain amounts from prior years'inancial statements have been reclassified to conform to the current year presentation.
- 2. Sources of Revenues The Company is an operating electric utilityserving about 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.
ustomers are generally billed for electric service on a monthly basis after electricity is delivered.
During 1993, about 98% of total operating revenues'was derived from electric energy sales with 34% coming from residential customers, 27% from commercial customers, 20% from industrial customers, 4% from interchange power sales to members of the Pennsylvania-New Jersey-hlaryland Interconnection Association (PJhi),
12% from contractual sales to other major utilities and 3% from others. The Company's largest industrial customer provided about 1.4% of revenues from energy sales during 1993. Twenty-nine in.
dustrial customers, whose billings exceeded
$ 3 million each, provided about 7.5% of such revenues. Industrial customers are broadly distributed among industrial classifications.
29
'3. Rate Matters Energy Cost Rate Issues Several complaints have been filed with the PUC against the Com-pany's ECR by the Pennsylvania Office of Consumer Advocate (OCA) and certain industrial customers.
These complaints relate to the Com-pany's ECRs beginning with the 1990.91 ECR through the 1993-94 ECR, which became effective in April 1993.
The complaints by industrial customers generally oppose the Com.
pany's recovery on a current basis through the ECR of the cost of output purchased from non.utility generating companies or question the manner in which the cost of such purchases is recovered through the ECR. The OCA and industrial customers complaints also request a
PUC investigation into whether the revenues received from the Com-pany's sales of installed capacity credits, reservation of output and transmission entitlements (capacity. related transactions) should be credited to customers through the ECR. These transactions are discussed in Note 4.
With respect to the 1993.94 ECR, certain of the complaints also op-pose the Company's request to recover through the ECR the liability imposed on the Company or its coal-mining subsidiaries by the Energy Policy Act of 1992 (Energy Act) for the cost of health care for retired coal miners previously employed by those subsidiaries.
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. The estimated liability amounts to approximately
$68 million on a net present value basis. At the time coal. mining operations ceased, subsidiary mining companies had accrued
$32 million for anticipated payments to the miners'ealth care trust funds to provide for health care benefits for retired miners. Under the Energy Act, the Company or its coal mining sub.
sidiaries will be directly liable for these benefits and the $32 million will not have to be paid to the trust funds. The Company intends to use the amount accrued by its subsidiary mining companies to partial-ly offset the liability.
In December 1992, the Company recorded an additional liabilityof approximately
$36 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. The net PUC-jurisdictional amount of this liability was $30 million. The balance of the deferral pertains to FERC.jurisdictional service.
In addition, certain complaints challenge the Company's request for ECR recovery in the 1993 94 ECR of the additional costs associated with the 12-month extension of the Company's agreement to purchase coal from the operator of a mine formerly owned by the Company.
The additional costs in question total approximately
$3 million.
With regard to the Company's 1991-92 ECR, the PUC ordered hear-ings regarding ECR treatment of capacity-related sales made possible by the purchase of output from non utility generating companies. The PUC also ordered hearings on the Company's 1993 94 ECR. The Administrative Law Judge assigned to the case excluded from the scope of the hearings issues regarding the Company's recovery of the cost of output purchased from non.utility generating companies and also indicated that the scope of the other cases would be limited to the Company's capacity. related transactions and various coal related issues.
As a result of discussions which began in late 1993, the Company and the complainants reached a settlement agreement which provides for crediting the 1994-95 ECR with a portion of the receipts from in.
stalled capacity credit sales from April 1990 through December 31, 1993; credits a portion of the receipts from future installed capacity credit sales to the ECR and excludes from recovery through the ECR a portion of the PUC-jurisdictional amount of deferred retired miners'ealth care benefits costs.
This agreement is subject to PUC approval. As a result of this agree.
ment, in the fourth quarter of 1993 the Company recorded a charge to expense of $ 17.1 million, which after income taxes, reduced net in.
come by approximately
$9.7 million or 6.4 cents per share of com-mon stock.
Postretirement Benefits Otber Than Pensions In March 1993, the PUC approved the Company's petition to defer the increase in retiree benefits costs arising from adoption of SFAS 106, "Employers'ccounting for Postretirement Benefits Other Than Pensions." The increased costs applicable to PUC-jurisdictional customers willbe deferred from January I, 1993 until such costs are included in customer rates in the Company's next retail base rate pro-ceeding. Accounting rules permit deferral of the costs for about five years.
In June 1993, the OCA appealed the PUC's decision permiulng deferral and future recovery of the increased retiree benefits costs to the Commonwealth Court of Pennsylvania. The filingof the appeal does not operate as a stay of the PUC's order and the Company is continuing to defer such costs in accordance with the PUC's order.
Thc Company cannot predict the ultimate outcome of this matter before the Commonwealth Court.
The Company also began to defer the increased costs applicable to FERC-jurisdictional service pursuant to a FERC policy statement, but subsequently charged the increased costs of $2.3 million to expense due to a settlement agreement reached with municipalities and other small utilities served under FERC tariffs. As a result of this agreement, the Company will be unable to file for recovery of the increased costs within the time period specified in the FERC policy statement.
See "FERC Wholesale Rates" for more information.
Uranium Enrichment Decontaniination and Decommissioning Fund The Energy Act'also provides for an assessment on utilities with nuclear power operations, including the Company, to establish a Uranium Enrichment Decontamination and Decommissioning Fund (Fund). Assessments are based on the amount of uranium a utilityhad 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 enrich.
ment 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.
As of December 31, 1993, the Company's recorde'd liability for its total assessmcnt amounted to about $34.5 million. The liability is 30
subject to adjustment for inflation. The corresponding charge to ex-ense was deferred because the Company includes its annual payments to the Fund of approximately
$2.6 million, subject to ad.
justment for inflation, in the ECR which is in the Company's PUC tariffs and in the fuel adjustment clause which is in the Company's FERC tariffs. As a result, the Company does not expect the assessment to have an adverse effect on net income.
Special Base Rate Credit Arljustntent 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 item is the annual amortization of a credit to income associated with the Company's using an inventory method of account-ing for spare parts beginning January I, 1991. The amortization of the cost of spare parts on hand at January I, 1991 is being included in the SBRCA over a five-year period.
The second relates to costs that are being recovered from Atlantic pursuant to the sale of 125,000 kilowatts of capacity (summer rating) and related energy from the Company's wholly owned coal. fired sta-tions beginning October I, 1991. The costs recovered from Atlantic are currently reflected in retail base rate tariffs. Accordingly, the Com-pany 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 arising from construction of the nuclear. fueled Sus-quehanna steam generating station. In accordance with approval of he 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 pro.
ceeds 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 $44.5 million in 1993, $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.
Recovery ofState Tax Increase 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 recovered the increased taxes applicable to retail customers through application of the STAS. In April 1993, the Company rolled into base rates the level of increased state taxes previously recovered in the STAS and the STAS was revised to collect an undercollection of state taxes during the period April 1992 through March 1993. The portion of the increased taxes applicable to the Company's contractual sales of capacity and related energy to other utilities is recovered as a cost of providing such service.
FERC Wholesale Rates The Company has negotiated new five-year, lower.priced sales con-tracts with certain small utilities it currently serves. The contracts are subject to FERC approval and will reduce rates to these small utilities by about
$3.6 million in 1994 and 1995 and by about an additional
$ 4.1 million for the years 1996 through 1998. In connection with the agreement, in 1993, the Company wrote off the deferred portions of retired miners'ealth care benefits costs and postretirement benefits other than pensions applicable to FERC-jurisdictional services. The charge to expense amounted to $8.9 million and, after income taxes, reduced net income by $ 5.1 million or about 3.4 cents per share of common stock.
- 4. Sales to Other Major Electric Utilities 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 8: Electric (BG8: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 May 2001.
The Company provides Jersey Central Power and Light Company (iCP&L) with 945,000 kilowatts of capacity and related energy from all the Company's generating units. Sales to JCP&L began in 1985 and willcontinue at the 945,000 kilowatt level through 1995, with the amount then declining uniformly each year until the end of the agree-ent 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. Revenues from these sales totaled $282.2 million in 1993, $293.8 million in 1992 and
$284.2 million in 1991.
In addition to these bulk power contractual sales, the Company has entered into several agreements with other electric utilities in the PJM 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 1996.
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 Company's Martins Creek station during certain periods of time. Specific deliveries of energy are requested by the purchasing utility as needed during the reservation period. One utility has 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 May 1995. The Company includes as a credit to the ECR the revenue received for deliveries of energy from Martins Creek, the revenue received for deliveries of output from non.utility generating companies and the foregone PJM interchange saviny that are not realized when interchange 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 PJhi.
These transactions are made through negotiated prices for various periods of time. The Company includes, as a credit to the ECR, the foregone interchange saviny that are not realized when the sale of transmissiori entitlements reduces the amount of energy the Company~
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 1993, $35.0 million in 1992 and $35.4 million in 1991. For information relating to proceediny pending before the PUC and a settlement agreement between the Company and complainants to the ECR with respect to capacity-related transactions, see Note 3.
,5. Taxes In January 1993, the Company adopted SFAS 109, "Accounting for Income Taxes." SFAS 109 requires a change from the deferred method to the asset and liabilitymethod of accounting for income taxes.
Under the asset and liabilitymethod, deferred income tax assets and liabilities are recognized for the tax consequences of temporary dif-ferences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amount and the tax bases of existing assets and liabilities.
In adopting SFAS 109, the Company recorded in January 1993 an in-crease 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 practices and legislative history in Pennsylvania permitting recovery of actual taxes payable. The adoption of SFAS 109 did not have a material effect on the Company's net income.
In August 1993, federal legislation was enacted that increased the corporate federal income tax rate to 35% from 34% retroactive to January I, 1993. For 1993, the Company recorded additional income tax expense of $ 5.9 million and an increase in deferred income tax liabilities and taxes recoverable through future rates of $79.5 million to reflect the new tax rate.
The provision for deferred income taxes included on the Con-solidated Statement of Income represents the amount of deferred tax expense reflected in rates established by the PUC and FERC. The dif-ference in the provision for deferred income taxes for 1993 de-termined under SFAS 109 and the amount recorded based on ratemak-ing procedures adopted by the PUC and FERC is deferred and in-cluded in taxes recoverable through future rates on the Consolidated Balance Sheet.
The tax effects of significant temporary differences comprising the Company's net deferred income tax liabilityat December 31, 1993 were as fo!Iows (thousands of dollars):
Deferred tax assets Deferred investment tax credits..
Accrued pension costs Other Valuation allowance Deferred tax liabilities Electric utility plantnet...
Other property-net Taxes recoverable through future rates Reacquired debt costs Other Net deferred tax liability 103,084 38,821 108,441 (8,694) 241,652 1,892,366 26,629 500,959 43,580 35,120 2,498,654
$2,257,002 The valuation allowance related to deferred tax assets at December 31, 1993 amounted to $8,694,000, a decrease of $2,882,000 from the
$ 11,576,000 established upon the adoption of SFAS 109 at January I, 1993.
In August 1991, Pennsylvania enacted legislation that increased the Company's state income and other taxes retroactive to January I, 1991.
See Note 3 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.
32
Details of the components of income tax expense and a reconciliation of federal income taxes derived from statutory tax rates applied to
'ncome from continuing operations for accounting purposes are as follows (thousands of dollars):
Income Tax Expense Included in operating expenses Provision-Federal Federal-tax rate change State Deferred Federal Federal-tax rate change State Investment tax credit, netFederal Included in other income and deductions Provision (credit)-Federal.
Federal-tax rate change; State Deferred-Federal Federal tax rate change.
State 1993
$ 158,106 4,689 G3,508 226,3o3 21,280 1,211 (124) 22,367 (13,506) 235,164 (4,976)
(158) 486 (4,648) 3,907 14o (679) 3,368 (1)280) 1992
$ 144,546 Q,QS 209,194 3o,654 2,521 33,175 (14,029) 228,340 676 483 1,159 (441)
(396)
(837) 322 1991
$ 114,904 49,534 164,43S 51,547 225 51,772 1,156 217,366 (126) 33 (93)
(640)
(170)
(810)
(903)
Total income tax expense Federal State Detail of deferred taxes in operating expenses Tax depreciation Reacquired debt costs.
Other 170,693 63,191
$ 233,884
$ 33,195 9,927 (20,755)
$ 22,367 i6i,4o6 67,256
$228,662
$ 38,026 5,4o5 (10,256)
$ 33,175 166,S41 49,622
$216,463
$ 72,113 (1,938)
(18,403)
$ 51,772 Reconciliation of Income Tax Expense.
Indicated federal income tax on pretax income at statutory tax rate (1993, 35%; 1992 1991, 34%)..
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..
$ 203,704 41,829 8)470 (13,50G)
(2)794)
(3,819) 30,180
$233)884 40 2%
$ 195,631 44,575 6,'so5 (14,029)
(2,302)
(2,018) 33,031
$228,662 39.7%
$ 192,058 34,319 9,080 (15,048)
(1,007)
(2,939) 24,405
$2i6,463 38.3%
Taxes, other than income, consist of the following (thousands of dollars):
Taxes, Other Than Income State gross receipts t
State utility realty..
State capital stock Social security and other
$ 98,280 45,292 35,943 24,452
$ 2031967
$ 94,926 4S,511 37,279 24,6o2
$205,318
$ 91,504 43,432 32,579 22,911
$ 190,426 33
- 6. Nuclear Decommissioning Costs The Company's most recent site specific decommissioning study, based on immediate dismantlement and decommissioning each unit following final shutdown, indicates that its share of the total estimated cost of decommissioning the Susquehanna station is approximately
$725 million in 1993 dollars. The operating licenses for Units 1 and 2 expire in 2022 and 2024, respectively.
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 held and accrued income in the trust fund at December 31, 1993 ag.
gregated approximately
$82.9 million.
The most recent estimated cost of decommissioning Susquehanna is substantially higher than the estimate used to determine the amount currently collected in retail rates. As a result, the Company would ex-pect to request recovery of a higher level of decommissioning ex.
pense in its next retail base rate proceeding.
- 7. I'inancial Instruments The carrying amount and the estimated fair value of the Company's financial instruments are as follows (thousands of dollars):
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 noncurrent (c)................
December 31, 1993 Carrying Fair Amount Value
, 335)000 2,662,570 202,260 336>388 2,843,635 202,260 219,505 31,871 219,505 31,871 76,913 82,860 140,569 i45,482 31,249 31>182 8,271 8,271 6,266 6,274 December 31, 1992 Carrying Fair Amount Value 65,159 121,500 33,657 15,110 16,842 69,104 124,203 33,638 15,110 16,862 222,338 222,338 39,600 39,600 325,600 334,090 2,627,159 2,758,176 159,348 159,348 (a) The fair nlue generally is based on esublished market prices. For a minor ponion, the fair nlue approximates the carrying amount.
(b) The fair n!ue is based on esublished market prices. For venture capiul investmems included in financial investments, fair nlue is determined in good faith by management of the venture capital entity.
(c) The fair value approximates the carrying amount.
(d) The fair value is based on quoted market prices for the security or similar securities where anihble and estimates based on current rates offered to the Company where quoted market prices are not anihble.
Financial investments consist of the following (thousands of dollars):
December 31 1993 1992 Marketable equity securities Marketable 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 10)85 61,294 65,378 6,207 143,733 3,164
$ 140,569 11,320 78,942 39,256 6,393 135,911 14,41 i
$ 121,500 34
Marketable equity securities at December 31, 1993 and 1992 are tated at the lower of aggregate cost or market. The market value of arketable equity securities was $ 12,995,000 at December 31, 1993 and $ 11,546,000 at December 31, 1992. The market value of marketable debt securities was $65,562,000 at December 31, 1993 and S80,588,000 at December 31, 1992.
- 8. Stock Held For Dividend Reinvestment Plan At December 31, 1993, the Company temporarily held 585,506 shares of common stock which were acquired in the open market.
These shares were distributed to participants in the Dividend Reinvest-ment Plan in January 1994.
- 9. Leases 3'he Company and a subsidiary have entered into capital leases consisting of the following (thousands of dollars):
December 31 1993 1992 Nuclear fuel, net of accumulated amortization (1993, $ 191,812; 1992, $ 191,002).
Vehicles, oil storage tanks and other property, net of accumulated amortization (1993, $83,224; 1992, $93,730)
Net property under capital leases
$ 173,395 75,630
$249,025
$ 171,901 79,157
$251,058 Capital lease obligations incurred for the acquisition of nuclear fuel nd other property were (millions of dollars): 1993, $84.0; 1992,
$64.8 and 1991, $69.5.
Nuclear fuel lease payments, which are charged to expense as the fuel is used for the generation of electricity, were (millions of dollars):
1993, $67.6; 1992, $ 70.4 and 1991, $95.5. 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 S200 million.
Future minimum lease payments under capital leases in effect at December 31, 1993 (excluding nuclear fuel) would aggregate
$86.6 million, including $ 10.9 million in imputed interest. During the five years ending 1998, such payments would decrease from $22.3 million per year to $6.5 million per year.
Interest on capital lease ob!igations was recorded as operating ex-penses on the Consolidated Statement of Income in the following amounts (millions of dollars): 1993, $9.1; 1992, $ 10.5 and 1991, $20.5.
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.
- 10. Regulatory Assets The Company has deferred certain costs in accordance with the rate actions of the PUC and FERC and is recovering or expects to recover such costs in electric rates charged to customers.
Regulatory assets consist of the following (thousands of dollars):
Deferred depreciation Deferred operating and carrying costs Susquehanna Utilityplant carrying charges net of amortization.
Deferred refueling outage costs Susquehanna Reacquired debt costs Taxes recoverable through future rates Postretirement benefits other than pensions Retired miners'ealth care benefits Assessment for decommissioning uranium enrichment facilities...
$296,285 39,215 24,965 17,446 78,917 282,115 39)215 24)097 16,027 101,836 1,166,118 14,855 24)096 33,710 36,600 38,925
$532,353 S 1,702) 069 December 31 1993 1992 35
Deferred depreciation is the difference between the straight-line depreciation of property placed in service at the Susquehanna station prior to January I, 1989 and the amount of depreciation on such property provided for financial reporting purposes and included in rates, and is the result of a rate phase-in plan meeting the criteria of SFAS 92, "Regulated Enterprise-Accounting for Phase-in Plans." The annual difference is shown as amortized (deferred) depreciation on the Consolidated Statement of Income.
Deferred operating and carrying costs Susquehanna consist of cer-tain operating and capital costs, net of energy savings, associated with Units I and 2 at the Susquehanna station. The costsi deferred in accordance with orders from the PUC, were incurred from the date the units were placed in commercial operation until the effective dates of the rate increases reflecting operation of the units. The deferred costs include related deferred income taxes. Recovery of these costs willbe subject to PUC approval. No return is being accrued on the deferred costs.
Utilityplant carrying charges are carrying charge accruals that were reclassified from electric utility plant in service to a deferred debit in accordance with a FERC order. Such charges are being amortized over the remaining depreciable life of the related property and are include in PUC electric service rates.
Deferred refueling outage costs-Susquehanna represent incremental maintenance costs incurred during refueling and inspection outages which are deferred and subsequently amortized over the period of time that begins upon the cessation of the outage and ends with the start of the next scheduled refueling and inspection outage. Such costs are included in electric service rates.
Reacquired debt costs represent premiums and expenses incurred in the redemption of long.term debt. In accordance with FERC regula.
tions, reacquired debt costs are amortized over either the life of the refunding issue or the remaining life of the redeemed issue, as ap-propriate. Reacquired debt costs are included in electric service rates.
For a discussion of taxes recoverable through future rates, post-retirement benefits other than pensions, retired miners'ealth
'care benefits and assessment for decommissioning uranium enrichment facilities, see Notes 5, 13 and 3, respectively.
- 11. Termination of Coal-Mining Operations The Company has ceased its subsidiary coal. mining operations. 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 was sold in September 1992. A coal processing and loading facility was sold in November 1993, completing the planned phase.out of coal mining operations. The Company replaced the coal produced by its subsidiaries with coal acquired through new contracts with non.
affiliated suppliers and open market purchases.
A subsidiary continues to sell purchased coal to the Company.
The Company purchased, coal from certain subsidiaries at prices equal to the cost incurred by those subsidiaries for mining, processing and purchasing coal, These purchases totaled approximately
$20 million in 1993, $ 109 million in 1992 and $ 188 million in 1991. The cost of coal purchased was included in energy costs collected from customers.
All the coal produced at the now closed Greenwich mines was delivered to the Company's Montour generating station. The PUC 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 was measured.
The standard covered the three-year period from April I, 1990 through March 31, 1993. At the end of this period, the cost of coal delivered to Montour was less than the standard.
The Energy Act imposed a new liabilityon the Company or its coal. mining subsidiaries for the cost of health care for retired coal miners previously employed by those subsidiaries.
See Note 3 for in-formation concerning this liability.
- 12. Credit Arrangements 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 borrowiny 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, 1996 and, at the option of the Company, interest rates would be based upon certificate of deposit rates, Eurodollar deposit rates or the prime rate. The Company has addi ~
tional credit arrangements with another group of banks in return for the payment of commitment fees. The banks have committed to lend the Company up to $60 million under these credit arrangements at in.
terest rates based upon Eurodollar deposit rates or the prime rate.
These credit arrangements mature on May I, 1994 with provisions to extend every six months. These arrangements produce a total of $200 million of lines of credit to provide back.up for the Company's com-mercial paper and the short-term borrowings of certain subsidiaries.
No borrowiny werc outstanding at December 31, 1993 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, 1993 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): 1993, $0.3; 1992, $0.4 and 1991, $0.4.
36
- 13. Pension Plan and Other Postretirement and Postemployment Benefits Pensfon Plan The Company has a funded noncontributory defined benefit pen.
sion 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 that are not funded. Benefit payments pursuant to these supplemental plans are made directly by the Company. At December 31, 1993, the projected benefit obligation of these supplemental plans was approximately
$ 12.9 million.
The components of the Company's net periodic pension cost for the three plans were (thousands of dollars):
1993 1992 1991 Service cost. benefits earned during the period..
Interest cost Actual return on plan assets.................
Net amortization and deferral................
$ 31>381 48,266 (92,085) 29,696
$ 29,967 44,203 (95,969) 40,251 28,188 40,'605 (182,956) 134,268 Net periodic pension cost
$ 17,258
$ 18,452 20,105 The net periodic pension cost charged to operating expenses was
$ 10.1 million in 1993, $ 11.6 million in 1992 and $ 12.6 million in 1991. The balance was charged to construction and other accounts.
The funded status of the Company's Plan was (thousands of dollars):
December 31 1993 1992 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 490>567 1>543 492,110 191>302 683,412 407,164 1,119 408,283 201,594 609,877
$ 943>889
$ 877,887 Plan assets in excess of projected benefit obligation Unrecognized transition assets (being amortized over 23 years)
Unrecognized prior service cost Unrecognized net gain 260,477 (72>316) 34,240 (305,577) 268,010 (76,836) 36,731 (295,543)
Accrued expense
$ (83,176)
$ (67,638)
The weighted avenge discount rate used in determining the ac-tuarial present value of projected benefit obligations was 70% and 7.5%, respectively, on December 31, 1993 and December 31, 1992.
The rate of increase in future compensation used in determining the actuarial present value of projected benefit obligations was 5.7% and 6.2%, respectively, on December 31, 1993 and December 31, 1992.
The assumed long term ntes of return on assets used in determining pension cost in 1993 and 1992 was 8.0%. Plan assets consist primarily of common stocks, government and corporate bonds and temporary ash 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 were 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 Retire-ment Funds for 1991, 1992 and 1993 aggregated
$ 5.4 million, $2.0 million and $0.0 million, respectively.
Subsidiary mining companies are liable under federal and state laws to pay black lung benefits to claimants and dependents, with respect to ap.
proved claims, and are members of a trust which was established to facilitate payment of such liabilities. The actuarially determined expense for black lung benefits was $0.5 million in 1991 and $0.2 million in 1992. There was no expense for black lung benefits in 1993.
37
Postretirement Benefits Other Tban Pensions Substantially all employees of the Company and its subsidiaries will become eligible for certain health care and life insurance benefits upon retirement. The Company sponsors four defined benefit health and welfare plans that cover substantially all management and bargain-ing unit employees upon retirement. One plan provides for retiree health care benefits to certain management employees, another plan provides retiree health care benefits to bargaining unit employees, a
third plan provides retiree life insurance benefits to certain manage.
ment employees up to a specified amount and a fourth plan provides retiree life insurance benefits to bargaining unit employees.
Life insurance benefits for certain management employees beyond a specified amount are not included in the plan for retiree life insurance benefits to management employees but are combined with the disclosures below for the health care and life insurance plans. The cost of retiree health care and life insurance benefits for officers of the Company are not material and are not combined with the disclosures below for health care and life insurance plans.
Dollar limits have been established for the amount the Company willcontribute annually toward the cost of retiree health care for employees retiring on or after April I, 1993. Through December 31, 1992, the Company recognized the cost of these benefits for retired employees when payments were made.
Effective January I, 1993, the Company adopted SFAS 106, "Employers'ccounting for Postretirement Benefits Other Than Pen-sions," which requires the Company to accrue, during the years that the employees render the necessary service, the expected cost of pro.
viding retiree health care and life insurance benefits. The transition obligation at January I, 1993, which is being amortized over a 20-year period, amounted to $ 173.8 million. In accordance with a PUC order, the Company is deferring the PUC-jurisdictional accrued cost of retiree health and life insurance benefits in excess of'actual claims paid pending recovery of the increased cost in reuil rates. See Note 3 for additional information.
In December 1993, the Company established a separate Voluntary Employee Benefit Association trust (VEBA) for each of the four health and welfare benefit plans for retirees and adopted a funding policy that ukes into account the maximum amount allowed as a deduction for federal income tax purposes.
The following table sets forth the plans'ombined funded status reconciled with the amount shown on the Company's Consolidated Balance Sheet at December 31, 1993 (thousands of dollars):
Accumulated postretirement benefit obligation:
Retirees Fully eligible active plan participants Other active plan participants Plan assets at fair value, primarily temporary cash investments Accumulated postretirement benefit obligation in excess of plan assets...
Unrecognized net loss Unrecognized transition obligation.
Accrued postretirement benefit cost..............................
95,046 32,742 75,185 202,973 14,848 188,125 (20,573)
(i65,i40) 2,412 The plan that provides retiree health care benefits to ceruin that plan is (thousands of dollars) $70,630.
management employees is currently unfunded; the amount included The net periodic postretirement benefit cost for 1993 included the in the accumulated postretirement benefit obligation auributable to following components (thousands of dollars):
Service costbenefits attributed to service during the period Interest cost on accumulated postretirement benefit obligation Net amortization and deferral Net periodic postretirement benefit cost S
3,699 13,008 8,691 25,398 Through December 31, 1993, the Company deferred
$ 14.9 million of retiree benefits costs. See Note 3 for additional information con-cerning the recovery of the deferred costs. The benefit cost charged to operating expenses was $6.9 million in 1993. The balance was charged to construction and other accounts, The cost of retiree health and life insurance benefits recognized as expense by the Company and its subsidiaries was approximately (millions of dollars): 1992, S5,5
~
and 1991, $7.2.
For measurement
- purposes, a 10% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1994; the rate was assumed to decrease gradually to 6% by 2006 and re-main at that level thereafter. Increasing the assumed health care cost trend rates by 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 1993 by about
$ 11.2 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by'about
$ 1.1 million.
In determining the accumulated postretirement benefit obligation, the weighted average discount rate used was 7%. The three trusts holding plan assets are tax-exempt. The unfunded trust will be subject to federal income taxes at a 35% ux rate. The expected long.term rate of return on plan assets for the tax.exempt trusts was 6.5%.
Subsidiary coal mining companies had accrued
$32 million for an estimated payment they expected to make to the UMWA health trust funds for future retiree health care. However, the Energy Act imposed a new liability, estimated to about $68 million on a net present value basis, on the Company or its subsidiary'coal mining companies for the cost of health care of retired miners previously employed by those subsidiaries.
See Note 3 for information concerning this liability.
Postemptoyment Benef(ts The Company provides health and life insurance benefits to dis.
led employees and income benefits to eligible spouses of deceased employees.
In December 1993, the Company adopted SFAS 112, "Employers'ccounting for Postemployment Benefits," which requires the Company to accrue, during the years that the employees render the necessary service, the expected cost of providing benefits to former or inactive employees after employment but before retirement.
In connection with the adoption of SFAS 112, the Company recorded an obligation for postemployment benefits of $ 7.5 million and a charge to operating expense of S5.5 million. The balance of the postemployment benefit obligation was charged to construction and other accounts. The one-time charge to operating expense, which after income:taxes, reduced net income by $ 3.1 million or about 2.1 cents per share of common stock.
Emptoyee Stock Ownership Plan 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 had 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.
- 14. Jointly Owned Facilities At December 31, 1993, the Company or a subsidiary owned undivided interests in the following facilities (millions of dollars):
Ownership interest Electric utilityplant in service...
Other property Accumulated depreciation.......
Construction work in progress...
592 64 27 24 2
26 Generating Stations Susquehanna Keystone Conemaugh 90.00%
12.34%
11.39%
53,984 S55 S57 Merrill Creek Reservoir 8.37%
522 5
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.
- 15. Commitments and Contingent Liabilities The Company's construction expenditures are estimated to ag-gregate 5471 million in 1994, 5398 million in 1995 and $ 422 million in 1996, including AFUDC. For discussion pertaining to construction expenditures, see Review of the Company's Financial Condition and Results of Operations under the caption "Financial ConditionCapital Expenditure Requirements" on page 16.
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 $2.7 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 property and replacement power insurance programs, 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, 1993 was about 520.1 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 5100 million, proceeds of property damage insurance be segregated 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 would 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
$9.4 billion under provisions of The Price Anderson Admendments Act of 1988 39
(the Act). The Company is protected against this liability by a corn.
bination of commercial insurance and an industry assessment pro-gram. A utility's liabilityunder the assessment program willbe in-dexed not less than once during each five-year period for inflation and willbe subject to an additional surcharge of 5/o in the event 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 Company could be assessed up to $ 151 million per inci~
dent, payable at a rate of $20 million per year, plus the additional 5/o surcharge, ifapplicable.
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 continues to violate the Racketeer Influenced and Corrupt Organizations Act (RICO).
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. 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. Finally, the complaint requested a
permanent injunction against all activities found to be illegal, in.
eluding the cash grant program.
In April 1992, a fuel oil dealer in the 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 offpeak thermal storage systems had violated and continues 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 law.
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 corn.
plaint was consolidated with the August 1991 complaint for pre.trial purposes.
In September 1992, the Court granted the Company's motion for summary judgment and dismissed both suits filed against the Com-pany. 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.
The Federal Clean Air Act Amendments of 1990 deal, 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/o of the Company's coal. fired generating capacity by January I, 1995, and more stringent Phase II sulfur dioxide emission limits for all of the Company's fossil fueled 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 II.39/o ownership in-terest. 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 nitrogen 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 ox-ide 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 by advancing the installation of low nitrogen oxide burners on certain Phase II units, 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 will require capital expenditures of about
$200 million (in estimated 1994 dollars) and additional operating expenses which willresult in an increase in customer rates of about I.5/o (based on 1993 revenue levels).
To meet the Phase II acid rain sulfur dioxide emission standards, the Company expects to install flue gas desulfurization (FGD) on up to 60/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, sales or trades, and the amount and timing of FGD will be determined based on FGD in-stallation 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 $400 million to $500 million (in estimated 1994 dollars) and additional operating expenses ~
which will result in an increase in customer rates (based on 1993 revenue levels) of about 3/o 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 Northeast Ozone Transport Region to determine what further reduc-tions are needed beyond the RACT requirements to achieve ambient ozone attainment. Ifthe results indicate further reductions are needed in power plant nitrogen oxide emissions, the Company may be re-quired to install additional nitrogen oxide reduction equipment, such as selective catalytic reduction, on some or all of the 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 1994 dollars) and additional operating expenses which will result in a further increase in customer rates of as much as 4/o (based on 1993 revenue levels).
In addition to acid rain and ambient ozone attainment provisions, the legislation requires the Environmental Protection Agency (EPA) to conduct a study of hazardous air emissions from power plants.
Adverse findings from this study could cause the EPA to mandate ad-ditional 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 additional equipment is required, the Company's preliminary estimates indicate that the cost of compliance could require additional capital expenditures of up to $400 million (in estimated 1994 dollars) and additional operating expenses which will result in a further in-crease in customer rates of as much as 2/o (based on 1993 revenue levels).
4O
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 February 1993, the PUC adopted a policy statement regarding the ding and usage of, and the ratemaking treatment for, emission allowances by Pennsylvania electric utilities. The policy statement determines, among other things, that the PUC willnot require ap-proval of specific transactions and the cost of allowances willbe recognized as energy-related power production expenses and recoverable through the ECR.
The Pennsylvania Air Pollution Control Act, as amended, im.
plements 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 Federal Clean Air Act Amendments of 1990.
Until action has been taken by the appropriate regulatory bodies, the Company will not be able to determine the exact method of corn.
pliance with the acid rain, ambient ozone and hazardous air emission provisions of the legislation, or the cost thereof and,its impact on customer rates.
The Pennsylvania Department of Environmental Resources (DER) regulations governing the handling and disposal of industrial (or residual) solid waste require the Company to submit detailed informa.
tion on waste generation, minimization and disposal practices. They also require the Company to upgrade and repermit,existing ash basins at all of its coal. fired generating stations by applying updated stan.
dards for waste disposal. Ash basins that cannot be repermitted are re-quired to close by July 1997. Any groundwater contamination caused by the basins must also be addressed.
Any new ash basin must meet the rigid site and design standards set forth in the regulations. In addi-
'on, the siting of future facilities at Company facilities could be affected.
The fly 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-fueled generating stations, bottom ash basins at all fossil.fueled generating stations and the coal refuse basin at the Brunner Island station do not meet the new requirements and must be retired by July 1997. The Company, in addressing the requirements of these regulations, plans to install dry fly ash handling systems at the Brunner Island, Sunbury and Holtwood stations. The Company, with siting assistance from a public advisory group, plans to use the dry fly ash from the Sunbury and Holtwood stations to reclaim strip mines in the anthracite coal region. The Company is exploring opportunities to beneficially use coal ash from Brunner Island in various roadway construction pro-jects in the vicinityof the plant that may delay or preclude the need for a new disposal facility.
Groundwater degradation related to fuel oil leakage from underground facilities and to seepage from coal refuse disposal areas and coal storage piles has been identified at several generating sta-tions. Many requirements of the DER regulations address these groundwater degradation issues. The Company has reviewed its remedial action plans with the DER. Remedial work has begun at one generating station, and remedial work may be required at others.
The DER has adopted, and recently revised, regulations to imple-ment 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 water uality based chemical-specific approach in National Pollutant
'ischarge Elimination System (NPDES) permits to control toxics. In the third quarter of 1993, the Company received a new NPDES permit for-the Montour and Holtwood stations. The Montour permit contains very stringent limits for certain toxic metals and increased monitoring requirements.
More toxic reduction studies willbe conducted at Mon.
tour before the permit limits become effective. Additional water treat-ment facilities may be needed at Montour, depending on the results of the studies. At Holtwood, toxics are required to be monitored at the fly ash basin until its closure in 1997. No limits have been set at this point. The Company will therefore comply with an implementation schedule for such closure and for construction of a new dry ash handling system at Holtwood.
The Company currently estimates that about
$238 million of capital expenditures could be required to comply with the residual waste regulations, correct groundwater degradation at fossil-fueled generating stations and address waste water control at Company facilities. Such expenditures during the years 1994-1996 could total about $ 137 million, of which about $68 million is'included in the Company's estimate of 1994-1996 construction expenditures shown on page
- 16. Actions taken to correct groundwater degradation, to comply with the DER's regulations and to address waste water control are also expected to result in increased operating costs in amounts which are not now determinable but could be material.
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 material.
At December 31, 1993, the Company had accrued
$5.2 million, representing the minimum amount the Company at this time can reasonably estimate it willhave to spend to remediate sites involving the removal of hazardous or toxic substances.
The Company is involved in several other sites where it may be required, along with other par-ties, to contribute to such remediation. Some of these sites have been listed by the EPA under the federal Comprehensive Environmental
Response
Compensation and LiabilityAct of 1980, as amended (Super-fund), and others may be candidates for listing at a future date. Future clean-up or remediation work at sites currently under review, or at sites currently unknown, may result in material additional operating costs which the Company cannot estimate at this time.
Concerns have been expressed by some members of the scientific community and others regarding the potential health 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 participating in the current research effort to determine whether or not EMF causes any human health problems and is taking steps to reduce EMF, where practical, in the design of new transmission 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 involving environmental 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 material capital expenditures and operating expenses in amounts which are not now determinable.
At December 31, 1993, the Company had guaranteed
$ 13.3 million of obligations of Safe Harbor. The Company does not expect to fund the guarantee and has concluded that it is impractical to determine the fair value of the guarantee.
CONSOLIDATEDOPERATIONS Income Itemsthousands Operating revenues Operating income Netincome Earnings applicable to common stock............
Balance Sheet Itemsthousands (a)
Electric utilityplant inservice net.............:
Construction work in 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..............
Capital lease obligations.
Financial Ratios Return on average common equity%...........
Embedded cost rates (a)
Long-term debt%
Preferred and preference stock%............
Times interest earned before income taxes........
Ratio ofearnings to fixed charges total enterprise basis (b)
Depreciation as % ofaverage depreciable property..
Common Stock Data Number ofshares outstanding thousands Year-end Average Number ofshareowners(a)
Earningspershare Dividends declared per share Book value per share (a)
Market price per share (a)
Dividendpayoutrate %
Dividend yield% (c)
Price earnings ratio (c) 1993
$2,727,002 562,808 348,126 314,241
$6,507,621 238,600 399,360 9,454,113 2,662,570 335,000 171,375 2,425,835 202,260 5,797,040 249i025 13.06 8.63 6.3o 3 33 3.31 3.3 152,132 151,904 130,677 S 2.07 s
1.65
$ 15.95 27 80 5.64 14.14 1992
$2,744,122 573,431 346,724 306,229
$6,391,857 211,534 416,113 8,191,768 2,627,159 325,600 223,612 2,366,939 159,348 5,702,658 251,058 13.11 9.36 7.36 3.18 3.15 32 151,885 15i,676 129,394
$ 2.02
$ i.6o
$ 15.58 27i/g 79 6.07 13.05 1991
$2,740,715 582,331 348,414 303,727
$6,296,496 183,242 449,s4o 7,934,595 2,582,233 364,590 231,375 2,298,010 147,170 5,623,378 271,976 i3.42 9.72 7.51 3.o6 3.o4 3.1 i5i,655 151,382 127,272
$ 2.01
'1.55
$ 15.15 26>/8 77
'.69 11.55 1990
$2,637,922 590,366 343,906 297,781
$6,240,608 143,084 510,529 7,735,442 2,470 596 383,690 231,375 2,221,759 265,940 5,573,360 302,754 13.65 9.69 7.54 2.s6 2.81 2.9 151,298 150,924 ~
130,719 1.97
$. 1.49
$ 14.68 217/
76 7.15 10.56 ELECTRICOPERATIONS Revenue Data By class ofservice thousands Residential Commercial Industrial Other energy sales System sales Contractual sales to other utilities...
PJM interchange power sales Total from energy sales billed Unbilled revenues net Other operating revenues Total electric operating revenues Average price per kwh billedcents Residential Commercial Industrial Total forultimate customers
. Total forsystem sales (a)
Atyear-end.
905,650 735,192 524,160 91,205 2,256,207 313,578 96,848 2,666,633
>>455) 1,561
$2,725,739 8.20 7.84 5.76 737 7.27 876,531 713,4o6 523,367 s5,456 2,198,760 330,017 111,602 2,640,379 36,567 64,67o 842,771 687,632 506,038 83,630 2,120,071 322,298 180,434 2,622,803 47,o22 6s,'s6s 800,587 647,949 503,806 78,489 2,030,831 313,207 217,430 2,56i,46s 5,043 69,725 8.27 7.89 5.98 7.48 7.39 8.12 7.76
" 5.98 7.39 7.30 7.92 7.59 5.78 7.17 7'.08 ~
$2,741,616
$2,738,693
$2,636,236 42
1989 1988 1987 1986 1985 1984 1983 1983-1993
% Change
$2,632,915
'6i8',850 353,436 305,018
$6,198,693 115,799 552,150 7,598,968 2,650,276 409,990 231,375 2,139,338 95,429 5,526,408 342,912 i4.62
$2,495,640 605,051 332,042 279,865
$6,056,723 177,333 607,528 7,524,648 2,626,784 438,290 231,375 2,049,831 201,652 5,547,932 372,806 i3.86
$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 5,582,757 415,206 12.78
$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 5,715,823 411,886 12.11
$2,566,288 536,115 290,613 199,327
$5,776,687 i6i,684 699,448 7,255,918 2,664,564 691,010 231,375 1,905,700 247,260 5,739,909 405,456 10.42
$2,212,482 418,689 318,903 226,758
$3,856,738 2,020,780 733,002 7,231,058 2,674,036 738,027 231,375 1,896,987 278,652 5,819,077 411,225 12.30
$ 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 5,543,048 379,725 12.29 36.9 87.3 i7.6 49.5 69.3 (86.2)
(40.4) 40.2 7.5 (53 1)
(25.9) 37.2 (42.4) 4 (34.4) 6.3 9.80 7.62 2.78 10.15 7.66 2.65 10.31 7.77 2.62 10.53 8.33 2.69 11.23 10.02 2.28 11.11 9.94 2.24 10.98, (21.4) 9.66 (34.8) 2.20 51.4 2.69 2.7 2.57 2.6 2.53 2.5 2.58 23 2.19 23 2.06 2.7 2.05 2.9 6i.5 13.8 150,845 150,628 132,197
$ 2.02
$ i.43.
$ 14.18
$ 21i/
71 7.33 9.63 150,497 i50,i4i 137,450
$ i.86 1.38
$ 13.62 18/s 74 7.70 9.61 149,945 149,289 141,843
$ 1.66 1.34
$ 13.13 16y 81 737 10.95 149,026 149,026 147,6i i 1.55 1.29
$ 12.85 18/4 83 7.30 11.39 149,026 149,026 151,025 1.34
$ 1.28
$ 12.79 14~s/
9.81 9.76 149,026 145.534 162,903 S i.56 1.24
$ 12.73 12s/e 80 11.00 7.24 140,670 137,284 169,142 1.53 1.20
$ 12.56 S los 79 10.48 7.48 8.1 i0.6 (22.7) 353 37.5 27.0 i60.2 1.3 (46.2) 89.0 776,673 612,762 488,691 80,144 S
768,051 592,023 495,968 75,507 S
737,066 572,623 492,491 74,228 i,876,408 282,799 359,449 1,931,549 277,971 268,526 1,958,270 316,508 255,245 2,518,656
'84',888) 21,900 2,478,046 (18,187) 34,073 2,530,023 39,628 6i,588
$2,631,239
$2,493,932
$2,455,668 714,753 557,216 473,488 74,047 1,819,504 299,663 282,259 2,401,426 52,344 25,033
$2,478,803 S
634,669 492,686 438,427 64,223 1,630,005 255,875 556,926 2,442,806 78,545 38,i63
$2,559,514 S
591,922 441,65i 411,533 59,526 1,504,632 52,724 623,328 529,911 386,617 367,950 47,275 1,331,753 39,012 720,462 2,180,684 (9,725) 33,657 2,091,227 (119,539) i8,604
$2,204,616
$ 1,985,382 70.9 90.2 42.5 92.9 69.4 703.8 (86.6) 27.5 97.9 349 5 373 7.72 7.40 5.60 6.97 6.89 7.79 7.46 5.64 7.02 6.91 8.05 7.68 5.84 723 7.12 8.15 7.78 593 7.34 7.25 7.60 732 5.55 6.85 6.77 7.00 6.77 5.07 6.30 6.23 6.5i 6.32 4.83 5.91 5.83 26.0 24.i 19.3 24.7 24.7 (b) Computed using earnings and fixed charges ofthe Company and allofits affiliated companies. Fixed charges consist ofinterest on short-and long. term debt, other interest charges, interest on capital lease obligations and the estimated interest component ofother rentals.
( c)
Based on avetage ofmonth-end market prices.
43
Selected Financial and Operating Data ELECTRIC OPERATIONS (Continued)
Sales Data Customers (a).
Average annual residential kwh use Electric energy sales billedmillionsofkwh Residential Commercial Industrial Other System sales..
Contractual sales to other utilities.........
PJM interchange power sales Total electric energy sales billed........
Sources ofenergy soldmillionsofkwh Generated Coal-fired steam stations Nuclear steam station(b)
Oil-firedsteam station..
Combustion turbines and diesels (oil)....
Hydroelectricstations Power purchases Company use, line losses and other Total electric energy sales billed..
Generation Data Net system capacity thousands ofkw (a) (c).....
Winter peak demand thousands ofkw(d)......
Generation by fuel source %
Coal Nuclear(b)
Oil..
Hydroelectric Steam station availability%
Coat-fired Nuclear(b)
Oil-fired.
Steam station capacity factor%
Coal-fired Nuclear(b)
Oil-fired Fuel Cost Data Cost per kwh generated cents Coal-fired steam stations Nuclear steam station (b).
Oil-firedsteamstation Combustion turbines and diesels (oil).........
Average Cost offossil fuel received at steam stations Coalper ton.
Residual oilper barrel Capitalization Ratios % (a)
Long-term debt Short-term debt Preferred and preference stock Common equity.
Times Interest Earned Before Income Taxes...
Employees(a) 1993 1,203,139 10,503 11,043 9,373 9,100 1,534 31,050 7,142 4,142 42,334 24,960 12,181
~,452 16
, 637 39,246 5,586 (2,498) 42,334 7,802 6,403 63.6 31.0 3.8 1.6 82.6 73.8 81.9 68.5 73.0 10.'1 1.53 0.54 3.89 7.03 1.31
$ 36.23
$ 18.70 46.5 2.0 8.9 42.6
'.37 7,765 1992 1,186,682 10,207 i0,604 9,039 8,746 i,366 29,755 7 327 5,160 42,242 25,153 121216 1)057 10 750 39,186 5,34?
(2,291) 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
$4i.44
$ i6.56 46.7 1.2 9.8 42.3 3.21 7,981 1991 1,173,680 10,101 10,385 8,86i 8,456 1,334 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 1.43
$42.87
$ i8.76 46.3 1.3 10.8 41.6 3.11 8,i44 1990 1,161,232 9,947 10,103 8,538 8,7i6 1,315 28)672 7,028 8,971 44,671 26,409 13,254 i,442 33 804 41 942 4,634 (1,905) 44,67i 7)912 5,66i 63.0 ~
3.5 1.9 82.5 80.2 82.8 72.7 80.1 10.0 i.66 0.59 4.i8 7.68 1.4i
$40.64
$21.52 44 5 3.8 1 1.2 40.5 2.93 8,149 (a) Atyear-end.
(b) The Company's firstnuclear unit was placed incommercial operation on June 8, 1983 and the second unit on February 12, 1985.
44
1989 1988 1987 1986 1985 1984 1983-1993 1983
% Change 1,143,593 10,064 10,061 8,285 8,723 1,333 28,402 6,956 9,234 44,592 27,104 11,916 3,817 107 714 43,658 3,586 (2,652) 44,592 7,864 6,000 62.1 27.3 9.0 1.6 81.1 72.1 76.3 74.6 72.0 26.6 1,122,633 10,059 9,856 7,932 8,799 1,360 27,947 6,268 10,855 45,070 26,607 12,867 4,186 57 573 44,290 3,027 (2,247) 45,070 7,479 5,566 60.1 29.0 9.6 1.3 81.3 77.7 90.1 73.1 77.7 29.1 1,097,522 9,565 9,157 7,457 8,438 1,285 26,337 6,201 12,682 45,220 26,465, 13,285 4,095 28 689 44,562 2,707 (2,049) 45,220 7,499 5,591 594 29.8 9.3 1.5 83.3 80.4 84.7 72.9 80.5 28.5 1,073 151 9 344 8,771 7,159 7,986 1,170 25,086 5,602 11,018 41,706 25,151 10,151 5,453 17 739 41,511 2,032 (1,837) 41,706 7,519 5,154 60.6 24.4 13.2 1.8 78.8 61.7 84.7 69.3 61.3 38.0 1,055,550 9,034 8,354 6,728 7,907 1,082 24,071 4,850 15,433 44,354 26,237 11,534 4,316 18 612 42,717 3,716 (2,079) 44,354 7,513 4,981 61.4 27.0 10.2 1.4 78.6 70.7 87.2 72.3 70.5 30.0 1,039,385 9,282 8,454 6,527 8,117 1,043 24,141 1,002 14,732 39,875 26,695 6,295 4,121
'32 747 37,890 3,765 (1,780) 39,875 7,484 5,519 70.4 16.6 11.0 2.0 75.2 66.7 68.0 73.3 65.7 28.6 1,026,149 9,051 8,138 6,119 7,623 968 22,848 845 15,769 39,462 26,885 4,509 5,581 45 700 37,720 3,880 (2,138) 39,462 7,494 4,869 71.3 11.9 14.9 1.9 78.8 67.7 75.8 74.0 67.5 38.8 17.2 16.0 357 532 194 58.5 35.9 745.2 (73.7) 73 (7 2) 170.1 (74.0)
(64.4)
(9.0) 4.0 44.0 (16.8) 7.3 4.1 31.5 (10.8) 160.5 (74.5)
(15.8) 4.8 9.0 8.0 (7.4) 8.1 (74.0) 1.61 0.58 303 5.95 1.46
$39.04
$ 17.71 1.64 0.56 2.76 5.89 1.44
$39 52
$ 15.95 1.63 0.56 3.23 6.51 1.46
$39 30
$ 18.51 1.67 0.58 2.96 7.81 1.57
$40.17
$ 16.83 1.78 0.61 5.02 9.31 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 (8.9)
(18.2)
(25.6)
(31.1)
(39.1)
(8.0)
(37.2) 3 47 9 46.9 50.4 47.1 0.2 1.7 3.1 2.1 1.7 1 1.9 12.4 13.5 12.8 16.7 39.6 38.0
'6.5 34.7 34.5 2.88 2.73 2.71 2.80 2.37 8,108 8,306 8,301 8,339 8,433 t
(c) Total generating capacity plusfircapacity purchases less fircapacity sales.
(d)
Except for 1989, the winter peaks shown were reached early in the subsequent year.
46.7 1.9 17.4 34.0 235 8,386 45.1 3.6 17.9 33.4 2.29 8,160 3.1 (44.4)
(50.3) 27.5 47.2 (4.8) 45
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 PP8cL or your in-vestments inthe company, please feel free to call the toll-free number listed below, or writeto:
George I. Kline, Manager Investor Services Department Pennsylvania Power &Light Co.
TwoNorth NinthStreet Allentown, Pa. 18101-1179
. Toll-Free Phone Number: For information regarding 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 1994 annual meeting willbe held at 1:30 p.m.
on Wednesday, April27, 1994, at the F.M. KirbyCenter forthe Performing Arts, Public Square, Wilkes-Barrc, Pa. Areservation card formeeting attendance is included with shareowners'roxy material.
Proxy Material: Aproxy state-rnent, 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, 1994, to allshareowners.
ofrecord as ofMarch 10, 1994.
Dividends: For 1994, the dates the declaration ofdividends is con-sidered by the board or its execu-tive committee are: Feb. 23, May 25, Aug. 24 and Nov. 23, forpayment on April1,July 1 and Oct. 1, 1994, and Jan. 1, 1995, respectively. Dividend checks are mailed ahead ofthose dates with the intention they arrive as close as possible to the payment dates.
Record Dates: The 1994 record dates fordividends are March 10, June 10, Sept. 9 and Dec.9.
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, or the firstbusiness day thereafter.
Dividend Reinvestment Plan:
Shareowners may choose to have dividends on their common or preferred stocks reinvested in PP8:L common stock instead of receiving the dividend by check.
Certificate Safekeeping:
Shareowners participating in the Dividend Reinvestment Plan may choose to have their common stock certificates forwarded to the company forsafekeeping. These shares willbe registered in the name ofthe company as agent for plan participants andwill be credited to the participants'ccounts.
Lost Dividend or Interest Checks: Dividend or interest checks lost by investors, or those that maybelostin themail, willbe replaced ifthe check has not been located by the 10th business day followingthe payment date.
Transfer ofStock or Bonds:
Stock or bonds may be transferred from one name to another or to a new account in the name of another person. Please 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 ofre'cord 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.
Shareowners'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 publi-cations are mailed to each in-vestor account. Ifyou have more than one account, or ifthere 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 PPRL Profile:
The company's annual report, filedwiththe Securities and Exchange Commission on Form 10-K, is available about mid-March. The PPKL Profile, 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.
46
isted Securitiesr i ew YorkStock Exchange Common Stock (Code: PPL) 4>/,% Preferred Stock (Code: PPLPRB) 4.40% Series Preferred Stock (Code: PPLPRA)
Pbfladelpbfa Stock Exchange Common Stock 4t/,% Preferred Stock 3.35% Series Preferred Stock 4.40% Series Preferred Stock 4.60% Series Preferred Stock Fiscal Agents:
Stock Transfer Agents and Regfstrars First Chicago Trust Co. ofNew York P.O. Box2506 Suite 4659 Jersey City, NJ 07303-2506 Pennsylvania Power &LightCo.
Investor Services Department DfvfdendDfsbursfng Officeand DfvfdendRefnvestment Plan Agent Pennsylvania Power &LightCo.
Investor Services Department Mortgage Bond Trustee Morgan Guaranty Trust Co. ofNerv York Corporate Trust Operations 55 L'xchange Place Basement 'A" New York, New York 10260-0023 BondInterest Payfng Agent Pennsylvania Power 6 LightCo.
Investor Services Department Quarterly Financial, Common Stock Price and Dividend Data (Unaudited) 1993 For the Quarters Ended(a)
March 31 June 30 Sept. 30 Dec. 31 (T/thousands ofDollars, Except Per Share Amounts)
Operating revenues Operating income..
Net income Earnings applicable to common stock Earnings per common share (b)
Dividends declared per common share(c)
Price per common share High.
Low...........
1992
$ 727,386 171,476 115,749 106,206 0.70 0.4125 30/z 26t/4
$620,439 123,849 69,867 60,231 0.40 0.4125 30$/4 28>/s
$683,466 134,129 81,775 74,826 0.49 0.4125
$695,711 133,354 80,735 72,978 0.48 0.4125 31 30/4 291/
261/s Operating revenues Operating income..
Net income Earnings applicable to common stock Earnings per common share(b)
Dividends declared per common share (c)
Price per commonshare High Low
$ 756,834 170,505 113,025 102,603 0.68 0.40 26t/,
237/s
$645,093 128,162 69,790 59,686 0.39 0.40 261/.
24t/,
$655,912 128,061 72,900 62,825 0.41 0.40 28t/4 25$/4
$686,283 146,703 91,009 81,115 0.53 0.40 277/s 257/s
( a ) The Company's elearic 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 inopentions.
(b) The sum ofthe quarterly amounts may not equal annual earnings per share due to changes inthe number ofcqmmon shares outstanding during the t
year or rounding.
( c ) The Company has paid quarterly cash dividends on its common stock inevery year since 1946. The dividends paid per share in 1993 and 1992 were
$ 1.6375 and $ 1.5875, respeaively. The most recent regular quarterly dividend paid by the Company was 41.25 cents per share(equivalent to $ 1.65 per annum) paidJanuary 1, 1994. Future dividends willbe dependent upon future earnings, financial requirements and other factors.
47
WILLIAMF. HECHT 50 (29), Chairman, President and Chief Executive Officer FRANCIS A. LONG 53 (30), Executive Vice President and Chief Operating Officer ROBERT G. BYRAM 48 (17), Senior Vice President-Nuclear GENNARO D. CALIENDO 53 (25), Senior Vice President, General Counsel and Secretary RONALD E. HILL 51 (29), Senior Vice President-Financial JOSEPH C. KRUM 56 (34), Senior Vice President-Division Operations LINDA CURRY BARTHOLOMEW45 (23), Vice President-Public Affairs JOHN R. BIGGAR 49 (24), Vice President-Finance.
STEVEN H. CANTONE 50 (14), Vice President-Northeast Division JOHN M. CHAPPELEAR 55 (15), Vice President-Investments and Pensions ROBERT M. GENECZKO 41 (19), Vice President-Susquehanna Division ROBERT S. GOMBOS 50 (28), Vice President-Human Resource 6 Development MICHAELD. HILL 51 (28), Vice President-Information Services GEORGE T. JONES 46 (2), Vice President-Nuclear Engineering JOHN P. KIERZKOWSKI 54 (22), Vice President and Treasurer GRAYSON E. McNAIR 53 (31), Vice President-Lehigh Division JOHN R. MENICHINI46 (25), Vice President-Harrisburg Division JOHN H. SAEGER 55 (33), Vice President-Lancaster Division ROBERT J. SHOVLIN 53 (31), Vice President-Power Production & Engineering JEAN A. SMOLICK 59 (41), Assistant Secretary HAROLD G. STANLEY 53 (14), Vice President-Nuclear Operations RAYMOND F. SUHOCKI 48 (20), Vice President-System Power Numbers indicate age and years of service (
) as of March t, 1994.
CORPORATE hIANAGEMENTCOhIhIITTEE:
William F. Hccht, chairman; Francis A. Long, Robert G. Byram, G. D. Caliendo, Ronald E. Hill and Joseph C. Krum.
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; Nance K. Dicciani, WilliamJ. Flood, Daniel G.
Gambet, and Ruth Leventhal.
Corporate Responsibility Committee:
Daniel G. Gambet, chairman; Richard S. Barton, Stuart Heydt, Clifford L. Jones, Robert Y. Kaufman, and Ruth Leventhal.
hlanagement Development and Compensation Committee: Edward Donley, chairman; Richard S. Barton, E. Allen Deaver, Elmer D. Gates, and Norman Robertson.
Nominating Committee: Jeffrey J. Burdge, chairman; Edward Donley, WilliamJ. Flood, Stuart Heydt, and Clifford L. Jones.
Nuclear Oversight Committee:
Elmer D. Gates, chairman; E. Allen Deaver, Nance K Dicciani, John T. Kauffman, and Robert Y. Kaufman.
4s
D Pictured are outside Directors as of March l, 1994 ting@~
Barton Burdge Deaver Dicciani Donley Flood Gambet Gates Heydt Jones Kauffman Kaufman Leventhal Robertson Trcssler RICHARD S. BARTON 44 ('), Rochester, N.Y., President, U.S. Customer Operations and a Corporate Vice President, Xerox Corporation. Manufacturer and marketer ofdocument processing products and systems JEFFREY J. BURDGE 71 (11), Camp Hill, Former Chairman of the Board, Harsco Corporation.
Manufacturer ofprocessed and fabricated metals E. ALLEN DEAVER 58 (3), Lancaster, Executive Vice President, Armstrong World Industries Inc.
Manufacturer ofinteriorfurnishings and specialty products ANCE K. DICCIANI46 (*), Philadelphia, Vice President and Business Director, Petroleum Chemicals Division, Rohm and Haas Company. Manufacturer ofspecialty chemicals and plastics DWARD DONLEY 72 (11), Allentown, Former Chairman, AirProducts and Chemicals Inc Manufacturer ofindustrial and commercial gases and chemicals WILLIAMJ. FLOOD 58 (4), Hazleton, Secretary-Treasurer, Highway Equipment 6 Supply Co. Supplier of.
heavy equipment for highway construction and industry REV. DANIEL G. GAMBET, O.S.F.S. 64 (7), Center Valley, President, Allentown College of St. Francis de Sales ELMER D. GATES 64 (4), Bethlehem, Vice Chairman, Fuller Company. Manufacturer ofplants, machinery and equipment for industry WILLIAMF. HECHT 50 (3), Allentown, PP&L Chairman, President and Chief Executive Officer STUART HEYDT 54 (3), Danville President and Chief Executive Officer, Geisinger Health System CLIFFORD L. JONES 66 (5), Mechanicsburg, Former President, Pennsylvania Chamber of Business and Industry JOHN T. KAUFFMAN67 (15), Allentown, Former PP&L Chairman and Chief Executive Officer ROBERT Y. KAUFMAN69 (1), Potomac Md., Chairman and President, Yogi, Inc Consulting firm RUTH LEVENTHAL53 (5), Middletown, Provost and Dean, Penn State Harrisburg (Tbe Capital College)
FRANCIS A. LONG 53 (1), Allentown, PP&L Executive Vice President and Chief Operating Officer NORMAN ROBERTSON 66 (24), Pittsburgh, Former Senior Vice President and Chief Economist, Mellon Bank, N.A.
DAVID L. TRESSLER 57 (12), Scranton, Executive Director of the Joseph M. McDade Center for Public Initiatives at the University of Scranton Numbers indicate age and years of service (
) on PP&L board as of'arch i, 1994. 'Less than one year as a director.
ggg Pennsylvania Power tt Light Company Two North Ninth Street
~ Allentown, PA 18101
~ 610/774-5151 PAL is part of a nationwide partnership with General Motors to put people in the driver's seat of electric vehicles.
The test-drive partnership was announced by PAL and GM officials and acting Pennsylvania Governor Mari. Singel in Harrisburg in October. PAL was chosen as one of 12 test sites in the nationwide prografn because of the cotnpany's long-standing support of electric vehicle initiatives.
fee f
s tvs e Working Tozvards a Brighter Tomorrozoo UTHO IN U.t
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549 FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended December 31, 1993 OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from to Commission file number 1-905 PENNSYLVANIA POWER
& LIGHT COMPANY, (Exact name of Registrant as specified in its charter)
PENNSYLVANIA, 23-0959590 (State or other jurisdiction of (I.R.S, Employer incorporation or organization)
Identification No.)
TWO NORTH NINTH STREET, ALLENTOWN PENNSYLVANIA 18101-1179 (Address of principal executive offices)
(Zip Code)
Registrant's telephone
- number, including area code:
610-774-5151 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which registered Preferred Stock 4-1/24 3.354 Series 4.40% Series 4.604 Series Common Stock New York & Philadelphia Stock Exchanges Philadelphia Stock Exchange New York &.Philadelphia Stock Exchanges Philadelphia Stock Exchange New York & Philadelphia Stock Exchanges r
Securities registered pursuant to Section 12(g) of the Act:
None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Requlation S-K is not contained
- herein, and will not be contained, to the.best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ X ]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 durinq the preceding 12 months or for such shor'ter period that the Registrant was required to ile such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X
No Estimated agqregate market value of the voting stock (common an5 preferred) held by non-affiliates a5 the end of January 1994
$ 4 g 33 1 J 308 J 348 Common stock, no par, number of shares outstanding at january 31, 1994 152J132g089 Documents incorporated by reference:
Registrant has incorporated herein by reference certain sections of its 1994 Notice of Annual Meeting and Proxy Statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1993.
Such Proxy Statement will provide the information required by Part III of this Report.
(THIS PAGE LEFT BLANK INTENTIONALLY.)
PENNSYLVANIA POWER
& LIGHT COMPANY FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31 1993 TABLE OF CONTENTS Item PART I Pacae 1
Bustiness 2
Propert.les
~ ~ ~ ~ ~ ~......
~ ~ ~ ~ ~ ~ ~
~ ~ ~.~ ~ ~ ~ ~ ~ ~ ~ ~ ~
~ ~
~
~
~ ~ ~ ~
3.
Legal Proceedings 4.
Submission of Matters to a Vote of Security Holders Executive Officers of the Registrant..................
PART II 18 18 20 21 5.
Market for the Registrant's Common Equity and Related Stockholder Matters 6.
Selected Fxnancxal Data 24 24 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations 8.
Financial Statements and Supplementary Data 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III 24 25 25 10.
Directors and Executive Officers of the Registrant....
11.
Executive Compensation 12.
Security Ownership of Certain Beneficial Owners and Management 13.
Certain Relationships and Related Transactions PART IV 94 94 94 94 14.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K S signatures Exh b
~ ~
~
~izbzt Index 95 97 98 Computation of Ratio of Earnings to Fixed Charges.....
113
PART I ITEM 1.
BUSINESS THE COMP2QPI Pennsylvania Power
& Light Company (Company) is an operating electric utility, incorporated under the laws of the Commonwealth of Pennsylvania in 1920.
The Company's general offices are located at Two North Ninth
- Street, Allentown, Pennsylvania 18101.
The Company's telephone number is (610) 774-5151.
The Company is subject to regulation as a public utility by the Pennsylvania Public Utility Commission (PUC) and is subject in certain of its activities to the jurisdiction of the Federal Energy Regulatory Commission (FERC) under Parts I, II and III of the Federal Power Act.
The Company is a holding company under the Public Utility Holding Company Act of 1935 (PUHCA) but has been exempted by the Securities and Exchange Commission from the provisions of that Act applicable to it as a holding company.
The Company is subject to the jurisdiction of the Nuclear Regulatory Commission (NRC) in connection with the operation of the two nuclear-fueled generating units at the Company's Susquehanna station.
The Company owns a
904 undivided interest in each of the Susquehanna units and Allegheny Electric Cooperative, Inc.
owns a 10%
undivided interest in each of those units.
The Company is also subject to the jurisdiction of certain
- federal, regional, state and local regulatory agencies with respect to air and water quality, land use and other environmental matters.
The operations of the Company are subject to the Occupational Safety and Health Act of 1970 and the coal cleaning and loading operations of a Company subsidiary are, subject to the Federal Mine Safety and Health Act of 1977.
The Company operates its generation and transmission facilities as part of the Pennsylvania-New Jersey-Maryland Interconnection Association (PJM).
The
- PJM, one of the world's largest power pools, includes 11 companies serving about 21 million people in a 50,000 square mile territory covering all or part of Pennsylvania, New
- Jersey, Maryland, Delaware, Virginia and Washington, D.C.
The Company serves approximately 1.2 million customers in a
10,000 square mile territory in 29 counties of central eastern Pennsylvania (see Map on page 17), with a population of approximately 2.6 million persons.
This service area has 126 communities with populations over 5,000, the largest of which are the cities of Allentown, Bethlehem, Harrisburg,
- Hazleton, Lancaster,
- Scranton, Wilkes-Barre and Williamsport.
During 1993, about 98% of total operating revenues was derived from electric energy
- sales, with 34%
coming from residential customers, 274 from commercial customers, 204 from industrial
customers, 44 from interchange power sales to members of the PJMf 12%
from contractual sales to other major utilities and 3%
from others.
The Company's largest industrial customer provided about 1.4%
of revenues from energy sales during 1993.
Twenty-nine industrial customers, whose billings exceeded
$ 3 million
- each, provided about 7.5%
of such revenues.
Industrial customers are broadly distributed among industrial classifications.
Wholly owned subsidiary companies of the Company principally are engaged in holding coal
- reserves, oil pipeline operations, and passive financial investments.
See "Termination of Coal-Mining Operations" on page 34 and Note ll to Financial Statements for information concerning the Company's termination of its subsidiary coal-mining operations, and "Increasing Competition" on page 40 for information concerning the Company's plans to create a new corporate structure to pursue new business opportunities.
FINANCIAL CONDITION Earnings per share of common stock were
$2.07 in 1993,
$2.02 in 1992 and
$2.01 in 1991.
Increasing economic activity in central eastern Pennsylvania and the effects of hotter-than-normal weather during the summer were the main reasons for the earnings improvement.
If weather had been
- normal, earnings would have been 2
cents per share lower in 1993.
Earnings also benefited from continuing efforts to control operating and -maintenance costs and by the continuing refinancing of higher cost securities to take advantage of favorable market conditions.
- In the fourth quarter of
- 1993, the Company recorded charges against income that, in the aggregate, adversely affected net income by about
$18 million or 12 cents per share of common stock.
The charges related to:
(i) credits to be included in the Company's Energy Cost Rate (ECR) due to entering a settlement agreement with complainants against the Company's ECR; (ii) the write-off of certain deferred retiree benefit costs; and (iii) the recognition of certain employee benefit costs in connection with the adoption of a
new accounting standard.
The Company earned a
13.064 return on average common equity during 1993, down slightly from the 13.114 return in 1992.
The ratio of the Company's pretax income to interest charges increased slightly from 3.2-times in 1992 to 3.3 times in 1993.
The Company increased common stock dividends from an annual per share rate of $1.60 in 1992 to
$1.65 in 1993.
The ratio of the market price to book value of common stock was 169%
at, the end of 1993 compared to 1754 at the end of 1992.
The allowance for funds used during construction (AFUDC), a non-cash credit to
- income, accounted for only about 5% of earnings in 1993.
In
- 1994, AFUDC is expected to increase as the Company accelerates capital expenditures to comply with the federal clean air legislation.
The amount of AFUDC recorded will depend on the timing and level of construction work in progress as well as the rate treatment afforded the capital expenditures required to comply with
the clean air legislation.
construction work in progress as capital expenditures for claimed in rate base.
Under
.current Pennsylvania
- law, for non-revenue producing assets, such pollution control equipment, can be The Company's strong generating capacity position has 'enabled it to enter into a number of capacity-related transactions, as discussed under "Capacity-Related and, Transmission Entitlement Transactions" on page 28 and in Note.4 to Financial Statements.
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 savings which are included in the Company's ECR, totaled
$35.0 million in 1993,
$35.0 million in 1992 and
$35.4 million in 1991.
The Company currently expects about
$35 million of revenues from these transactions during 1994.
Increased competition in capacity credit transactions has reduced the price received for such sales.
'he Company is continuing to look,for opportunities to derive additional revenues due to its strong generating capacity. position.
The amount of revenues from these types of transactions.
depends on many factors, and it is difficult to predict the amount of revenues the Company will ultimately realize from these transactions.
See "Rate Matters" on page 28 and Note 3 to Financial Statements for information concerning a settlement agreement between the Company and opposing parties in the ongoing ECR proceedings which would credit to the ECR a portion of the Company's receipts from capacity credit sales for past and future ECR periods.
Economic activity in the Company's.service territory continued to increase in 1993.
Energy sales to service area customers, when adjusted for normal weather, increased by 855 million kilowatt-hours, or 2.84, over 1992.
By comparison, weather-normalized energy sales in 1992 increased by only 2.64 over 1991 levels.
In 1993, residential sales and commercial
- sales, when adjusted for normal weather, increased by 1.54 and 2.14, respectively, over 1992.
Industrial sales, which are not affected by the'eather, were up 4.0<.
System sales in 1994 are currently forecasted to be approximately 31.7 billion kwh, an increase of 655 million kwh, or 2.1%, over 1993 actual system sales, and a 771 million kwh, or 2.5%,
increase over 1993 weather-normalized sales.
Additional energy sales from marketing and economic development efforts continue to be a
key corporate initiative.
The level of additional sales estimated from these programs in 1993 was 556 million kwh.
The Company's 1994 marketing and economic development goal is to achieve annual net sales growth of 650 million kwh.
The financial effect of these additional sales may take at least two years to be realized, and possibly longer if a major commercial or industrial customer is involved.
'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 1991 to 65% in 1993.
The Company's goal for 1994 is a
684 electric heat market share in new residential construction.
Certain large customers have considered self-generation of electricity over the past several years.
- However, the Company has'ost no significant load to customer-owned generation.
The Energy Policy Act of 1992 (Energy Act) will have a
significant impact on the Company and the electric utility industry, primarily through amendments to the PUHCA that creates a new class of independent power producers, and amendments to the Federal Power Act that opens access to electric transmission systems for wholesale transactions.
These changes are expected to increase competition in the wholesale energy supply market.
In response to the increased competition, the Company has undertaken initiatives to strengthen its position in the wholesale market.
The Company. entered into new five-year supply agreements at reduced prices with its existing wholesale customers.
These agreements are subject to FERC approval.
The Company is actively participating in negotiations and proceedings involving the sale of electricity to wholesale customers currently served by other electric utilities.
These wholesale customers are generally small utilities that do not have their own generating capability,and purchase electricity from others.
While there is currently no comparable competition in the retail electric market, the Company anticipates that it will face similar
. competitive pressures in the industrial and large commercial sectors of that market in the future.
The Company's strategic initiatives also include an assessment of entering power-related businesses outside of the Company's service territory, both domestically and in foreign countries.
Any expansion by the Company into these areas would be methodical and deliberate.
To take advantage of these new business opportunities, in February 1994 the Company's Board of Directors approved a plan to (i) make an initial investment of
$50 million in these new businesses; and (ii) pursue the formation of a holding company structure to facilitate such investment, subject to the receipt of appropriate regulatory approvals
- and, ultimately, shareowner approval at the 1995 annual meeting.
For a discussion of the assessment on the Company pursuant to the Energy Act for the Uranium Enrichment Decontamination and Decommissioning
- Fund, see the discussion under that caption on page 39.
For a discussion of the effects of the Energy Act provisions relating to health care for retired coal miners, see "Termination of Coal-Mining Operations" on page 34.
CAPITAL EXPENDITURE REQUIREMENTS~ FINANCING AND RATE MATTERS See "Capital Expenditure Requirements" on page 33 for information concerning the Company's estimated capital expenditure
requirements for the years 1994-1996.
See "Clean Air Legislation and Other Environmental Matters" on page 35 and Note 15 to Financial Statements for information concerning the Company's estimate of the cost to comply with the federal clean air legislation enacted in 1990, to address groundwater degradation and waste water control at Company facilities and to comply with solid waste disposal regulations adopted by the Pennsylvania Department of Environmental Resources (DER).
After the payment of dividends, internally generated funds during the years 1994-1996 are currently expected to provide approximately 864 of the Company's construction expenditures.
Sales of securities will be undertaken during the 1994-1996 period as needed to meet the Company's capital requirements, to meet a total of
$166 million of long-term debt maturities and preferred stock sinking fund requirements and to provide funds for the early retirement of high-cost securities if such retirements are determined to be appropriate in the light of market conditions and other factors.
The Company's ability to issue securities during the next three years is not expected to be limited by earnings or other issuance tests.
See Note 3 to Financial Statements for information concerning rate matters affecting the Company.
The last base rate increase for PUC-jurisdictional customers went into effect in April 1985.
The Company is unable to predict the timing of its next PUC-jurisdictional base rate filing, but intends to delay that filing for as long as possible.
POWER SUPPLY Plant Nuclear-fueIed steam station Susquehanna Coal-fired steam stations Montour Brunner Island Sunbury Martins Creek Keystone Conemaugh Holtwood Total coal-fired Oil-fired steam station Martins Creek Combustion turbines and diesels Hydroelectric Total generating capacity Firm purchases Hydroelectric Qualifying facilities Total firm purchases Total system capacity a
ompany s
un xva.ded interest.
(b)
Company's 12.34% undivided interest.
(c)
Company's 11.39% undivided interest.
(d)
From Safe Harbor Water Power Corporation.
(e)
From non-utility generating companies.
1, 905, 000 (a) 1,525, 000 1,469, 000 389, 000 300, 000 210, 000 (b) 194, 000 (c) 73,000 1, 640, 000 508,000 146,000 gUUU 139,000 (d) 504,000 (e)
The Company's system capacity (winter rating) at December 31, 1993 was as follows:
Net Kilowatt
~ca acit
The system capacity shown in the preceding tabulation does not reflect:
(i) sales of capacity and energy to Atlantic City Electric Company (Atlantic) through September 2000; (ii) sales of capacity and energy to Baltimore Gas and Electric Company (BG&E) through 2001; (iii) sales of capacity and energy to Jersey Central Power
& Light Company (JCP&L) through 1999; or (iv) sales of capacity credits to GPU Service Corporation for PJM installed capacity accounting purposes
- only, which capacity credit sales aggregated 567,000 kilowatts at December 31, 1993.
Giving effect to the sales to Atlantic (129,000 kilowatts winter rating),
BG&E (126,000 kilowatts) and JCP&L (945,000 kilowatts), the, Company's net system capacity at December 31, 1993 was 7,802,000 kilowatts.
The capacity of generating units is based upon a
number of factors, including the operating experience and physical condition of the units, and may be revised from time to time to reflect changed circumstances.
4 During
- 1993, the Company produced about 39.2 billion kwh in plants owned by it.
The Company purchased 5.0 billion kwh under purchase agreements and received 0.6 billion kwh as power pool interchange.
During the
- year, the Company delivered about 4.2 billion kwh as pool interchange and about 1.1 billion kwh under purchase agreements.
During 1993,'3.6%
of the energy generated by the Company's plants came from coal-fired stations, 31.04 from nuclear operations at the Suscpxehanna
- station, 3.84 from the Martins Creek oil-fired steam station and 1.64 from hydroelectric stations.
The maximum one-hour demand recorded on the Company's system is 6,403,000 kilowatts, which occurred on January 18, 1994.
The maximum recorded one-hour summer demand is 5,409,000 kilowatts, which occurred on July 8,
1993.
The peak demands do, not include energy sold to Atlantic, BG&E or JCP&L.
The Company purchases energy from other utilities when it is economically desirable to do so.
The Company occasionally purchases energy from systems located to the west of the Company's service area on a
weekly basis at advantageous prices.
The amount of energy purchased depends on a
number of factors including cost and the import capability of the transmission network.
When it has been economical to do so, the Company has sold portions of its entitlement to use the bulk power transmission system to import energy from utilities outside the pJM, rather than utilize its entitlement for purchases from such western systems.
The Company also has entered into separate agreements with several utilities in New York and New England to provide energy on an as available, as needed basis.
Transactions under these agreements are expected to continue to allow the Company to make more efficient use of its generating capacity and provide benefits to customers of both the Company and the purchasing utilities.
The Company also has entered into an agreement with Orange
& Rockland Utilities for the reservation of output during certain periods from the Company's
Martins Creek units with the option to. purchase energy from those units.
See "Capacity-Related and Transmission Entitlement Transactions" on page 28 and Note 4
to Financial Statements for additional information concerning the sale of capacity and energy to Atlantic, BG&E and JCP&L, the sale of capacity credits (but not energy) to other electric utilities in the PJM and the sale of transmission entitlements and the reservation of output from the Martins Creek units. 'ee "Rate Matters" on page 28 and Note 3
to Financial Statements for information concerning complaints filed with the PUC regarding the Company's recovery on a current basis through the ECR of the cost of energy purchased from non-utility generating companies and the treatment of revenues from the Company's capacity-related transactions.
In addition to the 504,000 kilowatts of non-utility generation shown in the preceding tabulation, the Company is purchasing about 3,000 kilowatts of output from various other non-utility generating companies.
The payments made for energy purchased from non-utility generating companies, all of whose facilities are located in the Company's service area, are recovered from customers through the ECR applicable to PUC-jurisdictional customers and base rate charges applicable to FERC-jurisdictional customers.
tt t The PJM companies had approximately 55 million kilowatts of installed generating capacity at December 31,
- 1993, and transmission line connections with neighboring power pools have the capability of transferring an additional 4 to 5 million kilowatts between the PJM and neighboring power pools.
Through December 31, 1993, the maximum one-hour demand recorded on the PJM was approximately 46.4 million kilowatts, which occurred on July 8,
1993.
The Company is also a
party to the Mid-Atlantic Area Coordination Agreement, which provides for the coordinated planning of generation and transmission facilities by the companies included in the PJM.
The Company currently plans to convert the two oil-fired generating units at the Martins Creek station to burn both oil and natural
- gas, subject to appropriate regulatory approvals.
A Company subsidiary filed an application with the PUC for authority to also transport natural gas through the pipeline to the existing pipeline customers, which include the Company and another utility.
Two parties have protested the subsidiary s application, asserting that they have the sole authority to provide such gas service to the Company and the other utility, respectively.
The matter is presently being litigated at the PUC and the Company cannot predict the outcome.
FUEL SUPPLY Coal During 1993, the Company's generating stations burned about 9.1 million tons of bituminous coal and about 900,000 tons of anthracite and petroleum coke.
During
- 1993, 744 of the coal delivered to the Company's generating
'stations was purchased under contracts and 264 was obtained through open market purchases.
The amount of bituminous coal carried in inventory at the Company's generating stations varies from time to time depending on market conditions and plant operations.
As of December 31, 1993, the Company's bituminous coal supply was sufficient for about 31 days of operations.
During
- 1993, contracts with non-affiliated coal producers provided the Company with about 5.4 million tons of bituminous coal.
Contracts currently in effect with non-affiliated coal producers are expected to provide the Company with about 5.8 million tons of bituminous coal in 1994.
As more fully described in Note 11 to Financial Statements, the Company has ceased its subsidiary coal-mining operations.
The Company replaced the coal produced by its subsidiaries with coal acquired through new contracts with non-affiliated suppliers and open market purchases.
In this regard, the Company has entered into coal supply agreements that will provide it with about 3 million tons per year through 1999.
A wholly owned subsidiary of the Company also holds certain undeveloped coal reserves which the Company currently does not plan to develop.
At December 31,
- 1993, the investment by the subsidiary in those coal reserves was about
$ 84 million.
The coal burned in the Company's generating stations contains both organic and pyritic sulfur.
Mechanical cleaning processes are utilized to reduce the pyritic sulfur content of the coal.,
The reduction of the pyritic sulfur content by either mechanical cleaning or blending has lowered the total sulfur content of the coal burned to levels which permit compliance with current sulfur dioxide emission regulations established by the DER.
. For information concerning the Company's plans to achieve compliance with the federal clean air legislation enacted in 1990, see "Clean Air Legislation and Other Environmental Matters" on page 35 and Note 15 to Financial Statements.
The Company owns a
12.344 undivided interest in the Keystone station and an 11.39%
undivided interest in the Conemaugh
- station, both of which are generating stations located in western Pennsylvania.
The owners of the Keystone station have a long-term contract with a coal supplier to provide at least two-thirds of that station's requirements through 1999 and declining amounts thereafter until the contract expires at the end of 2004.
The balance of the Keystone station requirements are purchased in the open market.
The coal supply requirements for, the Conemaugh station are being met from several sources through a blend of long-term and short-term contracts and spot market purchases.
At December 31, 1993, the Company's inventory of anthracite was about 5.7 million tons.
The Company's requirements for petroleum coke and any additional anthracite that may be required over the
remainder of the expected useful lives of the Company's anthracite-fired generating stations are expected to be obtained by contract and market purchases.
Nuclear The nuclear fuel cycle consists of the mining of uranium ore and its milling to produce uranium concentrates; the conversion of uranium concentrates to uranium hexafluoride; the enrichment of uranium hexafluoride; the fabrication of fuel assemblies; the utilization of the fuel assemblies in the reactor; the temporary storage of spent fuel; and the permanent disposal of spent fuel.
The Company has entered into uranium supply agreements
- that, together with options to
- extend, satisfy 100%
of the uranium concentrate requirements for the Susquehanna units through
- 1997, approximately 704 of the requirements for the period 1998-1999, and approximately 354 of the requirements for the period 2000-2001.
Deliveries under these agreements are expected to provide sufficient quantities of uranium concentrates to permit Unit 1 to operate into the third quarter of 1999 and Unit 2 to operate into the third quarter of 1998.
The Company has entered into agreements that satisfy 100~ of its conversion requirements through 1997 and approximately 254 of the conversion requirements for the period 1998-1999.
The Company has also entered into agreements for other segments of the nuclear fuel cycle.
Based upon the current operating plans for each of the Susquehanna units, the following tabulation shows the years through which contracts, including options to extend, could provide the indicated segments of the nuclear fuel cycle:
Enrichment Fabrication 2014 2004 The Company has elected to cancel all or a portion of deliveries under its existing enrichment contract during the period 1999 through
- 2002, and plans to competitively bid those requirements on the open market.
Additional arrangements will be necessary to satisfy the remaining fuel requirements of the Susquehanna units over their anticipated useful lives.
The Company estimates that there will be sufficient storage capability in the spent fuel pools at Susquehanna to accommodate the fuel that is expected to be discharged through the year 1996.
Federal law requires the federal government to provide for the permanent disposal of commercial spent nuclear fuel.
Pursuant to the requirements of that
- law, the United States Department of Energy (DOE) has initiated an analysis of a site in Nevada for a permanent nuclear waste repository.
The most recent estimated in-service date for the repository is beyond 2010.
However, the location of the site for the repository in Nevada has been opposed by the state of Nevada.
The DOE is also pursuing implementation of a Monitored Retrievable Storage (MRS) facility which is intended to permit the receipt of spent nuclear fuel for interim storage by the year
- 1998, or shortly
thereafter.
Even if the DOE is successful in implementing its plans for the MRS, it is unlikely that any spent fuel will be shipped from Susquehanna until well after the year 2000 because of the limited capacity of the MRS and the large volume of other utilities'pent fuel that is scheduled to be shipped before the Company's spent fuel.
Therefore, expansion of Susquehanna's spent fuel storage capability will be necessary.
Studies for this expansion are underway and the Company plans to have expanded storage capacity in place to meet post-1996 requirements.
Federal law also provides that the costs of spent nuclear fuel disposal will be the responsibility of the generators of such wastes.
The Company includes in customer rates the fees charged by the DOE to fund the permanent disposal of spent nuclear fuel.
For a discussion of the assessment on the 'Company pursuant to the Energy Act for the Uranium Enrichment Decontamination and Decommissioning
- Fund, see the discussion under that caption on page 39.
Oil The Company has agreements with two suppliers under which it can purchase its expected oil requirements for the Martins Creek units.
However, if there are price advantages to be realized from purchasing oil in the spot market, these contracts permit the Company to acquire up to one-half of its expected oil requirements for the Martins Creek units in that manner.
One oil purchase agreement expired in mid-1993 and was replaced with a similar new two-year agreement which will expire in mid-1995.
The other agreement expires in mid-1994.
During 1993, approximately 904 of the oil requirements for the Martins Creek units were purchased under the Company's oil contracts and the balance was purchased on the spot market.
See "POWER SUPPLY" on page 5 for information concerning the planned conversion of the two oil-fired generating units at the Martins Creek station to burn both oil and natural gas.
ENVIRONMENTAL MATTERS The Company is subject to certain
,present and developing
- federal, regional, state and local laws and regulations with respect to air and water quality, land use and other environmental matters.
See "Capital Expenditure Requirements" on page 33 for information concerning the environmental expenditures during the years 1991-1993 and the Company's estimate of those expenditures during the years 1994-1996.
The Company believes that it is presently in substantial compliance with applicable environmental laws and regulations.
See "Clean Air Legislation and Other Environmental Matters" on page 35 and Note 15 to Financial Statements for information concerning federal clean air legislation enacted in 1990, groundwater degradation and waste water control at Company facilities, DER's solid waste disposal regulations,.the Company s negotiations with the DER concerning polychlorinated biphenyl contamination at certain of 10
the Company's substation and pole sites, and the issue of electric and magnetic fields.
Other environmental
- laws, regulations and developments that may have a substantial impact on the Company are discussed below.
Air The Federal Clean Air Act
- includes, among other
- things, provisions that:
(a) require the prevention of significant deterioration of existing air quality in regions where air quality is better than applicable ambient standards; (b) restrict the construction of and revise the performance standards for new coal-fired and oil-fired generating stations; and (c) authorize the United States Environmental Protection Agency (EPA) to impose substantial noncompliance penalties of up to
$25,000 per day of violation for each facility found to be in violation of the requirements of an applicable state implementation plan.
The DER administers the EPA's air quality regulations through the Pennsylvania State Implementation Plan and has concurrent authority to impose penalties for noncompliance.
As a result of computer dispersion modeling of the effects of the Company's Martins Creek station (located in Pennsylvania) on ambient air quality in New
- Jersey, the EPA redesignated Warren
- County, New Jersey to non-attainment status for sulfur dioxide, effective February 1,
1988.
- However, the EPA withheld further regulatory action until the
- Company, the
- EPA, the DER and the New Jersey Department of Enviromental Protection (NJDEP) could agree upon and apply a
computer model that will more accurately predict the actual ambient air quality of the area.
The Company negotiated with the EPA, the DER and the NJDEP on a study to allow the use of a more accurate model.
This study began in May 1992 and is expected to be concluded in 1994.
In addition, the regulatory agencies have required the Company to expand the study area beyond the designated sulfur dioxide non-attainment area to include any predicted "areas of concern" in the vicinity of the plant.
The Company is developing a
study to address this expanded area.
If it is determined that the Martins Creek operations are causing ambient air violations, the Company may be required to make changes to reduce sulfur dioxide emissions.
However, it is currently expected that the reductions planned to meet the requirements of the Clean Air Act acid rain provisions should be adequate to meet any reduction that may be required as a result of these studies.
See "Clean Air Legislation and Other Environmental Matters" on page 35 and Note 15.
Water To implement the requirements established by the Federal Water Pollution Control Act of 1972, as amended by the. Clean Water Act of 1977 and the Water Quality Act of
- 1987, the EPA has adopted regulations including effluent standards for steam electric stations.
The DER administers the EPA's effluent standards through state laws and regulations relating, among other things, to effluent discharges and water quality.
The standards adopted by the EPA pursuant to the Clean Water Act may have a significant impact on the Company's 11
existing facilities depending on the DER!s interpretation and future amendments to its regulations.
The EPA and the DER limitations, standards and guidelines for the discharge of pollutants from point sources into surface waters are enforced through the issuance of National Pollutant Discharge Elimination System (NPDES) permits.
The Company has NPDES permits necessary for the operation of its facilities.
Pursuant to the Surface Mining and Reclamation Act
.of 1977 (Reclamation Act), the United States Office of Surface Mining (OSM) has adopted effluent guidelines which are applicable to Company subsidiaries as a result of their past coal mining and continued coal processing activities.
The EPA and the OSM limitations, guidelines and standards are also enforced through the issuance of NPDES permits.
In accordance with the provisions of the Clean Water Act and the Reclamation Act, the EPA and the OSM have authorized the DER to implement the NPDES program for Pennsylvania sources.
Compliance with applicable water quality standards is assured by DER review of NPDES permit conditions.
The Company s subsidiaries have received NPDES permits for their mines and related facilities.
Solid and Hazardous Waste The 1976 Resource Conservation and Recovery Act (RCRA) regulates the generation, transportation, treatment, storage and disposal of hazardous wastes.
RCRA also imposes joint and several liability on generators of solid or hazardous waste for clean-up costs.
A revision of RCRA in late 1984 lowered the threshold for the amount of on-site hazardous waste generation requiring regulation and incorporated underground tanks used for the storage of petroleum and petroleum products as regulated units.
Based upon the results of a survey of its solid waste practices, the Company at several times between 1980 and 1985 filed notices with the EPA indicating that hazardous waste is occasionally generated at all of its steam electric generating stations and service centers.
Because of the small quantities of hazardous waste generated at the Company's facilities and concurrent regulation by the
- DER, RCRA is not expected to have a significant impact on the Company.
In January
- 1993, DER revised its comprehensive regulations governing the handling and disposal of hazardous waste.
These revisions are not expected to have a significant impact on the Company.
The provisions of the Comprehensive Environmental
- Response, Compensation and Liability Act of
- 1980, as amended (Superfund),
authorize the EPA to require past and present owners of contaminated sites and generators of any hazardous substance found at a site to clean up the site or pay the EPA or the state for the costs of clean-up.
The generators and past owners can be liable even if the generator contributed only a
minute portion of the hazardous substances at the site.
Present owners can be liable even if they contributed no hazardous substances to the site.
12
In 1981 the Company was notified by the EPA that the Company could be liable for the cost of removing coal,tar deposits discovered at a former gas plant site owned by the Company along Brodhead Creek in Monroe County, Pennsylvania, and on adjacent property owned by a company unrelated to the Company.
The EPA used Superfund monies to construct a slurry wall which was paid for by the adjacent property owner.
The Company removed approximately 8,000 gallons of, coal tar, from its property.
To determ'ine whether additional work needed to be
- done, a Remedial Investigation and a Risk Assessment were conducted by the Company and the adjacent property owner and submitted to the EPA and the DER.
Although the Risk Assessment showed acceptable risk
- levels, the EPA and the DER required a Feasibility Study to identify whether additional remedial action 'was required.
Based on the results of that Feasibility Study and other investigations, the Company and the adjacent property owner signed a
consent decree with the EPA in November 1991.
Under the terms of that consent
- decree, the Company and the adjacent property owner will remove two subsurface coal tar accumulations, monitor the site for up to 30 years and pay all past unreimbursed and all future EPA oversight costs.
The Company's share of the costs associated with the consent decree is estimated to be about Q2 million.
In May 1992, the Company and the adjacent property owner signed a consent order from the EPA directing that an additional Remedial Investigation and Feasibility Study be performed to address groundwater contamination at -the site.
This investigation is now underway and could result in the EPA requiring additional site remediation, the cost of which cannot now be determined but which could be material.
The EPA has proposed to place the site of a former Company gas plant in Columbia, Pennsylvania on the national Superfund list.
The Company and another potentially responsible party (PRP) had previously conducted a detailed investigation of the site and removed a substantial amount of coal tar from a pedestrian tunnel at the rear of the property.
- However, coal tar remains in two brick pits on the site..
There is also coal tar contamination of the soil and groundwater at the site and of river sediment adjacent to the site.
The Company is negotiating with EPA and DER on additional investigations and remediation required at the site.
The costs of the initial investigation and remediation are estimated at
$ 1 million.
Further remediation may be required, the costs of which are not now determinable but could be material.
The Company at one time also owned and operated several other gas plants in its service area.
None of these sites is presently on the Superfund list.
- However, a
few of them may be possible candidates for listing at a future date.
The Company expects to continue to investigate and, if necessary, remediate these sites.
The cost of this work is not now determinable but could 'be material.
See "LEGAL PROCEEDINGS" on page 18 for information concerning an EPA order and a complaint filed by the EPA in.federal district court against the Company and 35 unrelated parties for remediation of a
Superfund site in Berks
- County, Pennsylvania, the settlement of a
13
complaint proceeding involving a scrap metal recycling site in Roane
- County, West Virginia, a
complaint filed by the Company and 16 unrelated parties in federal district court against other parties for contribution under Superfund relating to the Novak landfill site in Lehigh
- County, Pennsylvania, an EPA complaint in federal district court against the Company and 10 unrelated parties to recover all past and future EPA costs of investigating and remediating the Heleva landfill site in Lehigh County, Pennsylvania, and action by the EPA for reimbursement of the EPA's past response costs and remediation at the site of a
former metal salvaging operation in Montour County, Pennsylvania.
The Company has also been identified by the EPA as a
PRP at several other Superfund sites.
At most of these sites, the Company believes that it has no involvement or that its clean-up liability would be minimal.
At the remaining sites, the Company could incur remediat'ion costs which are not now determinable but could be material.
The Pennsylvania Superfund. law gives the DER broad authority to identify hazardous or contaminated sites in Pennsylvania and to order owners or responsible parties to clean up. the sites.
Xf responsible parties cannot or will not perform the clean-up, the DER can hire contractors to clean up the sites and then require reimbursement from the responsible parties after the clean-up is completed.
The Company has been contacted by the DER to determine the Company's involvement in two contaminated sites under the Pennsylvania Superfund law.
The Company expects that its involvement at these sites will be determined to be minimal.
Low-Level Radioactive Waste Under federal law, each state is responsible for the disposal of low-level radioactive waste, generated in that state.
States may join in regional compacts to jointly fulfill,their responsibilities.
Access to disposal sites may be denied, the volume of waste may be limited and/or surcharges on low-level radioactive waste being disposed may be increased if federal milestones regarding development of regional waste disposal sites are not met.
Low-level radioactive wastes resulting from the operation of the Susquehanna station are currently. being shipped to the site in South Carolina for disposal.
- However, South Carolina currently plans to stop accepting low-level radioactive wastes from outside that state in mid-1994.
The states of Pennsylvania,
- Maryland, Delaware and West Virginia are members of the Appalachian States Low-Level Radioactive Waste Compact.
Efforts to develop a regional disposal facility in Pennsylvania are currently underway.
- However, the Company cannot predict the future availability of low-level waste disposal facilities or the cost of such disposal.
Any additional storage capacity required for the disposal of low-level radioactive waste from the Susquehanna station will have to be provided by the Company.
General Zn addition to the matters described
- above, the Company and its subsidiaries have been cited from time to time for temporary 14
violations of the'ER and EPA regulations with respect to air and water quality and solid waste disposal in connection with the operation of their facilities and may be cited for such violations in the future.
As a result, the Company and its subsidiaries may be subject to certain penalties which are not expected to be material in amount.
The Company is unable to predict the, ultimate effect of evolving environmental laws and regulations upon its existing and proposed facilities and operations.
In complying with statutes, regulations and actions by regulatory bodies involving environmental
- matters, including the areas of water and air quality, hazardous and solid waste handling and disposal and toxic substances, the Company may be required to
- modify, replace or cease operating certain of its facilities.
The Company may also incur material capital expenditures and operating expenses in amounts which are not now determinable.
FRANCHISES AND LICENSES The Company has authority to provide electric public utility service throughout its entire service area as a result of grants by the Commonwealth of Pennsylvania in corporate charters to the-Company and companies to which it has succeeded and as a
result of certification thereof by the PUC.
The Company has been granted the right to enter the streets and highways by the Commonwealth subject to certain conditions.
In general, such conditions have been met by ordinance, resolution,
- permit, acquiescence.
or other action by an appropriate local political subdivision or agency of the Commonwealth.
The Company operates Susquehanna Unit 1 and Unit 2 pursuant to NRC operating licenses which expire in 2022 and
- 2024, respectively.
The Company operates two hydroelectric projects pursuant to licenses which were renewed by the FERC in 1980:
Wallenpaupack (44,000 kilowatts capacity) and Holtwood (102,000 kilowatts capacity).
The Wallenpaupack license expires in 2004 and the Holtwood license expires in 2014.
The Company also owns one-third of the capital stock of Safe Harbor Water Power Corporation which holds a project license which extends until 2030 for the operation of its hydroelectric plant.
The total capability of the Safe Harbor plant is 417,500 kilowatts and the Company is entitled by contract to one-third of the total capacity (139,000 kilowatts).,
EMPLOYEE RELATIONS Approximately 4,800 of the Company's 7,677 full-time employees are represented by the International Brotherhood of Electrical Workers under three-year agreements which expire in mid-1994.
15
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ITEM 2 PROPERTIES The Map on page 17 shows the location of the Company's service area and generating stations.
H Reference is made to Schedule V
Property, Plant and Equipment for information concerning the Company's investment in
- property, plant and equipment.
Substantially all electric utility plant is subject to the lien of the Company's first mortgage.
Additional information concerning capital leases is set forth in Note 9 to Financial Statements.
For additional information concerning the properties of the Company see Item, 1, "BUSINESS Power Supply" and "BUSINESS Fuel Supply".,
ITEM 3.
LEGAL PROCEEDINGS Reference is made to Note 3 to Financial Statements for information concerning rate matters.
Reference is made to Note 15 to Financial Statements for information concerning two complaints filed against the Company by fuel oil dealers alleging that the Company's promotion of electric heat pumps and off-peak storage systems had violated and continues to violate the federal antitrust laws.
II Reference is made to Item 1,
"BUSINESS-Power Supply" for information concerning litigation at the Pennsylvania Public Utility Commission (PUC) resulting from the application of Interstate Energy
- Company, a wholly owned Company subsidiary, to transport natural gas through its existing oil pipeline.
In April 1991, the U.S.
Department of Labor (DOL) through its Mine Safety and Health Administration issued citations to one of the Company's coal-mining subsidiaries for alleged coal-dust sample tampering at one of the subsidiary's mines.
The DOL at the same time issued similar citations to more than 500 other coal-mine operators.
,Based on a
review of its dust sampling procedures, the subsidiary is contesting all of the citations.
It is believed at this time, based on the information available, that the DOL allegations are without merit.
Citations were also issued against the independent operator of another subsidiary
- mine, who is also contesting the citations issued with respect to that mine.
The Company cannot predict the eventual outcome of this matter.
If violations are found, it is currently estimated that potential administrative penalties could range from approximately
$90,000 to approximately
$4.6 million.
In August
- 1991, the Company and 35 other unrelated parties received an Environmental Protection Agency (EPA) order under Section 106 of the federal Comprehensive Environmental, Response 18
Compensation and Liability Act of 1980, as amended (Superfund),
requiring that certain remedial actions be taken at a former oil recovery site in Berks
- County, Pennsylvania, which has been included on the federal Superfund list.
The Company had been identified by the EPA as a potentially responsible
- party, along with over 100 other parties.
The EPA order required remediation by the 36 named parties of four specific areas of the site.
Remedial action under this order has essentially been completed at a cost of approximately
$2 million, of which the Company's share was approximately
$50,000.
The EPA at the same time filed a complaint under Section 107 of Superfund in the United States District Court for the Eastern District of Pennsylvania (District Court) against the Company and the same 35 unrelated parties.
The complaint asks the District Court to hold the parties jointly and severally liable for all past and future EPA costs of remediating some of the remaining areas of the site.
The EPA claims it has spent approximately
$ 12 million to date.
The Company and a
group of the other named parties have sued in District Court approximately 460 other parties that have contributed waste to the site, demanding that these companies contribute to the clean-up costs.
In July 1993, the Company and 33 of the 35 unrelated parties received an EPA order under Section 106 of Superfund recpxiring remediation of the remaining areas of the site identified by EPA.
Although the Company initially believed its contribution was very small because most of its oil sent to the site had been recycled, recent allegations by a
waste oil hauler indicate that the Company may have sent substantially more oil to the site during earlier years when waste from treatment of the oil was disposed of on-site.
Current estimates of remediating the remainder of the site range from
$50 million to
$200 million.
These costs would be shared among the responsible parties.
The Company may incur material costs for this matter in amounts which are not now determinable.
In October
- 1993, the Pennsylvania Department of Environmental Resources (DER) moved to intervene in the EPA suit, seeking to hold 16 of the originally named parties, including the Company, liable for all past and future DER costs of remediating the site and for any natural resource damages at the site.
According to the complaint, the DER has spent at least
$800,000 to date.
The Company may incur material costs for. this DER action in amounts which are not now determinable.
In December 1991, the Company and 16 unrelated parties filed complaints against 64 other parties in District Court seeking reimbursement under Superfund for costs the plaintiffs have incurred and will incur to investigate and remediate the Novak landfill site in Lehigh
- County, Pennsylvania.
The complaints allege that the 64 defendants generated or transported.
substances disposed of at the Superfund site.
A Remedial Investigation and Draft Feasibility Study for the site has been completed at a cost of approximately
$ 3 million, of which the Company's share was 19
approximately
$300,000.
EPA's selected remedy is currently estimated to cost approximately
$16 million.
The Company may incur material costs for this matter in amounts which are not now determinable.
In February 1993, three parties filed complaints against the Company and 40 other unrelated parties in the United States District Court for the Southern District of West
- Virginia, seeking reimbursement under Superfund for costs the plaintiffs have incurred and will incur to investigate and remediate a scrap metal recycling site in Roane County, West Virginia.
In December 1993, this action was settled.
The Company's contribution to the settlement was
$122,000.
In March 1993, the EPA filed a complaint under Section 107 of Superfund in District Court against the Company and 10 unrelated parties to recover all past and future EPA costs of investigating and remediating the Heleva landfill site in Lehigh County, Pennsylvania.
The EPA alleges it has spent approximately
$ 10 million to date at this site.
The Company has filed an answer to the complaint denying liability based on the absence of evidence that the Company sent any hazardous substances to the site.
The Company may incur material costs for this matter in amounts which are not now determinable.
In April 1993, the Company received an order under Section 106 of Superfund requiring that actions be taken at the site of a former metal salvaging operation in Montour County, Pennsylvania.
The EPA has taken similar action. with two other potentially responsible parties at the site.
The cost of compliance with the order is currently estimated to be approximately
$37 million.
The EPA currently estimates that additional remediation work not covered by the order will cost an additional
$36 million.
In
- addition, the EPA has already incurred clean-up costs of approximately
$ 5 million to date.
The EPA has indicated that it will seek to recover these additional costs at a later date.
The Company's records indicate that scrap
- metal, wire and transformers were sold to the salvage operator between 1969 and 1971.
Current information indicates that the Company's contribution to the site, if any, is de minimis.
1TEM 4 ~
SUBMISSION OP MATTERS TO A VOTE OR SECURITY HOLDERS There were no matters submitted to a
vote of security
- holders, through the solicitation of proxies or otherwise, during the fourth quarter of 1993.
20
EXECUTIVE OFFICERS OF THE REGISTRANT Officers are elected annually by the Board of Directors to serve at the pleasure of the Board.
There are no family relationships among any of the executive
- officers, or any arrangement or understanding between any executive officer and any other person pursuant to which the officer was selected.
There have been no events under
.any bankruptcy
- act, no.
criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any executive officer during the past five years.
Listed below are the executive officers of the Company:
Name William F. Hecht Francis A. Long AcCe 50 53 Position
- Chairman, President and Chief Executive Officer Executive Vice President and Chief Operating Officer Effective Date of Election to Present Position January 1,
1993 January 1,
1993 Robert G. Byram 48 Senior Vice President-Nuclear March 26, 1993 Gennaro D. Caliendo 53 Senior Vice, President, General Counsel and Secretary June 1, 1989 Ronald E. Hill Joseph C. Krum 51 56 Senior Vice President-Financial January 1,
1994 Senior Vice President-Division Operations November 12, 1990 Linda Curry Bartholomew John R. Biggar 45 49 Vice President Public Affairs Vice President-Finance June 1,
1989 March 1, 1984 John M. Chappelear 55 Vice President-Investments and Pensions June 1, 1986
Name AcCe Position Effective Date of Election to Present Position Robert S.
Gombos Michael D. Hill I
50 Vice President-Human Resource and Development 51 Vice President-Infor-mation Services September 1,
1989 August 1, 1993 George T. Zones 46 Vice President-Nuclear Engineering June 1,
1993 Zohn P. Kierzkowski 54 Vice President and Treasurer March 1, 1984 Robert Z. Shovlin 53 Vice President-Power Production and Engineering January 1,
1992 Harold G. Stanley 53 Vice President-Nuclear Operations June 1,
1993 Raymond F. Suhocki 48 Vice President-System Power April 1, 1993 Each of the above officers, with the exception of Mr. Jones, has been employed by the Company for more than five years as of December 31, 1993.
Mr. Jones joined the Company in September 1991 and was previously employed by Entergy Operations, Inc.
The positions he held at Entergy Operations, Inc.
between January 1989 and September 1991 were General Manager Engineering
- Design, General Manager-Engineering and Director of Engineering-Arkansas Nuclear One.
Prior to election to the positions shown
- above, the following executive officers held other positions with the Company since January 1,
1989:
Mr.
Hecht was Vice President-Marketing and Customer Services, Vice President-Power Production Engineering, Senior Vice President-System Power and Engineering, Executive Vice President-Operations and President and Chief Operating Officer; Mr.
Long was Manager-System Planning, Vice President-Power Supply and Senior Vice President System Power
& Engineering; Mr. Byram was Superintendent of the Susquehanna Steam Electric Station (SSES),
Vice President-Nuclear Operations and Senior Vice President
System Power Engineering; Mr.
Caliendo was Vice President and General Counsel; Mr. R.
E. Hill was Vice President and Comptroller; Mr.
Krum was Director-Marketing and Economic Development and Vice President-Lancaster
. Division; Ms.
Bartholomew was Senior Director and Economist-Public Affairs; Mr.
Gombos was Vice President-Human Resource and Development and Vice President-22
Construction; Mr. M. D. Hill was Project Manager-Power Management
- System, Manager-Bulk Power Engineering and Manager-System Operation; Mr.
Jones was Manager-Nuclear Plant Engineering
- and, Manager-Nuclear Engineering; Mr. Shovlin was Manager-Fossil Fuel Supply and Director-Power Production and Engineering; Mr. Stanley was Assistant Superintendent-Outages and Superintendent of the SSES and Mr.
Suhocki was Area Operating
- Manager, Manager-Marketing
& Economic Development and Vice President-Suscpxehanna Division.
23
PART II ITEM 5 ~
MARKET FOR THE REGISTRANT S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Additional information for this item is set forth in the section entitled "Shareowner and Investor Information" on pages 83 through 86 of this
- report, and the number of common shareowners is set forth in the section entitled "Selected Financial and Operating Data" on pages 79 and 80.
ITEM 6 SELECTED FINANCIAL DATA t
Information for this item is set forth in the section entitled "Selected Financial and Operating Data" on pages 79 through 82 of this report.
ITEM 7 ~
MANAGEMENT~S DISCUSSION AND ANALYSIS OP FINANCIAL CONDITION AND RESULTS OR OPERATIONS e
Information for this item is set forth in the section entitled "Review of the Company's Financial Condition and Results of Operations" on pages 26 through 41 of this report.
24
ZTEM 8 ~ FINANCIAL STATEMENTS AND SUPPLEMENTARY-DATA Financial statements and supplementary data are set forth on the pages indicated below.'acae Independent Auditors'eport Management's Report on Responsibility for Financial Statements 43 Financial Statements:
Consolidated Statement of Income for the Three Years Ended December 31, 1993 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1993-Consolidated Balance Sheet at December 31, 1993 and 1992 Consolidated Statement of Shareowners'ommon Equity for the Three Years Ended December 31, 1993 Consolidated Statement of Preferred and Preference Stock at December 31, 1993 and 1992 Consolidated Statement of Long-Term Debt at December 31, 1993 and 1992 Notes to Financial Statements Quarterly Financial, Common Stock Price and Dividend Data Supplemental Financial Statement Schedules:
V Property, Plant and Equipment for the Three Years Ended December 31, 1993 VI Accumulated Provision for Depreciation, Depletion and Amortization of Property, Plant and Equipment for the Three Years Ended December 31, 1993 VIII Valuation and Qualifying Accounts and Reserves for the Three Years Ended December 31, 1993 IX Short-Term Borrowings for the Three Years Ended December 31, 1993 45 46 49 49 51 52 86 87 89 92 93 ZTEM 9 ~
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
25
REVIEW OP THE COMPANY< S PINANCIAL CONDITION AND RESULTS OR OPERATIONS suits of Operations Earnings Earnings per share of common stock were
$2.07 in 1993,
$2.02 in 1992 and
$2.01 in 1991.
Increasing economic activity in central eastern Pennsylvania and the effects of hotter-than-normal weather during the summer were the main reasons for the earnings improvement.
If weather had been
- normal, earnings would have been 2
cents per share lower in 1993.
Weather conditions affect sales and earnings as heating and cooling demands change.
To make valid comparisons of financial performance, the Company adjusts the figures to reflect "normal" conditions as determined by historical weather data.
Earnings also benefited from continuing efforts to control operating and maintenance costs and by the continuing refinancing of higher cost securities to take advantage of favorable market conditions.
In the fourth quarter of 1993, the Company recorded charges against income that, in the aggregate, adversely affected net income by about
$ 18 million or 12 cents per share of common stock.
The charges related to:
(i) credits to be included in the Company's Energy Cost Rate (ECR) due to entering a settlement agreement with complainants against the Company's ECR; (ii) the write-off of certain deferred retiree benefit costs; and iii) the recognition of certain employee benefit costs in connection with e adoption of a new accounting standard.
These matters are discussed in ore detail 'in the remainder of this review.,
Earnings for 1992 and 1991 were affected by extremely mild weather.
Earnings per share would have been 7 cents higher in 1992 and 6 cents higher in 1991 had there been normal weather in the Company's service territory.
Earnings per share over the last five years have essentially been flat, generally reflecting a
slowdown in the rate of growth of energy
- sales, higher Susquehanna depreciation and increased competition.
To achieve continued earnings growth and to respond to this increased competition, the Company has begun strategic initiatives as explained under "Increasing Competition" on page 40.
In addition, the Company will continue its aggressive marketing and economic development programs aimed at increasing energy
- sales, will continue to emphasize effective cost reduction and will also continue to take advantage of favorable financial market conditions to refinance long-term debt and preferred stock with lower cost securities to reduce interest expense and dividends on preferred stock.
Electric Energy Sales
- System, or service
- area, sales were 31.1 billion kwh in
- 1993, an increase of about 1.3 billion kwh, or 4.44, over 1992.
The effects of tter weather during the
- summer, which resulted in higher air conditioner se, and the increased economic activity in central eastern Pennsylvania were the primary reasons for the increases in system sales.
Sales in all 26
major customer categories were higher in 1993 than in 1992.
Milder-than-normal weather depressed system sales in 1992 primarily due to reduced use of electricity for heating by residential and commercial customers.
Syste sales were down an estimated 334 million kwh in 1992 due to milder-than-normal weather.
The Company estimates that if normal weather had been experienced in both years, system sales for 1993 would have increased by 855,million kwh, or 2.84, over 1992.
Actual sales to residential and commercial customers in 1993 increased 439 million kwh, or 4.1%,
and 334 million kwh, or 3.7>, respectively, over 1992.
The Company estimates that under normal weather conditions for both
- years, sales to residential and commercial customers in 1993 would have increased 167 million
- kwh, or 1.54, and 189 million
- kwh, or 2.14,
.respectively, over 1992.
Industrial
- sales, which are not affected by weather conditions, increased 354 million kwh in
- 1993, or 4.04, over 1992.
The continued growth trend in this category is an encouraging sign of increased industrial activity.
System sales in 1994 are currently forecasted to be approximately 31.7 billion kwh, an increase of 665 million kwh, or 2.1%,
over 1993 actual system, sales, and a
771 million kwh, or 2.5~,
increase over 1993 weather-normalized sales.
Additional energy sales from marketing and economic development efforts is a key corporate initiative.
These additional sales generally will be realized over.at least a two-year period, and possibly longer if a~
major commercial or industrial customer is involved.
The level of~
additional sales estimated from these programs in 1993 was 556 million kwh.
The Company's 1994 marketing and economic development goal is to achieve annual net sales growth of 650 million kwh.
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 1991 to 65% in 1993.
The Company's goal for 1994 is a
684 electric heat market share in new residential construction.
Certain large customers have considered self-generation of electricity 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 power sales, were 42.3 billion kwh in 1993, an increase of 0.1 billion kwh, or 0.24, compared to 1992.
Contractual sales to other major utilities include:
(i) energy sold to Atlantic City Electric Company (Atlantic),
Baltimore Gas
& Electric Company (BG&E) and Jersey Central Power
& Light Company (JCP&L) pursuant to long-term contracts under which these utilities purchase a
specified percentage of the capacity and related energy from Company-owned generating units; and (ii) energy sold on a
short-term basis to other electric utilities.
Contractual sales to other utilities were about 7.1 billion kwh in 1993, or 2.5% lower than 1992.
27
Interchange power sales to Pennsylvania-New Jersey-Maryland
~
~
~
~
terconnection Association (PJM) utilities were about 4.1 billion kwh in 93, or 19.74 lower than 1992.
The decrease was primarily due to increased system sales and 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.
Capacity-Related and Transmission Entitlement Transactions 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 Martins Creek units, with the option 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 entitlements, net of foregone PJM interchange savings which 'are included in the Company's ECR, totaled
$35.0 million in 1993, 935.0 million in'1992 and
$35.4 million in 1991.
The Company currently expects about
$35 million of revenues from these transactions during 1994.
Increased competition involving capacity edit transactions has reduced the price received for such sales.
'he'ompany is continuing to look for opportunities to derive additional revenues due to its strong generating capacity position.
The amount of revenues from these types of transactions depends on many
- factors, and it is difficult to predict the amount of revenues the Company will ultimately realize from these transactions.
The
- Company, the Pennsylvania Office of Consumer Advocate (OCA) and certain industrial customers have reached a settlement agreement resolving all complaints pending against the ECR.
The agreement
- provides, among other things, for crediting the 1994-95 ECR with a portion of the receipts from capacity credit sales.
See "Rate Matters" below for additional information.
Rate Matters The OCA and certain industrial customers filed complaints against the Company's ECR for the last four years.
The complainants
- argued, among other things, that the Company should not be able to recover the cost of energy purchased from non-utility generating companies on a current basis, and that revenues from the sale of capacity-related and transmission entitlement transactions should be credited against the ECR.
As a result of discussions which began in late
- 1993, the Company and e complainants to the Company's ECR reached a settlement agreement having jor provisions that credits the 1994-95 ECR with a
portion of the receipts from capacity credit sales from April 1990 through December 31, 1993; credits a portion of the receipts from future capacity credit sales 28
to the ECR; excludes from recovery through the ECR a portion of the Pennsylvania Public Utility Commission (PUC) -jurisdictional, amount of~
deferred retired miners'ealth care benefits costs; and settles all+
pending complaints against the Company's 1990-91 through 1993-94 ECRs.
This agreement is subject to PUC approval.
As 'a result of this agreement, in the fourth quarter of 1993, the Company recorded a charge to expense of
$17.1 million, which after income taxes, reduced net income by approximately
$9.7 million or 6.4 cents per share of common stock.
The Company estimates that about" $8 million of 1994 capacity credit sales will be credited to the ECR.
The Company has negotiated new five-year, lower-priced sales contracts with certain small utilities it currently serves.
The contracts are subject to Federal Energy Regulatory Commission (FERC) approval and will reduce rates to these small utilities by about
$3.6 million in 1994 and 1995 and by about an additional
$4.1 million for the years 1996 through 1998.
In connection with the new contracts, in the fourth quarter of 1993, the Company wrote off $6.6 million of deferred retired miners'ealth care benefits costs and
$2.3 million of postretirement benefits other than pensions applicable to FERC-jurisdictional services.
The charge to expense amounted to
$8.9 million, which after income taxes, reduced net income by
$5.1 million or about 3.4 cents per share of common stock.
Operating Revenues t
Total operating revenues decreased
$17.1 million, or 0.64, in 1993 from 1992.
Details of changes in operating revenues from the prior year are shown in the schedule below.
Changes in Operating Revenues Recovery of fuel and energy costs ECR credits to be applied in 1994 Change in customer usage Roll-in of state taxes into base rates State tax adjustment surcharge Special base rate credit adjustment Wholesale rate increase Capacity-related and transmission entitlement transactions Contractual sales to other major utilities PJM interchange power sales Other Total 1993(Mill
$ (20. 0)
(12.7) 58.9 26.4 (32.0)
(5.4)
(16.4)
(14.8)
~1. 1)
~17. 1) 1992 1991 ions of Dollars)
$ 44.0
$ 79.9 20.6 38.2 22.2 22.0 (22.6)
(16.7) 1.7 2.4 (0.4) 3 '
7.7 (68.8)
~>- G)
F 1 (37. 0) 1.8 3.4 29
Tariffs subject to PUC jurisdiction-accounted for approximately 824 of
~
~
~
e Company's revenues from energy sales in 1993.
The remaining 184 of ch 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) a special base rate credit adjustment (SBRCA) that flows through to customers the effects of certain nonrecurring items.
The last base rate increase for PUC-jurisdictional customers went into effect in April 1985.
The Company is unable to predict the timing of its next PUC-jurisdictional base rate filing, but intends to delay that filing for as long as possible.
Billings to utilities are subject to FERC jurisdiction.
In the case of certain small utilities, billings include base rate charges and a
supplemental charge or credit for fuel costs over or under the levels included in base rates.
See "Rate Matters" on page 28 for additional information concerning rates for these customers.
The FERC also regulates contractual sales to other major utilities, PJM interchange power sales and capacity-related and transmission entitlement transactions.
Sales to Atlantic, BG&E and JCP&L are made at a
~
~
~
~
~
~
~
~
ice covering the
'Company s
cost of service, including a
return on vestment.
Energy sales relating to the reservation of output from the Martins Creek units are generally made at a price equal to the cost of fuel plus an amount to reflect foregone interchange savings.
PJM interchange power sales are made at a price equal to the midpoint between the sellers'ctual costs and costs that the buyers would have incurred to produce the energy.
Capacity-related and transmission entitlement 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 1993 decreased by
$38.5 million from 1992.
The decrease was primarily due to lower unit fuel costs for coal-fired generation, partially offset by higher oil-fired generation and the write-off of
$11.0 million of the deferred cost of retired miners'ealth care benefits.
For 1993, the cost of coal delivered to the Company's generating stations declined to
$36.23 per ton from $41.44 per ton for 1992.
Power Purchases In
- 1993, power purchases were
$278.8 million, an increase of
$3.3 million over 1992.
The increase was the result of additional purchases from other electric utilities and the PJM, partially offset.
by a
lower evel of purchases from non-utility generating companies.
30
Other Operation, Maintenance and Depreciation The reduction in revenues resulting from flowing the benefits of a
settlement 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 3).
The credit was
$14.3 million in 1993, and
$8.5 million in 1992.
During 1993, the Company recorded an estimated minimum liability of
$4.4 million for the cost of environmental remediation at. several sites.
At December 31,
- 1993, the estimated minimum liability recorded for such remediation totaled
$5.2 million.
The Company's share of actual remediation costs may, be greater than the minimum amounts
- accrued, but the Company at this time cannot reasonably estimate its expected cost.
During 1993, the Company wrote off $9.1 million of obsolete and excess materials and supplies at its fossil-fueled steam generating stations.
Of this amount,
$2.2 million was charged to other operation expense and
$6.9 million was charged to maintenance expense.
In December
- 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) 112, "Employers'ccounting for Postemployment Benefits,"
as discussed in Financial Note 13.
The adoption of SFAS 112 resulted in a
$5.5 million charge to other operation expense.
Excluding the credits environmental remediation materials and supplies and 112 discussed
- above, other in 1993 compared to 1992.
associated with the.SBRCA, the accruals for the
- costs, the recognition of obsolete and exces~
the expense associated with the adoption of SFAM operation expense remained essentially unchanged The Company intends to reduce the number of full-time employees by approximately 6.84 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 competitive.
This reduction is expected to come primarily from normal attrition and close examination of the need to fillvacancies.
As of year-end 1993, the number of full-time employees was 7,677.
The amortization of the deferred income effect of adopting the inventory method of accounting for power plant spare parts is credited to maintenance expense on the Consolidated Statement of Income (see Financial Note 3).
Excluding this amortization, which amounted to
$24.3 million in 1993 and
$23.5 million in 1992, and the write-off of obsolete and excess materials and supplies as discussed
- above, maintenance expense decreased by
$14. 1 million, or
- 6. 34, in 1993 compared to 1992.
The reduction in maintenance expense resulted primarily from lower costs associated with maintaining the Company's generating stations.
Higher depreciation expense in 1993 reflects the 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 for the Susquehann station will increase annually through the year 1998.
In 1993, the amount of depreciation expense applicable to the Susquehanna station exceeded the 31
amount that would have been recorded using the straight-line
- method,
~
~
~
~
esulting in an amortization of previously deferred depreciation.
ginning in 1999, depreciation will change to the straight-line method at a level substantially less than the amount expected to be recorded in 1998.
The amount of depreciation applicable to that portion of the Susquehanna station subject to an annual increasing amount of depreciation was
$ 116 million in 1993 and will increase annually to
$ 192 million in 1998 and then decline to
$102 million in 1999.
Taxes Effective January 1,
- 1993, the'ompany adopted SFAS
- 109, "Accounting for Income Taxes."
Under the provisions of SFAS
- 109, the
- Company, in January
- 1993, recorded an increase of approximately
$1.1 billion in its deferred tax liability for tax benefits previously flowed through to customers and for other temporary differences.
The increased tax liability was 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.
In August
- 1991, Pennsylvania enacted legislation that increased the Company's state taxes by approximately
$38,million on an annual basis.
The Company recovered 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
~
~
~
~
tilities.
Except for recovery of a prior undercollection, the tax rcharge was rolled into the Company's base rates effective April 1, 1993.
In August
- 1993, the Omnibus Budget Reconciliation Act of 1993 was
- enacted, which contains a provision that increased the Company s federal income tax rate from 344 to 354 retroactive to January 1,
1993.
This higher tax rate increased the Company's federal income tax expense for 1993 by about
$5.9 million.
Additionally, the Company recorded an increase in deferred income tax liabilities and taxes recoverable through future rates of $79.5 million due to the increase in the federal tax rate.
'f Financing Costs The Company has continued to take advantage of opportunities to reduce its financing costs by the retirement of long-term debt.
and preferred and preference stock 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
$ 25 million from
$285 million in 1990 to
$260 million in 1993.
Additionally, interest on 'short-term debt has decreased by
$ 13 million for the same period.
Financial Condition Financing and Licgxidity For the years 1991-1993, the Company issued
$1.39 billion of long-term
- ebt,
$300 million of preferred stock and about
$21 million of common
- stock, and also incurred
$ 218 million of obligations under capital leases (primarily nuclear fuel).
In 1993, the Company sold
$850 million principal 32
amount of first mortgage bonds and
$300 million of preferred
- stock, increased its short-term debt by
$43 million and issued
$7 million o~
common stock to the Employee Stock Ownership Plan.
During the year, th~
Company retired
$809 million of long-term debt and
$343 million of preferred and preference stock.
After the payment of dividends, internally generated funds during the years 1994-1996 are currently expected to provide approximately 86% of the Company's construction expenditures.
Sales of securities will be undertaken during the 1994-1996 period as needed to meet the Company's capital requirements, to meet a total of $166 million of long-term debt maturities and preferred stock sinking fund requirements and to provide funds for the early retirement of high cost securities if such retirements are determined to be appropriate in the light of market conditions and other factors.
The Company expects to issue
$55 million of common stock in 1994 through its Dividend Reinvestment Plan.
In addition, depending on market conditions and other factors, the Company plans to issue up to an additional
$ 150 million of preferred stock through the end of
- 1994, of which about
$80 million is expected to be used to refinance higher cost preferred stock at a lower cost and the balance is to provide financing for the Company's capital requirements.
The Company also plans to issue up to an additional
$750 million principal amount of-first mortgage bonds through the end of 1994, which is expected to be used to refinance higher cost first mortgage bonds at a
lower cost.
Of this
- amount,
$300 million is expected to be redeemed through the provisions of the maintenance and replacement fund under the Company's Mortgage.
In
- addition, the Company expects to arrange
'for the refinancing of
$16~
million of higher cost tax-exempt securities issued to provide pollution control and solid waste disposal facilities at the Company's generating stations.'he Company's ability to issue securities during the 1994-1996 period is not expected to be limited by earnings or other issuance tests.
To enhance financing flexibility, a
$140 million revolving credit arrangement is maintained with a group of banks and is used principally as a back-up for the Company's commercial paper and
$ 60 million in credit arrangements are maintained with a group of banks to provide back-up for the Company's commercial paper and short-term borrowings of certain subsidiaries.
The Company also maintains a
$ 5 million bank line of credit.
No borrowings were outstanding at December 31, 1993 under these arrangements.
Capital Expenditure Requirements The following schedule shows the Company's actual capital expenditures for electric utility operations for the years 1991-1993 and current projections for the years 1994-1996.
Construction expenditures during the years 1991-1993 totaled about
$1.2 billion and are expected to be about
$1.3 billion during the years 1994-1996.
33
Capital Expenditure Requirements (a)
Construction expenditures Generating facilities Transmission and distribution facilities Environmental Other 165 11 37 337 186 13 52 387 173 65 51 431 183 135 59 471 183 192 55 105 53 51 398 422 Actual
-Prop ected 1991 1992 1993 1994 1995 1996 (Millions of Dollars)
$ 124
$ 136
$ 142
$94
$ 107
$74 Nuclear fuel owned and leased Other leased property Total 64 44 20 27
~515
~542 (a) 58 82 22'3
~478
~527 Capital expenditure plans are revised from time to time to reflect changes in conditions.
Actual expenditures may vary from those projected because of changes in plans,
- cost, fluctuations, environmental regulations and other factors.
Construction expenditures include allowance for funds used during construction (AFUDC) which is expected to'e less than
$25 million in each of the years 1994-1996.
llowance for Funds Used During Construction The
- AFUDC, a
non-cash credit to
- income, accounted for about 54 of earnings in 1993.
In 1994, AFUDC is expected to increase as the Company accelerates capital expenditures to comply with clean air legislation.
The amount of AFUDC recorded will depend on the timing and level 'f construction work in progress as well as the rate treatment afforded the capital expenditures required to comply with the clean air legislation.
Under current Pennsylvania
- law, construction work in progress for non-revenue producing
- assets, such as capital expenditures for pollution control equipment, can be claimed in rate base.
Financial Indicators The Company earned a
13.06% return on average common equity during
- 1993, down slightly from the 13.114 earned in 1992.
The ratio of the Company's pretax income to interest charges increased slightly from 3.2 times in 1992 to 3.3 times in 1993.
The Company increased
.common stock dividends from an annual per share rate of
$1.60 in 1992 to
$1.65 in 1993.
The book value per share of common stock increased 2.44 from
$15.58 at. the end of 1992 to
$15.95 at the end of 1993.
The ratio of the market price to book value of common stock was 1694 at the end of 1993 compared with 175%
at the end of 1992.
Termination of 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 34
coal as compared to the price of coal purchased on the open market.
One of the three operating mines closed at the end of June 1991.
A second~
operating mine closed at the end of March 1992, and a third mine was sold~
in September 1992.
A coal processing and loading facility was sold in November 1993, completing the planned phase-out of coal-mining operations.
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 liability amounts to approximately
$ 68 million on a
net present value basis.
At the time coal-mining operations
- ceased, subsidiary mining companies had accrued
$ 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 will be directly liable for these benefits and the
$ 32 million will not have to be paid to the trust funds.
The Company intends to use the amount accrued by its subsidiary mining companies to partially offset the new liability.
In December
- 1992, the Company recorded an additional liability of approximately
$36 million representing the balance of the liability imposed by the Energy Act for health care benefits for retired coal miners.
The charge to expense was deferred.
The net PUC-jurisdictional amount of this liability is
$30 million, and in 1993 the PUC permitted the Company to begin recovery of these costs applicable to retail customers through the ECR over ten years.
The OCA and certain industrial customers filed complaints against the Company's 1993-94 ECR opposing, among other things, the Company's recovery of these costs.
In the fourth quarter of 1993, the company charged to expense 911.0~
million of the deferred cost of retired miners'ealth care benefits representing all of the FERC-jurisdictional portion of the deferral and part of the PUC-jurisdictional portion of the deferred costs.
The write-off was related to the ECR agreement and the agreements to reduce rates to certain small utilities discussed on page 28 under the caption "Rate Matters."
The Company expects to recover the remaining PUC-jurisdictional amount of deferred retired miners'ealth care benefits costs of
$24.1 million through the ECR.
Clean Air Legislation and Other Environmental Matters The Federal Clean Air Act Amendments of 1990 deal, 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 554 of the Company's coal-fired generating capacity by January 1,
- 1995, and more stringent Phase II sulfur dioxide emission limits for all of the Company's fossil-fueled generating units by January 1,
2000.
The Company expects to meet the 1995 Phase I sulfur dioxide standards by the use of lower sulfur coal, additional processing of coal through cleaning
- plants, and the installation of scrubbers at the Conemaugh
- station, in which the Company has an 11.394 ownership interest.
The-Company may also choose to limit the generation of certain units and t~
bank or trade emission allowances among its generating units or with other~
utilities to the extent permitted by the legisl'ation.
35
I The acid rain provisions also require installation of low nitrogen ide burners on each unit by the same date that sulfur dioxide limits apply to that unit.
In addition, the ambient ozone attainment provisions 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 by advancing the installation of low nitrogen oxide burners on certain Phase II units, 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 will require capital expenditures of about.
$200 million (in estimated 1994 dollars) and additional operating expenses which will result in an increase in customer rates of about 1.,5%
(based on 1993 revenue levels).
To meet the Phase II acid rain sulfur dioxide emission standards, the Company expects to install flue gas desulfurization (FGD) on up to 604 of its coal-fired generating
- capacity, to continue to purchase lower sulfur
~
~
~
~
al for its remaining generating capacity and to bank or trade emission lowances 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, sales or trades, and the amount and timing of FGD will be determined 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 will require additional capital expenditures in the later half of the 1990s of
$400 million to
$500 million (in estimated 1994 dollars) and additional operating expenses which will result in an increase in customer rates (based on 1993 revenue levels) of about 34 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 Northeast Ozone Transport Region to determine what further reductions are needed beyond the RACT requirements to achieve ambient ozone attainment.
If the 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 the fossil units around 2000.
The Company's preliminary estimates indicate that the cost of compliance could require additional pital expenditures of up to
$600 million (in estimated 1994 dollars) and ditional operating expenses which will result in a further increase in customer rates of as much as 4w (based on 1993 revenue levels).
36
In addition to acid rain and ambient ozone attainment provisions, the legislation requires the Environmental Protection Agency (EPA) to conduct ~
study of hazardous air emissions from power plants.
Adverse findings 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'missions.
If it is determined that the installation of such additional equipment is required, the Company's preliminary estimates indicate that the cost of compliance could require additional capital expenditures of up to
$400 million (in estimated 1994 dollars) and additional operating expenses which will result in a further increase in customer rates of as much as 24 (based on 1993 revenue levels).
Under current Pennsylvania law, construction work in progress for non-revenue producing
- assets, such as capital expenditures for pollution control equipment, can be claimed in rate base.
In February
- 1993, the PUC adopted a policy statement regarding the trading and usage of, and the ratemaking treatment for, emission allowances by Pennsylvania electric utilities.
The policy statement determines, among other
- things, that the PUC will not require approval of specific transactions and the cost of allowances will be recognized as energy-related power production expenses and recoverable through the ECR.
The Pennsylvania Air Pollution Control Act, as amended, implements the 1990 federal clean air legislation.
The state legislation essentially requires that new state air emission standards be no more stringent tha~
federal standards.
This legislation has no effect on the Company's plan+
for compliance with the Federal Clean Air Act Amendments of 1990.
Until, action has been taken by the appropriate regulatory bodies, the Company will not be able to determine the exact method of compliance with the acid rain, ambient ozone and hazardous air emission provisions of the legislation, or the cost thereof and its impact on customer rates.
The Pennsylvania Department of Environmental Resources (DER) regulations governing the handling and disposal of industrial (or residual) solid waste require the Company to submit detailed information on waste generation, minimization and disposal practices.
They also require the Company to 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 by July 1997.
Any groundwater contamination caused by the basins must also be addressed.
Any new ash basin must meet the rigid site and design standards set forth in the regulations.
In addition, the siting of future facilities at Company facilities could be affected.
The fly 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-fueled generating
- stations, bottom ash basins at all fossil-fueled generating stations and the coal refuse basin at the Brunner Island station do not meet the new requirements and must be retired by July 1997.
The Company, in addressin~
the requirements of these regulations, plans to install dry fly ash~
handling systems at the Brunner Island, Sunbury and Holtwood stations.
The Company, with siting assistance from a public advisory group, plans to use 37
the dry fly ash from the Sunbury and Holtwood stations to reclaim strip
~
~
~
~
'nes in the anthracite coal region.
The Company is exploring portunities to beneficially use coal ash from Brunner Island in various roadway construction proj'ects in the vicinity of the plant that may delay or preclude the need for a new disposal facility.
Groundwater degradation related to fuel oil leakage from underground facilities and to seepage from coal refuse disposal areas and coal storage piles has been identified at several generating stations.
Many requirements of the DER regulations address these groundwater degradation issues.
The Company has reviewed its remedial action plans with the DER.
Remedial work has begun at one generating station, and remedial work may be required at others.
The DER has
- adopted, and recently revised, 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 water quality based chemical-specific approach in National Pollutant Discharge Elimination System (NPDES) permits to control toxics.
In the third quarter of 1993, the Company received a
new NPDES permit for the Montour and Holtwood stations.
The Montour permit contains very stringent limits for certain toxic metals and increased monitoring requirements.
More toxic reduction studies will be conducted at Montour before the permit limits become effective.
Additional water treatment facilities may be needed at Montour, depending on the results of the studies.
At Holtwood, toxics are required to be monitored at the fly ash basin until its closure in 1997.
No limits ve been set at this point.
The Company will therefore comply with an mplementation schedule for such closure and for construction of a new dry ash handling system at Holtwood.
The Company currently estimates that about
$238 million of capital expenditures could be required to comply with the residual waste regulations, correct groundwater degradation at fossil-fueled generating stations and address waste water control at Company facilities.
Such expenditures during the years 1994-1996 could total about
$ 137 million, of which about
$ 68 million is included in the Company's estimate of 1994-1996 construction expenditures shown on page 33.
Actions taken to correct groundwater degradation, to comply with the DER's regulations and to address waste water contxol are also expected to result in increased operating costs in amounts which are not now determinable but could be material.
The issue of potential polychlorinated biphenyl (PCB) contamination 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, if necessary, 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 material.
At December 31,
- 1993, the Company had accrued
$5.2
- million,
~
~
~
~
~
~
~
~
epresenting the minimum amount the Company at this time can reasonably timate it will have to spend to remediate sites involving the removal of azardous or toxic substances.
The Company is involved in several other sites where it may be required, along with other parties, to contribute to 38
such remediation.
Some of these sites have been listed by the EPA under the federal Comprehensive Environmental Response Compensation and Liability Act of
- 1980, as amended (Superfund),
and others may be candidates for listing 'at a future date.
Future clean-up or remediation work at sites currently under
- review, or at sites currently
- unknown, may result in material additional operating costs which the Company cannot estimate at this time.
Concerns have been expressed by some members of the scientific community and others regarding the potential health effects of electric 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 participating in the current research effort to determine whether or not EMF causes any human health problems and is taking steps to reduce EMF, where practical, in the design of new transmission 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 involving environmental
- 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 material capital expenditures and operating expenses in amounts which are not now determinable.
Uranium Enrichment Decontamination and Decommissioning Fund The Energy Act established the Uranium Enrichment Decontamination and Decommissioning Fund (Fund) and provides for an assessment 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 Department of Energy'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.
As of December 31,
- 1993, the Company's recorded liability for its total assessment amounted to about
$34.5 million.
The liability is subject to adjustment for inflation.
The corresponding charge to expense was deferred because the Company includes its annual payments to the Fund of approximately
$2.6 -million, subject to adjustment for inflation, in the ECR which is in the Company's PUC tariffs and in the fuel adjustment clause which is in the Company's FERC tariffs.
As a result, the Company does not expect the assessment to have an adverse effect on net income.
39
Postretirement Benefits Other Than Pensions d Postemployment Benefits Effective January 1,
.1993, the Company adopted SFAS
- 106, "Employers'ccounting for Postretirement Benefits Other Than Pensions."
SFAS 106 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 service, of the expected cost of providing those benefits.
Caps have been established on the amount the Company will pay for retiree health care costs for,all employees who retire on. or after April 1, 1993.
The Company's transition obligation on January 1,
1993 amounted to
$173.8 million and is being amortized over a 20-year period.
The increase in the cost of retiree benefits attributable to PUC-jurisdictional customers due to the adoption of SFAS 106 is being deferred in accordance with a
PUC order.
Recovery of the PUC-jurisdictional deferred costs will be requested in the Company's next base rate proceeding.,
Current accounting rules permit deferral of the costs for about five years.
At December 31,
- 1993, the deferred costs totaled
$14.9 million.
In the fourth quarter of 1993, the Company charged to expense
$2.3 million of the cost of postretirement benefits other than pensions attributable to FERC-jurisdictional
- service, which, net of applicable income taxes, reduced earnings by 0.9 cents per share of common stock.
See "Rate Matters" on page 28 and Financial Note 13 for additional information.
The Company provides health and life insurance benefits to disabled employees and income benefits to eligible spouses of deceased employees.
December 1993, the Company adopted SFAS 112, "Employers'ccounting for stemployment Benefits," which requires the Company to accrue, during the years that the employees render the necessary
- service, the expected cost of providing benefits to former or inactive employees after employment but before retirement.
In connection with the adoption of SFAS
- 112, the Company recorded a
charge to operating expense of
$5.5 million, which, after applicable income taxes, reduced net income by 93.1 million or about 2.1 cents per share of common stock.
Accounting Statement Adopted After December 31, 1993 Effective January 1,
- 1994, the Company adopted SFAS
- 115,
>>Accounting for Certain Investments in Debt and Equity Securities."
SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in
- debt, securities.
The adoption of SFAS 115 did not have a material effect on the Company's net income.
Increasing Competition The Energy Act will have a significant impact on the Company and the electric utility industry, primarily through amendments to the Public UtilityHolding Company Act of 1935 that creates a new class of independent power producers, and amendments to the Federal Power Act that opens access to electric transmission systems for wholesale transactions.
These changes tre expected to increase competition in the wholesale energy supply market.
40
In response to the increased competition, the Company has undertaken initiatives to strengthen its position in the wholesale market.
The Company entered into new five-year supply agreements at reduced prices wit its existing wholesale customers.
These agreements are subject to FERC approval.
The Company is actively participating in negotiations and proceedings involving the sale of electricity to wholesale customers currently served by other electric utilities.
These wholesale customers are generally small utilities that do not have their own generating capability and purchase electricity from others.
While there is currently no comparable competition in the retail electric
- market, the Company anticipates that it will face similar competitive pressures in the industrial and large commercial sectors of that market in the future.
The Company's strategic initiatives also include an assessment of entering power-related businesses outside of the Company's service territory, both domestically and in foreign countries.
Any expansion by the Company into these areas would, be methodical and deliberate.
To take advantage of these new business opportunities, in February 1994 the Company's Board of Directors approved a
plan to (i) make an initial investment of
$50 mil'lion in these new businesses; and (ii) pursue the formation of a holding company structure to facilitate such investment, subject to the receipt of appropriate regulatory approvals and, ultimately, shareowner approval at the 1995 annual meeting.
41
(THIS PAGE LEFT BLANKINTENTIONALLY.)
42
Independent Auditors~ Report Deloitte a Touche
/W Two Hilton Court P.O. Box 319 Parsippany, New Jersey 07054-0319 Telephone: (201) 631-7000 Facsimile: (201) 631-7459 Pennsylvania Power
& Light Company:
We have audited the accompanying consolidated balance sheets and statements of preferred and preferen'ce stock and long-term debt of Pennsylvania Power
& Light Company and its subsidiaries as of December 31, 1993 and
- 1992, 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, 1993.
Our audits also included the financial statement schedules listed in the Index at Item 8.
These financial statements and financial statement schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and financial statement schedules 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, 1993 and
- 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles.
- Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a
- whole, present fairly in all material respects the information set forth therein.
As discussed in Notes 5 and 13 to the consolidated financial statements, in 1993 the Company changed its method of accounting for postretirement benefit costs, income taxes and postemployment benefits to conform with Statements of Financial Accounting Standards Numbers
- 106, 109 and 112, respectively.
DeloitteTouche Tohmatsu 4,
llltemNOMI
Mana ement's Re ort on Res onsibi19.
for Financia1 Statements The management of Pennsylvania Power a Light: Company is responsible for the preparation, grity and objectivity of the consolidated financial statements and all other sections of this annual report.
The financial statements were prepared in accordance with generally accepted accounting principles and the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission.
Zn preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently" available facts and circumstances.
Management believes that the financial statements are free of material misstatement and present fairly the financial position, results of operations and cash flows of the Company.
The Company's consolidated financial statements have been audited by Deloitte a
- Touche, independent certified public accountants, whose report with respect to the financial statements appears on page 42.
Deloitte a Touche's appointment as auditors was previously ratified by the shareowners.
Management has made available to Deloitte a
Touche all the Company' financial records and related
- data, as well as the minutes of shaieowners'nd directors'eetings.
Management believes that all representations made to Deloitte a
Touche during its audit were valid and appropriate.
The Company maintains a system of inteznal control designed to provide reasonable, but not
- absolute, assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting.
The concept of reasonable assurance recognizes that the cost of a system of internal control should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal control.
Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties, the utilization of written policies and procedures and the continual monitoring of the system for compliance.
Zn
'tion, the Company maintains an internal auditing program to evaluate the Company's system of mal control foz adequacy, application and compliance.
Management considers the internal auditors'nd Deloitte 6 Touche's recommendations concerning its system of internal control and has taken actions which aze 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 its Audit Committee, oversees management's responsibilities in the preparation of the financial statements.
Zn performing this function, the Audit Committee, which is composed of five independent directors, meets periodically with management, the internal auditors and the independent certified public accountants to review the work of each.
Deloitte Touche and the internal auditors have free access to the Audit Committee and to the Board of Directors, without management
- present, to discuss internal accounting control, auditing and financial fepozting matters.
Management 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 Standards of Integrity, which is publicized throughout the Company.
The Standards of Integrity addresses:
the necessity of ensuring open communication 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 proprietary information.
The Company maintains a systematic program to assess compliance with these policies.
I William F. Hecht
- Chairman, President and Chief Executive Officer R. E. Hill Senior Vice President Financial 44
CONSOLIDATED STATEMENTOF INCOME Pennsylvania Power & Light Company and Subsidiaries 1993 1992 1991 thousands ofDollars)
Operating Revenues (Notes 1, 2, 3 and 4)..........................
$2,727,002
$2,744,122
$2,740,715 Operating Expenses Operation Fuel.
Power purchases
~
~
~
~ ~ ~ ~ ~ ~ ~ ~ ~ I
~ ~
~ ~
Other..
~
~ ~ ~ 0 ~ ~ ~ ~ ~ ~ ~
Maintenance..
Depreciation (Notes 1 and 10)..
Amortized (deferred) depreciation (Notes 1 and 10)........~....
Income taxes (Note 5)..
Taxes, other than income (Note 5).....................
0 4
perattng Income................................................................
506,900 278,800 460,482 193,242 271,390 14,249 235,164 203,967 2,164,194 562,808 545,361 275,499 452,999 201,254 258,357 3,563 228,340 205,318 2,170,691 573,431 586,325 256,320 461,921 206,861 246,212 (7,047) 217,366 190,426 2,158,384 582,331 Other Income and (Deductions)
Allowance for equity funds used during construction (Note 1)..
Income tax credits (expense) (Note 5).....
Othernet Income Before Interest Charges.
Interest Charges Long-term debt..
Short-term debt and other.
Allowance for borrowed funds used during construction and interest capitalized (Note 1).....................
et Income...........................................................................
N Dividends on Preferred and Preference Stock......~.................
Earnings Applicable to Common Stock..............................
7,981 1,280 8,700 17,961 580,769 225,800 14,443 (7,600) 232,643 348,126 33,885
$314,241 6,771 (322) 12,337 18,786 592,217 240,260 13,402 (8,169) 245,493 346,724 40,495
$306,229 2,961 7,616 11,480 593.811 232,092 22,254 (8,949) 245,397 348,414 44,687
$303,727 Earnings Per Share of Common Stock (a)..........................
$2.07
$2.02
$2.01 Average Number of Shares Outstanding (thousands)........
Dividends Declared Per Share of Common Stock......~...........
151,904
$1.65 151,676
$1.60 151,382
$1.55 (a) Based on average number of shares outstanding.
See eooompenying Notes to Ftnencial Statements.
45
CONSOLIDATED STATEMENTOF CASH FLOWS Pennsylvania Power &Light Company and Subsidiaries 1993 1992 (Thousands ofDollar) 1991 Cash Flows From Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation..
Amortization of property under capital leases................
~.
Amortization of contract settlement proceeds and deferred cost of power plant spare 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..
Material and supplies..
Accounts payable Accrued interest and taxes..
Other.
Other operating activitiesnet.
Net cash provided by operating activities.............~......
Cash Flows From Investing Activities Property, plant and equipment expenditures.....................
Proceeds from sales of nuclear fuel to trust......................
Financial investments..
Other investing aclivitiesnet..
Net cash used in investing activities............................
Cash Flows From Financing Activities Issuance of long-term debt..
Issuance of common stock.....
Issuance of preferred stock.
Retirement of long-term debt.
Retirement of preferred and preference stock..~...............
Payments on capital lease obligations.................
~.~...........
Dividends paid. ~
Net increase (decrease) in short-term debt.......................
Costs associated with issuance and retirement ofsecurities......................
Other financing activitiesnet.
Net cash used in financing activities............................
Net Increase (Decrease) in Cash and Cash Equ>valents....
Cash and Cash Equivalents at Beginning of Period.......
~..
Cash and Cash Equivalents at End of Period...................
~
$348,126 289,055 79,437 (38,602) 12@29 (7,981) 4,672 (10+91) 46,672 4,541 9,991 598 1,630 29,656 769,733 (487,836) 63,431 (705) 6,825 418,285 850,000 6,635 300,000 (809,000)
(342,837)
(83,868)
(284,642) 42,912 (37,448) 39 358,287 (6,839) 15,110
$8,271
$346,724, 270,048 81,916 (31,973) 18,309 (6,771) 16,010 (37,865) 16,997 9,071 41,790 4,525 (11,876) 52,985 769,890 (422,209) 42,778 (17,796) 4,509 392,718 390,000 6,151 (346,400)
(46,753)
(85,733)
(282,209) 12,178 (16,682) 126 369,574 7,598 7,512
$15,110
$348,414 261,180 96,565 (17,818) 52,118 (2,961)
(14,380)
(45,725) 25,887 1,200 (11,835) 17,858 8,012 49,432 767,947 (374,397) 48,914 (50,876) 4,191 372,168 150,000 8,401 (37,460)
(19,100)
(100,227)
(277,323)
(118,770)
(2,136) 160 396,775 (996) 8,508
$7,512 Supplemental Disclosures of Cash Flow Information Cash paid during the year for interest (net of amount capitalized).
Income taxes..
See eccompunyfng Notes to i-inenciel Statements.
$205,090
$221,049
$249,303
$197,594
$229,066
$154,136 46
CONSOLIDATED BALANCESHEET AT DECEMBER 31 Pennsylvania Power 8 Light Company and Subsidiaries Assets 1993 1992 frhousands ofDolats)
Property, Plant and Equipment Electric utilityplant in serviceat original cost...
~. ~.~.....
Accumulated depreciation (Notes 1 and 10)............
Deferred depreciation (Notes 1 and 10)
Construction work in progress-at cost Nuclear fuel owned and leased net of amortization (Note 9).................
Other leased propertynet of amortization (Note 9)
Electric utilityplantnet Other propertynet of depreciation, amortization and depletion (1 993, $49,166; 1992, $64,286).
Investments Associated company at equity Nuclear plant decommissioning trust fund (Notes 1 and 6)......
Financial investments (Notes 1 and 7).
Otherat cost or less (Note 7)
$8,912,473 (2,686,967) 282,115 6,507,621 238,600 174,979 75,630 6,996,830 148,751 7,145,581 17,069 76,913 140,569 31,249 265,800
$8,591,544
'2,495,972) 296,285 6,391,857 211,534 174,368 76,974 6,854,733 164,771 7,019,504 17,088 65,159 121,500 33,657 237,404 Current Assets Cash and cash equivalents (Note 1)....
Accounts receivable (less reserve:
1993, $29,429; 1992, $27,660)
Customers interchange power sales Other.
~ ~
~ ~ I
~ at
~
Unbilled revenues Fuel (coal and oil)at average cost..........................................~....
Materials and suppliesat average cost Common stock held for dividend reinvestment planat cost (Note 8)
Deferred income taxes (Note 5).....................................................
Other 8,271 183,364 17,502 120,589 95,702 125,676 15,937 12,688 37,083 616,812 15,110 184,149 7,261 14,128 109,906 142,374 139,360 14,383 6,776 52,153 685,600 Deferred Debits Utilityplant carrying charges net of amortization (Notes 1 and 10)..
Reacquired debt costs (Notes 1 and 10)..
Assessment for decommissioning uranium enrichment facilities (Notes 3 and 10)..
Retired miners'ealth care benefits (Notes 3 and 10)..
Taxes recoverable through future rates (Notes 5 and 10).. ~~..................
Postretirement benefits other than pensions (Notes 10 and 13)....
~........
Other.
24,097 101,836 33,710 24,096 1,166,118 14,855 61,208 1,425,920
$9,454,113 24,965 78,917 38,925 36,600 69,853 249,260
$8,191,768
~
47 See accompanying Notes to Financial Statements.
Liabilities Capitalization Common equity Common stock.
Capital stock expense Earnings reinvested
$1,370,783 (10,906) 1.065.958
$1,364,148 (11,969) 1,014,760 1993 1992 p'housands ofDottats)
Preferred and preference stock With sinking fund requirements........
Without sinking fund requirements Long-term debt..
2,425,835 335,000 171,375 2,618,031 5,550,241 2,366,939 325,600 223,612 2,620,720 5,536,871 Current Liabilities Commercial paper (Note 12)
Bank loans (Note 12)
Long-term debt due within one year Capital lease obligations due within one year (Note 9)........~.....
Accounts payable...........
Taxes accrued interest accrued Dividends payable Accrued mine closing costs - current Other..
117,000 85,260 44,539 78,740 156,992 62,721 60,373 70,41 0 7,842 88,791 772,668 67,000 92,348 6,439 86,899 147,001 63,067 59,429 70,556 20,296 91,105 704,140 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits (Note 5)..~................
Deferred income taxes (Note 5).........................
Capital lease obligations (Note 9)
Unamortized cost of power plant spare parts (Note 3)...
Accrued nuclear plant decommissioning costs (Notes 1 and 6)...............
Accrued mine closing costs Contract settlement proceeds to be credited to customers (Note 3).
Accrued pension costs (Note 13)..
Accrued assessment for decommissioning uranium enrichment facilities (Note 3).
Accrued retired miners'ealth care benefits (Note 3).
Accrued postretirement benefits other than pensions and postemployment benefits (Note 13)..
Other..
242,317 2,269,648 170,285 51,147 78,947 55,876 43,894 92,024 31,871 38,751 9,862 46,582 3,131,204 255,823 1,079,744 164,159 75,457 67,435 61,841 55,794 73,902 39,600 36,600 40,402 1,950,757 Commitments and Contingent Liabilities (Note 15).............................
$9,454,113
$8,191,768 See accompanying Notes to Financial Statements.
48
Net income.
Cash dividends declared Preferred stock..
Preference stock.................................
Common stock ($1.55)...........................
Stock redemption costs.............................
Employee stock ownership plan (b)...........
Other.
Balance at December 31, 1991.................
357,328 7,045 CONSOLIDATED STATEMENT OF SHAREOWNERS'OMMON EQUITY Pennsylvania Power 8 Light Company and Subsidiaries Common Stock Outstanding
.Capital Stock Shares (a)
Amount Expense frhovsands ofDolem)
Balance at December 31, 1990.................
151,297,940
$1,351,046
$(12,449)
Earnings Reinvested
$883,162 348,414 (35,047)
(9,640)
(234,626)
(157)
Total
$2,221,759 348,414 (35,047)
(9,640)
(234,626)
(157) 7,045 262 Net income..
Cash dividends declared Preferred stock..
Preference stock.
Common stock ($1.60)..........................
Stock redemption costs.............................
Employee stock ownership plan (b)...........
Other.
Balance at December 31, 1992..~..............
230,067 6,057 151,885,335
$1,364,148 218 346,724 (30,855)
(9,640)
(242,655)
(920) 346,724 (30,855)
(9,640)
(242,655)
(920) 6,057 218
$(11,969)
$1,014,760
$2,366,939 Net income.
Cash dividends declared Preferred stock.
Preference stock..
Common stock ($1.65)..........................
Stock redemption costs.............................
Employee stock ownership plan...............
Other.
Balance at December 31, 1993.................
246,754 6,635 1,063 348,126 (29,065)
(4,820)
(250,611)
(12,432) 348,126 (29,065)
(4,820)
(250,611)
(12,432) 6,635 1,063 (a) No par value, 170,000,000 shares authorized.
Each share entitles the holders to one vote on any question presented to any shareowners'eeting.
(b) Indudes employee subscrlplions.
Shares Authorized Outstanding 1993 1992 Phousands ofDc//aa)
CONSOLIDATEDSTATEMENT OF PREFERRED AND PREFERENCE STOCK AT DECEMBER 31 Pennsylvania Power 8 Light Company and Subsidiaries Shares Outstanding 1993 Preferred Stock
$100 par, cumulative (a) 4-1/2%.
Series.
$53,019 453,356
$53,019 381,193 530,189 4,533,556 629,936 10,000,000 Preference Stockno par, cumulative (a)
$115,000 (a) Each share of preferred and preference stock entitles the holders to one vote on any question presented to any shareowners'eeting.
(b) The involuntary liquidation price of the preferred stock is $100 per share.
The optional voluntary liquidation price is the optional redemption price per share in effect, except for the 4-1/2% Preferred Stock for which such price is $100 per share (plus in each case any unpaid dividends).
(c) The aggregate amount of sinking fund redemption requirements through 1998 are (thousands of dollars):
1994, $30,000; 1995, $30,000; 1996, $30,000; 1997, $30,000; 1998, $0.
(d) This series of preferred stock is not redeemable prior to 2003.
(e) Shares to be redeemed annually on October 1 as follows: 2003-2007, 57,500; 2008, 862,500.
(f) Shares to be redeemed annually on July 1 as follows: 2003-2007, 50,000; 2008, 750,000.
(g) On certain sinking fund redemption dates, additional shares may be redeemed up to the number of shares required to be redeemed annually.
(h) In January 1994, the Company redeemed through sinking fund provisions at $100 per share 200,000 shares of 7.00% Series Preferred Stock.
See accompanying Notes to Financial Statements.
49 5,000,000
Details of Preferred and Preference Stock (b)
Outstanding 1993 1992 frhousands ofDoffaa)
Optional Sinking Fund Redemption Provisions (c)
Shares Price Per Sharestobe Outstanding Share Redeemed Redemption 1993 1993 Annually Period With Sinking Fund Requirements Series Preferred
'.125%..
6.33ok 6.875ok(g) 7.00ok(g)(h) 7.375%.
7.40%.
7.82ok 7.927%
8.00o/o 8.75ok
$115,000 100,000 40,000 80,000
~PHU"
$50,000 100,000 50,000 17,600 50,000 3,000 25,000 30,000
~%VER" 1,150,000 1,000,000 400,000 800,000 (d)
(d)
$101.72 101.75 (e)
(f) 100,000 200,000 2003-2008 2003-2008 1994-1 997 1994-1 997 1l Without Sinking Fund Requirements 4-1/2% Preferred........................;
Series Preferred 3.35%.
4.4p 4.60%
6.75%
8 60%
$53,019 4,178 22,878 6,300 85,000
$53,019 4,178 22,878 6,300 22,237 530,189 41,783 228,773 63,000 850,000
$110.00 103.50 102.00 103.00 (d) eference 8.00..
$8.40..
$8.70..
35,000 40,000 40,000 W~V7575 522YPi~
E increases(Decreases) in Preferred and Preference Stock (Thousands of Dollars) 1993 Shares Amount 1992 Shares Amount 1991 Shares Amount Series Preferred Stock 6.125%.
6.33%
6.75%
6.875%
7PP 7.375%.
7.40%..
7.82ok 7.927'k.
8 PPok 8 60/o 8.75%..
9PP 9.24%..
1,150,000 1,000,000 850,000
. (100,000)
(200,000)
(500,000)
(176,000)
(500,000)
(30,000)
(250,000)
(222,370)
(300,000)
$115,000 100,000 85,000 (10;000)
(20,000)
(50,000)
(17,600)
(50,000)
(3,000)
(25,000)
(22,237)
(30,000)
(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)
(60,000)
$(1,600)
(3,000)
(2,500)
(6,000)
(6,000)
Preference Stock 8.00..
(350,000)
(35,000) 40..
(400,000)
(40,000)
.70..
(400,000)
(40,000)
Decreases in Preferred and Preference Stocks represent:
(i) the redemption of stock pursuant to sinking fund requirements, or (u) shares redeemed pursuant to optional redemption provisions.
See accompanying Notes to Financial Statements.
50
CONSOLIDATED STATEMENTOF LONG-TERM DEBT AT DECEMBER 31 Pennsylvania Power 8 Light Company and Subsidiaries Company First Mortgage Bonds (a) 4-5/8%
5-5/8%..
6-3/4%..
9 1/4 5-1/2%
9-5/8%......,.
6% to 9%...........
6-1/2% to 9-3/4%..
9% to 9-1/2%.
6-3/4% to 10%..
$30,000 30,000 30,000 150,000 720,000 375,000 1,025,000
$30,000 30,000 30,000 125,000 125,000 495,000 555,000 250,000 675,000 Outstanding 1993 1992 (Thousands ofDoree')
Maturity(b)
March 1, 1994 June 1, 1996 November 1, 1997 March 1, 1998 April 1, 1998 June 1, 1998 1999-2003 2004-2008 2014-2018 2019-2023 First Mortgage Pollution Control Bonds(a) 5-5/8% Series A.
10-5/8% Series E 10-5/8% Series F.
~ ~
~ 0 ~ ~ ~ ~
~ ~ ~ ~ ~ ~
~ ~ ~ ~ ~ ~
9 3/8 /o Series Q 6.40% Series H..
Miscellaneous promissory notes.....................
~.
Unamortized (discount) and premiumnet......
Less amount due within one year......................
Subsidiaries Notes(d)
Less amount due within one year........
Total long-term debt.............................
15,500 37,750 115,500 55,000 90,000 2,673,750 77 2,673,827 (24,857) 2,648,970 30,939 2,618,031 13,600 13,600
$2,618,031 15,500 37,750 115,500 55,000 90,000 2,628,750 116 2,628,866 (19,307) 2,609,559 39 2,609,520 17,600 6,400 11,200
$2,620,720 (c)
March 1, 2014 September 1, 2014 July 1, 2015 November 1, 2021 1994-1 995 (a) Substantially all owned electric utilityphnt h subject to the lien ofthe Company's first mortgage.
(b) Aggregate long4erm debt maturities through 1998 are (thousands ofdolhrs): 1994, $44,539; 1995, $938; 1996, $30,900; 1997, $30,990; 1998, St 50,900.
Maximum sinking fund requirements aggregate $25.8 millionthrough 1998 and may be met with property addIons or retirement of bonds.
(c) Bonds mature annually on May 1 as follows (thousands of dolhrs): 1994-2002, $900; 2003, $7,400.
(d) Fixed rates ranging from 9% to 12%. During 1993, a subsidiary company retired $4.0 millionof maturing notes.
In January 1994, a subsidiary company repaid $13.6 millionof its notes.
See accompanying Notes to Financial Statements.
NOTES TO FXNANCXAL STATEMENTS 1.
Summary of Significant Accounting Policies Accounting Records Accounting records for utility operations are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC) and adopted by the Pennsylvania Public Utility Commission (PUC).
Principles of Consolidation All wholly owned subsidiaries (principally involved in holding coal
- reserves, oil pipeline operations and passive financial investments) have been consolidated in the accompanying financial statements and all significant intercompany transactions have been eliminated.
Income and expenses of subsidiaries not related to utility operations have been classified, under other income and deductions on the Consolidated Statement of Income.
The investment in Safe Harbor Water Power Corporation (Safe Harbor),
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 bor is the purchase of electricity amounting to (millions of dollars):.
3,
$9.9;
- 1992,
$9.4 and
- 1991,
$9.3.
Under equity accounting, the operations of Safe Harbor resulted in additional income to the Company of (millions of dollars):
- 1993,
$2.1;
- 1992,
$2.1 and 1991,
$2.2.
UtilityPlant and Depreciation 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 financial 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 service prior to January 1,
1989 at the nuclear-fueled
.Susquehanna steam electric station.
Current PUC and FERC rate orders provide for an increasing amount of annual depreciation for property placed in service prior to January 1,
1989 at the Susquehanna station through 1998, at which time depreciation will change to the straight-line method.
Provisions for depreciation, as a percent of average depreciable
- property, approximated 3.3w in 1993, 3.24 in 1992 and 3.14 in 1991.
ilityPlant Carrying Charges Carrying charge accruals on certain facilities for the Susquehanna and Martins Creek stations are recorded as deferred debits in accordance with a 52
FERC order.
These amounts are being amortized to expense over thet remaining lives of the stations.
Nuclear Decommissioning and Puel Disposal An annual provision for the Company's share of the future decommissioning 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 6.)-
The U.S.
Department of Energy,(DOE) is responsible for the permanent storage and disposal of spent nuclear fuel removed from nuclear reactors.
The Company currently pays DOE a
fee for future disposal services and recovers such costs in customer rates.
Pinancial Investments Marketable equity securities are carried at the lower of their aggregate 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 amortized 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 7.)
t Premium on Reacquired 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.
Allowance for Punds Used During Construction As provided in the Uniform System of Accounts, the cost of funds used to finance construction projects is capitalized as part of construction cost.
The components of allowance for funds used during construction (AFUDC) shown on the Consolidated Statement of Income 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.
Capital Leases Leased property capitalized on the Consolidated Balance Sheet is recorded at the present value of future lease payments and is amortized s~
that the total of interest on the lease obligation and amortization of t?JQ leased property equals the rental expense allowed for ratemaking purposes.
(See Note 9.)
53
avenues Electric revenues are recorded based on the amounts of electricity delivered to customers through the end of each accounting period.
This includes amounts customers will be 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 Adjustment (SBRCA) that currently credits retail customers'ills for three nonrecurring items related to:
(i) the use of an inventory method of accounting for certain power plant spare parts; (ii) the sale of capacity and related energy from the Company's wholly owned coal-fired stations to Atlantic City Electric Company (Atlantic); and (iii) the proceeds from a
settlement of outstanding contract claims arising from construction of the Susquehanna station.
(See Note 3.)
In April 1993, the Company rolled into base rates the level of increased state taxes recovered since August 1991 through a
State Tax
~
~
~
'ustment Surcharge (STAS) and revised the STAS to collect an dercollection of state taxes during the period April 1992 through March 1993.
(See Note 3.)
Income Taxes The Company and its wholly owned subsidiaries file a
consolidated federal income tax return.
Income taxes are allocated to operating expenses and other income and deductions on the Consolidated Statement of Income.
In January 1993, the Company adopted Statement of Financial Accounting Standards (SFAS)
- 109, "Accounting for Income Taxes."
SFAS 109 requires a
change from the deferred method to the asset and liability method of accounting for income taxes.
(See Note 5.)
The provision for deferred income taxes included on the Consolidated Statement of Income represents the amount of deferred tax expense reflected in rates established by the PUC and FERC.
The difference in the provision for deferred income taxes determined under SFAS 109 and the amount recorded based on ratemaking procedures adopted by the PUC and FERC is deferred and included in taxes recoverable through future rates on the Consolidated Balance Sheet.
(See Note 5.)
Investment tax credits were deferred when utilized and are amortized er the average lives of the related property.
The investment tax credit repealed effective December 31, 1985.
54
Pension Plan and Other Postretirement and Postemployment Benefits
'he Company has a noncontributory pension plan covering substantiall 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 computations that take into account the amount deductible for income tax purposes and the minimum contribution required under the Employee Retirement Income Security Act of 1974.
(See Note 13.)
In January 1993, the Company adopted SFAS 106, "Employers'ccounting for Postretirement Benefits Other Than Pensions."
SFAS 106 requires the Company to accrue, during the years that the employees render the necessary
- service, the expected cost of providing retiree health care and life insurance benefits.
(See Note 13.)
In accordance with a PUC order, the Company is deferring the accrued cost of the PUC-jurisdictional portion of retiree health and life insurance benefits in excess of actual claims paid pending recovery of the increased costs in retail rates.
In December 1993, the Company adopted SFAS 112, "Employers'ccounting for Postemployment Benefits."
SFAS 112 requires the accrual of the expected cost of providing benefits to former or inactive employees after employment but before retirement.
(See Note 13.)
Accounting Statement Adopted After December 31, 1993 Effective January 1,
- 1994, the Company adopted SFAS
- 115, "Accountin for Certain Investments in Debt and Equity Securities."
SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities.
The adoption of SFAS 115 did not have a material effect on the Company's net income.
Unusual Items Recognized in the'Fourth Quarter In the fourth quarter of 1993, the Company recorded charges against income that, in the aggregate, adversely affected net income by about
$ 18 million or 12. cents per share of common stock.
The charges related to: (i) credits to be included in the Company's ECR due to entering a settlement agreement with complainants against the Company's ECR; (ii) the write-off of certain deferred retiree benefits costs; and (iii) the recognition of certain employee benefit costs in connection with the adoption of a
new accounting standard.
(See Notes 3 and 13.)
Cash Equivalents The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents.
Reclassification Certain amounts from prior years'inancial statements have bee reclassified to conform to the current year presentation.
55
Sources of Revenues S
The Company is an operating electric utility serving about 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 1993, about 98% of total operating revenues was derived from electric energy sales with 344 coming from residential customers, 27% from commercial customers, 204 from industrial customers, 44 from interchange power sales to members of the Pennsylvania-New Jersey-Maryland Inter-connection Association (PJM),
124 from contractual sales to other major utilities and 34 from others.
The Company's largest industrial customer provided about 1.44 of revenues from energy sales during 1993.
Twenty-nine industrial customers, whose billings exceeded
$ 3 million each, provided about 7.58 of such revenues.
Industrial customers are broadly distributed among industrial classifications.
3.
Rate Matters Energy Cost Rate Issues Several complaints have been filed with the PUC against the Company's ECR by the Pennsylvania Office of Consumer Advocate (OCA) and certain
~
~
~
~
~
~
~
ustrial customers.
These complaints relate to the Company's ECRs ginning with the 1990-91 ECR through the 1993-94
- ECR, which became effective in April 1993.
The complaints by industrial customers generally oppose the Company's recovery on a current basis through the ECR of the cost of output purchased from non-utility generating companies or question the manner in which the cost of such purchases is recovered through the ECR.
The OCA and industrial customers complaints also request a
PUC investigation into whether the revenues received from the Company's sales of installed capacity
- credits, reservation of output and transmission entitlements (capacity-related transactions) should be credited to customers through the ECR.
These transactions are discussed in Note 4.
With respect to the 1993-94 ECR, certain of the complaints also oppose the Company's request to recover through the ECR the liability imposed on the Company or its coal-mining subsidiaries by th'e Energy Policy Act of 1992 (Energy Act) for the cost of health care for retired coal miners previously employed by those subsidiaries.
The 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 liability amounts to approximately
$ 68 million on a net present value basis.
At the time coal-mining operations
- ceased, subsidiary mining companies had accrued
$ 32
'llion for anticipated payments to the miners'ealth care trust funds to ovide for health care benefits for retired miners.
Under the Energy Act, the Company or its coal-mining subsidiaries will be directly liable for these benefits and the
$ 32 million will not have to be paid to the trust 56
funds.
=- The Company intends to use the amount accrued by its subsidiary mining companies to partially offset the liability.
In December
- 1992, the Company recorded an additional liability o approximately
$36 million representing the balance of the liability imposed by the Energy Act for health care benefits for retired coal miners.
The charge to expense was deferred.
The net PUC-jurisdictional amount of this liability was
$30 million.
The balance of the deferral pertains to FERC-jurisdictional service.
In addition, certain complaints challenge the Company's request for ECR recovery in the 1993-94 ECR of the additional costs associated with the 12-month extension of the Company's agreement to purchase coal from the operator of a mine formerly owned by the Company.
The additional costs in question total approximately
$ 3 million.
With regard to the Company's 1991-92
- ECR, the PUC ordered hearings regarding ECR treatment-of capacity-related sales made possible by the purchase of output from non-utility generating companies.
The PUC also ordered hearings on the Company~s 1993-94 ECR.
The Administrative Law Judge assigned to the case excluded from the scope of the hearings issues regarding the Company's recovery of the cost of output purchased from non-utility generating companies and also indicated that the scope of the other cases
.would be limited to the Company's capacity-related transactions and various coal-related issues.
As a result of discussions which began in late 1993, the Company and the complainants reached a
settlement agreement which provides fo~
crediting the 1994-95 ECR with a portion of the receipts from install~
capacity credit sales from April 1990 through December 31, 1993; credits a
portion.of the receipts from future installed capacity credit sales to the ECR and excludes from recovery through the ECR a portion of the PUC-jurisdictional amount of deferred retired miners'ealth care benefits costs.
This agreement is subject to PUC approval.
As a result of this agreement, in the fourth quarter of 1993 the Company recorded a charge to expense of $17.1 million, which after income taxes, reduced net income by approximately
$9.7 million or 6.4 cents per share of common stock.
Postretirement Benefits Other Than Pensions In March 1993, the PUC approved the Company's petition to defer the increase in retiree benefits costs arising from adoption of SFAS
- 106, "Employers'ccounting for Postretirement Benefits Other Than Pensions."
The increased costs applicable to PUC-jurisdictional customers will be deferred from January 1,
1993 until such costs are included in customer rates in the Company's next retail base rate proceeding.
Accounting rules permit deferral of the costs for about five years.
In June 1993, the OCA appealed the PUC's decision permitting deferral and future recovery of the increased retiree benefits costs to the Commonwealth Court of Pennsylvania.
The filing of the appeal does not operate as a stay of the PUC's order, and the Company is continuing to def such costs in accordance with the PUC's order.
57
The Company cannot predict the ultimate outcome of this matter before
~
~
~
~
e Commonwealth Court.
The Company also began to defer the i increased costs applicable to FERC-jurisdictional service pursuant to a
FERC policy statement, but subsequently charged the increased costs of $2.3 million to expense due to a
settlement agreement reached with municipalities and other small utilities served under FERC tariffs.
As a result of this agreement, the Company will be unable to file for recovery of the increased costs within the time period specified in the FERC policy statement.
See "FERC Wholesale Rates" for more information.
Uranium Enrichment Decontamination and Decommissioning Fund The Energy Act also provides for an assessment on utilities with nuclear power operations, including the
- Company, to establish a
Uranium Enrichment Decontamination and Decommissioning Fund (Fund).
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.
As of December 31,
- 1993, the Company's recorded liability for its al assessment amounted to about
$34.5 million.
The liability is subject adjustment for inflation.
The corresponding charge to expense was'eferred because the Company includes its annual payments to the Fund of approximately
$2.6 million, subject to adjustment for inflation, in the ECR which is in the Company's PUC tariffs and in the fuel adjustment clause which is in the Company's FERC tariffs.
As a result, the Company does not expect the assessment to have an adverse effect on net income.
Special Base Rate Credit Adjustment The SBRCA has been in effect since April 1, 1991,and currently reduces retail customers'ills for the effects of three nonrecurring items.
The first item is the annual amortization of a credit to income associated with the Company's using an inventory method of accounting for spare parts beginning January 1,
1991.
The amortization of the cost of spare parts on hand at January 1,
1991 is being included in the SBRCA over a five-year period.
The second relates to costs that are being recovered from Atlantic pursuant to the sale of 125,000 kilowatts of capacity (summer rating) and related energy from the Company's wholly owned coal-fired stations beginning October 1,
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
~
~
~
~
ergy costs associated with the sale, is reflected in the ECR.
The third is the proceeds from the settlement of outstanding contract claims arising from construction of the nuclear-fueled Susquehanna steam 58
generating station.
In accordance with approval of the settlement by the PUC, the Company began on April 1, 1992 to return the settlement proceed~
to retail customers through the SBRCA at the rate of
$11 million per ye~
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
$44.5 million in 1993,
$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.
Recovery of State Tax Increase 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 of January 1,
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 recovered the increased taxes applicable to retail customers through application of the STAS.
In April 1993, the Company rolled into base rates the level of increased state taxes previously recovered in the STAS and the STAS was revised to collect an undercollection of state. taxes during the period April 1992 through March 1993.
The portion of the increased taxes applicable to the Company's contractual sales of capacity and related energy to other utilities is recovered as a cost of providing such service.
RERC Wholesale Rates The Company has negotiated new five-year, lower-priced sales contracts with certain small utilities it currently serves.
The contracts are subject to FERC approval and will reduce rates to these small utilities by about
$3.6 million in 1994 and 1995 and by about an additional
$4.1 million for the years 1996 through 1998.
In connection with the agreement, in 1993, the Company wrote off the deferred portions of retired miners'ealth care benefits costs and postretirement benefits other than pensions applicable to FERC-jurisdictional services.
The charge to expense amounted to
$8.9 million and, after income taxes, reduced net income by
$5.1 million or about 3.4 cents per share of common stock.
4.
Sales to Other Major Electric Utilities The Company provided Atlantic with 126,000 kilowatts of the Company's share of capacity and related energy from the Susquehanna station from 1983 through September 30, 1991.
Another agreement provides Atlantic with 125;000 kilowatts of capacity (summer rating) and related energy from the Company's wholly owned coal-fired stations from October 1,
1991 through September 2000.
On October 1,
- 1991, immediately following the expiration of the agreement with Atlantic, the Company began providing Baltimore Gas Electric (BG&E) with 126,000 kilowatts of the Company's share of capacit~
and related energy from the Susquehanna station.
Sales to BG&E wil+
continue through May 2001.
59
The Company provides Jersey Central Power and Light Company (JCP&L) h 945,000 kilowatts of capacity and related energy from all the pany's generating units.
Sales to JCP&L began in 1985 and will continue a
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'nvestment in generating capacity.
Revenues from these sales totaled
$282.2 million in 1993,
$293.8 million in 1992 and
$284.2 million in 1991.
Xn addition to these bulk power contractual
- sales, the Company has entered into several agreements with other electric utilities in the PJM for the sale of capacity credits from the Company's system capacity.
These capacity credits are 'used by the other utilities to meet their installed 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 1996.
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 Company's Martins Creek station during certain periods of time.
Specific deliveries of energy are requested by the purchasing utility as needed during the reservation period.
One
~
~
~
'lity has 'agreed to purchase a maximum of 10 megawatt hours per hour of e output the Company purchases from non-utility generating companies for the period June 1990 through May 1995.
The Company includes as a credit to the ECR the revenue received for deliveries of energy from Martins Creek, the revenue received for deliveries of output from non-utility generating companies and the foregone PJM interchange savings that were not realized when interchange 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 includes, as a credit to the ECR, the foregone interchange savings that are not realized when the sale of transmission entitlements reduces the amount of energy the Company 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 savings included in the ECR) totaled
$35.0 million in 1993,
$35.0 million in 1992 and
$35.4 million in 1991.
For information relating to proceedings pending before the PUC and a settlement agreement between the Company and complainants to the ECR with respect to capacity-related sales, see Note 3.
5.
Taxes
~
~
~
In January
- 1993, the Company adopted SFAS
- 109, "Accounting for Income axes."
SFAS 109 requires a change from the deferred method to the asset and liability method of accounting for income taxes.
Under the asset and 60
liability method, deferred income tax assets and liabilities are recognized for the tax consequences of temporary differences by applying enacte~
statutory tax rates applicable to future years to differences between th~'
financial statement carrying amount and the tax bases of existing assets and liabilities.
In adopting SFAS
- 109, the Company recorded in January 1993 an increase of approximately
$1.1 billion in its deferred tax liability for tax benefits previously flowed through to customers and for other temporary differences.
The increased tax liability was offset by a corresponding asset representing the future revenue expected through the ratemaking process to pay for the taxes based on the established regulatory practices and legislative history in Pennsylvania permitting recovery of actual taxes payable.
The adoption of SFAS 109 did not have a material effect on the Company's net income.
In August
- 1993, federal legislation was enacted that increased the corporate federal income tax rate to 354 from 344 retroactive to January 1,
1993.
For 1993, the Company recorded additional income tax expense of $5.9 million and an increase in deferred income tax liabilities and taxes recoverable through future rates of
$79.5 million to reflect the new tax rate.
The provision for deferred income taxes included on the Consolidated Statement of Income represents the amount of deferred tax expense reflected in rates established by the PUC and FERC.
The difference in the provision for deferred income taxes for 1993 determined under SFAS 109 and the amount recorded based on ratemaking procedures adopted by the PUC and FERC deferred and included in taxes recoverable through future rates on thW Consolidated Balance Sheet.
The tax effects of significant temporary differences comprising the Company's net deferred income tax liability at December 31, 1993 were as follows (thousands of dollars):
Deferred tax assets Deferred investment tax credits Accrued pension costs Other Valuation allowance Deferred tax li'abilities Electric utility plant net Other property net Taxes recoverable through future rates Reacquired debt costs Other Net deferred tax liability 103) 084 38( 821 108, 441
~*)
241 652 1,892) 366 26,629 500,959 43,580 35 120 2 498 654 2 257 002 The valuation allowance related to deferred tax assets at December 31, 1993 amounted to
$8,694,000, a decrease of $2,882,000 from the
$11,576,000 established upon the adoption of SFAS 109 at January 1,
1993.
61
In August
- 1991, Pennsylvania enacted legislation that increased the
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mpany's state income and other taxes retroactive to January 1,
1991.
See e
3 for information concerning the recovery of these increased taxes.
During
- 1991, the Company utilized the remaining
$ 16 million of previously unused tax credits to reduce its federal income tax liability.
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):
1993 1992 1991 Income Taz Ezpense Included in operating expenses Provision -Federal Federal tax rate change State Deferred Federal Federal tax rate change State Investment tax credit, net Federal ncluded in other income and deductions Provision(credit)-Federal Federal-tax rate change State
$158,106 4,689 63 508 226 303 219 280 1,211
~124) 22 367
~13 506) 235 164 (4, 976),
(158) 486 9144,546 64 648 209 194 30,654 2 521 33 175
$114,904 49 534 164 438 51,547 225 51 772 228 340 217 366 676 (126) 483 33
~14 029) 1 156
~4648) 1 159
~93 )
Deferred-Federal Federal-tax rate change State 3, 907 140
~679) 3 368
~1280)
(441)
(640)
~837)
~810)
~903) 322
~396)
~170)
Total income tax expense-Federal State 170, 693 63 191 233 884 161,406 67 256 228 662 166,841 49 622 216 463 Detail of deferred taxes in operating expenses Tax depreciation Reacquired debt costs Other 33 6 195
$ 38 ~ 026 9,927 5,405
~22 367
~33 175 9 72,113 (1,938)
~18 403)
~51 772 62
Total income tax expense Effective income tax rate
- Taxes, other than income, consist of the following (thousands of dollars):
Reconciliation of Income Taz Expense Indicated federal income tax on pretax income at statutory tax rate (1993(
35%
1992-1991) 344)
~203 704 Increase (decrease due to:
State income taxes 41,829 Depreciation differences not normalized 8,470 Amortization of investment tax credit, (13,506)
AFUDC (Note 1)
(2,794)
Other
~3819) 30 180
$ 233 884 40.24 195 631
'192 058 44,575 6,805 (14,029)
(2,302)
~2018) 34, 319 9,080 (15,048)
(1,007)
~2939) 228 662 39.74 216 463 38.3S 33 031 24 405
- Taxes, Other Than Income State gross receipts State utility realty State capital stock Social security and other
$ 98,280 45,292 35,943 24 452
~203 967
$ 94,926 48,511 37,279 24 602
~205 3 18
$ 91,504 43,432 32,579 22 911 190 426 6.
Nuclear Decommissioning Costs The Company's most recent site specific decommissioning
- study, based on immediate dismantlement and decommissioning each unit following fin
- shutdown, indicates that its share of the total estimated cost o
decommissioning the Susquehanna station is approximately
$725 million in 1993 dollars.
The operating licenses for Units 1 and 2 expire in 2022 and 2024, respectively.
Under current rates, the Company collects about
$ 6.9 million annually from customers for the cost of decommissioning the Susquehanna 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 held and accrued income in the trust fund at December 31, 1993 aggregated approximately
$82.9 million.
The most recent estimated cost of decommissioning Susquehanna is substantially higher than the estimate used to determine the amount currently collected in retail rates.
As a result, the Company would expect to request recovery of a higher level of decommissioning expense in its next retail base rate proceeding.
7.
Financial Instruments The carrying amount and the estimated fair value of the Company's financial instruments are as follows (thousands of dollars):
63
Assets December 31 1993 December 31 1992 Carrying Pair Carrying Fair Amount Value Amount Value 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 noncurrent (c) 82 g 860 65 ~ 159 145 g 482 12 1 ~ 500 31,182 33,657 8J271 15g110 69,104 124,203 33,638 15,110
$ 76,913 140,569 31,249 8,271 6, 274 6, 266 16'42, 16'62 219I 505 219'05 222 f 338 222 g 338 39,600 39,600 31,871 31,871 335 6 000 336 I 388 325 ~ 600 334 g 090 2g 662'70 2f843'35 2g 627'59 2/758/ 176 202 6 260 202 g 260 159 I 348 159 g 348 (a)
(b)
The fair value generally is based, on established market prices.
For a minor portion, the fair value approximates the carrying amount.
The fair value is based on established market prices.
For venture, capital investments included in financial investments, fair value is determined in good faith by management of the venture capital entity.
(c)
The fair value approximates the carrying amount.
(d)
The 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 1993 1992 Marketable equity securities Marketable 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
$ 10(854 61,294 65,378 6 207 143,733 3
164
~140 569
$ 11,320 78,942 39,256 6 393 135'11 14 411 121 500 64
Marketable equity securities at December 31, 1993" and 1992 are stat at the lower of aggregate cost or market.
The market value of marketab equity securities was
$12,995,000 at December 31, 1993 and
$11,546,000 at December 31, 1992.
The market value of marketable debt securities was
$65,562,000 at December 31, 1993 and
$80,588,000 at December 31, 1992.
8.
Stack Held Ror Dividend Reinvestment Plan At December 31,
- 1993, the Company temporarily held 585,506 shares of common stock which were acquired in the open market.
These shares were distributed to participants in the Dividend Reinvestment Plan in January 1994.
9.
Leases The Company and a
subsidiary have entered into capital leases consisting of the following (thousands of dollars):
H Nuclear fuel, net of accumulated amortization (1993i
$191(812'992i
$191(002)
Vehicles, oil storage tanks and other property, net of accumulated amortization (1993'83i224i 1992'93i730)
Net property under capital leases December 31 1993 1992
'$173 I395
$171i901 75 630 79 157
~249 025
~251 058 Capital lease obligations incurred for the acquisition of nuclear fuel and other property were (millions of dollars):
- 1993,
$84.0;
- 1992,
$64.8 and 1991,
$69.5.
Nuclear fuel lease
- payments, which are charged to expense as the fuel is used for the generation of electricity, were (millions of dollars):
- 1993,
$67.6;
- 1992,
$70.4 and
- 1991,
$95.5. 'uture nuclear fuel lease payments will be 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, 1993 (excluding nuclear fuel) would aggregate
$86.6 million, including
$10.9 million in imputed interest.
During the five years ending
- 1998, such payments would decrease from
$22.3 million per year to
$6.5 million per year.
Interest on capital lease obligations was recorded as operating expenses on the Consolidated Statement of Income in the following amounts (millions of dollars):
- 1993,
$9.1;
- 1992,
$ 10.5 and 1991,
$20.5.
Generally, capital leases contain renewal options and obligate the Company and a subsidiary to pay maintenance, insurance and other relat costs.
Various operating leases have also been entered into which are n material with respect to the Company s financial position.
65
10.
Regulatory Assets The Company has deferred certain costs in accordance with the rate actions of the PUC and FERC and is recovering or expects to recover such costs in electric rates charged to customers.
Regulatory assets consist of the following (thousands of dol'lars):
Deferred depreciation Deferred operating and carrying costs Susquehanna Utilityplant carrying charges-net of amortization Deferred refueling outage costs Susquehanna Reacquired debt costs Taxes recoverable through future rates Postretirement benefits other than pensions Retired miners'ealth care benefits Assessment for decommissioning uranium enrichment facilities 39,215 24,097 39,215 24,965 16,027 101,836 1,166,118
'14,855 24,096 33 710 1 702 069 17, 446 78,917 36,600 38 925
~532 353 December 31 1993 1992
$282,115
$296,285 Deferred depreciation is the difference between the straight-line depreciation of property placed in service at the Susquehanna station prior to January 1,
1989 and the amount of depreciation on such property vided for financial reporting purposes and included in rates, and is the ult of a
rate phase-in plan meeting the criteria of SFAS 92, "Regulated Enterprise Accounting for Phase-in Plans."
The annual difference is shown as amortized (deferred) depreciation on the Consolidated Statement of Income.
Deferred operating and carrying costs Susquehanna consist of certain operating and capital costs, net of energy savings, associated with Units 1
and 2 at the Susquehanna station.
The costs, deferred in accordance with orders from the
- PUC, were incurred from the date the units were placed in commercial operation until the effective dates of the rate increases reflecting operation of the units.
The deferred costs include related deferred income taxes.
Recovery of these costs will be subject to PUC approval.
No return is being accrued on the deferred costs.
Utilityplant carrying charges are carrying charge accruals that were reclassified from electric utility plant in service to a deferred debit in accordance with a FERC order.
Such charges are being amortized over the remaining depreciable life of the related property and are included in PUC electric service rates.
Deferred refueling outage costs Susquehanna represent incremental maintenance costs incurred during refueling and inspection outages which are deferred and subsequently amortized over the period of time that begins upon the cessation of the outage and ends with the start of the next
~
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heduled refueling and inspection outage.
Such costs are included in ctric service rates.
66
Reacquired debt costs represent premiums and expenses incurred in the redemption of long-term debt.
In accordance with FERC regulations~
reacquired debt costs are amortized over either the life of the refundin~
issue or the remaining life of the redeemed
- issue, as appropriate.
Reacquired debt costs are included in electric service rates.
For a
discussion of taxes recoverable through future
- rates, postretirement benefits other than pensions, retired miners health care benefits and assessment for decommissioning uranium enrichment facilities, see Notes 5, 13 and 3, respectively.
11.
Termination of Coal<<Mining Operations The Company has ceased its subsidiary coal-mining operations.
One of the three operating mines closed at the end of June 1991.
A second operating mine closed at the end of March 1992, and a third mine was sold in September 1992.
A coal processing and loading facility was sold in November
- 1993, completing the planned phase-out of coal mining operations.
The Company replaced the coal produced by its subsidiaries with coal acquired through new contracts with non-affiliated suppliers and open market purchases.
A subsidiary continues to sell purchased coal to the Company.
The Company purchased coal from certain subsidiaries at prices equal to the cost incurred by those subsidiaries for mining, processing and purchasing coal.
These purchases totaled approximately
$20 million in
- 1993,
$109 million in 1992 and
$188 million in 1991.
The cost of coal purchased was included in energy costs collected from customers.
All the coal produced at the now closed Greenwich mines was delivered to the Company's Montour generating station.
The PUC 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 was measured.
The standard covered the three-year period from April 1, 1990 through March 31, 1993.
At the end of this period, the cost of coal delivered to Montour was less than the standard.
The Energy Act imposed a
new liability on the Company or its coal-mining subsidiaries for the cost of health care for retired coal miners previously employed by those subsidiaries.
See Note 3 for information concerning this liability.
12.
Credit Arrangements The Company issues commercial paper
- and, from from banks to provide short-term funds required purposes.
In addition, certain subsidiaries also obtain short-term funds.
Bank borrowings generally negotiated at the time of the borrowing.
time to time, borrows for general corporate borrow from banks to bear interest at rates 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, 199+
- and, at the option of the
- Company, interest rates would be based upon certificate of deposit rates, Eurodollar deposit rates or the prime rate.
67
The Company has additional credit arrangements with another group of banks return for the payment of commitment fees.
The banks have committed to d the Company up to
$ 60 million under these credit arrangements at interest rates based upon Eurodollar deposit rates or the prime rate.
These credit arrangements mature on May 1, 1994 with provisions to extend every six months.
These arrangements produce 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 outstanding at December 31, 1993 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 borrowings were outstanding at December 31, 1993 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):
- 1993,
$0.3;
- 1992,
$0.4 and 1991,
$0.4.
13.
Pension Plan and Other Postretirement and Postemployment Benefits Pension Plan The Company has a funded noncontributory defined benefit pension plan lan) covering substantially all employees.
Benefits are based upon a
icipant's earnings and length of participation in the Plan, subject to eting certain minimum requirements.
The Company also has two supplemental retirement plans for certain management employees and directors that are not funded.
Benefit payments pursuant to these supplemental plans are made directly by the Company.
At December 31,
- 1993, the projected benefit obligation of these supplemental plans was approximately
$12.9 million.
The components of the Company's net periodic pension cost for the three plans were (thousands of dollars):
- 1993, 1992 '991 Service cost-benefits earned during the period Interest cost Actual return on plan assets Net amortization and deferral t
$316381
$ 296967
$ 28i 188 48I 266 44 i 203 40I 605 (92 I 085)
(95 I 969 )
( 182 6 956) 29 696'0 251 134 268 Net periodic pension cost
~17 258 ~18 452
~20 105 The net periodic pension cost charged to operating expenses was
$10.1 million in 1993,
$11.6 million in 1992 and
$12.6 million in 1991.
The balance was charged to construction and other accounts.
The funded status the Company's= Plan was (thousands of dollars):
I~
68
December 31 1993 1992 3
889
~877 887 407, 164 1 119 408 i 283 201 594 609 877 Fair value of plan assets
~94 Actuarial present value of benefit obligations:
Vested benefits 490,567 Nonvested benefits 1 543 Accumulated benefit obligation 492, 110 Effect of projected future compensation 191 302 Projected benefit obligation 683 412 Plan assets in excess of projected benefit obligation Unrecognized transition assets (being amortized over 23 years)
Unrecognized prior service cost Unrecognized net gain Accrued expense 260,477 (72,316) 34,240 (305 577)
~83 17 6) 268'10 (76, 836) 36,731 The weighted average discount rate used in determining the actuarial present value of projected benefit obligations was 7.04 and 7.5%,
respectively, on December 31, 1993 and December 31, 1992.
The rate of increase in future compensation used in determining the actuarial present value of projected benefit obligations was 5.74 and 6.2%, respectively, on December 31, 1993 and December 31, 1992.
The assumed long-term rates of return on assets used in determining pension cost in 1993 and 1992 w
8.0%.
Plan assets consist primarily of common
- stocks, government a
corporate bonds and temporary cash investments.
Subsidiary mining compan'ies 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 were 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 1991, 1992 and 1993 aggregated
$5.4 million, $2.0 million and
$0.0 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 expense for black lung benefits was
$ 0.5 million in 1991 and
$0.2 million in 1992.
There was no expense for black lung benefits in 1993.
Postretirement Benefits Other Than Pensions Substantially all employees of the Company and its subsidiaries will become eligible for certain health care and life insurance benefits upon retirement.
The Company sponsors four defined benefit health and welfar plans that cover substantially all management and bargaining unit employe upon retirement One plan provides for retiree health care benefits t certain management employees, another plan provides retiree health care 69
benefits to bargaining unit employees, a third plan provides retiree life
~
~
urance benefits to certain management employees up to a specified amount a fourth plan provides retiree life insurance benefits to bargaining unit employees.
Life insurance benefits for certain management employees beyond a
specified amount are not included in the plan for retiree life insurance benefits to management employees but are combined with the disclosures below for the health care and life insurance plans.
The cost of retiree health care and life insurance benefits for officers of the Company are not material and are not combined with the disclosures below for health care and life insurance plans.
Dollar limits have been established for the amount the Company will contribute annually toward the cost of retiree health care for employees retiring on or after April 1, 1993.
Through December 31, 1992, the Company recognized the cost of these benefits for retired employees when payments were made.
Effective January 1,
- 1993, the Company adopted SFAS
- 106, "Employers'ccounting for Postretirement Benefits Other Than Pensions,"
which requires the Company to accrue, during the years that the employees render the necessary
- service, the expected cost of providing retiree health care and life insurance benefits.
The transition obligation at January 1,
- 1993, which is being amortized over a 20-year period, amounted to
$173.8 million.
In accordance with a
PUC
- order, the Company is deferring the PUC-jurisdictional accrued cost of retiree health and life insurance benefits
~
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~
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~
excess of actual claims paid pending recovery of the increased cost in ail rates.
See Note 3 for additional information.
In December
- 1993, the Company established a
separate Voluntary Employee Benefit Association (VEBA) trust for each of the four health and welfare benefit. plans for retirees and adopted a funding policy that takes into account. the maximum amount allowed as a deduction for federal income tax purposes.
The following table sets forth the plans'ombined funded status reconciled with the amount shown on the Company's Consolidated Balance Sheet at December 31, 1993 (thousands of dollars):
Accumulated postretirement benefit obligation:
Retirees Fully eligible active plan participants Other active plan participants Plan assets at fair value, primarily temporary cash investments Accumulated postretirement benefit obligation in excess of plan assets Unrecognized net loss Unrecognized transition obligation Accrued postretirement benefit cost 95,046 32,742 75 185 202,973 14 848 188,125 (20,573) 2 412 70
The plan that provides retiree health, care benefits to certain-management employees is currently unfunded; the amount included in th~
accumulated postretirement benefit obligation attributable to that plan i (thousands of dollars)
$70,630.
The net periodic postretirement benefit cost for 1993 included the following components (thousands of dollars):
Service cost benefits attributed to service during the period Interest cost on accumulated postretirement benefit obligation Net amortization and deferral Net periodic postretirement benefit cost 3, 699 13, 008 8 691 25 398 Through
'December 31,
- 1993, the Company deferred
$14.9 million of retiree benefits costs.
See Note 3 for additional information concerning the recovery of the deferred costs.
The benefit cost charged to operating expenses was
$6.9 million in 1993.
The balance was charged to construction and other accounts.
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 and 1991,
$7.2.
For measurement
- purposes, a
104 annual rate of increase in the per capita cost of covered health care benefits was assumed for 1994; the rat was assumed to decrease gradually to 64 by 2006 and remain at that leveM thereafter.
Increasing the assumed health care cost trend rates by 14 in each year would increase the accumulated postretirement benefit obligation as of December 31, 1993 by about
$11.2 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by about
$1.1 million.
In determining the accumulated postretirement benefit obligation, the weighted average discount rate used was 74.
The three trusts holding plan assets are tax-exempt.
The unfunded trust will be subject to federal income taxes at a
35% tax rate.
The expected long-term rate of return on plan assets for the tax-exempt trusts was 6.5>.
Subsidiary coal-mining companies had accrued
$32 million for an estimated payment they expected to make to the UMWA health trust funds for future retiree health care.
- However, the Energy Act imposed a
new liability, estimated to about
$ 68 million on a net present value basis, on the Company or its subsidiary coal-mining companies for the cost of health care of retired miners previously employed by those subsidiaries.
See Note 3 for information concerning this liability.
Postemployment Benefits The Company provides health and life insurance benefits to disabled employees and income benefits to eligible spouses of deceased employees~
In December 1993, the Company adopted SFAS 112, "Employers'ccounting fo Postemployment Benefits," which requires the Company to accrue, during the years that the employees render the necessary
- service, the expected cost of 71
t providing benefits to former or inactive employees after employment but
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ore retirement.
In connection with the adoption of SFAS
- 112, the pany recorded an obligation for postemployment benefits of
$7.5 million and a
charge to operating expense of
$5.5 million.
The balance of the postemployment benefit obligation was charged to construction and other accounts.
The one-time charge to operating
- expense, which after income taxes',
reduced net income by
$3.1 million or about 2.1 cents per share of common stock.
Employee Stock Ownership Plan The Company has an Employee Stock Ownership Plan (ESOP) for all full-time employees having more than one year of service.
Contributions to the ESOP had 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, income tax purposes and contributes to the ESOP shares having a cost equal to the tax savings resulting from that deduction and contribution.
14.
Jointly Owned Facilities At December 31,
- 1993, the Company or a subsidiary owned undivided interests in the following facilities (millions of dollars):
Merrill Generating Stations Creek Susquehanna Keystone Conemaugh Reservoir e shi interest 90 ~ 00+o 12.344 11.39<
8.37<
$55
$22 5
27 26 15.
Commitments and Contingent Liabilities The Company's construction expenditures are estimated to aggregate
$471 million in
- 1994,
$398 million in 1995 and
$422 million in
- 1996, including AFUDC.
For discussion pertaining to construction expenditures,
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~
~
e Review of the Company's Financial Condition and Results of Operations er the caption "Financial Condition Capital Expenditure Requirements" on page 33.
Own r p
Electric utility plant in service
$3,984
$ 57 Other property Accumulated depreciation 592 24 Construction work in progress 64
.2 Each participant in these facilities provides its own financing.
The Company receives a portion of the total output of the generating stations 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.
72
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 property. dama~
losses up to
$2.7 billion under these programs.
The Company is also a
member of an insurance program which provides insurance coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions.
Under the property and replacement power insurance
- programs, 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, 1993 was about
$20.1 million.
Nuclear Regulatory Commission regulations, as amended, require that in the event of an accident, where the estimated cost of stabilization and decontamination exceeds
$100 million, proceeds of property damage insurance be segregated and used, first, to place and maintain the reactor in a safe and stable condition
- and, second, to complete required decontamination operations before any insurance proceeds would 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 liability for claims resulting from a nuclear incident at the Susquehanna station is limited to about
$9.4 billion under provisions of The Price Anderson Amendments Act of 1988 (the Act).
The Company is protected against this liability by a combination of commercial insurance and an industry assessment program.
A utility s liability under the assessment program will be indexed not less than once during each five+
year period for inflation and will be subject to an additional surcharge o&
50 in the event 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 Company could be assessed up to
$ 151 million per incident, payable at a rate of
$20 million per year, plus the additional 5% surcharge, if applicable.
In August
- 1991, a
group of 21 fuel oil dealers in the'ompany's service 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 installation of high efficiency heat pumps violated and continues to violate the Racketeer Influenced and Corrupt Organizations Act (RICO).
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.
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.
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 the Company's service area filed a class action complaint against the Company in the Court alleging, as did 73
the August 1991 complaint, that the Company's promotion of electric heat ps and off-peak thermal storage systems had violated and continues to late 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 law.
The plaintiff sought to represent as,a class all fuel oil dealers in the Company's service area.
The complaint requested a permanent injunction 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 complaint was consolidated with the August 1991 complaint for pre-trial purposes.
In September
- 1992, the Court granted the Company's motion for summary judgment and dismissed both suits filed against the Company.
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.
The Federal Clean Air Act Amendments of 1990 deal, 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% of the Company's coal-fired generating capacity by January 1,
- 1995, and more stringent Phase II sulfur dioxide emission limits for.all of the Company's fossil-fueled generating units by January 1,
2000.
The Company expects to meet the 1995 Phase I sulfur dioxide standards
~
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the use of lower sulfur coal, additional processing of coal through cleaning
- plants, and the installation of scrubbers at the Conemaugh
- station, in which the Company has an 11.394 ownership interest.
The Company may also choose to limit the generation of certain 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 nitrogen oxide burners on each unit by the same date that, sulfur dioxide limits apply to that unit.
In addition, the ambient ozone attainment provisions 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 'easonably 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 by advancing the installation of low nitrogen oxide burners on certain Phase II units, 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 ase I sulfur dioxide standards and installation of the low nitrogen oxide ners will require capital expenditures of about
$200 million (in estimated 1994'ollars) and additional operating expenses which will result 74
in an increase in customer rates of about 1.5%
(based on 1993 revenue levels).
To meet the Phase II acid rain sulfur dioxide emission standards, the Company expects to install flue gas desulfurization (FGD) on up to 604 of its'oal-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, sales or trades, and the amount and timing of FGD will be determined 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 will require additional capital expenditures in the later half of the 1990s of $400 million to
$500 million (in estimated 1994 dollars) and additional operating expenses which will result in an increase in customer rates (based on 1993 revenue levels) of about 34 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.
I The ambient ozone attainment provisions also require modeling of nitrogen oxide and volatile organic compound emissions in the Northeast Ozone Transport Region to determine what further reductions are needed beyond the RACT requirements to achieve ambient ozone attainment.
If the results indicate further reductions are needed in power plant nitrogen oxide emissions, the Company may be required to install additional nitroge+
oxide reduction equipment, such as selective catalytic reduction, on somW 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 1994 dollars) and additional operating expenses which will result in a further increase in customer rates of as much as 44 (based on 1993 revenue levels).
In addition to acid rain and ambient ozone attainment provisions, the legislation requires the Environmental Protection Agency (EPA) to conduct a
study of hazardous air emissions from power plants.
Adverse findings 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.
If it is determined that the installation of such additional equipment is required, the Company's preliminary estimates indicate that, the cost of compliance could require additional capital expenditures of up to
$400 million (in estimated 1994 dollars) and additional operating expenses which will result in a further increase in customer rates of as much as 2C (based on 1993 revenue levels).
Under current Pennsylvania law, construction work in progress for non-revenue producing
- assets, such as capital expenditures for pollution control equipment, can be claimed in rate base.
In February
- 1993, the PUC adopted a policy statement regarding th~
trading and usage of, and the ratemaking treatment for, emission allowanc~
by Pennsylvania electric utilities.
The policy statement determines, among other
- things, that the PUC will not require approval of specific 75
transactions and the cost of allowances will be recognized as energy-ated power production expenses and recoverable through the ECR.
The Pennsylvania Air Pollution Control Act, as
- amended, implements 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 Federal Clean Air Act Amendments of 1990.
Until action has been taken by the appropriate regulatory bodies, the Company will not be able to determine the exact method of compliance with the acid rain, ambient ozone and hazardous air emission provisions of the legislation, or the cost thereof and its impact on customer rates.
1 The Pennsylvania Department of Environmental Resources (DER) regulations governing the handling and disposal of industrial (or residual) solid waste require the Company to submit detailed information on waste generation, minimization and disposal practices.
They also require the Company to 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 by July 1997.
Any groundwater contamination caused by the basins must also be addressed.
Any new ash basin must meet the rigid site and design standards set forth in the regulations.
In addition, the siting of future facilities at Company facilities could be affected.
I The fly ash basin at the Martins Creek station and the dry fly ash
~
~
~
posal area at the Montour station are expected to comply with the DER lations.
However, the fly ash basins at other fossil-fueled generating
- stations, bottom ash basins at all fossil-fueled generating stations and the coal refuse basin at the Brunner Island station do not meet the new requirements and must be retired by July 1997.
The Company, in addressing the requirements of these regulations, plans to install dry fly ash handling systems at. the Brunner Island, Sunbury and Holtwood stations.
The Company, with siting assistance from a public advisory group, plans to use the dry fly ash from the Sunbury and Holtwood stations to reclaim strip mines in the anthracite coal region.
The Company is exploring opportunities to beneficially use coal ash from Brunner Island in various roadway construction projects in the vicinity of the plant that may delay or preclude the need for a new disposal facility.
I Groundwater degradation related to fuel oil leakage from underground facilities and'o seepage from coal refuse disposal areas and coal storage piles has been identified at several generating stations.
Many requirements of the DER regulations address these groundwater degradation issues.
The Company has reviewed its remedial action plans with the DER.
Remedial work has begun at one generating station, and remedial work may be required at others.
The DER has
- adopted, and recently revised, 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 thorize, the DER to use both biomonitoring and a
water quality based mical-specific approach in National Pollutant Discharge Elimination stem (NPDES) permits to control toxics.
In the third quarter of 1993, the Company received a
new NPDES permit for the Montour and Holtwood 76
stations.
The Montour permit contains very stringent limits for certain toxic metals and increased monitoring requirements.
More toxic reduction~
studies will be conducted at Montour before the permit limits becom~
effective.
Additional water treatment facilities may be needed at Montour, depending on the results of the studies.
At Holtwood, toxics are required to be monitored at the fly ash basin until its closure in 1997.
No limits have been set at this point.
The Company will therefore comply with an implementation schedule for such closure and for construction of a new dry ash handling system at Holtwood.
The Company currently estimates that about
$238 million of capital expenditures could be required to comply with the residual waste regulations, correct groundwater degradation at fossil-fueled generating stations and address waste water control at Company facilities.
Such expenditures during the years 1994-1996 could total about
$ 137 million, of which about
$ 68 million is included in the Company's estimate of 1994-1996 construction expenditures shown on page 33.
Actions taken to correct groundwater degradation, to comply with the DER's regulations and to address waste water control are also expected to result in increased operating costs in amounts which are not now determinable but could be material.
The issue of potential polychlorinated biphenyl (PCB) contamination at certain of the Company's substations and pole sites is currently being pursued by the DER.
Xn this regard, the DER sent the Company a proposed Consent Order under which the Company 'ould assess and, if necessary, remediate sites where PCB contamination may exist.
The Company is continuing to negotiate with the DER.
The costs of addressing these PC issues are not now determinable but could be material.
At December 31,
- 1993, the Company had accrued
$5.2
- million, representing the minimum amount the Company at this time can reasonably estimate it will have to spend to remediate sites involving the removal of hazardous or toxic substances.
The Company is involved in several other sites where it may be required, along with other parties, to contribute to such remediation.
Some of these sites have been listed by 'the EPA under the federal Comprehensive Environmental Response Compensation and Liability Act of
- 1980, as amended (Superfund),
and others may be candidates for listing at a future date.
Future clean-up or remediation work at sites currently under
- review, or at sites currently
- unknown, may result in material additional operating costs which the Company cannot estimate at this time.
Concerns have been expressed by some members of the scientific community and others regarding the potential health effects of electric 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 participating in the current research effort to determine whether or not EMF causes any human health 'problems and is taking steps to reduce EMF, where practical, in the design of new transmission and distribution facilities.
The Company is unable to predict what effect the EMF issue might have on Compan operations and facilities.
77
In complying with statutes, regulations and actions by regulatory
~
~
~
~
~
~
~
~
~
ies involving environmental
- matters, including'he areas of water and
- 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 material capital expenditures and operating expenses in amounts which are not now determinable.
At December 31,
- 1993, the Company had guaranteed
$13.3 million of obligations of Safe Harbor.
The Company does not expect to fund 'he guarantee and has concluded that it is impractical to determine the fair value of the guarantee.
78
SELECTED FlNANCIALAND OPERATlNG DATA 1993 1992 1991 1990
$2,744,122 573,431 346,724 306,229
$2,740,715 582,331 348,414 303.727
$2,637,922 590,366 343,906 297,781
$2,727,002 562,808 348,126 314,241
$6,296,496 183,242 449,840 7,934.595 2,582,233
$6,507,621
'38,600 399,360 9,454,113 2,662,570
$6,391,857 211,534 416,113 8,191,768 2,627,159
$6,240,608 143,084 510,529 7,735.442 2,470,596 383,690 231,375 2,221,759 265,940 5,573,360 302,754 364,590 231,375 2,298,010 147,170 5,623,378 2?1,976 335,000 171,375 2,425,835 202,260 5,797.040 249,025 325,600 223,612 2,366,939 159,348 5,702,658 251,058 13.06 13.11 13.42 13.65'.63 6.30 3.33 9.36 7.36 3.18 9.72 7.51 3.06 9.69 7.54 2.86 3.31 3.15 3.04 2.81 3.3 3.2 3.1 2.9 152,132 151,904 130,677
$2.07
$1.65
$15.95
$27 80 5.64 14.14 151,885 151,676 129,394
$2.02
$1.60
$15.58
$2?-1/4 79 6.07 13.05 151,655 151,382 127,272
$2.01
$1.55
$15.15
$26-3/8 77 6.69 11.55 151,298 150,924 130,719
$1.97
$1.49
$14.68
$21-7/8 76 7.15 10.56
$905,650 735,192 524.160 91,205
$876,531 713,406 523,367 85,456
$842,771 687,632 506,038 83,630
$800,587 647,949 503,806 78,489 313,578 96,848 330,017 111,602 322,298 180,434 313,207 217,430 (2,455) 61,561 36,567 64,670 47,022 68,868 5,043 69,725 8.20 7.84 5.76 7.37 7.27 8.27 7.89 5.98 7.48 7.39 8.12 7.76 5.98 7.39 7.30 7.92 7.59 5.78 7.17 7.08 rges of the Company a rm debt, other interest ch other rentals.
nd all of its affiliated companies.
Fixed charges arges, interest on capital lease obligations CONSOLIDATED OPERATIONS Income Items - thousands Operating revenues Operating income..
Net income.
Earnings applicable to common stock................
Balance Sheet Items - thousands (a)
Electric utilityplant in service - net.
Construction work in progress..
Other property, plant and equipment - net..........
Total assets Long-term debt..
Preferred and preference stock With sinking fund requirements.
Without sinking fund requirements Common equity..
Short-term debt.
Total capital provided by investors.
Capital lease obligations........
Financial Ratios Return on average common equity -%.............
Embedded cost rates (a)
Long-term debt - %.
Preferred and preference stock - %..................
Times interest earned before income taxes....,..
Ratio of earnings to fixed charges - total enterprise basis (b).
Depreciation as % of average depreciable property.
Common Stock Data Number of shares outstanding - thousands Year-end..
Average............................
Number of shareowners (a).
Earnings per share Dividends declared per share Book value per share (a).
Market price per share (a)..
Dividend payout rate - %.
Dividend yield - % (c)..
Price earnings ratio (c)....
ELECTRIC OPERATIONS Revenue Data By class of service - thousands Residential.
Commercial.
Industrial..
Other energy sales.
System sales..
Contractual sales to other utilities.
PJM Interchange Power Sales Total from energy sales billed..
Unbilled revenues - net.
Other operating revenues Total electric operating revenues................
Average price per kwh billed - cents Residential.
Commercial..
Industrial.
Total for ultimate customers.
Total for system sales.
a) At year-end.
b) Computed using earnings and fixed cha consist of interest on short-and long-te and the estimated interest component of 79
1989 1988 1987 1986 1985 1984 1983-1 993 1983
% Change 632,915 18,850 353,436 305,018
$6,198,693 115,799 552,150 7.598,968 2,650,276 409.990 231,375 2,139,338 95,429 5,526,408 342,912 14.62 9.80 7.62 2.78 2.69 2.7
$2,495,640 605,051 332,042 279,865
$6,056,723 177,333 607,528 7,524,648 2,626,784 438,290 231,375 2,049,831 201,652 5,547,932 372,806 13.86 10.15 7.66 2.65 2.57 2.6
$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 5,582.757 415,206 12.78 10.31 7.77 2.62 2.53 2.5
$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 5.715,823 411,886 12.11 10.53 8.33 2.69 2.58 2.3
$2,566,288 536,115 290,613 199,327
$5,776,687 161,684 699,448 7,255,918 2,664,564 691,010 231,375 1,905,700 247,260 5,739,909 405,456 10.42 11.23 10.02 2.28 2.19 2.3
$2.212,482 418,689 318,903 226.758
$3,856,738 2,020,780 733.002 7,231.058 2,674,036 738,027 231,375 1,896,987 278,652 5,819,077 411,225 12.30 11.11 9.94 2.24 2.06 2.7
$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 5,543.048 379,725 12.29 10.98 9.66 2.20 2.05 2.9 36.9 87.3 17.6 49.5 69.3 (86.2)
(40.4) 40.2 7.5 (53.1)
(25.9) 37.2 (42.4) 4.'6 (34.4) 6.3 (21.4)
(34.8) 51.4 61.5 13.8 50,845 150,628 132,197
$2.02
$1.43
$14.18
$21-1/2 71 7.33 9.63 150,497 150,141 137,450
$1.86
$1.38
$13.62
$18-1/8 74 7.70 9.61 149.945 149.289 141,843
$ 1.66
$ 1.34
$ 13.13
$16-1/2 81 7.37 10.95 149.026 149,026 147,611
$1.55
$1.29
$ 12.85
$18-1/4 83 7.30 11.39 149,026 149,026 151,025
$1.34
$1.28
$12.79
$14-3/8 96 9.81 9.76 149,026 145,534 162,903
$1.56
$1.24
$12.73
$12-5/8 80 11.00 7.24 140,670 137,284 169,142
$1.53
$1.20
$12.56
$10-3/8 79 10.48 7.48 8.1 10.6 (22.7) 35.3 37.5 2?.0 160.2 1.3 (46.2) 89.0
$776,673 612,762 488,691 80,144 316,508 255,245 39,628 61,588
$T68,051 592,023 495,968 75,507 277,971 268,526
$737.066 572,623 492,491 74.22S 282,799 359,449 (18,187)
(84,888) 34,073 21.900
$714,753 557,216 473,488 74,047 299.663 282.259 52,344 25.033
$634,669 492,686 438,427 64,223 255,875 556,926 78,545 38,163
$591,922 441,651 411,533 59,526 52,724 623,328 (9,725) 33,657
$529,911
'86;617 367,950 47.275 39,012 720,462 (119,539) 13,694 70.9 90.2 42.5 92.9 69.4 703.8 (86.6) 27.5 97.9 349.5 37.3 7.72 7.40 5.60
- 6. 89 7.79 7.46 5.64 7.02 6.91 8.05 7.68 5.84 7.23 T.12 8.15 7.78 5.93 7.34 7.25 7.60 7.32 5.55 6.85 6.77 7.00 6.77 5.07 B.30 6.23 6.51 6.32 4.83 5.91 5.83 2B.O 24.1 19.3 24.7 24.7 (c) Based on average of month-end market prices.
80
SELECTED FINANCIALAND OPERATING DATA 1993 1992 1991 1990 ELECTRIC OPERATIONS (Continued)
Sales Data Customers(a)
Average annual residential kwh use Electric energy sales billedmillions of kwh Residential Commercial Industrial Other System sales Contractual sales to other utilities PJM interchange power sales Total electric energy sales billed........~........
Sources of energy soldmillions of kwh Generated Coal-fired steam stations Nudear steam station (b)
Oil-fired steam station Combustion turbines and diesels (oil)..........
Hydroelectric stations Power purchases Company use, line losses and other....
Total electric energy sales billed.......
1,203,139 10,503 11,043 9,373 9,100 1,534
~SU 7,142 4.142 1,186,682 10,207 10,604 9,039 8,746 1,366 257!K 7.327 5,160
~nor 24,960 12,181 1,452 16 637 25,153 12,216 1,057 10 750 SP248 PP%
5,586 5,347 (2,498)
(2,291)
~KSSW ~F242 1,173,680 10,101 10,385 8,861 8,456 1,334
~FUSE 7,183 7.553
~sjl2 24,805 14,271 1,939 15 521 4,542 (2,321)
~5772 1,161,232 9,947 10,103 8,538 8,716 1,315 2F672 7,028 8,971
~7T 26,409 13,254 1,442 33 804
~%2 4,634 (1,905)
Generation Data Net system capacitythousands of kw (a)(c)...
Winter peak demand thousands of kw (d)......
Generation by fuel source'k Coal Nudear(b).
Oil..
Hydroelectric Steam station availability'k Coal-fired Nudear (b).
Oil-fired Steam station capacity factor
/o Coal-fired
~
~ ~ ~ 0
~
0 00'
~
Nudear (b).
Oil-fired Fuel Cost Data Cost per kwh generated cents Coal-fired steam stations Nuclear steam station (b)
Oil-fired steam station.
Combustion turbines and diesels (oil)..............~........
Average Cost of fossil fuel received at steam stations Residual oilper barrel Capitalization Ratios'h (a)
Long-term debt Short-term debt
. ~.......~......................~........................
Preferred and preference stock.
Common equity Times Interest Earned Before Income Taxes............
ployees (a).....................................
Em 7,802 6,403 63.6 31.0 3.8 1.6 82.6 73.8 81.9 68.5 73.0 10.1 1.53 0.54 3.89 7.03 1.31
$3S.23
$18.70 46.5 2.0 8.9 42.6 3.37 7,765 7,802 B,130 64.2 31.2 2.7 1.9 81.7 73.7 94.8 68.8 73.0 7.3 1.74 0.54 3.73 7.50 1.42
$41.44
$16.5B 46.7 1.2 9.8 42.3 321 7,981 7,797 5,974 59.7 34.3 4.7 1.3 78.1 88.3 88.7 68.2 85.8 13.5 1.75 0.57 3.58 7.52 1.43
$42.87
$18.76 48.3 1.3 10.8 41.6 3.11 8,144 7,912 5,661 B3.0 31.6 3.5 ~
82.5 80.2 82.8 72.7 80.1 10.0 1.BB 0.59 4.18 7.68 1.41
$40.64
$21.52 44.5 3.8 11.2 40.5 2.93 8,149 (a) Atyear~.
(b) The Company's fiat nuclear unit was placed in commercial operation on June 8, 19a3 and the second unit on February 12, 1985.
81
1969 1988 1987 1986 1985 1984 1983 1983-1993
'tr Change t
1,143,593 10,064 10.061 8.285 8,723 1.333 2rm2 6,956 9.234 2
1
~ 122,633 10,059 9,856
, 7,932 8,799 1,360
'273K 6,268 10,855 1,097,522 9,565 9,157 7,457 8,438 1,285 2EYV 6.201 12.682 6
1,073,151 9,344 8,771 7,159 7,986 1.170 6
5,602 11,018 6
1,055,550 9,034 8,354 6,728 7,907 1,082 2UJTI 4,850 15,433 1,039,385 9,282 8,454 6,527
'8,117 1,043 2
1,002 14,732 m875 1,026,149 9,051 8,138 6,119 7,623 968 845 15,769
~62 17.2 16.0 35.7 53.2 19.4 58.5 35.9 745.2 (73.7) 7.3 27,104 11,916 3,817 107 714 3.586 (2,652) 26,607 12,867 4,186 57 573
~WK 3,027 (2,247) 26,465 13.285 4.095 28 689 ZW62 2.707 (2.049)
~20 25.151 10,151 5,453 17 739 2.032 (1,837) 6 26,237 11,534 4,316 18 612 3,716 (2,079) 26,695 6,295 4,121 32 747 Irate 3,765 (1,780)
'SFH75 26,885 4,509 5,581 45 700
,3T720 3,880 (2.138)
,Pg82 (7 2) 170.1 (74.0)
(64.4)
(9.0) 4.0 44.0 (1 B.8) 7.3 7,864 6,000 62.1 27.3 81.1 72.1 76.3 74.6 72.0 26.6 7,479 5,566 60.1 29.0 9.6 1.3 81.3 77.7 90.1 73.1 77.7 29.1 7.499 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 1.4 78.6 70.7 87.2 72.3 70.5 30.0 7,484 5,519 70.4 1B.B 11.0 2.0 75.2 66.7 68.0 73.3 65.7 28.6 7,494 4,869 71.3 11.9 14.9 1.9 78.8 B7.7 75.8 74.0 67.5 38.8 4.1 31.5 (10.8) 1B0.5 (74.5)
(15.8) 4.8 9.0 8.0 (7.4) 8.1 (74.0) 1.61 0.58 3.03 5.95 1.46
$39.04
$17.71 1.64 0.56 2.76 5.89 1.44
$39.52
$15.95 1.63 0.56 3.23 6.51 1.46
$39.30
$18.51 1.67 0.58 2.96 7.81 1.57
$40.17
$16.83 1.78 0.61 5.02 9.31 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 (8.9)
(18.2)
(25.6)
(31.1)
(39.1)
(8 0)
(37.2) 48.3 47.9 46.9 50.4 47.1 0.2 1.7 3.1 2.1 1.7 11.9 12.4 13.5 12.8 16.7 39.6 38.0 36.5 34.7 34.5 2.88 2.73 2.71
'.80 2.37 O
8,108 8,306 8,301 8,339 8,433 (c) Total generating capacity pius finn capacity purchases less finn capacity sales.
(d) Except for 1989. the winter peaks shown were reached eany in the subsequent year.
46.7 1.9 17.4 34.0 2.35 8,386 45.1 3.6 17.9 33.4 2.29 8,160 3.1 (44.4)
(50.3) 27.5 47.2 (4.8) 82
SHAREOWNER AND INVESTOR INFORMATION The following information is provided as a
service to shareowners and other investors.
Por any questions you may have or additional information you may require about PPSL or your investments in the
- company, please feel free to call the toll-free number listed below, or write to:
George I. Kline, Manager Investor Services Department Pennsylvania Power 6 Light Co.
Two North Ninth Street Allentown, PA 18101-1179 Toll<<Pree Phone Number:
For information regarding your investor account, or other inquiries, call toll-free:
800-345-3085.
Annual Meeting:
The annual meeting of shareowners is held each year on the fourth Wednesday of April.
The 1994 annual meeting will be held at 1:30 p.m.
on Wednesday, April 27,
- 1994, at the F.
M. Kirby Center for the Performing Arts, Public
- Square, Wilkes-Barre, Pa.
A reservation card for meeting attendance is included with shareowners'roxy material.
Proxy Material:
A proxy statement, a
proxy and a
reservation card for the company's annual meeting are mailed in a package that includes this report.
This material was mailed beginning March 15,
- 1994, to all shareowners of record as of March 10, 1994.
Dividends:
For 1994, the dates the declaration of dividends is consideied by the board or its executive committee are:
February 23, May 25, August 24 and November 23, for payment on April 1, July 1 and October 1,
- 1994, and January 1,
- 1995, respectively.
Dividend checks are mailed ahead of those dates with the intention they arrive as close as possible to the payment dates.
Record Dates:
The 1994 record dates for dividends are March 10, June 10, September 9 and December 9.
Direct Deposit of Dividends:
Shareowners may 'choose to have their'ividend checks deposited directly into their checking or savings account.
Quarterly dividend payments are electronically credited on the dividend date, or the first business day thereafter.
Dividend Reinvestment Plan:
dividends on their common or PPSL common stock instead check.
Shareowners may choose to have preferred stocks reinvested in of receiving the dividend by 83
Certificate Saf ekeeping:
Shareowners participating in the Dividend Reinvestment Plan may choose to have their common stock certificates forwarded to the company for safekeeping.
These shares will be registered in the name of the company as agent for plan participants and will be credited to the participants'ccounts.
Lost Dividend or Interest checks:
Dividend or interest checks lost by investors, or those that may be lost in the mail, will be replaced if the check has not been located by the 10th business day following the payment date.
Transfer of Stock or Bonds:
Stock or bonds may be transferred from one name to another or to a new account in the name of another person.
Please call or write regarding transfer instructions.
Bondholder Information:
Much of the information and many of the procedures detailed here for shareowners also apply to bondholders.
Questions related to bondholder accounts should be directed to Investor Services.
Lost Stock or Bond Certificatess Please call or write to Investor Services for an explanation of the procedure to replace lost stock or bond certificates.
Publications:
Several publications are prepared each year and sent to all invi stors of record and to others who request their names be placed on our mailing lists.
These publications are:
Annual Report published and mailed to all shareowners of record in mid-March.
Shareomers'ewsletter an easy-to-read newsletter containing current items of interest to shareowners published and mailed at the beginning of each quarter.
Additionally, a
special year-end edition containing unaudited results of the year's operations is mailed in early February.
Quarterly Review published in May, August and November to provide quarterly financial information to investors.
Periodic Mailings:
Letters from the company regarding new investor
- programs, special items of interest, or other
~
pertinent information are mailed on a non-scheduled basis as necessary.
Duplicate Mailings:
Annual reports and other investor publications are mailed to each investor account.
If you have more than one
- account, or if there is more than one investor in your household, you may call or write to request 84
that only one publication be delivered to your address.
Please provide account numbers for all duplicate mailings.
Form 10-K and PP&L Profile:
The company's annual
- report, filed with the Securities and Exchange Commission on Form 10-K, is available about mid-March.
The PP&L Profile, a 10-year statistical review containing in-depth information about the
- company, is available in May.
Investors may obtain a copy of these publications, at no cost, by calling or writing to Investor Services.
Listed Securities:
New York Stock Exchange Common Stock (Code:
PPL) 4-1/24 Preferred Stock (Code:
PPLPRB) 4.404 Series Preferred Stock (Code:
PPLPRA)
Piscal Agents:
Stock Transfer Agents and Registrars First Chicago Trust Co. of New York P.O.
Box 2506 Suite 4659 Jersey City, NZ 07303-2506 Philadelphia Stock Exchange Common Stock 4-1/24 Preferred Stock 3.354 Series Preferred Stock 4.404 Series Preferred Stock 4.604 Series Preferred Stock Pennsylvania Power
& Light, Co.
Investor Services Department Dividend Disbursing Offi.ce and Dividend Reinvestment Plan Agent Pennsylvania Power
& Light Co.
Investor Services Department Mortgage Bond Trustee Morgan Guaranty Trust Co. of New York Corporate Trust Operations 55 Exchange Place Basement "A"
New York, New York 10260-0023 Bond Interest Paying Agent Pennsylvania Power
& Light. Co.
Investor Services Department 85
Quarterly Financial, Common Stock Price and Dividend Data (Unaudited)
For the Quarters Ended (a)
March 31 June 30 Sept. 30 Dec. 31 (Thousands of Dollars, Except Per Share Amounts) 1993 Operating revenues..............'........
Operating income...............................
Net income.
Earnings applicable to common stock.....
Earnings per common share (b).
Dividends declared per common share (c).
Price per common share High.
Low.
$727,386 171,476 115,749 106,206 0.70 0.4125 30-1/2 26-1/4
$620,439 123,849 69,867 60,231 0.40 0.4125 30-3/4 28-3/8
$683,466 134,129 81,775 74,826 0.49 0.4125 31 29-1/2
$695,711 133,354 80,735 72,978
'0.48 0.4125 30-1/4 26-1/8 1992 Operating revenues Operating income.
Net income..............................................
Earnings applicable to common stock................
Earnings per common share (b).
Dividends declared per common hare (c) per common share igh.
Low...............
$756,834 170,505 113,025 102,603 0.68 o.4o 26-1/2 23-7/8
$645,093 128,162 69,790 59,686 0.39 0.40 26-1/8 24-1/8
$655,912
, 128,061, 72,900 62,825 0.41
$686,283 146,703 91,009 81,115 0.53 0.40 0.40 28-1/4 27-7/8 25-3/4 25-7/8 (a) The Company's electric utilitybusiness is seasonal in nature with peak sales periods generally occurring in the winter months.
Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations.
(b) The sum of the quarterly amounts may not equal annual earnings per share due to changes in the number of common shares outstanding during the year or rounding.
(c) The Company has paid quarterly cash dividends on its common stock in every year since 1946. The dividends paid per share in 1993 and 1992 were
$ 1.6375 and $ 1.5875, respectively.
The most recent regular quarterly dividend paid by the Company was 41.25 cents per share (equivalent to $ 1.65 per annum) paid January 1, 1994.
Future dividends willbe dependent upon future earnings, financial requirements and other factors.
86
Pennsylvania Power & Light Company and Subsidiaries SCHEDULE V - PROPERTY, PLANTAND EQUIPMENT Column A Column B Column C Column D Column E Column
~Deecrt ttce Balance at Beginning of Period Additions at Cost Retirements or Sales Other Changes Balance at Add End of (Thousands of Dollars)
Year Ended December 31 1993 Electric Plant in Service Intangible Steam Production Nuclear Production Hydraulic Production............................
Other Production Transmission Distribution.
General Held for Future Use.............................
Total Electric Plant in Service............
Construction Work in Progress..............
Nuclear Fuel-Owned Leased Property Nuclear Fuel..
Other Total Leased Property (C)...................
Total Electric UtilityPlant...................
Other Property Total Property, Plant and Equipment UtilityPlant Carrying Charges(D)...........
Total
$ 14.856 1.687.011 3.940.623 70,713 33,2B3 409.798 2.154.914 250,046 30.320 8.591.544 211.534 2.467 362,903 162,191 525.094 9.330.639 229,057 9.559,696 29.401 9.589.097
$150 124,346 42,070 9,338 1,772 18,946 156,481 25.943 2,837 381,883 27,066 62,548 968 19,618 20,586 492,083 2,629 494,712 94.712 (B)
$17,063 15,213 99 218 5,583 18,722 3.872 60 60,830 22,955 22,955 83,785 21,537 105,322 105.322
$308 4
571 (834) 53 226 (124)
(63,431) 1,336 1.336 (62.219) 12,232 (74,451) 4,451
, $15,006 1,794,602 3,967,484 79,952 34,817 423,732
" 2,291,839 272,170 32.871 8,912,473 238,600 1,584 365,207 158,854 524,061 9,676,7 197,9 9,874,635 29,401 9,904.036 Year Ended December 31 1992 Electric Plant in Service Intangible Steam Production Nuclear Production Hydraulic Production............................
Other Production Transmission Distribution General Held for Future Use Total Electric Plant in Service............
Construction Work in Progress..............
Nuclear Fuel-Owned Leased Property Nuclear Fuel Other Total Leased Property (C)...................
Total Electric UtilityPlant...................
Other Property Total Property, Plant and Equipment UtilityPlant Carrying Charges(D)...........
Total 87
$ 14.879 1,621.980 3.919,303 70,366 31,323 394.210 1,999,593 219,621 29.B39 8,300,914 183,242 5,198 431,472 151,937 583,409 9,072,763 310.744 9,383,507 29.401
$9,412.908
$693 76,476 37,716, 334 1,915 1B,996 170,711 31,770 1,533 338,144 28,292 40,258 1,756 20,281 22.037 428,731 1,504 430,235 30,235 (B)
$716 11,456 16,467 (14)
(25) 1,445 15,962 1,350 97 47,454 10,027 10.027 57,481 78.911 136,392 136.392
$11 71 (1) 37 572 5
55 (60)
(42,989)
(70,325) 0.325 (113,374) 4,280 (1 17,654) 117.654
$14,856 1,687,011 3,940,623 70,713 33,263 409,798 2,154,914 250,046 30,320 8,591,544 211,534 2,467 362,903 162,191 525,094 9,330,6
- 229, 9,559,6 29.401 9.589.097
Column A Pennsylvania Power & Light Company and Subsidiaries SCHEDULE V - PROPERTY, PLANTAND EQUIPMENT Column B Column C Column D Column E Column F
~oescri tion Balance at Beginning of Period Additions at Cost Retirements or Sales Other Changes Add Deduct A
Balance at End of Period (Thousands of Dollars)
Year Ended December 31 1991 Electric Plant in Service Intangible Steam Production Nuclear Production.
Hydraulic Production............................
Other Production Transmission Distribution..
General Held for Future Use............................
Total Electric Plant in Service............
Construction Work in Progress..............
Nuclear Fuel-Owned Leased Property Nuclear Fuel.
er al Leased Property (C)...................
otal Electric UtilityPlant...................
Other Property.
Total Property, Plant and Equipment UtilityPlant Carrying Charges(D)...........
Total
$1,646 1,560,916 3.917,265 60,388 29,335 391,886 1.875.992 228,319 29.636 8.095.363 143,084 15,991
$544 76,069 35,928 10,529 2,319 3,059 141,058 6,396 571 276,473 40,158 (B) 38,210 436.124 143,500 3,058 17,476 579.624, 20,534 8,834,062 337,782 375,375 2,425 9.201. 245 377.800 9,171.844 377,800 29.401
$15,264 33,890 549 331 380 18,039 2,396 70,849 9,039 9,039 79,888 24,887 104,775 104,775
$12,689 259 (2)
(335) 582 (12,698) 568 (73)
(49,003)
(7,710)
$14,879 1,821,980 3,919,303 70,366 31,323 394,210 1,999,593 219,B21 29,639 8,300,914 183,242 5,198 431,472 151.937 (56,786) 4,576 9,072,763 310,744 (B1.362) 9,383,507 29,401 (A) Unless otherwise noted, amounts generally reflect transfers of land and facilities to and from other categories of property, plant and equipment, sale and leaseback of nuclear fuel and reacquisition of leased nuctear fuel.
(B) Net of transfers to electric plant.
(C) See footnote (E) on Schedule Vl - Accumulated Provision for Depreciation, Depletion and Amortization of Property, Plant and Equipment on page 91 for reconciliation of Leased Property.
(D) Represents utilityplant carrying charges of $28,502 transferred from Nuctear Production and $899 transferred from Steam Production to a Deferred Debit Account in 1986 per Federal Energy Regulatory Commission (FERC) order FA84-12-001.
88
Pennsylvania Power & Light Company and Subsidiaries Column C Column D Additions Charged to Retirements Charged to Clearing Plus Removal Expense and Other Costs Less
~*
- Other Changes Add Deduct B
Balance at End of Period Balance at Beginning of Period
~Descri tion (Thousands of Dollars)
SCHEDULE Vl - ACCUMULATEDPROVISION FOR DEPRECIATION, DEPLETION AND AMORTIZATIONOF PROPERTY, PLANTAND EQUIPMENT Column B Column E 'olumn Year Ended December 31 1993 Electric Plant in Service Intangible Steam Production Nuclear Production (C)........................
Hydraulic Production............................
Other Production Transmission Distribution.....
General Total Electric Plant in Service............
Leased Property Nuclear Fuel (D).
Other Total Leased Property (E)...................
Total Electric UtilityPlant...................
Other Property Total Property, Plant and Equipment Amortization of UtilityPlant Canying Charges Total.
$3.364 741.961 486.735 20,918 25.207 129.889 709.584 82.029 2.199,687 191.002 85.217 276.219 2,475.906 64.286 2,540,192 4.436 2.544.628
$878 58,717 125,451 1,114 1.895 8,505 79,391 10.312 286,263 62,905 16,532 79,437 365,700 3,684 369,384 370,252
$273 1,023 1,297
$25,417 20,051 198 262 5,697 26,783 3,985 82,393 4,192 4,192 5,489 5,489 22,717 22.717 105,110 1S,804 123,914 K5.489 3123.914
$130 1
648 (777) 4
$4,515 775,391 592,137 21,834 26,840 133,345 761,415 89;375 (62,097) 2,679, 49, (62,097) 2,729,054 5,304 62,09
'~2.734,358 (2) 2 404 852 (62,095) 191,812 83.224 Year Ended December 31 1992 ment Electric Plant in Service Intangible Steam Production Nuclear Production (C)...................
Hydraulic Production......................
Other Production Transmission Distribution General Total Electric Plant in Service......
Leased Property Nuclear Fuel (D)
Other Total Leased Property (E).............
Total Electric UtilityPlant.............
Other Property Total Property, Plant and Equip Amortization of UtilityPlant Carrying Charges..
Total.
$3,069 703,618 398,733 20,272 24,512 123,251 658,278 72.685 2,004,418 238,876 75,586 314,462 2,318.880 135,049 2,453,929 3,644 2.457.573
$M5 54,344 112,513 1,115 936 8,207 74,435 9,828 262,243 65,229 15.841 81.070 343,313 7,935 351,248 792 352,040
$146 985 1,131
$716 16,008 24,558 468 241 1,572 23,104 1,421 68,088 3,656 9,866 3,656 9,866 4,787 77,954 78,715 4,787 156,669
'3,364
$7 741,961 47 486,735 (1) 20,918 25,207 3
129,889 (25) 709,584 (17) 2 199 687 (113,103) 191,002 85,217 113,103 276,219 (113,120) 2,475,906 17 64,288 (113,103) 2,540. 92 4,
89
Pennsylvania Power & Light Company and Subsidiaries SCHEDULE VI - ACCUMULATEDPROVISION FOR DEPRECIATION, DEPLETION AND AMORTIZATIONOF a
PROPERTY, PLANTAND EQUIPMENT Column A
~Deecri iicn Column D Column E Column F Balance at End of Period (Thousands of Dollars)
Column B Column C Additions Charged to Retirements Other Balance at Charged to Clearing Plus Removal Changes Beginning Expense and Other Costs Less Add
~*
- Year Ended December 31 1991 Electric Plant in Service Intangible Steam Production...........
Nuclear Production (C)........................
Hydraulic Production.......'.....................
Other Production Transmission Distribution.
General Total Electric Plant in Service............
Leased Property Nuclear Fuel (D)
Other tal Leased Property (E)...................
al Electric UtilityPlant...................
Ot r Property Total Property, Plant and Equipment Amortization of UtilityPlant Carrying Charges......................
Total
$620 671,538 338,903 19,800 24,417 119.017 614.914 65,546 1,854.755 213,755 68.924 280.679 2,135,434 142.189 2,277,623 2.901 2.280.524
$826 50,707 98,990 909 480 8,029 68,475 10,603 239,019
$204 898 1,102 81,745 14,039 95,784 334,803 17,717 352,520 3,537 3,537 4,639 4,639
$35 743 3 263 ~639
$22,151 39,435 616 394 426 24,827 2,597
$1,419 3,524 275 179 9
(3,369)
(284) 1,765
$3,069 703,618 398,733 20,272 24,512 123,251 658,278 72,685 90,446 8,914 (1 2) 2,004,418 (58,624) 238,876 75,588 99,360 24,867 (56,636) 2,318,880 10 135,049 3,644 124,227 (56,626) 2,453,929 (A) Accounts charged on the Consolidated Statement of Income were as follows (thousands of dollars):
Depreciation.
Amortized (deferred) depreciation.....
Fuel.
Other operating expenses.................
Other income and (deductions) other - net.
1993
$271,390 14,249 65,362 18,292 959 1992
$258,357 3,563 71,782 17,378 1991
$246,212 (7,047) 98,043 15,096 959
$357263 (Footnotes continued on the following page.)
90
Depreciation on the Consolidated Statement of Income reconciles with depreciation on the Consolidated Statement of Cash Flows as follows (thousands of dollars):
Depreciation as shown on the Consolidated Statement of Income Depreciation.
Amortized (Deferred) depreciation....
Depreciation included in fuel expense Depreciation included in Other Income and Deductions. Other - net.....................
Amortization of deferred mine development costs included in fuel expense...................
Depreciation as shown on the Consolidated Statement of Cash Flows...................
1993
$271,390 14.249 2.457 959
$289,055 1992
$258,357 3,563 5,708 958 1,462
$270,048 1991
$246,212 15,516 8281.180 Depreciation included in fuel expense represents depreciation of property, plant and equipment used in coal mining opera-tions and oil transportation to provide fuel consumed at generation stations to produce electricity. Depreciation included in Other-net under Other Income and (Deductions) represents depreciation of property not related to utilityoperations.
Amortization of deferred mine development costs included in fuel expense represented the accumulated development costs amortized ratably over the recoverable tonnage of coal produced.
(B) Unless otherwise noted, amounts generally reflect accumulated depreciation on property transferred to and from other categories of property, plant and equipment and reacquisition of leased nuclear fuel.
(C) Consistent with PUC and FERC rate orders. the annual depreciation for,property placed in service at the Susquehanna station prior to January 1, 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 cumulative difference between the amount of depreciation recorded for Susquehanna and the amount that would have been record~
using the straight-line depreciation at the end of 1993, 1992 and 1991 was $282,115, $296,285 and $299,848, respectiv~
See Note 1 on page 52 and Note 10 on page 65 for additional information.
(D) There is no amortization of owned nuctear fuel reflected in Schedule Vl. Only leased nuclear fuel is contained in the Company's reactor and subject to amortization as it is utilized to produce electricity, and that amortization is shown on Schedule VI under Leased Property Nuctear Fuel.
(E) Reconciliation of Leased Property - net of amortization with Schedule V and Schedule VI and with the note to the financial statements concerning leases (1993. Note 9: 1992 and 1991, Note 13 of Form 10-K) is as follows (thousands of dollars):
Total Leased Property (Schedule V)...
Accumulated Provision for Depreciation, Depletion and Amortization (Schedule Vl).......
Total Leased Property - Net...........
Total Leased Property - Net was composed of:
Nuclear fuel owned and leased - net of amortization as shown on the Consolidated Balance Sheet..
Less nuclear fuel owned....................
Nuclear fuel leased (1993, Note 9; 1992 and 1991, Note 13)..........................
Electric utilityplant-other leased property - net of amortization as shown on the Consolidated Balance Sheet.
Total as shown above....................
Leased property included in other property - net of depreciation, amortization and depletion..
Net property under capital leases (1993.
Note 9; 1992 and 1991, Note 13).....
91 1993
$S24,061 275.036
$174,979 1,584 173,395 75,630
$249.025 1992
$S25,094 276,219)
$174,368 2,46 171,901 76,974 2.183
$251,058 1991
$583,409 314,462
$197,794
~5,198 192,596 3,028
$271,975
Pennsylvania Power & Light Company and Subsidiaries SCHEDULE Vill-VALUATIONAND QUAUFYINGACCOUNTS AND RESERVES Column A
~Deecri tice Column B Balance at Beginning of Period Additions Charged to Income Charges to Other Accounts Column C Column D Deductions from Reserves-Losses or Expenses
~Aticebte Column E Balance at End of Period Year Ended December 31 1993 (Thousands of Dollars)
Reserves deducted from assets in the Balance Sheet Uncollectible accounts Obsolete inventory - Materials and Supplies...
Valuation allowance for deferred tax assets.....
$27,660
$18,660 1,406 0
$8,694 (B)
$16,891 1,234 (A)
$29,429 172 8,694 Year Ended December 31 1992 Reserves deducted from assets in the Balance Sheet Accumulated provision for amortization of Mine Development Costs..........................
Uncollectible accounts Obsolete inventory-Materials and Supplies....
Y nded December 31 1991 41,785 27,655 1,886 1,462 16,162 10 43,247 16,157
, 490 (A)(C) 0 27,660 1,406 Reserves deducted from assets in the Balance Sheet Accumulated provision for amortization of Mine Development Costs.....
Uncollectible accounts Obsolete inventory - Materials and Supplies.....
Allowance for net unrealized loss on marketable equity securities...........................
39,218 27,198 2.028 175 5,554 21,996 264 2,987 21,539 406 (A) 175 41,785 27,655 1,886 (A) Amount reflects sale or use of obsolete inventory.
(B) Amount charged to accrued mine dosing costs.
(C) Indudes $441 in connection with the sale of the common stock of a former subsidiary.
92
Pennsylvania Power &Light Company and Subsidiaries SCHEDULE IX-SHORT-TERM BORROWINGS Category of Aggregate Short-Term Rmm!m Balance at End of Period Weighted Average Interest Rate goOg~(,
~li~
Maximum Amount Outstanding During the Period (A)
QolQIBKg Average Daily Amount Outstanding During the Period (B)
QdttmnZ Weighted Average Interest Rate During the Period (C)
(Thousands of Dollars)
Y r
d Bank Loans.
Commercial Paper
$85,260 117,000 3.4 %
$92,674 3.3 210,000
$80,935 87,571 3.3 %
32 Y
r nded Bank Loans..
Commercial Paper 3.9 3.6 93,485 218,000 87,618 82,410 3.9 3.9 Y
r Bank Loans..
Commercial Paper.
r 1
73,170 74,000 5.1 4.9 88,501 229,000 81,779 118,817 62 6.3 (A) Maximum amount outstanding at any month end during the year.
(8) Computed by dividing the sum of the daily ending balances by the number of days in the year.
(C) Calculated by dMding applicable interest expense for the period by the average daily amount of debt outstanding during the period.
93
PART IZZ ITEM 10 DIRECTORS AND EXECUTIVE ORRZCERS OR THE REGISTRANT Information for this item concerning directors of the Company will be set forth in the sections entitled ".Nominees for Directors" and "Directors Continuing in Office" in the Company's 1994 Notice of Annual Meeting and Proxy Statement, which will be filed with the Securities and Exchange Commission not. later than 120 days after December 31,
- 1993, and which information is incorporated herein by reference.
Information required by this item concerning the executive officers of the Company is set forth on pages 21 through 23 of this report.
ZTEM 11 EXECUTZVE COMPENSATION Information for this item will be set forth in the sections entitled "Compensation of Directors,"
"Summary Compensation Table" and "Retirement Plans" in the Company's 1994 Notice of Annual Meeting and Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31,
- 1993, and which information is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OR CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information for this item will be set forth in the section entitled "Stock Ownership" in the Company's 1994 Notice of Annual Meeting and Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31,
- 1993, and which information is incorporated herein by reference.
ZTEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information for this item will be set forth in the section entitled "Certain Transactions Involving Directors or Executive Officers" in the Company's 1994 Notice of Annual Meeting and Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31,
- 1993, and which information is incorporated herein by reference.
94
PART 1V ITEM 14 'XHIBITS'INANCIALSTATEMENT SCHEDULES AND REPORTS ON FORM '8 K
(a)
The following documents are filed as part of this report:
1.
Financial Statements included in response to Item 8.
Independent Auditors'eport Consolidated Statement of Income for the Three Years Ended December 31, 1993 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1993 Consolidated Balance Sheet at December 31, 1993 and 1992 Consolidated Statement of Shareowners'ommon Equity for the Three Years Ended December 31, 1993 Consolidated Statement of Preferred and Preference Stock at December 31, 1993 and 1992 Consolidated Statement of Long-Term Debt at December 31, 1993 and 1992 Notes to Financial Statements Property, Plant and Equipment for the Three Years Ended December 31, 1993 Schedule VI Accumulated Provision for Depreciation, Depletion and Amortization of Property, Plant and Equipment for the Three Years Ended December 31, 1993 Schedule VIII-Valuation and Qualifying Accounts and Reserves for the Three Years Ended December 31, 1993 Schedule IX Short-Term Borrowings for the Three Years Ended December 31, 1993 Schedule V
All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto.
2.
Supplementary Data and Supplemental Financial Statement Schedules included in response to Item 8.
3.
Exhibits Exhibit Index on page 98.
(b)
Reports on Form 8-K:
The following Reports on Form 8-K were filed during the three months ended December 31, 1993:
Re ort dated October 6
1993 95 Item 7.
Financial Statements, Pro Forma Financial Information and Exhibits
Conformed copy of Underwriting Agreement and Statement with Respect to Shares Domestic Business Corporation related to the sale by the Company of 850,000 shares of 6.754 Series Preferred Stock
($ 100 Par, Cumulative) filed as Exhibits to the Report, on Form S-K.
No financial statements were required to be filed with the above-referenced report.
Re ort dated October 29 1993 Item 7.
Financial Statements, Pro Forma Financial Information and Exhibits Conformed copy of Underwriting Agreement and Fifty-eighth Supplemental Indenture related to the Company's issuance of
$150,000,000 principal amount of First Mortgage Bonds, 6-3/44 Series due 2023, filed as Exhibits to the Report on Form S-K.
4 No financial statements were recpxired to be filed with the above-referenced report.
96
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PENNSYLVANIA POWER
& LIGHT COMPANY (Registrant)
B Si ned William F. Hecht William F. Hecht Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Title B
Si ned William F. Hecht William F. Hecht Chairman, President and Chief Executive Officer Principal Executive Officer and Director B
Si ned R.
E. Hill R.
E. Hill Senior Vice President:
Financial Richard S. Barton Nance K. Dicciani Edward Donley Rev. Daniel G. Gambet Elmer D. Gates John T. Kauffman Robert Y. Kaufman Francis A. Long Norman Robertson Principal Financial and Accounting Officer Directors B
Si ned William F. Hecht William F. Hecht, Attorney-in-fact Date:
February 23, 1994 97
PENNSYLVANIA POWER AND LIGHT COMPANY EXHIBIT INDEX The following Exhibits indicated by an asterisk preced-ing the Exhibit number are filed herewith.
The balance of the Exhibits have heretofore been filed with the Commission and pursuant to Rule 12(b)-32 are incorporated herein by reference.
Exhibits indicated by a a are filed or listed pursuant to Item 601(b)(10)(iii) of Regulation S-K.
3 (i)
- 3(ii) 4 (a) -1 4 (a) -2 4 (a) -3 4(a) -4 Copy of Restated Articles of Incorpora-tion (Exhibit 3(i) to the Company's Form 8-K Report (File No. 1-905) dated January 26, 1994)
Copy of By-laws (paper filing as Exhibit
'3(b) to the Company's Form 10-'K Report (File No. 1-905) for the year ended December 31, 1991i electronic filing made herein)
Copy of Amended and Restated Employee Stock Ownership Plan, dated October 26, 1988 (Exhibit 4(b) to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1988)
Copy of Amendment No.
1 to said Employee Stock Ownership Plan, effective January 1,
1989 (Exhibit 4(b)-2 to the Company's Form 10-K Report, (File No. 1-905) for the year ended December 31, 1989)
Copy of Amendment No.
2 to said Employee Stock Ownership Plan, effective January 1,
1990 (Exhibit 4(b)-3 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1989)
Copy of Amendment No.
3 to said Employee Stock Ownership Plan, effective January 1,
1991 (Exhibit 4(b) -4 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1990) 98
Copy of Amendment No.
4 to said Employee Stock Ownership Plan, effective January 1,
1991 (Exhibit 4(a)-5 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1991)
Copy of Amendment No.
5 to said Employee Stock Ownership Plan, effective October 23, 1991 (Exhibit 4(a)-6 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1991)
Copy of Amendment No.
6 to said Employee Stock Ownership Plan, effective'anuary 1,
1990 and January 1,
1992 (Exhibit 4(a)-7 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991)
Copy of Amendment No.
7 to said Employee Stock Ownership Plan, effective January 1,
1992 (Exhibit 4(a)-8 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1991) n Copy of Amendment No.
8 to said Employee Stock Ownership Plan, effective July 1, 1992 (Exhibit 4(a)-9 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1992)
Copy of Amendment No.
9 to said Employee Stock Ownership Plan, effective January 1,
1993 (Exhibit 4(a)-10 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1992)
Copy of Amendment No.
10 to said Employee Stock Ownership Plan, effective January 1,
1993 Mortgage and Deed of Trust, dated as of October l, 1945, between the Company and Guaranty Trust Company of New York (now Morgan Guaranty Trust Company of New, York),, as Trustee (Exhibit 2(a)-4 to Registration Statement No. 2-60291)
Supplement, dated as of July 1, 1954, to said Mortgage and Deed of Trust (Exhibit 2(b)-5 to Registration Statement No. 219255)
Supplement, dated as of March 1, 1964, to said Mortgage and Deed of Trust (Exhibit 2(a)-12 to Registration Statement No.
2-60291)
Supplement, dated as of June l, 1966, to said Mortgage and Deed of Trust (Exhibit 2(a)-13 to Registration Statement No.
2-60291)
Supplement, dated as of November 1,
- 1967, to said Mortgage and Deed of Trust (Exhibit 2(a)-14 to Registration State-ment No. 2-60291)
Supplement, dated as of January 1,
- 1969, to said Mortgage and Deed of Trust (Exhibit 2(a)-16 to Registration State-ment No. 2-60291)
Supplement, dated as of June 1,
1969, to said Mortgage and Deed of Trust (Exhibit 2(a)-17 to Registration Statement No.
2-60291)
Supplement, dated as of March 1, 1970, to said Mortgage and Deed of Trust (Exhibit 2(a)-18 to Registration Statement No.
2-60291)
Supplement, dated as of February 1,
- 1971, to said Mortgage and Deed of Trust (Exhibit 2(a)-19 to Registration State-ment No. 2-60291)
Supplement, dated as of February 1,
- 1972, to said Mortgage and Deed of Trust (Exhibit 2(a)-20 to Registration State-ment No. 2-60291)
Supplement, dated as of January 1,
- 1973, to said Mortgage and Deed of Trust (Exhibit 2(a)-21 to Registration State-ment No. 2-60291) 100
Supplement, dated as of May 1, 1973, to said Mortgage and Deed of Trust (Exhibit 2(a)-22 to Registration Statement No.
2-60291)
Supplement, dated as of December 1,
- 1976, to said Mortgage and Deed of Trust (Exhibit 2(a)-26 to Registration State-ment No. 2-57633)
Supplement, dated as of December 1,
- 1977, to said Mortgage and Deed of Trust (Exhibit 2(a)-28 to Registration State-ment No. 2-60291)
Supplement, dated as of March 1, 1984, to said Mortgage and Deed of Trust (Exhibit 4(a) to the Company's Form 8-K Report (File No. 1-905) dated April 24, 1984)
Supplement, dated as of August 15,
- 1984, to said Mortgage and Deed of Trust (Exhibit 4(b) to the Company's Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 1984)
Supplement, dated as of June 15, 1985, to said Mortgage and Deed of Trust (Exhibit 4(a)-35 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1985)
Supplement, dated as of January 1,
- 1989, to said Mortgage and Deed of Trust (Exhibit 4(a) to the Company's Form'-K Report (File No. 1-905) dated February 2,
1989)
Supplement, dated as of October 1,
- 1989, to said Mortgage and Deed of Trust (Exhibit 4(a) to the Company's Form 8-K Report (File No. 1-905) dated November 6, 1989)
Supplement, dated as of July 1, 1991, to said Mortgage and Deed of Trust (Exhibit 4(a) to the Company's Form 8-K Report (File No. 1-905) dated July 29, 1991)
Supplement, dated as of May 1, 1992, to said Mortgage and Deed of Trust, (Exhibit 4(a) to the Company's Form 8-K Report (File No. 1-905) dated June 1,
1992)
Supplement, dated as of November 1,
- 1992, to said Mortgage and Deed of Trust (Exhibit 4(b)-29 to the Company's Form 10-K Report (File 1-905) for the year ended December 31, 1992)
Supplement, dated as of February 1,
- 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to the Company's Form 8-K Report (File No. 1-905) dated February 16, 1993)
Supplement, dated as of= April 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to the Company's Form 8-K Report (File No. 1-905) dated April 30, 1993 Supplement, dated as of June 1,
1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to the Company's Form 8-K Report (File No. 1-905) dated July 7, 1993)
Supplement, dated as, of October 1,
- 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to the Company's Form 8-K Report (File No. 1-905) dated October 29, 1993)
Conformed copy of Revolving Credit, and Term Loan Agreement, dated as of July 1,
- 1985, between the Company and the Banks named therein (Exhibit 10(a)-2 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1986)
Copy of First Amendment, dated September 30, 1989, to said Revolving Credit and Term Loan Agreement (Exhibit 10(a)-2 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 102
10 (a) -3 10(a) -4 10 (a) -5 10 (a) -6 10 (b) 10 (c)-l 10 (c) -2 Copy of Second Amendment, dated June 30, 1991, to said Revolving Credit and Term Loan Agreement (Exhibit 10(a)-3 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1991)
Copy of Third Amendment, dated June 30, 1991, to said Revolving Credit and Term Loan Agreement (Exhibit 10(a)-4 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1991)
Copy of Fourth Amendment, dated September 30, 1991, to said Revolving Credit and Term Loan Agreement (Exhibit 10(a)-5 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991)
Copy of Fifth Amendment, dated June 1,
1992, to said Revolving Credit and Term Loan Agreement (Exhibit 10(a) -6 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1992)
Copy of Pollution Control Facilities Agreement, dated as of May 1,
- 1973, between the Company and the Lehigh County Industrial Development Authority (Exhibit 5(z) to Registration Statement No.
2-60834)
Copy of Interconnection Agreement, dated September 26,
- 1956, among Public Service Electric
& Gas Company, Philadelphia Electric Company, the Company, Baltimore Gas
& Electric Company, Pennsylvania Electric Company, Metropolitan Edison
- Company, New Jersey Power
& Light Company and Jersey Central Power
& Light Company (Exhibit 5(e) to Registration Statement No. 2-60291)
Copy of Supplemental Agreement, dated April 1, 1974, to said Interconnection Agreement (Exhibit 5(f)-4 to Registration Statement No. 2-51312)
Copy of Supplemental Agreement, dated June 15, 1977, to said Interconnection Agreement (Exhibit 5(e)-5 to Registration Statement No. 2-60291)
Copy of Agreement of Settlement and Com-
- promise, dated July 25,
- 1980, among the parties to said Interconnection Agreement (Exhibit 20(b)-8 to the Company's Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 1980)
Copy of Supplemental Agreement, dated March 26, 1981, to said Interconnection Agreement (Exhibit 10(b)-10 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1981)
Copy of Revisions to Schedules 4.02, 7.01, and 9.01, all effective August 9, 1982, to said Interconnection Agreement (Exhibit 10(e)-11 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1982)
Copy of Schedules 4.02, 5.01, 5.02, 5.04, 5
05@
6'1i 6 03' '4i 7 '1g 7'2 7 03/
all effective February 6,
1984, to said Interconnection Agreement (Exhibit 10(e)-
8 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1985)
Copy of Schedule 5.03, Revision l, Exhibit A, revised May 31, 1985, to said Interconnection Agreement (Exhibit 10(e)-10 to the Company's Form 10-K Report (File No. 1-905) for the year ended'December 31, 1985)
Copy of Schedule 4.02, Revision No. 2, effective December 4, 1989, to said Interconnection Agreement (Exhibit 10(d)-13 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 104
, 10(c) -10 10 (c) -11 10 (c) -12 10 (c) -13 10 (c) -14
- 10(c)-15 10 (d)
Copy of Schedule 5.06, Revision No. 1, effective June 1,
1990, to said Inter-connection Agreement (Exhibit 10(d)-14 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1990)
Copy of Schedule 2.21, Revision No. 1, effective June 1,
1990, to said Inter-connection Agreement (Exhibit 10(d)-15 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1990)
Copy of Schedule 2.212, Revision No. 2, effective June 1, 1990, to said Inter-connection Agreement (Exhibit 10(d)-16 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31,
,1990)
Copy of Schedule 9.01, Revision No. 4, effective June 1,
1992, to said Inter-connection Agreement (Exhibit 10(d)-18 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1990)
Copy of Schedule 3.01, Revision No. 3, effective June 1,
1992, to said Inter-connection Agreement (Exhibit 10(c)-15 to
,the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1991 Copy of Schedule 4.01, Revision No. 13, effective June 1,
1993, to said Intercon-nection Agreement Copy of Capacity and Energy Sales Agree-
- ment, dated June 29,
- 1983, between the Company and Atlantic City Electric Company (Exhibit 10(f)-2 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1983) 105
Copy of Capacity and Energy Sales Agree-
- ment, dated March 9,
- 1984, between the Company and Jersey Central Power
& Light Company (Exhibit 10(f)-3 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1984)
Copy of First Supplement, effective February 28, 1986, to said Capacity and Energy Sales Agreement (Exhibit 10(e)-4 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1986)
Copy of Second Supplement, effective January 1,
1987, to said Capacity and Energy Sales Agreement (Exhibit 10(g)-3 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989)
Copy of amendments to Exhibit A, effec-tive October 1,
1987, to said Capacity and Energy Sales Agreement (Exhibit 10(e)-6 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1987)
Copy of Third Supplement, effective December 1,
1988, to said Capacity and Energy Sales Agreement (Exhibit 10(g)-5 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989)
Copy of Fourth Supplement, effective December 1,
1988, to said Capacity and Energy Sales Agreement (Exhibit 10(g) -6 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989)
Copy of Capacity and Energy Sales Agree-
- ment, dated December 21,
- 1989, between the Company and GPU Service Corporation (Exhibit 10(h) to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 106
10(f) -2 10(g) -1 10(g) -2 10 (e) -3 10(g) -4 a10 (h) -1
~ 10 (h) -2 Copy of First Supplement, effective June 1,
1991, to said Capacity and Energy Sales Agreement between the Company and GPU Service Corporation (Exhibit 10(f)-2 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991)
Copy of Capacity and Energy Sales Agree-ment, dated January 28,
- 1988, between the Company and Baltimore Gas and Electric Company (Exhibit 10(e)-7 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1987)
Copy of First Supplement, effective November 1, 1988, to said Capacity and Energy Sales Agreement (Exhibit 10(i)-2 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989)
Copy of Second Supplement, effective June 1,
1989, to said Capacity and Energy Sales Agreement (Exhibit 10(i)-3 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1989)
Copy of Third Supplement, effective June 1,
1991, to said Capacity and Energy Sales Agreement between the Company and Baltimore Gas
& Electric Company (Exhibit 10(g)-4 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991)
Copy of Amended and Restated Directors Deferred Compensation Plan, effective January 1,
1990 (Exhibit 10(q) to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1990)
Copy of Amendment No.
1 to said Directors Deferred Compensation Plan, effective January 1,
1991 (Exhibit 10(h)-2 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1991) 107
Copy of Amendment No.
2 to said Directors Deferred Compensation Plan, effective October 23, 1991 '(Exhibit 10(h)-3 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1991)
Copy of Amendment No.
3 to said Directors Deferred Compensation Plan, effective January 1,
1992 and April 1, 1992 (Exhibit 10(h)-4 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991)
Copy of Directors Retirement Plan, effec-tive January 1,
1988 (Exhibit 10(f) -2 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1988)
Copy of Amendment No.
1 to said Directors Retirement Plan, effective January 1,
1991 (Exhibit 10(i)-2 to the Company's Form 10-K'eport (File No. 1-905) for the year ended December 31, 1991)
Copy of Amendment No.
2 to said Directors Retirement Plan, effective October 23, 1991 (Exhibit 10(i)-3 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991)
Copy of Amendment No.
3 to said Directors Retirement Plan, effective January 1,
1992 (Exhibit 10(i)-4 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991)
Copy of Amended and Restated Deferred Compensation Plan for Executive Officers, effective January 1,
1990 (Exhibit 10(s) to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990)
Copy of Amendment No.
1 to said Officers Deferred Compensation Plan, effective January 1,
1991 (Exhibit 10(j)-2 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1991) 108
>>0(j) -3
~10(j) -4
~10(k) -1
~ 10 (k),-2
~ 10 (k) -3
~ 10 (k) -4 a10 (k) -5 Copy of Amendment No.
2 to said Officers Deferred Compensation Plan, effective October 23, 1991 (Exhibit 10(j)-3 to the Company's Form 10-K Report (File No.
1-905) for the year ended December 31, 1991)
Copy of Amendment No.
3 to said Officers Deferred Compensation Plan, effective January 1,
1992 and April 1, 1992 (Exhibit 10(j)-4 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991),
Copy of Supplemental Executive Retirement Plan, effective January 1,
1987 (Exhibit 10(f)-3 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1986)
Copy of Amendment No. 1, effective January 1,
1987, to said Supplemental Executive Retirement Plan (Exhibit 10(f)-4 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1987)
Copy of Amendment No. 2, effective January 1,
1990, to said Supplemental Executive Retirement Plan (Exhibit 10(t)-3 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990)
Copy of Amendment No. 3, effective November 1, 1990, to said Supplemental Executive Retirement Plan (Exhibit 10(t)-
4 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990)
Copy of Amendment No. 4, effective January 1,
1991, to said Supplemental Executive 'Retirement Plan (Exhibit 10(k)-5 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) 109
Copy of Amendment No. 5, effective October 23, 1991, to said Supplemental Executive Retirement Plan (Exhibit 10(k)-6 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991)
Copy of Amendment No. 6, effective January 1,
1992, to said Supplemental Executive Retirement Plan (Exhibit 10(k)-7 to the Company's Form 10-K Report (File No., 1-905) for the year ended December 31, 1991)
Copy of Amendment,No.
7, effective July 1, 1992, to said Supplemental Execu-tive Retirement Plan (Exhibit 10(k)-8 to the Company's Form 10-K Report (File No.
'1-905) for the year ended December 31, 1992)
Copy of Amendment No. 8, effective.
January 1,
1993, to said Supplemental Executive Retirement Plan Copy of Executive Retirement Security Plan, effective January 1,
1987 (Exhibit 10(f) -4 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1986)
Copy of Amendment No.
1, effective January 1,1987, to said Executive Retirement Security Plan (Exhibit 10(f)-6 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31I 1987)
Copy of Amendment No. 2, effective January 1,
1990, to said Executive Retirement Security Plan (Exhibit 10(u)-3 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990)
Copy of Amendment No. 3, effective November 1, 1990, to said Executive Retirement Security, Plan (Exhibit 10(u)-4 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990) 110
a10 (l)-5
~ 10 (l)-6 a10 (l)-7
- a10 (l)-8 a10 (m) -1
~ 10 (n) 10 (o)
Copy of Amendment No. 4, effective January 1,
1991, to said Executive Retirement Security Plan (Exhibit 10(l)-5 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31',
1991)
Copy of Amendment No. 5, effective October 23, 1991, to said Executive Retirement Security Plan (Exhibit 10(l)-6 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31) 1991)
Copy of Amendment No. 6, effective January 1,
1992, to said Executive Retirement Security Plan (Exhibit 10(l)-7 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991)
Copy of Amendment No. 7, effective January 1,
1993, to said Executive Retirement Security Plan Copy of Amended and Restated Incentive Compensation Plan, effective July 1, 1992 (Exhibit 10(m)-4 to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1992)
Description of Executive Incentive Cash Award Program, effective January 1,
1990-" (Exhibit 10(n) to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1992)
Conformed copy of Nuclear Fuel Lease, dated as of February 1,
- 1982, between the
- Company, as lessee, and Newton I.
Waldman, not in his individual capacity, but solely as Cotrustee of the Pennsyl-vania Power
& Light Energy Trust, as lessor (Exhibit 10(g) to the Company's Form 10-K Report (File No. 1-905) for the year ended December 31, 1981)
'/
This description is provided pursuant to 17 C.F.R.
g 229 '01(b)(10)(iii)(A).
- 12
- 23(a)
- 23 (b)
Computation of Ratio of Earnings to Fixed Charges Consent of Deloitte
& Touche Consent of Counsel
- 24 Power of Attorney II Certain long-term debt instruments of the Company's consolidated subsidiaries have been omitted from this filing pursuant to 17 C.F.R.
Q 229.601(b)(4)(iii)(A).
The Company will furnish a copy of any such instrument to the Commission upon request.
112
Exhibit 12 PENNSYLVANIAPOWER 8 LIGHTCOMPANYANDSUBSIDIARIES COMPUTATIONOF RATIO OF EARNINGS TO FIXED CHARGES (Thousands of Dollars) 1993 1992 1991 1990 1989 Fixed charges, as defined:
Interest on long-term debt Interest on short-term debt and other interest Amortization ofdebt discount, expense and premium - net.
Interest on capital lease obligations Charged to expense Capitalized Estimated interest component of operating rentals Proportionate share of fixed charges of 50-percent-or-less-owned persons.
~.
Total fixed charges
'2,645 11,955 1,798 1,447 20,875 1,379 26,130 30,302 1,429 1,497 9,059 10,473 20,518 23,012 25,178 927 1,618 2,894 6,124 11,666 5,411 5,357 4,854 4,995 5,073 1,299 1,456 1,567 1,662 1,698
$256.939
$272,566
$284,179
$302.602
$330,637
$225,800
$240,260
$232,092
$239,250
$255,223 Earnings, as defined:
Net income
~
10 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
~
~
~
~ I~ ~ ~ ~ ~
Less undistributed income of less than 50-percent-owned persons......................
Add (Deduct):
Federal income taxes State income taxes............
Deferred income taxes.
investment tax credit - net Income taxes on other income and deductions - net Amortization of capitalized interest on capital leases.............
Total fixed charges as above (excluding capitalized interest on capital lease obligations).........
Total earnings 40 348,126 346,724 348,414 343,906 353,396
, 162,795 144,546 114,904 86,950 63,508 64,648 49,534 30,564 22,367 33,175 51,772 68,903 (13,506)
(14,029) 1,156 9,884 85,634 30,853 76,786 13,916 (1,280) 322 (903)
(2,174)
(3,514) 11,696 12,820 16,965 15,785 13,496 256,012 270,948 281,285 296,478 318.971
$849,718
$859.154
$863,127
$850,296
$889,538
$348,126
$346,724
$348,414
$343,906
$353,436 Ratio of earnings to fixed charges
~
3.31 3.15 3.04 2.81 2.69 ~
113