ML18040B048
| ML18040B048 | |
| Person / Time | |
|---|---|
| Site: | Susquehanna  |
| Issue date: | 12/31/1983 |
| From: | Campbell R, Curtis N PENNSYLVANIA POWER & LIGHT CO. |
| To: | Harold Denton Office of Nuclear Reactor Regulation |
| References | |
| PLA-2145, NUDOCS 8403270195 | |
| Download: ML18040B048 (53) | |
Text
REGULATORY 1 ORMATION DISTRIBUTION SYS (RIDS)
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ACCESSION NBR:8403270195 DOC DATE: NOTARIZED! NO DOCKET Electric Stationg Unit li Pennsylva
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FACIE:50 387 Susquehanna Steam 05000387 50 388 Susquehanna Steam Electric Stationi Unit 2i Pennsylva 05000388 AUTHeNAME AUTHOR AFFILIATION CAMPBELLgR<K, Pennsylvania Power 8 Light Co ~
-CURTIS~R,Ki Pennsylvania Power 8 Light Co, AEC IP ~ NAME RECIPIENT AFFIL IATION, DENTONiH ~ Re Office of Nuclear Reactor egu'lationi Director>>
SUBJECT; Annual Financial Rept 1983.N/840322 'Itr.
DISTRIBUTION CODEe M004S COPIES RECEIVED:LTR TITLE: Annual Financial Reports g ENCL/ ;o SIZE:
NOTES: 1cy NMSS/FCAF/PM, LPDR 2cys. 05000387 1cy NMSS/FCAF/PM'PDR 2cys, 05000388 RECIPIENT COPIES RECIPIENT COPIES ID CODE/NAME LTTR ENCL ID CODE/NAME LTTR ENCL NRR LB2 BC 1 0 NRR LB2 LA 01 1 1 PERCHiR ~ 1 0 INTERNAL REG FILE, 04 1 1 SP 1 1 EXTERNAL'PDR 2 2 NRC PDR "02 1 1 NOTES'5 NTIS 05 1 3
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TOTAL NUMBER OF COPIES REQUIRED! LTTR 12 ENCL 10
NOTICE
,THE ATTACHED FILES ARE OFFICIAL RECORDS OF THE DIVISION OF DOCUMENT CONTROL. THEY HAVE BEEN CHARGED TO YOU FOR A LIMITED TIME PERIOD AND MUST BE RETURNED TO THE RECORDS FACILITY BRANCH 016. PLEASE DO NOT SEND DOCUMENTS CHARGED OUT THROUGH THE MAIL. REMOVAL OF ANY D PPD A',g PAGE(S) FROM DOCUMENT FOR REPRODUCTION MUST BE REFERRED TO FILE PERSONNEL. P h
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Contents Highlights 1 President's Letter 2 Year in Review 5 Financial Review 22 Selected Financial and Operating Data 28 Financial Statements 30 Notes to Financial Statements 38 Supplementary Information on Changing Prices 43 Summary of Quarterly Results 46 Common Stock and Dividend Data 46 Officers and Directors 48 NV
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Sl IIARRISBURO LANCASTER Pl I I LA DE LPI I I A MD BALTIMORE Cover Service'rea A PP&L line truck moves along Pennsylvania Power & Light Companyis Interstate Route 80 near Lock Haven, based in Allentown. It provides electric Pa. at the western border of PP&L's service to more than a million homes and service territory-the area is just one of many examples of beautiful Central businesses throughout a 10,000.square. mile Eastern Pennsylvania. PP&L's service area in 29 counties of Central Eastern area has it all-good transportation, a Pennsylvania. Principal citiesin the PP&L conscientious work force, recreation service area are Allentown, Bethlehem, opportunities in abundance, and Harrisburg, Hazleton, Lancaster, Scranton, excellent educational institutions. 1Villiamsport and IVilhes-Barre.
With a low-cost and reliable supply of electricity, available industrial and commercial sites, and attractive, agreeable lifestyle opportunities in a pleasant blend of urban and rural areas, Central Eastern Pennsylvania has all the qualities for business and personal development. You'l find examples throughout this report of why PPEcL has so much pride in its service area. This is a great place tobe!
1983 1982 Customers (a) 1,026,144 1,013,623 Common Shareowners (a) 169,142 169,127 Kilowatt-hours of Electric Energy Sales Customers 23.1 Billion 22.3 Billion Interchange Power 16.4 Billion 6.9 Billion Kilowatt hours of Electricity Generated . 37.7 Billion 29.6 Billion Operating Revenues $ 1.2 Billion $ 1.2 Billion Capital Provided by Investors (a) $ 5.3 Billion $ 5.0 Billion Utility Plant (a)
Net Plant in Service $ 3.8 Billion $ 2.1 Billion Construction Work in Progress $ 1.7 Billion $ 2.9 Billion Common Stock Data Return on Average Common Equity 12.29% 13.60%
Earnings Per Share $ 3.06 $ 3.35 Dividends Declared Per Share . $ 2.40 $ 2.32 Book Value Per Share (a) ...... $ 25.12 $ 24.71 Times Interest Earned Before Income Taxes . 2.34 2.08 (a) At year end.
k Where the PP&L Income Dollar Went in 1983 3c Earnings Reinvested 14c Net Cost of Energy 17c Dividends 14C Taxes Income includes revenues, other income and the allowance A,
for funds used during construction. 19C Interest 14C Employees 7c Depreciation 120 Materials, Services, Rents, etc.
President's Letter Following a very successful startup testing pro- Progress toward completing construction of Susque-gram, the first of PP&L's two Susquehanna nuclear hanna Unit 2 continues to proceed on schedule for generating units was put into commercial operation commercial operation in the fourth quarter of 1984.
on June 8, 1983. This event highlighted a year of When both units are on line, an average of about significant achievement in several areas, achieve- one-third of our customers'lectricity needs will be ments vital to meeting our commitments to customers supplied by lower-cost nuclear fuel.
and shareowners. The company's significant progress at Susque-The timely completion and the safe and efficient hanna again in 1983 is due to the uncompromising operation of these new generating units continues to commitment to excellence of PP&L people in all be the focus of the company's priorities. By the end of aspects of our nuclear operations.
1984, when both nuclear units are expected to be in commercial operation, the company will have met its Financing and Earnings construction needs for major new generating capacity As construction of Susquehanna winds down this for at least the balance of this century. PP&L's excep- .
year, the company's needs for outside financing will tionally favorable capacity outlook, based on a good continue to decrease. After Unit 2 is in commercial mix of coal and uranium fuels, further strengthens the operation, most of the company's future needs for new company's position as a supplier of reliable and funds should be met by internal cash generation.
competitively priced electric energy. And because of the company's relatively small The company's strategy for the balance of the '80s is future construction and financing requirements after to market the effective use of this strong generating both Susquehanna units are on line, we do not expect capability in a way that will help spark renewed to sell any new shares of common stock after 1984.
economic prosperity in central eastern Pennsylvania. The company's 1983 earnings of$ 3.06 per share were Since the financial health of the company is directly down 29 cents per share from 1982. The main reasons linked to the prosperity of the communities we serve, for the earnings declinewerethelingeringeffectsofthe an economic turnaround in our service area is vital for recession on our service area economy, an increase in achieving a reversal of the company's relatively the number of common shares outstanding and the stagnant sales growth of recent years. disallowance of about $ 90 million in the company's PP&L's commitment to superior customer service request for higher rates. Future earnings will depend provides an important foundation for promoting uses on the outcome of the rate-increase request the com-of electricity in those many applications where its pany plans to file in the second quarter of 1984 for value to customers far exceeds its cost. Our programs are aimed at achieving an average annual increase in kilowatt-hour sales of about 3 percent over the next decade or more.
After rates are increased to recognize the com-mercial operation of Susquehanna Unit 2, requests for future base rate increases can be largely or entirely offset by revenue from increased customer usage. A sales growth of about 3 percent per year, therefore, supports the financial health of the company in an expanding and more prosperous service area while also reducing the need for future rate increases.
Susquehanna Since Susquehanna Unit 1 was placed in com-mercial operation last June until it was shut down in December to permit the tie-in of Unit 2 systems, Unit 1 generated nearly 3.2 billion kilowatt-hours, about 27 percent of the electricity PP&L customers used during that period.
This outstanding record for its first six months of commercial operation demonstrates Susquehanna's value in serving the energy needs of our customers. By
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operating at an average of nearly 79 percent of its /
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C capacity, Susquehanna made an essential contribu-tion to PP&L's record 1983 energy savings. These energy savings permitted the company to reduce our customers'nergy charge in January of this year.
Susquehanna Unit 2 and on achieving higher sales occur. By using the company's generating capacity levels as a result of an improving economy and our in this more efficient manner, additional off-peak stepped-up marketing efforts. sales result in significant savings for customers and shareowners.
Benefits of PP&L's Capacity Mix PP&L's recently approved residential off-peak Although excess generating capacity was the electric rates are an important step in meeting the reason given for over half of the disallowance in the company's objective to increase total kilowatt-hour company's last base rate filing, the fact remains that sales without significantly increasing residential all of our generating capacity is necessary to assure usage of electricity during on-peak hours. These new reliable and economic electric service. From the view- rates offer residential customers a wide choice of point of overall system economies, PP&L has no options and economic incentives to shift more of their excess capacity. Without our existing and planned electric usage to off-peak hours.
capacity mix, long-term reliability and cost of service Since a basic objective of our marketing strategy is would be adversely affected. to attract and hold job-producing businesses, the It was specifically because of PP&L's favorable company also is actively developing a variety of capacity position that the company was able to sell economic incentive rates for business customers to 16.4 billion kilowatt-hours to neighboring utilities expand their operations and usage of electricity.
last year, which resulted in benefits for our customers However, because business uses of electricity gener-of about $ 219 million.These energy savings, by far the ally stimulate economic development whether used on largest in the company's history, were made possible or off-peak, load growth considerations for these
. by the effective operation of all of our generating applications are secondary to encouraging the produc-plants. tive business uses of electricity for achieving eco-For example, by using lower-cost nuclear fuel for nomic prosperity in the company's service area.
PP&L service area customers, Susquehanna frees more of the company's coal-fired generation for sale to Susquehanna Unit 2 Rate Filing neighboring utilities. This, combined with the con-tinued outstanding performance of PP&L's other The company plans to file for an increase in base generating units, resulted in achieving the very rates in the second quarter of 1984 to recognize the significant levels of energy savings experienced commercial operation of Susquehanna Unit 2. These in 1983.
higher rates, however, are not expected to become The benefits derived from PP&L's generating effective until 1985 following extensive investigation capacity are the result of a good mix of low-cost coal and hearings before the Pennsylvania PUC.
and uranium fuels, efficient base-load operation and Consistent with our long-term objective to hold the fact that the company's capacity is greater today increases in the price of electric service at or below the than needed to meet current minimum reliability rate of inflation, we are considering requesting that requirements. this rate increase be phased in over more than one Having both Susquehanna units in service will year to moderate the impact on customers.
further strengthen those advantages. And by selling Notwithstanding the rapidly rising fuel and capital power to other utilities, the company uses its strong costs experienced over the past decade or so, PP&L's generating capacity to keep PP&L's electric rates average price of electric service is still only slightly below the average charged both regionally and above the Consumer Price Index as measured from the nationally. Those power sales also provide a measure CPI base year of 1967. Maintaining or improving on of the enormous long-term advantage of the com- this record is important in achieving our marketing pany's capacity mix for meeting the growth and objectives.
economic development objectives of the communities The continued support from you, our shareowners, we serve. and the dedication and talent of PP&L's employees gives us confidence that we will successfully meet Managed Load Growth these challenges ahead. We willbe doing all we can to Another important objective of PP&L's strategy for bring jobs and prosperity to central eastern Pennsyl-the '80s is to expand electricity usage without experi- vania and vigorous financial health to your encing corresponding increases in peak load growth. company.
Promoting the wise use of electricity to accomplish our customers'bjectives is fully compatible with manag- Respectfully submitted, ing relatively small increases in peak load growth.
However, moderating the level of load growth that normally accompanies increases in kilowatt-hour sales'requires that we offer meaningful economic incentives for customers to shift more of their electrici- Robert K. Campbell ty usage to times when system peak demands do not February 29, 1984
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Year. in Review panies in the Pennsylvania-New Jersey-hfaryland (P JM)
Atlantic City Buys Power Difficulties developed in early Qyerations Interconnection, increased by 1983 regarding a 1979 contract 9.5 billion kilowatt-hours, or calling for Atlantic City Electric Ear'nings for 1983 were $ 3.06 per 138 percent more than a year Co. to purchase 125,000 kilowatts, share of common stock, compared earlier. Total energy generated by or 6.6 percent, of the capacity and to $ 3.35 for 1982. Earnings were the company was up 28 percent in energy of PP&L's share of the adversely affected by higher costs, 1983 over 1982. Susquehanna nuclear units until by a Pennsylvania Public Utility 1991.
Commission (PUC) decision that is not allowing the company to earn a ¹zo Peak Demands Recorded The agreement was accepted by the Federal Energy Regulatory return on 12.6 percent of its invest- A late-season spell of warm weather produced a new summer- Commission (FERC) which has ment in generating facilities, by jurisdiction in the matter. How-the lingering effects of the reces- time peak demand record for both PP&L customers and customers ever, the New Jersey Board of sion during early 1983, and by an Public Utilities had ruled that increase in the number of common of the PJM Interconnection.
shares outstan'ding. An in-depth PP&L's peak summer demand of Atlantic City would not be allowed 4.03 million kilowatts occurred to include in its rates any costs analysis of the year's financial related to the pact.
results begins on page 22. Sept. 6, 1983. The previous record was 4.01 million kilowatts set In an effort to avoid extended earlier in the season on July 18, and costly litigation, PP&L and Dividend Increased Atlantic City in June signed an PP&L's quarterly common stock 1983 which exceeded the old mark of 3.95 million kilowatts set in additional agreement which calls dividend was increased 2 cents per for Atlantic City to purchase about share to 60 cents beginning with September 1980.
PP&L, unlike most PJM com- 125,000 kilowatts of PP&L's coal-the April 1, 1983 dividend. The fired capacity from 1991 to the year quarterly rate had been 58 cents panies, is a winter-peaking company. The winter peak-use 2000.
per share since April 1, 1982. The New Jersey board in October record is 5.2 million kilowatts, set in January 1982, during severe reversed its earlier decision and Revenues and Sales approved Atlantic City's participa-Operating revenues of $ 1.25 bil- cold weather.
P JM maximum demand reached tion in both contracts. The second lion were up slightly from $ 1.22 contract has been submitted to the billion a year earlier. Lower a new mark of 34.7 million kilowatts on Sept. 6 also, up from FERC for approval. Atlantic City revenues associated with a de- Electric Co. serves nearly 400,000 crease in the net cost of energy a 34.4 million kilowatt record reached in July 1980. customers in southern New Jersey essentially offset the effects of and is also a member of the P JM higher base rates granted by the Interconnection.
PUC in August, and the effects of Kutztomn Is Neiv Customer an overall increase in energy sales The borough of Kutztown, Pa.,
for the year. became the 16th PP&L resale cus- Construction Expenditures Kilowatt-hour sales to PP&L's tomer on Sept. 11. The Berks As construction of the com-residential customers were up County municipality had been pany's Susquehanna nuclear plant over a year earlier. After'lightly purchasing electricity for its 1,830 near Berwick, Pa., nears comple-lower sales in the first six months customers from Metropolitan tion, capital expenditures are of 1983, reflecting the effects of the Edison Co. dropping dramatically. In fact, business recession, industrial and In becoming a PP&L resale cus- combined budget figures of $ 474 commercial electric energy sales tomer, Kutztown joined 14 other million for 1984 and $ 214 million showed strong gains in the sec- municipalities and one investor- for 1985 are only slightly more ond half of the year with overall owned utility that purchase bulk than the $ 649 million spent for increases of 4.1 percent and 2.9 power from PP&L and distribute it construction in 1983 alone.
percent, respectively. As a result, through their own systems. Kutz- anticipates spending
'P&L total sales to PP&L customers were town will increase company sales about $ 255 million in 1984 and up about 2.7 percent over 1982. by about 40 million kilowatt.hours 1985 to complete Susquehanna.
Sales to other regional utilities, a year and add a system demand of Another $ 185 million during the including other member com- about 12,000 kilowatts. two years willgo toward additions,
replacements and improvements a nine-month~investigation by the adjustment fails to recognize tHat to transmission and distribution commission of a $ 315 million rate Unit 1 and all of PP&L's other facilities, $ 23 million for projects to increase request made by PP&L on generating facilities are operated minimize the effects of PP&L's Nov. 22, 1982. The company's for the benefit of the operations on the environment, request included about $ 296 mil-compap'y's'ustomers.
and $ 225 million for other expendi- lion in increased rate revenues, These units are currently provid-tures, including modifications and about $ 19 million for increases ing reliable and economic service under a program to extend the life in the state tax surcharge. to the company's ratepayers and of existing generating units. Addi- About two-thirds of the com- are making energy available for tionally, about $ 112 million of pany's rate increase request was economic sales to other utilities.
nuclear fuel will be purchased related to the recognition of Such operation is producing sub-during the two-year period. Susquehanna Unit 1's inclusion in stantial energy cost savings which PP&L owns 90 percent of the the company's rate base. The other benefit all customers because the 2.l-million-kilowattSusquehanna third was to reflect increased costs savings flow directly through to plant. Allegheny Electric Coopera- of doing business. While the PUC ratep ayers.
tive Inc. of Harrisburg owns a permitted Unit 1 to be included in Indeed, at the beginning of 1984, 10 percent share. PP&L's share of the rate base, it ruled that 945,000 PP&L reduced its Energy Cost the estimated $ 4.1 billion total kilowatts (or 12.6 percent of Rate from zero to minus 0.162 cents plant cost willbe about $ 3.7billion. FP&L's system) is excess generat- per kilowatt-hour and customers ing capacity on which the com- began to see the savings as a credit pany should not earn an item on their bills. This was made Rate Activities investment return. At the same possible by the better-than-ex-The PUC allowed the company time the commission trimmed the pected performance of PP&L's to increase its electric rates by company's allowed return on com- generating units, the large volume about $ 203 million a year effective mon equity to 15.5 percent from the of transactions with power sys-Aug. 22, 1983. An additional 16.3 percent the company tems outside the PJM Interconnec-
$ 17 million a year increase in the requeste'd. tion, and the high rates received state tax surcharge also went into The company does not agree for sales to the interconnection.
effect at the same time. with this ruling. The request filed Even after the August rate in.
The PUC decision came after was conservative and fully justi- crease, PP&L customers were many days of public hearings and fied. The generating capacity paying prices lower than the state 0 The 10,000-square-miles of Central Eastern Pennsylvania provide an agreeable blend of urban and rural areas to fit practically any life-style. Whether it's the all-American dream of the single-family home, or an attractive apartment complex, condominium, or a restored townhouse, such as the ones shown at the right in restored Old Town Lancaster-you'l find it all in PPAL's service area.
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~ i 3 Whether it's advanced-technology research and de-velopment, the assembly of trucks to be used around the world, the garment industry or any of the diverse com-mercial and industrial concerns located in Central Eastern Pennsyl vania... the worker is the key. People provide the vital extra ele-0 ~ 0 ment and are the state' greatest resource. Their varied backgrounds, many with old-world ties, provide a rich heritage of conscienti-ous, dependable employees.
and regional averages. One of the but the effective date of the in- that would moderate the impact of company's long-term objectives is crease would be delayed for 50 higher rates by spreading the to keep the price of electricity to its days, until March 4, 1984. increase over several years.
customers below those averages.
Phase-In Concept "Windom" Approved Wholesale Rates The company expects later in The company again requested A request to increase rates to the 1984 to file a request for higher and was granted a "window in company's resale customers by rates that would recognize com- time" in which Susquehanna about 20 percent was filed with the mercial operation of Susquehanna Unit 2 could go into operation with-FERC on Nov. 14, 1983. Unit 2. The unit is expected to go out affecting the rate-setting The request affects only the 15 into service during the fourth process.
boroughs and one investor-owned quarter of 1984 and the new rates Under traditional rules, the utility that buy power from PP&L would be requested to become company would have to predict for resale to their customers. effective shortly thereafter. closely the in-service date of The increase would recognize PP&L received assurances from Unit 2 more than nine months be-higher costs experienced by PP&L the PUC in November that the fore it became operational. This since the previous increase for company could ask for a possible would have been necessary so costs wholesale customers in July 1982. phase-in of the rate increase asso- associated with the plant could be If allowed by the FERC, the new ciated with bringing Susquehanna reflected in base rates at just the rates would raise PP&L annual Unit 2 into base rates, without fear time the unit begins operation.
revenues by about $ 4 million. of having the request rejected on This kind of precise foresight is vir-On Jan. 6, 1984, PP&L sub- procedural grounds. tually impossible with a unit as mitted to the FERC, for its Traditionally, new rates go into complex as Susquehanna Unit 2.
approval, a settlement agreement effect immediately after the PUC With the "window" neither the between the company and its makes a final decision, and cus- company nor its customers are resale customers. Under the terms tomers start paying those higher penalized if the plant goes into of the agreement, the company's rates at that time. The company is operation either earlier or later request would be granted in full, considering a phase-in approach than expected. The window concept
was followed in the rate request about $ 82 milL'on was raised Susquehanna Project associated with Unit l. At the through this plan. 1 at PP&L's Susquehanna
.'nit state consumer advocate's request, During the first four months of nuclear plant was put into com-.
the PUC has agreed to reconsider 1983, the company raised a total of mercial operation on June 8, f988.
its decision to grant the "late" por- $ 56 million through three private PP&L's share of the 1,050,000-kil-tion of the Unit 2 window. placements of preferred stock at owatt unit is 945,000 kilowatts, dividend rates that range from 11 making it the largest generating to 11.25 percent. Additionally, unit in the PP&L system.
Security Sales during February the company Ground was broken at the During 1983, the company raised completed a private placement of Susquehanna site in Luzerne
$ 363 million in the capital markets $ 50 million of 12'/8 percent first County in November 1973. The down from the record $ 947 mil- mortgage bonds. first nuclear fuel arrived at the lion of securities sold a year In May, $ 50 millionof depositary plant in October 1981, and, after earlier. This reduction reflects the preference shares were offered to receipt of an operating license winding down of construction the public by an underwriting from the Nuclear Regulatory Com-activities at the Susquehanna group at $ 25 per share to yield mission, the first fuel was loaded plant. 11.6 percent. Each depositary into Unit 1's reactor in July 1982.
The company's dividend rein- share represents one-quarter share The unit began test operation in vestment plan permits holders of of the company's $ 11.60 preference September 1982, and began gen-common, preferred and preference stock. erating electricity in November stocks to reinvest their dividends In November, the company 1982. Unit 1 achieved 100 percent in common stock at a 5 percent dis- offered $ 125 million of 13'/e percent power for the first time in February count from the market price, and to first mortgage bonds to the public 1983. During its start-up and test-make optional cash payments of through underwriters at 99.076 per- ing period, it generated more than up to $ 15,000 per quarter for stock cent of face value to yield a billion kilowatt-hours of electrici-at the market price. During 1983, 13.25 percent. ty for PP&L's customers.
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1 M41 PP&L's varied service area provides play and recreation areas for all seasons... for all reasons. Whether it' minter sports in the Pocono mountains, camping along a quiet, lazy stream, golfing on championship courses or boating or fishing on PP&L's 5,700-acre Lake Wallenpaupack Central Eastern Pennsylvania provides tourist attractions and outdoor activities to suit j)l every interest. p',
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Thk unit performed extremely emergency sirens within a 10- ~ In May, Herbert D. Woodeshick well during its start-up and testing mile radius of the plant, also was named special assistant to program. The 10 most recent boil- involved municipal, county, President Robert K. Campbell ing water reactors placed in service state, and federal emergency and is serving as the company's before Susquehanna took an aver- agencies. primary representative to those age of 330 days from the start of ~ The NRC issued PP&L a license who live in the area of the fuel loading to the end of 100 per- in April for the operation of its Susquehanna plant. Woodeshick cent power testing. Susquehanna low-level radioactive waste hold- succeeded John H. Saeger, who Unit 1 took 254 days. This out. ing facility at the plant. The was named vice president of the standing performance is a tribute shielded concrete warehouse is company's Susquehanna both to those who operate and capable of holding four Division.
maintain the plant and to those of such items as protec-years'orth
~ Unit 2 moved a step nearer to who built it. tive clothing and tools that be- operation with completion of a There were a number of other come mildly contaminated with fill-and-flush procedure that fills significant events involving radioactivity during the course the 70-foot. high, 750-ton reactor Susquehanna during 1983: of normal plant operation, as vessel with water and flushes well as material such as resins associated systems clean. A hy-
~ The company received high from filters used in the plant. The drostatic test that confirmed the marks for a full-scale drill to test facility was built because of reactor vessel's ability to with-the emergency preparedness and serious concern and uncertainty stand operating pressures response capabilities for the about the availability of licensed followed in June.
plant. The March drill, which outside disposal facilities for this ~ In July, the company and the included the sounding of 110 waste. U.S. Department of Energy l
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OOO The diversity of historical, cultural, educational, athletic, and recreational opportunities in Central Eastern Pennsyluania pro-Uide a pleasant, character-building quality of life throughout the area. It's a great place to raise children.
(DOE) signed a contract for the from growth in the peak demand December that it expects will disposal of spent nuclear fuel for electricity. By doing that stimulate the servile area under provisions of the 1982 through such incentives as off-peak economy.
Nuclear Waste Policy Act. The and interruptible rates PP&L can One revision would allow jhdus-contract provides for disposal use its plants more effectively and trial and commercial customers services by the DOE beginning thus keep rates lower than they who use time-of-day billing to save no later than January 1998 and would be otherwise. money by structuring their work continuing for the life of the PP&L fully recognizes that its schedules more effectively during plant. The material will be customers make an economic the hours when electricity costs placed in a repository to be sited choice each time they flip a switch less. This would provide an incen-and built by the DOE. The com- to operate a work-saving appli- tive to increase production in pany has the capacity to store ance, enjoy electronic entertain- PP&L's service area, rather than spent fuel at the Susquehanna ment, or improve productivity in in another area, as second or third plant site until the scheduled the workplace. The company shifts are recalled in an expanding operation of the first repository. intends to see that this essential economy.
~ Fuel for Unit 2 began arriving at resource is ready and economically On-peak hours, the hours of the plant in August. priced for industrial growth, jobs, highest overall electric use, now economic progress, health care, ed- are 7 a.m. to 9 p.m., Mondays Economic Development/ ucation and personal comfort. through Fridays or 14 hours1.62037e-4 days <br />0.00389 hours <br />2.314815e-5 weeks <br />5.327e-6 months <br /> each Marketing day. The new proposal would re-duce, for billing purposes, the Largely because of Susque- Rate Initiatives number of daily on-peak hours to hanna, and because the company's The company proposed rate eight, and it would allow customers other generating plants produce schedule and tariffrule changes in some flexibilityin determining low-cost energy and are running well, PP&L is moving into the best position ever to provide an abun-dant, reliable and competitively priced supply of electric energy to help revitalize the economy of central eastern Pennsylvania, Using the theme, "Electricity-The Right Choice at the Right OO 0 Time," the company launched a major economic development/ Outstanding educational facilities are another great marketing program in 1988 aimed at improving the economic health strength of Central Eastern Pennsylvania. There are 88 of its service territory and increas- universities and colleges, five community colleges and 24 ing energy sales that offer vocational-technical schools in Central Eastern customer benefits.
In economic development, PP&L Pennsylvania. Public and private schools provide the latest is increasing its efforts to attract in learning technology to help students meet the challenge new job-producing businesses and of a rapidly changing society.
industries to its service area and to help existing ones expand. In mar-keting, the company is actively promoting efficient uses of elec-tricity in selected applications.
These would include areas where electricity offers greater efficiency or where there are cost advantages of using electricity over other energy sources.
Managing the growth rate of peak loads will also continue to be emphasized in the marketing effort tn so the company can get maximum productivity out of the capital dollars already invested in gener-ating facilities. This will be ac-complished by combining load-management programs with efforts to promote efficient uses of electricity. Through these market-ing strategies, the company plans to "uncouple" increased sales of electricity, to the extent possible,
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wheh their particular on-peak and installed a second one to in- operating wind turbines ranging hours b'egin. crease plant efficiency. in capacity from 1 kilowatt to 55 These proposals, being seen as The facility is capable of gener- kilowatts, and two other small-positive steps by many businesses, ating 340 kilowatts, enough power scale hydro projects of 10- and 50-need PUC approval. to serve about 35 residential cus- kilowatt capability are in tomers. It is fully automated, using operation.
Supplemental Energy Use a programmable controller, and PP&L is working with a number can be remotely operated by com- PepperidgeFarm Greenhouses of developers who are interested in puter from American Hydro's After successfully testing the making use ofsupplemental energy headquarters. concept of growing premium quali-sources, or in generating energy in Output from the facility is sold to ty tomatoes in a 1-acre greenhouse non-traditional ways. PP&L under the company's using waste heat from PP&L's Pioneer Rate program which was nearby Montour plant, Pepperidge Musser's Dam established in 1981 to encourage Farm Inc. enlarged the facility to The largest customer-owned sup- the use of renewable resources. 6 acres in 1983.
plemental energy project to begin A 20-inch-diameter underground operation in PP&L's service area Eighteen Other Projects pipeline carries warm water more in 1983 was the Musser's Dam hy- Additionally, 18 PP&L cus- than a mile from the coal-fired droelectric plant on Middle Creek tomers are generating electricity generating plant to the greenhouse near Selinsgrove, Pa., in Snyder for their own use or for sale to the where plastic pipes embedded in County. PP&L system. a porous concrete floor act as a Musser's Dam, built in the early Four biomass-conversion pro- heat exchanger to warm the green-1900s, was in need of repairs, and jects where waste materials such house floor to about 70 degrees an the hydro turbine, which last as manure or wood chips are con- ideal temperature for growing turned in 1954, needed to be over- verted into a gas to fuel electric plants all through the winter.
hauled. American Hydro Power generation are now operating in The tomatoes are grown and Co. of Villanova, Pa., repaired the the company's Lancaster Division. harvested year-round using a hy-dam, rebuilt the original turbine A dozen PP&L customers are droponic method, where water and OOO Central Eastern Pennsylvania is rich with fine museums, folk festivals, historic and cultural events unique in the country and people that honor their heritage through colorful ceremonies and patriotic celebrations.
17
nutrients are circulated to the 1983. Having fewer employees will gineering, and a member of plant's roots. stabilize wage and benefit costs. corpora5e management the'ompany's Bryfogle's floral greenhouse, Included in the manpower plan- committee, retired at the end of which was the initial project built ning strategy was a voluntary 1983.
on the site, also expanded its opera- early retirement incentive pro- Collins had been with the com-tions to 6 acres from the original 3. gram. There were 365 people eligi- pany since 1949 and worked in When combined with the Peppe- ble. Of those, 251 or 69 percent various engineering and system ridge Farm facility, the 12-acre site elected to retire. operating functions. In 1966 he is the largest waste-heat green- The key to the program has been became the company's representa-house project in the United States, limitingthe employmentofreplace- tive on the management committee and the only one that has gone ments. A strong effort has been overseeing the operation of the beyond a demonstration project made to realign functions and re- PJM Interconnection. In 1978 he into commercial operation. sponsibilities with the aim of ulti- was named to direct the depart-Even with the present or planned mately reducing the number of ment responsible for operating facilities, only about 1 percent of employees. PP&L's generating stations and the plant's waste heat is utilized. Appointment of a manpower transmission facilities, and the broker and policies to secure other company's engineering and con-positions for displaced employees struction activities.
are among the programs under way John H. Saeger was promoted to Manpower Planning to make the most effective use of vice president of the company's In 1983, PP&L projected an in- the company's human resources. Susquehanna Division on Aug. 1, crease in the number of employees 1983. Saeger joined PP&L as an from 8,208 at the end of 1982 to engineer in 1960. He advanced 8,644 at the end of 1983. As a result through several engineering posi-of a highly successful effort to limit Management Changes tions before being named manager the increase in manpower, PP&L Harley L. Collins, senior vice of Bulk Power Engineering in had 8,160 employees at the end of president-System Power & En- 1978. In 1981, he became special Skilled craftsmen abound in Central Eastern Pennsyl-vania people who take pridein doing the bestjob,in whatever they build. Restor-ation of the proud old Lacka-manna train station in Scranton (far right) by the Hilton hotel chain demon-strates faith in the economic weIL-being and promising future of urban areas within PP&L's service area.
18
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assistant to the president and the company's represen'tative to those 0 0 ~ living in the area of the Susque-hanna plant.
Saeger succeeded Charles E.
With good transportation good workers available Fuqua, who retired Aug. 1, 1988.
industrial and commercial sites and an attractive blend of Fuqua began his utility career in city and country, and with an electric utilityoffering reliable, 1947 with a predecessor company, the Scranton Electric Co. Scranton abundant electric energy at highly competitive rates, Electric merged with PAL in 1956 PP&L's service areais clearly poised for economicprosperity and Fuqua was named assistant to in theyears to come. This truly is a great place to be. And for the Scranton District manager. He was transferred to Allentown in those not already located in Central Eastern Pennsylvania, 1958 as staff engineer for the com-PP&L extends an invitation we wish you were here! pany's vice president-Operations.
In 1962, he was promoted to Susquehanna Division superin-r n,
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tehdhnt and three years later, to 1978 he became manager of Mellon University, Pittsburgh, divisiori manager and vice System Planning. Pa., was elected to the board of president. Donald J. Trego retired as the directors on June 22, 1983.
William F. Hecht, manager- company's assistant treasurer and Dr. Bailey joined Carnegie-System Planning, was appointed manager-Taxes on July 1 after 28 Mellon in May 1983 after serving vice president System Power on years with PP&L. He joined the since 1977 on the CivilAeronautics Sept. 1, 1983. He is responsible for company as assistant to the comp- Board in Washington, D.C., most the System Planning, System troller. He was promoted to recently as vice chairman. Prior to Operations, Power Production and manager-Taxes and Research in that, she was supervisor of the Fossil Fuels departments. 1958 and to his most recent posi- Economic Analysis Group and Hecht joined PP&L in 1964 and tion in 1966. research head of the Economics worked in various engineering Research Department at Bell functions before becoming Laboratories at Holmdel, N.J.
manager-Distribution Planning in Board of Directors She is the author of two eco-1975. A year later he was named Elizabeth E. Bailey, dean of the nomics texts and numerous executive director of the Corporate Graduate School of Industrial economics articles in various edu-Energy Planning Council and in Administration at Carnegie- cational and trade publications.
~ I 4
Review of the Company's Financial Condition and Results ofOperations This review provides a discussion of the Company's $ 90 million less than the amount requested.
financial condition and results of operation. Addition- The additional revenues granted will improve the al information on these matters is set forth in the finan- Company's cash flow and overall financial condition, cial statements, schedules and notes on pages 30-42 and will increase the amount of mortgage bonds issu-and the selected financial and operating data on pages able under the earnings coverage test provision of the 28 and 29. mortgage indenture. The return allowed on the Sus-quehanna Unit 1 plant investment included in rate Results of Operations base replaces the previously-recorded non-cash allow-ance for funds used during construction. Costs such as Earnings per share of common stock were $ 3.06 in employee wages, materials and supplies and outside 1983, $ 3.35 in 1982 and $ 3.17 in 1981(excluding in 1981 skilled labor incurred to operate and maintain the
$ 0.23 applicable to a nonrecurring credit). unit are being recovered currently in electric rates.
The decline in earnings per share in 1983 from 1982 The rate decision, however, was not wholly favor-was due primarily to: (i) the Pennsylvania Public able. The PUC did not permit the Company to earn a Utility Commission's (PUC) August 1983 rate deci- return on 12.6% of its net investment in total generat-sion which disallowed a return on 12.6% of the Com- ing facilities. The PUC decided that 945,000 kilowatts pany's investment in generating facilities (see "1983 (12.6%) of the Company's total generating capacity Rate Decision" ), (ii) higher operating costs (exclusive was excess and this reduced the amount of revenues of the decrease in the net cost ofenergy),(iii) theimpact requested by about $ 59 million. The impact of this of the recession early in 1983 and (iv) a 9% increase in change will be reflected as lower earnings available the average number of common shares outstanding. for common shareowners.
The higher per share earnings in 1982 over 1981 re-flects additional revenues from a $ 73 million increase in base rates which became effective January 1, 1982. 1984 Rate Eiling Planned 1983 Rate Decision The Company expects to file in the second quarter of 1984 for increased rates to reflect the effect of plac-In August 1983, the PUC issued a final order on the ing Susquehanna Unit 2 in service and to recover oth-Company's request to increase rates to reflect the ef- er increased costs of providing electric service. The fect of placing Susquehanna Unit 1 in commercial Company is considering requesting a phase-in of the operation and the recovery of other increased costs. rate increase over several years in order to moderate The PUC granted the Company an increase in base its impact on customers. The excess capacity issue rate revenues of approximately $ 203 million some raised in the Susquehanna Unit 1rate case may also be Earnings Per Share Times Interest Charges Earned I2 Months Ended Each Quarter 12 Months Ended Each Quarter Dollars Per Share Times Earned (Pre Tax) 83.60 3'.60 0
79 80 81 82 83 79 80 81 82 83 22
addr'essed in the Unit 2 proceeding, but the Company is Base rate increases went into effect January 1981, unable to predict what action the PUC will take with January 1982 and August 1983. A decline in the net respect to that issue. cost of energy, as discussed below, resulted in the low-er revenues applicable to recovery of such costs in Electric Sales and Operating Revenues 1983. Contractual sales to other utilities include the amounts received from Atlantic City Electric Com-Electric energy sales increased 3.4% in 1983 from pany for the purchase by Atlantic of about 6%%uo of the the prior year, reflecting improved economic condi- capacity and energy of Susquehanna Unit 1 since the tions during the last half of 1983 and increased con- unit began commercial operation in early June 1983.
tractual sales to other utilities. Energy sales for 1982 Sales to ultimate customers accounted for approxi-were down 2.9% from 1981, reflecting the depressed mately 97% of the Company's revenues from electric economic conditions during 1982. When compared sales over the past three years. Such revenues are un-with 1982, residential sales for 1983 were up 93 million der the jurisdiction of the PUC. The remaining 3% of kwh or 1.2%, commercial-sales increased 173 million revenues relate to sales to others for resale which are kwh or 2.9% and industrial sales were higher by 299 regulated by the Federal Energy Regulatory Commis-million kwh or 4.1%%uo. sion (FERC) as are interchange power sales, which The changes from the prior year in total operating are classified as a credit to operating expenses.
revenues were attributable to the following (millions of dollars):
1983 1982 1981 Electric Net Cost of Energy Base rate increases ... $ 141.1 $ 81.6 $ 84.6 The net cost of energy decreased dramatically from Recovery of fuel and the amount recorded in 1982 due to three major factors.
energy costs ........ (151.9) 3.1 142.2 Contractual sales to ~ Susquehanna Unit 1 was placed in commercial other utilities ....... 16.9 3.1 8.0 operation on June 8, 1983 and generated 3.2 bil-
~ Change in customer usage and mix of lion kilowatt-hours of electricity from that date customers .......... 14.8 (8.1) 3.2 through the end of the year. The electricity gener-Other ................ 9.5 7.5 7.8 ated by the low-cost nuclear fuel unit was de-Total electric ... 30.4 87.2 245.8 livered to customers. This made possible the sale to other utilities of electricity generated from the Steam heat ... (1.6) (0.9) 2.0 Company's coal-fired units which is generally Total . $ 28.8 $ 86.3 $ 247.8 lower priced than other sources of electricity Sources of Energy Disposition of Energy Billions of Kwh Billions of Kwh 50 50
'0, 40 30 ~
30 20 20 10 10
'9 80 81 82 79 80 81 82 83 C7 Hydro and purchased power C3 Company use, unbilled usage and line losses C3 Nuclear generation C3 Interchange power sales C3 Oil fired generation C3 Electric energy sales billed M Coal. fired generation 23
available to these utilities. The Company's nuclear pense incurred to finance construction expenditures unit and coal units ran with minimal problems and the depreciation for income tax purposes of Sus-throughout the year. quehanna Unit 1 were major factors causing the tax losses. At December 31, 1983, the Company Pad a
~ Starting late in 1982 and continuing throughout $ 157 million state income tax loss carryforward and 1983, the Company was able to make favorably a $ 116 million federal income tax loss carryforward.
priced power purchases directly from companies The Company's construction expenditures have en-other than those in the FJM Interconnection. abled it to qualify for substantial investment tax Most of this power was sold to other utilities at credits. At the end of 1983, an estimated $ 242 mil-some markup. lion of investment tax credits was available in excess
~ Various outages of generating units of other utili- of the amount used to reduce federal income tax pay-ties placed them in the market for more power in ments. These unused investment tax credits may be 1983. In fact, the Company's oil-fired units, which used to reduce future federal income tax liabilities.
have the highest fuel cost of any Company units, For additional information concerning income generated 76% more electricity than in 1982, most taxes, see the Schedule of Taxes on page 31 and Note 4 of which was sold to other utilities. to Financial Statements.
Wages and Benefits, Other Operating Costs and Depreciation Allowance for Funds Used Wages and benefits and other operating costs in- During Construction (AFUDC) creased in both 1983 and 1982 due to inflation. In 1983, The amount of AFUDC has increased steadily over the increase also reflects the costs related to the opera- the past several years due primarily to the increasing tion of Susquehanna Unit 1. Increases in deprecia- level of construction work in progress related to the tion reflect additions to plant in service, including two Susquehanna units. Construction of the Susque-Susquehanna Unit 1 in 1983. The provision for depre- hanna units accounted for about $ 662 million of the ciation, as a percent of average depreciable property, total $ 692 million of AFUDC recorded during the three declined from 3.3% in 1982 to 2.7% in 1983 due to the years 1981-1983. With the commercial operation of use of a modified sinking fund method of depreciation Susquehanna Unit 1, the Company stopped record-for the Susquehanna plant. ing AFUDC on its $ 1.8 billion investment in that facility. After the completion of Unit 2, scheduled for Income Taxes the fourth quarter of 1984, the amount of AFUDC re-corded will decrease substantially. See Note 5 to Fi-In 1982 and 1983, the Company had losses for in- nancial Statements for additional information con-come tax purposes. The large amount of interest ex- cerning the AFUDC.
Construction Work in Progress Cost of Fossil Fuel Received ~
vs. Net Plant in Service At Steam Stations Billions of Dollars &Per Ton or Barrel 86 $ 50 jl jj Ji il
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Sttsquehanna Plant Improved Financial Condition The Company's construction program for the past Not unlike the pattern experienced by other electric decade has been dominated by the construction of the utilities in similar circumstances, the extended con-Susquehanna nuclear plant. The Susquehanna plant struction period of the Susquehanna plant with its consists of two nuclear-fueled generating units. Alle- heavy financing demands has adversely affected gheny Electric Cooperative, Inc. owns a 10% undi- the Company's financial condition over a period of vided interest in the plant and pays on a current basis time as evidenced by such trends as: a decline in inter-its proportionate share of construction and nuclear est coverage; an increase in the portion of net income fuel expenditures a'nd operating expenses. Each Sus- represented by the allowance for funds used during quehanna unit has a net capability of 1,050,000 kilo- construction; and restrictions on financing capabili-watts and the Company's 90% share of each unit is ties due to earnings coverage test limitations.
945,000 kilowatts. The rate relief granted by the PUC in August 1983 Susquehanna Unit 1 was placed in commercial op- reflecting the commercial operation of Susquehanna eration on June 8, 1983 and Susquehanna Unit 2, Unit 1 has helped improve the Company's financial which is the only generating facility that the Com- condition. The Company's times interest charges pany has under construction at this time, is scheduled earned ratio increased from 2.08 times in 1982 to 2.34 to be placed in commercial operation during the fourth times in 1983, the first notable increase in this key fii-quarter of 1984. The Company currently estimates nancial indicator in the past five years. Funds from that its 90% share of the in-service cost of the two Sus- operations in 1983, as detailed on page 37, increased quehanna units, excluding nuclear fuel, willbe about
$ 75 million over 1982, and the Company's ability to
$ 3.7 billion. issue mortgage bonds under the earnings coverage test of the mortgage indenture has improved sub-stantially from the end of 1982.
Capital Expenditure Requirements At December 31, 1983, the Company would have been able to issue approximately $ 420 million of ad-With completion of the Susquehanna plant, con- ditional first mortgage bonds under the mortgage in-struction expenditures are expected to decline sub- denture earnings test.
stantially. The schedule below shows actual construc-tion and nuclear fuel expenditures for the years 1981- Ifthe PUC grants adequate rate relief to reflect the 1983 and current projections for the years 1984-1986. net effect of placing Susquehanna Unit 2 in service, Construction expenditures during the three years such rate relief, together with that granted in August 1981-1983 totaled $ 2.0 billion and are expected to be 1983 and the large decline in construction expendi-about $ 0.9 billion during the three years 1984-1986, a tures, should result in a substantial improvement in decline of approximately $ 1.1 billion from the prior the Company's financial condition over the next three years. several years.
Construction and Nuclear Fuel Expenditures (Millions of Dollars)
--Actunl 1981 1982 1983 1984 projected 1985 1986 Construction expenditures (a)
Susquehanna plant $ 495 $ 638 $ 540 $ 269 $ (14)(b) $
Transmission nnd distribution facilities 76 69 62 81 104 113 Environmental . 31 19 4 10 13 10 Other 21 32 43 114 ill 131 623 758 649 474 214 254 Nuclear fuel requirements (c) 67 53 77 66 46 51 Total $ 690 $ 811 $ 726 $ 540 $ 260 $ 305 Allowance for funds used during construction (which is included in the above amounts) ............... $ 194 $ 246 $ 252 $ 153 $ (33)(b) $ 13 (a) Construction plans are revised from time to time to reflect changes in conditions. Actual construction costs for projects mny vary from those projected becnusc of changes in plans, cost fluctuntions, environmentnl regulations nnd other factors.
(b) The Susquehanna station construction expenditures are cstimnted to be $ 31 million in 1985. Those expenditures nnd AFUDC have been reduced by the estimated tnx reduction applicable to construction interest included in the tnx cnrryforwnrd loss expected to be used in 1985.
(c) Substnntinlly nil nuclear fuel requirements through 1986 are ex pected to be financed through sale nnd leaseback arrangements.
25
Financing does not contemplate any public sale of common stock. >
The financing of its construction program requires Because of a reduced need for equity capital, the Com-the Company to engage in frequent sales of securities, pany intends to modify its dividend reinvestm'ent including debt and preferred, preference and common plan by the end of 1984 to eliminate the 5% discount and stocks. Interim financing is obtained principally from provide for the common stock to be obtained through bank borrowings and the sale of commercial paper market purchases rather than the issuance of new notes. shares. The exact amount, nature and timing of sales Outside financing totaled $ 2.0 billion during the of securities in 1984 and subsequent years willbe de-three years 1981-1983. In addition to securities sales, termined in the light of market conditions, the Com-the Company sold and leased back $ 287 million of pany's ability to meet legal restrictions on the nuclear fuel during the two years 1982 and 1983. De- issuance of certain securities and other factors, in-tails of the amount of securities sold and other infor- cluding the granting of timely and adequateraterelief.
mation on sources and uses of funds during 1981-1983 are set forth in the Statement of Changes in Financial Interest Charges and Preferred/Preference Position on page 37. Stock Dividends The Company presently estimates that outside fi-nancing during the three years 1984-1986 will be ap- During the 1981-1983 period, the Company's out-proximately $ 0.5 billion, or about $ 1.5 billion less than standing long-term debt increased $ 576 million and required during the prior three years. Funds from outstanding preferred and preference stock increased these securities sales together with funds generated $ 204 million. The annual interest requirements on from operations will be used to finance construction long-term debt increased from $ 191 million at the expenditures, repay $ 454 million of long-term debt ob- beginning of 1981 to $ 260 million at the end of 1983 ligations and meet $ 137 million of preferred and pref- and the annual dividend requirements on preferred erence stock sinking fund requirements. and preference stock increased from $ 62 million to Funds generated from operations are expected to $ 89 million during the same time period. This repre-provide about 60% of total funds requirements in sents a $ 96 million or 38% increase in the annual cost 1984-1986 compared with 17% of total funds require- of such securities over the three-year period.
ments generated from operations in 1981-1983.
Impacts of Inflation Tentative Plans for Securities Sales Certain effects of inflation on the operations of the Company have been estimated on the basis prescribed The Company tentatively plans to issue approxi- by the Financial Accounting Standards Board and mately $ 425 million of securities in 1984. This plan are set forth on pages 43-45.
Capital Requirements Sources of Capital Millions of Dollars Millions of Dollars 31 ,400 31,400 1,050 1,050 700 700 350 350 0
81 82 83 Aceuoj~Projecled 84 85 E3 Susquehanna construction expenditures
~ 86 0
81 82 83 Aceuuj~Projeceed~
Cl Outside financing 84 85 86 C3 Other construction and nuclear fuel C3 Other (principally from operations and the expenditures allowance for funds used during construction, C3 Other (principally retirement of securities) less dividends)
Cl Sale of nuclear fuel 26
Management's Report on the Financial Statements
'he management of Pennsylvania Power & Light maintains an internal auditing program to evaluate Company is responsible for the preparation, the adequacy, application and compliance with integrity and objectivity of the financial statements the Company's internal accounting controls, policies and other sections of this annual report. The and procedures.
financial statements have been prepared in conformity with generally accepted accounting Deloitte Haskins & Sells, independent certified principles and the Uniform System of Accounts public accountants, is engaged to examine and to prescribed by the Federal Energy Regulatory render an opinion as to whether the financial Commission. In preparing the financial statements, statements, considered in their entirety, present management makes informed estimates and fairly the Company's financial position, operating judgments of the expected effects of events and results and changes in financial position, in transactions based upon currently available facts conformity with generally accepted accounting and circumstances. principles. Their examination is conducted in accordance with generally accepted auditing The Company maintains a system of internal standards and includes such procedures believed by accounting controls designed to provide reasonable, them to be sufficient to provide reasonable assurance but not absolute, assurance that assets are that the financial statements are not materially safeguarded and that transactions and events are misleading and do not contain material errors.
executed in accordance with management's authorization and recorded properly to permit The Board of Directors, acting through its Audit preparation of financial statements in accordance Committee, oversees management's responsibilities with generally accepted accounting principles. The in the preparation of the financial statements. In concept of reasonable assurance recognizes that the performing this function, the Audit Committee, cost, of a system of internal accounting controls which is composed of directors who are not should not exceed the benefits derived and that there employees of the Company, meets periodically with are inherent limitations in the effectiveness of any management, the internal auditors and the inde-system of internal accounting controls. pendent certified public accountants to review the Fundamental to the control system is the selection work of each. Deloitte Haskins & Sells and the and training of qualified personnel, an internal auditors have free access to the Audit organizational structure that provides appropriate Committee and to the Board of Directors, without segregation of duties and the utilization of written management present, to discuss internal accounting policies and procedures. In addition, the Company control, auditing and financial reporting matters.
Index of Financial Data Selected Financial and Operating Data 28 Financial Statements Statement of Income 30 Schedule of Taxes 31 Balance Sheet 32 Schedule of Capital Stock 34 Schedule of Long-Term Debt 36 Statement of Changes in Financial Position 37 Statement of Earnings Reinvested 38 Notes to Financial Statements . 38 Auditors'pinion 43 Supplementary Information on Changing Prices . 43 Summary of Quarterly Results of Operations 46 Common Stock Price and Dividend Data 46 27
Selected Financial and Operating Data Income Items-thousands 1983 1982 1981 1980 19gt9 Operating revenues $ 1,248,397 $ 1,219,548 $ 1,133,278 $ 885,451 $ 860,498 Operating income . 289,930 223,083 211,050 168,659 182,823 Allowance for funds used during construction . 251,548 246,423 193,861 141,241 105,205 Net income (a) 296,011 278,886 244,077 179,759 182,198 Earnings applicable to common stock (a) 210,173 210,572 183,182 120,384 133,532 Balance Sheet Items thousands (b)
Net utility plant in service $ 3,847,301 $ 2,112,169 $ 2,054,039 $ 1,954,762 $ 1,885,978 Construction work in progress . 1,730,228 2,923,841 2,312,292 1,874,397 1,473,220 Total assets . 6,049,181 5,530,939 5,037,986 4,300,080 3,782,228 Long. term debt . 2,387,249 2,323,318 2,165,381 1,811,692 1,557,158 Preferred and preference stock With sinking fund requirements 714,830 621,634 544,231 510,800 441,400 Without sinking fund requirements . 231,375 231,375 2311375 231,375 231,375 Common equity 1,767,949 1,643,695 1,435,437 1,250,717 1,113,441 Short-term debt 190,000 160,545 175,489 56,324 30,775 Total capital provided by investors 5,291,403 4,980,567 4,551,913 3,860,908 3,374,149 Financial Ratios Return on average common equity % (a) ........ 12.29 13.60 12.74 10.38 12.91 Embedded cost rates (b)
Long-term debt % 10.98 10.81 10.80 10.60 9.02 Preferred and preference stock % 9.66 9.41 8.93 8.49 8.43 Times interest earned before income taxes (a) .... 2.34 2.08 1.94 2.10 2.72 Ratio of earnings to fixed charges total enterprise basis (a) (c) 2.17 1.92 1.78 1.90 2.40 Depreciation as% of average depreciable property . 2.7 3.3 3.2 3.2 3.2 Common Stock Data Number of shares outstanding thousands Year-end . 70,335 66,461 58,447 50,627 43,497 Average . 68,642 62,809 53,912 45,598 40,231 Earnings per share (a) $ 3.06 $ 3.35 $ 3.17 $ 2.64 $ 3.32 Dividends declared per share . $ 2.40 $ 2.32 $ 2.24 $ 2.12 $ 2.04 Taxability of dividend income % (d) 0 0 0 0 ~ 39 Book value per share (b) $ 25.12 $ 24.71 .
$ 24.52 $ 24.68 $ 25.57 Market price per share (b) $ 20'/s $ 21 $ 17'/a $ 155/s $ 17o/4 Dividend payout rate-% (a) . 79 70 72 82 62 Dividend yield % (d) (e) 10A8 11.95 13.34 12.01 10.38 Price earnings ratio (a) (e) 7.48 5.79 5.30 6.68 5.92 Fuel Cost Data Cost per kwh generated cents Coal-fired steam stations . 1.68 1.77 1.64 lAO 1.30 Nuclear steam station (g) . 0.66 Oil-fired steam station 5.23 5.62 5.75 4.55 3.20 Combustion turbines and diesels (oil) ...... 10.21 10.74 10.51 7.89 4.68 Average . 2.15 2.20 2.30 1.96 1.65 Cost of fossil fuel received at steam stations Coal per ton $ 39.37 $ 42.32 $ 39.59 $ 33.78 $ 30.70 Residual oil per bbl. $ 29.79 $ 30.94 $ 33.47 $ 26.44 $ 18.81 Employees (b) 8,160 8,208 7,999 7,702 7,590 (n) 1981 net income nnd earnings applicable to common stock include n nonrecurring credit related to an accounting change, while indicated financial ratios nnd common stock data for that year are computed excluding the nonrecurring credit from earnings.
(b) Year.end.
(c) Fixed charges consist of interest on short. nnd long-term debt, other interest charges nnd the estimated interest component of rentals.
(d) Based on holding one share of common stock for the entire year.
(e) Based on average of month-end market prices.
(f) The winter peaks shown were renched early in the subsequent year.
(g) The Company's first nuclear unit wns placed in commercial operation June 8, 1983.
28
'Sales Data 1983 1982 1981 1980 1979 Electric customers (b) 1,026,144 1,013,623 1,006,570 999,525 987,005 Average annual residential kwh use ......... 9,051 9,039 9,157 9,205 9,353 Electric energy sales billed millions of kwh Residential 8,138 8,045 8,088 8,056 8,066 Commercial 6,119 5,946 5,893 5,743 5,554 Industrial . 7,623 7,324 7,968 7,910 8,135 Other 699 675 696 742 758 Total sales to customers 22,579 21,990 22,645 22,451 22,513 Contractual sales to other utilities ......... 478 307 309 42 42 Total electric energy sales billed ......... 23,057 22,297 22,954 22,493 22,555 Sources of energy sold millions of kwh Generated Coal-fired steam stations . 26,885 25,477 24,841 26,596 26,487 Nuclear steam station (g) . 4,509 293 Oil-fired steam station 5,581 3,186 4,705 5,692 5,777 Combustion turbines and diesels (oil) .... 45 13 32 33 37 Hydroelectric stations 700 612 622 533 799 37,720 29,581 30,200 32,854 33,100 Power purchases 3,880 1,414 744 1,415 2,124 Interchange power sales (16,405) (6,900) (6,274) (9,798) (11,089)
Company use, unbilled usage and line losses . (2,138) (1,798) (1,716) (1,978) (1,580)
Total electric energy sales billed ......... 23,057 22,297 22,954 22,493 22,555 Electric Revenue Data By class of service thousands Residential 529,911 $ 503,557 $ 411,668 $ 349,714 $ 341,987 Commercial 386,617 363,233 292,984 246,024 232,610
~ Industrial 367,950 347,726 295,006 245,513 244,265 Other energy sales 36,367 35,232 30,098 27,080 26,154 Total sales to customers . 1,320,845 1,249,748 1,029,756 868,331 845,016
~ Contractual sales to other utilities ... 29,402 12,499 9,386 1,400 1,510 Total from energy sales billed 1,350,247 1,262,247 1,039,142 869,731 846,526 Unbilled revenues, net ........... (119,539) (61,652) 76,884 Other operating revenues... 12,972 12,708 10,142 10,595 9,941 Total electric operating revenues $ 1,243,680 $ 1,213,303 $ 1,126,168 $ 880,326 8856,467 Average price per kwh billed cents Residential 6.51 6.26 5.09 4.34 4.24 Commercial 6.32 6.11 4.97 4.28 4.19 Industrial 4.83 4.75 3.70 3.10 3.00 Total for ultimate customers ....... 5.91 5.74 4.59 3.90 3.79 Total for all customers 5.86 5.66 4.53 3.87 3.75 Generation Data Generating capability thousands of kw (b) . 7,494 6,546 6,546 6,546 6,546 Winter peak demand-thousands of kw (f) 4,869 4,489 5,207 4,945 4,427 Generation by fuel source %
Coal 71.3 86.1 82.2 81.0 80.0 Nuclear (g) 11.9 1.0 Oil . 14.9 10.8 15.7 17.4 17.6 Hydroelectric . 1.9 2.1 2.1 1.6 2.4 Steam station availability %
Coal-fired 78.8 79.1 74.7 78.7 76.6 Nuclear (g) 67.7 Oil-fired . 75.8 80.4 73.4 79.6 80.0 Steam station utilization-%
Coal-fired 74.0 70.2 68.4 73.0 73.1 Nuclear (g) 67.5 Oil-fired . 38.8 22.2 32.8 39.5 40.2 29
Statement Of InCOme (Thousands of Dollars) 1983 1982 1981 Operating Revenues (Notes 2 and 3) . $ 1,248,397 $ 1,219,548 $ 1,133,278 Operating Expenses Net cost of energy Fuel 768,583 633,694 684,636 Power purchases 186,955 59,571 28,743 Interchange power sales (740,964) (302,149) (320,240) 214,574 891,116 398,139 Wages and employee benefits . 211,752 171,182 148,317 Other operating costs 166,839 142,788 129,587 Depreciation 107,885 92,222 85,513 Income taxes (Note 4) 112,055 87,489 59,402 Taxes, other than income 125,470 111,668 106,270 Deferred Susquehanna operating costs and energy savings net (Note 3) 19,892 958,467 996,465 922,228 Operating Income . 289,930 223,083 211,050 Other Income and (Deductions)
Allowance for equity funds used during construction (Note 5) 131,362 90,295 75,218 Deferred Susquehanna capital costs (Note 3) 29,935 Income tax credits (Note 4) . 21,976 77,744 65,612 Other net (9,518) (588) 2,086 173,755 167,451 142,916 Income Before Interest Charges 463,685 390,584 353,966 Interest Charges Long-term debt . 258,629 239,769 210,549 Short term debt and other 29,231 28,007 30,364 Allowance for borrowed funds used during construction (120,186) (156,128) (118,648) 167,674 111,648 122,270 Income Before Nonrecurring Credit ............. 296,011 278,886 231,696 Nonrecurring Credit Related to Accounting Change, Net of Income Taxes ($ 13,236) (Note 2) ............. 12,381 Net Income Before Dividends on Preferred and Preference Stock 296,011 278,886 244,077 Dividends on Preferred and Preference Stock 85,838 68,814 60,895 Earnings Applicable to Common Stock .......... $ 210,173 $ 210,572 $ 183,182 Earnings Per Share of Common Stock (a)
Before Nonrecurring Credit . $ 3.06 $ 3.85 $ 3.17 Nonrecurring Credit (Note 2) .23
$ 3.06 $ 3.35 $ 3.40 Average Number of Shares Outstanding (thousands) . 68,642 62,809 58,912 Dividends Declared Per Share of Common Stock ..... $ 2 40 $ 2.32 $ 2.24 (a) Based on average number of shares outstanding.
See accompanying Schedules and 1Votes to Financial Statements.
30
Schedule Of TaxeS (Thousands of Dollars) 4 ~ 1983 1982 1981 Income Tax Expense (Note 4)
Included in operating expenses Provision Federal $ 15,823 $ 55,109 $ 54,971 State 6,787 9,762 18,030 22,610 64,871 73,001 Deferred-Federal 94,689 55,351 (22,868)
State (938) (591) (5,483) 93,751 54,760 (28,351)
Investment tax credit, net Federal (4,306) (32,142) 14,752
$ 112,055 $ 87,489 $ 59,402 Included in other income and deductions Provision (credit) Federal . $ (15,216) $ (67,981) $ (52,596)
State (6,760) (9,763) (13,016)
$ (21,976) $ (77,744) $ (65,612)
Included in nonrecurring credit Deferred Federal $ 10,546 State 2,690
$ 13,236 Total income tax expense-Federal $ 90,990 $ 10,337 $ 4,805 State (911) (592) 2,221
$ 90,079 $ 9,745 $ 7,026 Detail of deferred taxes in operating expenses Tax depreciation $ 101,728 $ 58,024 $ 513 Test operation of generating unit ........... (10,856) (3,373) (248)
'eferred Susquehanna operating costs and energy savings net ...... (11,411)
Unbilled revenues . 11,266 2,213 1,057
~
Recoverable fuel and energy costs (22,483)
State utility realty tax (6,269)
Other 3,024 (2,104) (921)
$ 93,751 $ 54,760 $ (28,351)
Reconciliation of Federal Income Tax Expense Indicated federal income tax on pre-tax income at statutory tax rate (46%) $ 177,601 3132 770 $ 115,507 Reduction due to:
AFUDC, less unused construction interest deduction 65,088 110,827 89,176 Tax depreciation 221 4,922 10,758 Tax and pension cost 6,314 6,833 6,061 Deferred Susquehanna capital costs 13,770 Other . 2,129 443 2,486 87,522 123,025 108,481 Total income tax expense $ 90,079 $ 9,745 $ 7,026 Effective income tax rate 23.3% 3.4% 2.8%
Taxes, Other Than Income State gross receipts . $ 60,112 $ 56,515 $ 46,149 State capital stock 20,074 18,243 15,650 State utility realty . 31,803 26,591 34,724 Social security and other 13,481 10,319 9,747
$ 125,470 $ 111,668 $ 106,270 See accompanying iVotes to Financial Statements.
Balance Sheet at December 31 (Thousands of Dollars)
Assets 1983 1982 Utility Plant Plant in service at original cost Electric $ 4,761,151 $ 2,939,242 Steam heat ..................... 8,704 8,593 4,769,855 2,947,835 Less accumulated depreciation 922,554 835,666 3,847,301 2,112,169 Construction work in progress-at cost 1,730,228 2,923,841 Nuclear fuel in process at cost (Note 8) 10,609 8,562 5,588,138 5,044,572 Investments Associated companies-at equity 16,614 13,514 Receivable from litigation settlement 28,500 29,500 Nonutility property and other at cost or less . 8,410 7,017 53,524 50,031 Current Assets Cash . 6,753 6,562 Accounts receivable (less reserve: 1983, $ 5,020; 1982, $ 4,732)
Customers 109,934 85,924 Interchange power sales 39,510 39,233 Other 6,205 22,603 Unbilled revenues 56,744 82,887 Fuel (coal and oil)-at average cost . 127,090 157,082 Materials and supplies at average cost 21,400 22,435 Other 15,743 10,256 383,379 426,982 Deferred Debits 24,140 9,354
$ 6,049,181 $ 5,530,939 See accompanying Schedules and ¹tes to Financial Statements.
32
Liabilities 1983 1982 Capitalization Common equity Common stock $ 1,223,064 $ 1,141,649 Capital stock expense (15,973) (14,116)
Earnings reinvested . 560,858 516,162 1,767,949 1,643,695 Preferred and preference stock With sinking fund requirements 714,830 621,634 Without sinking fund requirements 231,375 231,375 Long-term debt . 2,307,073 2,264,238 5,021,227 4,760,942 Current Liabilities Long-term debt due within one year 80,176 59,080 Commercial paper and other notes 190,000 160,545 Accounts payable 92,563 83,487 Taxes accrued . 27,063 28,762 Interest accrued 64,578 57,695 Dividends payable 64,428 55,875 Deferred income taxes 27 773 16,507 Energy revenues to be refunded 93,396 Other 32,815 33,125 672,792 495,076 Deferred and Other Credits Deferred investment tax credits . 111,038 110,466 Deferred income taxes 205,916 123,862 Other 38,208 40,593 355,162 274,921 Commitments and Contingent Liabilities (Notes 8 and 11)
$ 6,049,181 85,530,939 See accompanying Schedules and Notes to Financial Statements.
33
Schedule of Capital Stock at December 31 Shares Outstanding .
Shares Outstanding Thousands of Dollars Authorized 1983 1983 1982 Preferred Stock-$ 100 par, cumulative (a) 4'/e% 629,936 530,189 $ 53,019 $ 53,019 Series . 10,000,000 5,191,766 519,176 470,212
$ 572,195 $ 523,231 Preference Stock no par, cumulative (a) 5,000,000 3,740,097 $ 374,010 $ 329,778 Common Stock-no par (a) 85,000,000 70,334,870 $ 1,222,393 $ 1,140,550 Dividend reinvestment installments received 671 1,099
$ 1,223,064 $ 1,141,649 Details of Preferred and Preference Stock (b)
Optional Sinking Fund Provisions(c) Redemption Shares to bc Price Per Shares Outstanding Redeemed Redemption Share Outstanding Thousands of Dollars Annually Period 1983 1983 1983 1982 With Sinking Fund Requirements Series Preferred 7A0% 16,000 1984-2003 $ 104.44 320,000 $ 32,000 $ 33,600 7.50% 150,000 1985 112.00 150,000 15,000 15,000 7.75% 120,000 1984-1988 103.45 600,000 60,000 60,000 8.00% 25,000 1984-2002 112.00 475,000 47,500 50,000 8.00%, Second 20,000 1985-1989 112.00 100,000 10,000 10,000 8.25% 100,000 1985-1989 112.00 500,000 50,000 50,000 8.75% 30,000(d) 1985-2004 115.00 600,000 60,000 60(000 9.24% 30,000(d) 1984-2005 115.00 648,210 64,821 67,756 10.75% (e) 53,000(d) 1986-1990 115.00 265,000 26,500 26,500 11.00%, Adjustable (e) (i) ... 30,000 1989-1993 125.00 150,000 15,000 ~
11.00% (e) 260,000 1988 125.00 260,000 26,000 11.25% (e) 15,000 1989.1998 125.00 150,000 15,000 14.00% (e) (g) (g) 124.00 340,000 34,000 34,000 Preference
$ 8.625 (e) .................. 102,000 1986-1990 None 510,000 51,000 51,000
$ 11.00 25,000(d) 1984-2000 106.60(h) 408,200 40,820 44,088
$ 11.60 (i) .................. 25,000(d) 1989-2008 114.00 500,000 50,000
$ 13.00 12,500(d) 1984-1998 107.15(h) 171,897 17,189 19,690
$ 13.00, Second (i) .......... 25,000(d) 1989-2008 114.00 500,000 50,000 50,000
$ 15.00 (i) .................. 25,000(d) 1988-2007 120.00 500,000 50,000 50,000
$ 714,830 $ 621,634 Without Sinking Fund Requirements 4'/Bo Preferred ............... 110.00, 530,189 $ 53,019 $ 53,019 Series Preferred 3.35% 103.50 41,783 4,178 4,178 4AOo/o 102.00 228,'/73 22,878 22,878 4.60% 103.00 63,000 6,300 6,300 8.60% 107.00 222,370 22 237 22 237 9.00% 107.00 77,630 7,763 7,763 Preference
$ 8.00 103.00 350,000 35,000 35,000
$ 8AO 104.00 400,000 40,000 40,000
$ 8.70 103.00 400,000 40,000 40,000
$ 231,375 $ 231,375 See accovrpanying Notes to Financial Statements.
34
Increases (Decreases) in Capital Stock (shares and amount in thousands) 1983 1982 1981 Shares Amount Shares Amount Shares Amount Common Stock Public offering 4,000 $ 77,124 4,000 $ 65,440 Dividend reinvestment plan 3,874 $ 81,843 3,971 69,930 3,657 55,989 Employee stock ownership plan .. 43 702 163 2,676 Series Preferred Stock (j) 7 40% (16) (1,600) (16) (1,600) (16) (1,600) 8.00% (25) (2,500) 9.24%%uo (29) (2,935) (17) (1,667) (56) (5,577) 11.00%, Adjustable (f) ............ 150 15,000 11.00% 260 26,000 11.25% 150 15,000 14.00% 340 34,000 Preference Stock (j)
$ 9.25 (40) (4,000)
$ 11.00 (33) (3,268) (18) (1,771) (41) (4,141)
$ 11.60 500 50,000
$ 13.00 (25) (2,500) (16) (1,559) (13) (1,251)
$ 13.00, Second 500 50,000
$ 15.00 500 50,000 (a) Each share of preferred, preference and common stock entitles upon effective yield after federal income taxes. The Company the holder to one vote on any question presented to any share- estimates that as of December 31, 1983 it could be required to owners'eeting. make such indemnity payments in the future not in excess of (b) Liquidation prices per share of preferred stock (payable in $ 4.5 million.
preference over the preference stock) and preference stock are (f) Effective April 1, 1988, the dividend rate is subject to a one.
as follows (plus in each case any unpaid dividends): time adjustmcnt pursuant to a formula based on the then Involuntary Voluntary current prime rate.
Class Liquidation Liquidation (g)Thc 14.00% Prcfcrred Stock has a sinking fund provision 498o Preferred $ 100 $ 100 which requires redemption of the following number of shares Series Preferred $ 100 Redemption price in effect. annually at $ 100 per share: October 1, 1986.1987, 85,000; 1988-Preference $ 100 Redemption pricein effect, 1989, 51,000; 1990, 68,000.
except for the $ 8.625 Series (h) The $ 11.00 and $ 13.00 Preference Stocks may not be refunded which is $ 100. through certain refunding operations prior to July 1, 1985and (c) The aggregate amount of sinking fund redemption require- October I, 1984, respectively.
ments through 1988 are (thousands of dollars): 1984, $ 22,850; (i) Ownership of the $ 11.60, $ 13.00, Second Series and $ 15.00 1985, $ 52,850; 1986, $ 61,850; 1987, $ 61,850; 1988, $ 86,950. Preference Stocks may be evidenced by holding Depositary (d) On certain sinking fund redemption dates the Company may Preference Shares, each representing '/~ share of Prcfercnce redeem additional shares up to the number of shares of these Stock.
series required to be redeemed annually.
(j) Decreases in Preferred and Preference Stocksrepresent:(i) the (e) In the event there is a loss of certain federal income tax redemption of stock pursuant to sinking fund requirements, or benefits to corporate holders of these stocks, the Company (ii) shares reacquired through market purchases which have would bc required to make indemnity payments to the owners been cancelled. The reacquired and cancelled shares are used upon the sale or redemption of the stocks to provide an agreed to meet sinking fund requirements.
Sec accompanying Notes to Financial Statements.
35
Schedule of Long-Term Debt at December 31 Outst anding Maturity Thousands of Dollars First Mortgage Bonds (a) Date (b) 1983 1982 3'/s% March 1, 1983 $ 25,000 97/s/o June 1, 1983 33,342 15% February 1, 1984 $ 16,665 16,665 97/s% June 1, 1984 33,329 33,329 1ls/~%%uo December 15, 1984 30,000 ~
30,000 15%%uo . February 1, 1985 16,665 16,665
'7/s% June 1, 1985 33,329 33,329 3s/s%%uo August 1, 1985 25,000 25,000 15% . February 1, 1986 16,670 16,670 16'/s% August 1, 1986 30,900 30,900 14'/4% December 12, 1986 50,000 50,000 16'/s% August 1, 1987 36,000 36,000 16'/s% September 1, 1987 10,400 10,400 16'/2% August 1, 1988 10,100 10,100 16'/s% September 1, 1988 10,400 10,400 4/s% to 16'/s% 1989-1993 351,700 301,700 4s/s% to 6s/4% 1994-1998 90,000 90,000 7'%%uo to 9%%uo 1999-2003 345,000 345,000 8'/4% to 9/4% 2004-2008 555,000 555,000 13'/s% to 15/s% . 2009-2013 325,000 200,000 Pollution control 4/s'%%uo to 5/s% Series A (c) 23,500 25,000 77/s% to 8~/s% Series C (c) 20,000 20,000 11'/4% to 11'/s% Series D (c) 70,000 70,000 2,099,658 1,984,500 Other Long-Term Debt (Note 6)
Secured term notes (a)(d) March 31, 1991 300,000 300,000 Nuclear fuel trust (d) February 1, 1987 50,000 Miscellaneous promissory notes 1984-1989 796 924 2,400,454 2,335,424 Unamortized (discount) and premium net (13,205) '12,106) 2,387,249 2,323,318 Less amount due within one year 80,176 59,080
$ 2,307,073 $ 2,264,238 (a) Substantially all utility plant is subject to the lien of the (c) Pollution control bonds mature annually as follows (thou.
Company's first mortgage and certain utility plant is also sands of dollars): (i) Series A on May 1, 1985, $ 800; subject to the lien of a second mortgage. 1986-2002, $900; 2003, $7,400 (ii) Series C on April 1, 2000, (b) Aggregate long-term debt maturities through 1988 are $ 4,000; 2006-2009, $ 2,000; 2010, $ 8,000 (iii) Series D on (thousands of dollars): 1984, $ 80,176; 1985, $ 75,964; 1986, November 1, 2002, $ 15,000; 2012, $ 55,000.
$ 98,599; 1987, $ 47,429; 1988, $ 21,511. Maximum sinking (d) Variable interest rate.
fund requirements aggregate $ 32.8 million through 1988 and may be met with property additions or bonds.
See accompanying Notes to Financial Statements.
36
Statement of Changes in Financial Position (Thousands of Dollars) 1983 1982 1981 Source of Funds Funds from operations Net income (1981 includes $ 12,381 nonrecurring credit) . $ 296,011 278,886 $ 244,077 Charges (credits) to income not involving working capital Depreciation 107,885 92,222 85,513 Noncurrent deferred income taxes and investment tax credits net ................. 78,178 20,404 7,830 Deferred Susquehanna costs-net ............. (10,043)
Allowance for funds used during construction . (251,548) (246,423) (193,861)
Other 694 1,208 (42) 221,177 146,297 143,517 Outside financing Common stock 81,415 147,475 124,729 Preferred and preference stock 106,000 84,000 50,000 First mortgage bonds 175,000 365,674 179,071 Long-term bank loans net increase...... 175,000 Secured term notes 300,000 Nuclear fuel trust notes net increase .... 50,000 Short term debt net increase (decrease) 29,455 (14,944) 119,165 391,870 932,205 647,965
'orking capital (excluding debt) decrease (a) . 170,768 54,862 Sale of nuclear fuel . 74,319 215,897 8 858,134 $ 1,349,261 $ 791,482 Application of Funds Construction expenditures 8 648,661 $ 757,878 $ 623,594 Nuclear fuel expenditures 77,267 53,299 66,704 Allowance for funds used during construction . (251,548) ~(246,428 (193,861) 474,380 564,754 496,437 Securities retired Preferred and preference stock 12,804 6,597 16,569 First mortgage bonds 59,842 178,000 500 Long-term bank loans net decrease ... 375,000 Nuclear fuel trust notes-net decrease 50,000 122,646 559,597 17,069 Dividends on preferred, preference and common stock 251,182 216,601 183,886 Working capital (excluding debt) increase (a) 112,561 Other net 9,926 8,309 (18,471) 8 858,134 $ 1,349,261 $ 791,482 (a) Changes in components of working capital (excluding debt)
Cash 191 $ 827 8 (419)
Accounts receivable 7,889 60,894 (17,363)
Unbilled and refundable revenues, net of deferred taxes . (130,805) (G3,869) 130,249 Fuel (coal and oil) (29,992) (G,746) 36,951 Accounts payable and accrued taxes ...................'. (7,377) (20,536) (G08)
Other-net . (10,674) (25,432) (36,249)
Increase (Decrease) $ (170,768) S(54,862) $ 112,561 See accompanying Schedules and ¹tes ta Financial Statements.
37
Statement Of EarningS ReinVeSted (Thousands of Dollars) 1983 1982 1981 Balance, January 1 $ 516,162 $ 453,885 $ 393,708 Add Net Income (1981 includes $ 12,381 nonrecurring credit) 296,011 278,886 244,077 812,173 732,771 637,785 Deduct Cash dividends declared Preferred stock at required annual rates .......... 47,268 38,730 38,513 Preference stock at required annual rates ......... 38,570 29,584 22,382 Common stock per share: 1983, $ 2.40; 1982, $ 2.32; 1981, $ 2.24 165,344 148,287 122,991 Issuance cost of retired preferred and preference stock .. 133 8 14 251,315 216,609 183,900 Balance, December 31 $ 560,858 $ 516,162 $ 453,885 Notes to Financial Statements
- 1. Summary of Accounting Policies UtilityPlant and Depreciation Accounting Records Additions to utilityplant and replacement of units Accounting records are maintained in accordance of property are capitalized at cost. The cost of units with the Uniform System of Accounts prescribed by of property retired or replaced is removed from utility the Federal Energy Regulatory Commission (FERC) plant accounts and charged to accumulated depreci-ation. Expenditures for maintenance and repairs of and adopted by the Pennsylvania Public Utility property and the cost of replacement of items de-Commission (PUC). termined to be less than units of property are charged to operating expenses.
The annual charge for depreciation is computed Associated Companies on a straight-line method for financial reporting Investments in unconsolidated subsidiaries (all purposes, using rates based on the estimated useful wholly owned) and in Safe Harbor Water Power lives of property, with the exception of the Susque-Corporation (of which the Company owns one-third hanna nuclear plant which is depreciated on a modi-of the outstanding capital stock representing one- fied sinking fund method in accordance with a PUC half of Safe Harbor's voting securities) are recorded order. Provisions for depreciation, as a percent of av-using the equity method of accounting. Unconsoli- erage depreciable property, approximated 2.7% in dated subsidiaries operate in the United States and 1983, 3.3% in 1982 and 3.2% in 1981.
are engaged in coal mining, holding coal reserves, oil pipeline operations and real estate investment.
The Company believes that its financial position and results of operations are best reflected without Cost of Decommissioning Nuclear Plant consolidation of these subsidiaries since they are The estimated decommissioning costs of the Sus-not engaged in the business of generating or distri- quehanna nuclear plant allowed for ratemaking buting electricity. All unconsolidated subsidiaries purposes are charged to operating expense. Such considered in the aggregate would not constitute a amounts, net of income taxes, are invested in securi-
"significant subsidiary" as that term is defined by ties kept in a segregated account which can be used the Securities and Exchange Commission. only for future decommissioning costs.
38
Alloivance for Funds Used During Investment tax credits result in a reduction of Construction fAFUDC) federal income taxes payable. Such tax credits, other As provided in the Uniform System of Accounts, than credits resulting from contributions to the em-th'e cost of funds used to finance construction pro- ployee stock ownership plan (ESOP), are deferred jects is capitalized as part of construction cost. The and amortized over the average lives of the related components of AFUDC shown on the Statement of property.
Income under other income and deductions and in- See Note 4 to Financial Statements for additional terest charges are non-cash items equal to the cost information concerning income taxes.
of funds capitalized during the period. The equity funds component is reduced by the tax savings real-ized due to the tax deductibility of construction-related interest. AFUDC serves to offset on the Nuclear Fuel Statement of Income the interest charges on debt The Company leases nuclear fuel for use in the and dividends on preferred and preference stock Susquehanna plant. Nuclear fuel rentals are charged incurred to finance construction. In addition, a re- to fuel expense based on the quantity of heat pro-turn on common equity used to finance construction duced for electric generation. Under the Nuclear is imputed. Waste Policy Act of 1982, the U.S. Department of See Note 5 to Financial Statements for informa- Energy (DOE) is responsible for the permanent stor-tion concerning a limitation of the tax reduction age and disposal of spent nuclear fuel removed from reflected in AFUDC due to the Company's tax loss. nuclear reactors. The Company currently pays DOE a fee for future disposal services and recovers such costs in customer rates.
Revenues Revenues are based on the amount of electricity delivered to customers to the end of each account. Retirement Plan ing period. As a result, the Company records unbilled The Company has a noncontributory retirement revenues representing the amount customers willbe plan covering substantially all employees. Com-billed for electricity delivered from the time meters pany contributions to the plan include current ser-were last read to the end of the respective period. vice costs and all amounts required to amortize un-The Company's PUC tariffs contain an energy cost funded prior service costs over periods of not more rate under which customers are billed an estimated than 20 years.
amount for fuel and other energy costs. Any differ-ence, between the actual and estimated amount for such costs is collected from or refunded to customers in a subsequent period. Revenues applicable to en- 2. Change in Accounting for Revenues ergy cost rate billings are recorded at the level of To provide a better matching of costs and actual energy costs and the difference is recorded revenues, effective as of January 1, 1981, the Com-as payable to or receivable from customers. pany adopted a policy of recording revenues collect ible from customers based on electricity delivered to customers to the end of the month. Prior to 1981, P
revenues were recorded when bills were rendered Income Taxes to customers based on electricity used at the time The Company and its subsidiaries file a consoli- of monthly cycle meter readings.
dated federal income tax return. Income taxes are The Nonrecurring Credit of $ 12,381,000 (after allocated to the individual companies based on their related income tax of $ 13,236,000) shown on the respective taxable income or loss and investment Statement of Income for 1981 represents the cumula-tax credits. tive effect prior to January 1, 1981 of the accounting Income taxes applicable to the Company are al- change.
located to operating expenses and other income and deductions on the Statement of Income. Under other income and deductions, the income tax credits relate principally to the tax reductions associated with the 3. Rate Matters interest expense which is offset by the borrowed In accordance with rate orders issued by the PUC, funds component of the allowance for funds used electric base rates for ultimate customers were in-during construction. creased by approximately $ 97 million annually in Deferred income taxes are recorded for timing January 1981, $ 73 million annually in January 1982 differences between book and taxable income to and $ 203 million annually in August 1983.
the extent they are permitted in rate determinations The August 1983 increase resulted from the Com-by regulatory agencies. The two principal items pany's filing which reflected the effect of placing for which deferred taxes are not currently recorded Susquehanna Unit 1 in service. The PUC's order did are (i) certain pension costs and employee-related not permit the Company to earn a return on 12.6%
taxes capitalized for book purposes but deducted ($ 287 million) of its net investment in all generating currently for income taxes and (ii) a portion of tax facilities. This adjustment, which reduced requested depreciation in excess of book depreciation related revenues by about $ 59 million, resulted from a de-to property placed in service prior to 1980. cision by the PUC that 945,000 kilowatts (12.6%) of 39
the Company's generating capacity was excess. The mainder usable through 1986. The carryforwhrd Company was permitted to recover depreciation, op- period for the federal income tax loss expires in the eration, maintenance and fuel costs associated with years 1997 and 1998.
all its generating facilities. The Company has investment tax credits not y'et The Company plans to file with the PUC in the utilized which aggregated approximately $ 242;1 mil-second quarter of 1984 for an increase in electric lion ($ 31.3 million applicable to ESOP) at Dec'ember rates to reflect the effect of placing Susquehanna 31, 1983 and may be carried forward to reduce future Unit 2 in service and to recover other increased costs federal income tax liabilities. The carryforward of providing electric service. A decision by the PUC period for these credits expires in the years 1994 on this filing would not be expected until early 1985. to 1998.
In accordance with a declaratory order of the PUC, the Company has deferred $ 10.0 million of costs as-sociated with Susquehanna Unit 1 and has recorded approximately $ 11.4 million of related deferred in- 5. Allowance for Funds Used During come taxes. The deferred costs were incurred prin- Construction (AFUDC) cipally from the date of commercial operation of the AFUDC is recorded on an after-tax basis with the unit (June 8, 1983) until the new rates went into effect equity component reduced by the income tax savings (August 22, 1983) and include all operating costs realized due to the tax deductibility of construction-(fuel, wages, depreciation, etc.) and capital costs (in- related interest. Since 1982, the Company has been terest and the carrying cost of equity securities), net in a tax loss carryforward position, due in part to of energy savings (reduced net cost of energy). The the large amount of construction interest incurred.
Company expects to seek recovery of such deferred As a result, the income tax reduction reflected in costs after the PUC renders its decision on the rate AFUDC has been limited to the tax applicable to request the Company plans to file in the second quar- construction interest determined to be usable as a ter of 1984. tax deduction. The combined federal and state in-The PUC has issued a declaratory order similar come tax effect of the construction interest that could to that previously issued for Susquehanna Unit 1 not be used as a deduction was $ 6.3 million in 1982 which (i) authorizes the deferral of Susquehanna and $ 55.5 million in 1983.
Unit 2 related costs in the event the unit goes into The Company expects that most of its carryfor-commercial operation before the end of the future ward tax losses will be used to offset taxable income test year and (ii) provides that in the event Unit 2 in future periods. As such carryforwards are used, goes into commercial operation after the end of the AFUDC recorded in future years willbe reduced by future test year, the portion of the new rates reflect an amount equal to the tax reduction applicable to ing the Unit 2 costs would go into effect shortly after the construction interest included in the carryfor-the unit begins commercial operation. The PUC has wards so used.
granted a petition filed by the Pennsylvania Office of Consumer Advocate for reconsideration and clari-fication of certain aspects of the declaratory order.
The Company is unable to predict what action the 6. Credit Arrangements PUC may take with respect to this petition. The Company maintains lines of credit aggregat-The FERC permitted a $ 2 million increase in rates ing $ 120 million with various domestic banks. The for wholesale customers effective in August1981 and arrangements require the maintenance of compen-a $ 3 million increase effective in July 1982. The Com- sating balances (not material in amount) or the pay-pany and all involved parties have filed a settlement ment of commitment fees. Borrowings under these agreement with the FERC with respect to the Com- lines of credit are generally for one year at the prime pany's pending request for an increase in wholesale interest rate and may be prepaid at any time with-rates of approximately $ 4 million annually. If the out penalty.
agreement is accepted by the FERC, the rates, as The Company has a loan agreement with a group filed, would go into effect in early March 1984. of domestic banks pursuant to which the banks corn-mit to lend the Company up to $ 600 million on a re-volving basis with loans to mature on February 27, 1987. At the option of the Company, the interest rate
- 4. Income Taxes on borrowings would be based on the prime rate or The Internal Revenue Service (IRS) has com- interest rates applicable to certificates of deposit or pleted its examination of the Company's federal Eurodollar deposits. At the time any borrowing ma-income tax returns for the years 1973-1978. Based tures on February 27, 1987, the agreement permits on final settlement with respect to the years 1973- the Company to borrow up to $ 600 million, the prin-1976 and adjustments proposed for 1977 and 1978, cipal amount of which would be repayable in semi-the Company does not expect any material change annual installments over the following three years.
in its income tax liability for these years. A revolving credit agreement with a group of The Company has tax loss carryforwards at De- foreign banks permits the Company to make short-cember 31, 1983 of approximately $ 156.6 million for term borrowings up to $ 100 million through June 15, state income tax purposes and $ 115.9 million for 1984. Borrowings under this agreement would bear federal income tax purposes. About $ 70.9 million of interest at rates based on the average rate at which the state tax loss carryforward can be used to reduce certain participating banks accept Euro dollar state income tax liabilities in 1984 with the re- deposits.
40
'Zo. the extent the full $ 350 million commitment Most of the capital leases obligate the Company to under a'nucleic fuel lease arrangement is not being pay maintenance, insurance and other related costs.
utilized to finance nuclear fuel, the Company may The rental cost of capitalized leases amounted to borrow from a nuclear fuel trust for general corpor- $ 45.3 million in 1983, $ 18.7 million in 1982 and $ 16.1 ate purposes. Borrowings bear interest at the aver- million in 1981, the major portions of which were age rate of the trust's outstanding debt, would ma- charged to operating expenses. Future minimum ture on February 1, 1987 and may be prepaid at any rentals on capitalizable leases to which the Com-time without penalty. pany was committed at December 31, 1983, exclud-During 1983, the Company borrowed and repaid .ing leased nuclear fuel, are estimated as follows
$ 150 million under terms of the loan agreement with (millions of dollars): 1984, $ 13.8; 1985, $ 12.4; 1986, domestic banks and also prepaid $ 50 million of bor- $ 11.3; 1987, $ 9.3; 1988, $ 7.9 and 1989 to expiration rowings which were outstanding at December 31, of the leases, $ 37.4.
1982 under the nuclear fuel lease borrowing arrange- Arrangements with a trust permit the Company to ments. At December 31, 1983, there were no borrow- lease up to $ 350 million of nuclear fuel to be used at ings outstanding under any of the Company's credit the Susquehanna plant. Nuclear fuel rentals cover arrangements. the amortization of the cost of nuclear fuel based All revolving credit agreements are maintained on the quantity of heat produced plus applicable fi-by the payment of commitment fees. Commitment nancing charges. The unamortized cost of nuclear fees incurred to maintain the Company's credit ar- fuel under lease was $ 300 million at December 31, rangements aggregated $ 2.6 million in 1983, $ 2.9 1983. Upon completion of heat production, the Com-million in 1982 and $ 2.8 million in 1981. pany will receive title to the nuclear fuel.
At December 31, 1983, minimum rental commit-ments under operating leases were not material
- 7. Retirement Plan with respect to the Company's financial position.
The actuarial present value of accumulated plan benefits and net assets at the end of the plan's recent fiscal years are as follows (thousands of dollars): 9. Joint Ownership of Generating Plants At December 31, 1983, the Company owned un-June 30 divided interests in three generating stations as 1983 1982 follows (millions of dollars):
I'ctuarial present value of accumulated plan benefits: (a) Plant Vested- $ 189,313 $ 169,318 Generating Station Investment Ownership Nonvested 10,501 10 452 Susquehanna $ 3,435.7(a) 90.00%
$ 199,914 $ 179,770 Keystone ................ 33.5 12.34 Conemaugh ............. 34.2 11.39 Net assets available for benefits . $ 257,315 $ 173,995 (a) Includes $ 1,677.4 applicable to Unit 2 and common facilities under construction.
(a) Excludes accumulated plan benefits which are the obligation of four insurance companies under insurance contracts. The Company receives a portion of the total sta-tion output equal to its percentage ownership. The Statement of Income reflects the Company's share The assumed rate of return used in determining of fuel and other operating costs associated with the the actuarial present value of accumulated plan stations. Each participant provides its own benefits was 69o for both 1983 and 1982. financing.
Pension costs charged to expense for 1983, 1982 and 1981 were $ 27.5 million, $ 23.8 million and $ 19.7 million, respectively.
- 10. Associated Company Transactions The Company purchases bituminous coal from associated companies at a price generally equal to
- 8. Leases the entire operating costs of those companies. Pur-Certain of the Company's leases are capital leases chases of coal from associated companies were in accordance with criteria established by the Fi- (millions of dollars): 1983, $ 263.8; 1982, $ 255.1; nancial Accounting Standards Board (FASB) An ~
and 1981, $ 183.5. An oil pipeline subsidiary trans-accounting standard issued by the FASB requires ports oil to one of the Company's generating sta-that the Company record such leases on its balance tions. The oil transportation charges, which are sheet by 1987. If such leases had been capitalized based on a PUC approved tariff, were (millions of at December 31, 1983 and 1982, approximately $ 369.7 dollars): 1983, $ 15.1; 1982, $ 8.2; and 1981, $ 9.0.
million and $ 298.3 million, respectively, would have The operations of associated companies resulted been recorded as assets and as lease obligations. in after-tax charges against the Company's net in-Recording capital leases would not affect income. come of $ 4.2 million in 1983, $ 0.3 million in 1982 and 41
$ 2.6 million in 1981. The increase in such charges in ties at the Susquehanna plant are insured against 1983 was due primarily to a subsidiary charging to property damage losses up to $ 1.0 bilhon un'der these expense certain interest costs and property taxes programs. The Company is also a member of an in-that in prior years were capitalized as part of the surance program which provides coverage for the subsidiary's cost of coal reserves. cost of replacement power during prolonged outages See Note ll to Financial Statements for informa-tion concerning the Company's guarantee of certain of nuclear units caused by certain specified condi-tions. Under the property and replacement power obligations of associated companies. insurance programs, the Company could be assessed retrospective premiums in the event the exceed their reserves. The maximum amount insurers'osses the Company could be assessed under these pro-
- 11. Commitments and Contingent Liabilities grams during the current policy year is $ 16.3 million.
In the event of a nuclear incident at any of the The Company's construction expenditures are facilities covered by the federal government's third-estimated to aggregate $ 474 million in 1984, $ 214 party liability indemnification program, the Com-million in 1985 and $ 254 million in 1986, including pany could be assessed up to $ 5 million per incident, the allowance for funds used during construction. but not more than $ 10 million in a calendar year in See the sections entitled "Susquehanna Plant" and the event more than one incident is experienced.
"Capital Expenditure Requirements" on page 25 for These amounts will double when the Company re-additional information concerning the Company's ceives an operating license for Susquehanna Unit 2.
planned construction expenditures. At December 31, 1983, the Company had guar-The Comp'any is a member of certain insurance anteed capital and other obligations of other com-programs which provide coverage for property dam- panies (principally subsidiary coal companies and a age to members'uclear generating plants. Facili- subsidiary pipeline company) totaling$ 256.1million.
42
Auditors'.Opinion DELOITTE HASEINS & SELLS One World Trade Center Certified Public Accountants New York, New York 10048 To the Shareowners and Board of Directors of Pennsylvania Power & Light Company:
We have examined the balance sheets of Pennsylvania Power & Light Company as of December 31, 1983 and 1982 and the related statements ofincome, earnings reinvested, and changes in financial position for each of the three years in the period ended December 31, 1983. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, such financial statements present fairly the financial position of the Company at December 31, 1983 and 1982 and the results of its operations and the changes in its financial position for each of the three years in the period ended December 31, 1983, in conformity with generally accepted accounting principles consistently applied during the period subsequent to the change, with which we concur, made as of January 1, 1981, in the method of accounting for unbilled revenues, as described in Note 2 to the financial statements.
'February 3, 1984 Supplementary InfOrmatiOn On Changing PrieeS (Unaudited)
The F<inancial Accounting Standards Board misleading. The constant dollar method shows the (FASB), an organization that establishes rules for effects of general inflation by adjusting data to accounting and financial reporting, has issued a dollars of the same purchasing power by applica-statement that requires the presentation of certain tion of the U.S. Government Consumer Price Index information on the effects of general inflation and for All Urban Consumers (CPI-U).
changes in the prices of certain specific types of The constant dollar method simply restates assets. Customary financial reporting generally has amounts recorded on a company's books to the not attempted to specifically reflect inflation. The level of average dollars for the current year. F<or F'ASB statement requires that certain aspects of infla- example, the average CPI-U was 217.5 in 1979 and tion be computed in accordance with prescribed 298.4 in 1983. The restatement of $ 1.00 of property techniques and reported on an experimental basis. acquired in 1979 to average 1983 dollars would The FASB recognizes, and the Company cautions be accomplished by multiplying the $ 1.00 by the users of this information, that there is no consensus ratio 298.4 . 217.5, resulting in $ 1.37 of property in on the general practical usefulness of this supple- terms of average 1983 dollars.
mentary information. There are also unresolved 2. Current cost In a period of inflation, prices of implementation problems and conceptual differences most goods and services increase but not neces-regarding the manner in which the effects of sarily all at the same rate. The current cost method changing prices should be measured. shows the impact of inflation on a company by The F<ASB statement attempts to measure the measuring the estimated change in prices of the effects of changing prices in two different ways: specific goods and services used by that company.
The Company has elected to present the "Supple-
- 1. Constant dollars In a period of inflation, the mentary Statement of Income" data in accordance amount of goods and services one dollar will buy with the partial restatement provision of the F<ASB declines. Since financial data often involves statement. Under this provision, utility plant, net of dollars expen'ded in different years, it is suggested accumulated depreciation, and depreciation expense that combining or comparing such dollars is are the only items restated to reflect general inflation 43
(Constant Dollars) and specific price changes (Cur: deferred credits. The Company is in a net mone-rent Cost). F~uel inventories and the cost of fuel used in tary liability position.
generation have not been restated from their histori- 2. Increase in the current cost of net utilityplant as a cal cost since, under rate regulation, the recovery of result of specific price changes experienced, the cost of fuel is limited to the actual cost of the fuel The increase in the current cost amount of net burned. Revenues, income taxes and expenses other utility plant is shown before and after elimi-than depreciation are presented at the amounts nating the effects of general inflation as meas-reported in the basic financial statements. ured by the CPI-U.
- 3. Adjustment of net utility plant to net recoverable amount.
Set forth under "Other Impacts of Changing Prices" Under the ratemaking prescribed by regula-are the following: tory commissions, only the historical cost of utility plant is recoverable in revenue as depreci-
- 1. Gain from decline in purchasing power of net ation. Therefore, the difference between the amounts owed. amount of utility plant stated in terms of con-Inflation also affects monetary assets, such stant dollars and current cost (after deducting as cash and receivables, which lose purchasing the effects of general inflation) and thehistorical power during inflationary periods since these cost is reflected as an adjustment to net recover-assets will in time purchase fewer goods or able amount.
services. Conversely, holders of monetary The adjustment in terms of constant dollars liabilities benefit during such periods because reflects only the effects of general inflation on the less purchasing power willbe required to satisfy historical cost of utility plant and is a reduction these obligations. Monetary liabilities include in 1983. The adjustment in terms of current cost is preferred and preference stock issues with sink- computed after the general inflation effect is ing fund requirements, long-term debt, current li- deducted from the increase in the specific price
'bilities, deferred taxes and tax credits and other amount of net utility plant.
As Reported Adjusted on Adjusted on in Financial the Basis of tice Basis of Statements General Price Changes Supplementary Statement of (Historical Inflation Experienced Income for 1983 (Thousands of Dollars) Cost) (Constant Dollar) (Current Cost)
(Stated in Average 1983 Dollars)
Operating revenues $ 1,248,397 $ 1,248,397 $ 1,248,397 Operating expenses Depreciation (a) . 107,885 226,456 240,245 Other . 850,582 850,582 850,582 958,467 1,077,038 1,090,827 r Interest expense 167,674 167,674 167,674 Other income and deductions net ........... (173,755) (173,755) (173,755)
Dividends on preferred and preference stock 85,838 85,838 85,838 1,038,224 1,156,795 1,170,584 Earnings applicable to common stock ......... $ 210,173 $ 91,602(b) $ 77,813 Other Impacts of Changing Prices Gain from decline in purchasing power of net amounts owed ...... $ 125,670 $ 125,670 Increase in specific prices (current cost) of net utility plant during the year (c) . 447,957 Increase in current cost of net utility plant if change in general price level were applied (337,391)
Excess of increase in specific prices over increase in general price level $ 110,566 Adjustment of net utility plant to net recoverable amount (reduction) . $ (76,282) $ (173,059)
(n) Constant dollar utility plant wns determined by applying the (b) Including the reduction to net recoverable amount, earnings CPI-U index to the historical cost of surviving plant. The applicable to common stock on a constant dollar basis would current cost of utility plant wns determined by applying have been $ 15,320 for 1983.
construction cost indices maintained by the Company to the (c) At December 31, 1983, the current cost of net utility plant wns historical cost The respective adjusted provisions for depre- $ 9.67 billion, while the historical cost or nct amount ciation were determined by applying the functional class de- recoverable through depreciation was $ 5.59 billion.
preciation accrual rates to the respective average year.end balances of depreciable plant adjusted for general inflation (constant dollar) and specific price changes (current cost).
44
%he following schedule presents a summary of reported in financial statements or other statistical selected data c0mparing items as they are normally summaries to items adjusted for changing prices.
Supplementary Comparison of Selected Data (Thousands of Dollars) 1983 1982 1981 1980 1979 Income Items Constant Dollar and Current Cost Amounts in Average 1983 Dollars Earnings Applicable to Common Stock As reported (a) $ 210,173 $ 210,572 $ 170,801 $ 120,384. $ 133,532 Constant dollars 91,602 99,647 76,479 43,369 93,681 Current cost 77,813 90,889 74,513 33,765 72,289 Earnings Per Share of Common Stock As reported (a) 3.06 3.35 3.17 2.64 3.32 Constant dollars 1.33 1.59 1.41 0.95 2.33 Current cost 1.13 1.45 1.38 0.73 1.80 Amount by Which the Increase in General Price Level of Net Utility Plant is Greater Than or (Less Than) the Increase in Specific Prices of Net UtilityPlant .......................... (110,566) (275,914) (66,287) 398,206 253,240 Adjustment of Net UtilityPlant to Net Recoverable Amount write-up (reduction)
Constant dollars (76,282) (63,987) (274,196) (403,826) (471,669)
Current cost . (173,059) (331,143) (338,517) 3,984 (197,037)
Gain from Decline in Purchasing Power of Net Amounts Owed . 125,670 116,374 245,821 318,436 346,606 Net Assets at Year-End (b)
As reported 1,999,324 1,875,070 1,666,812 1,482,092 1,344,816 onstant dollars 1,965,727 1,913,546 1,766,880 1,711,518 1,734,948 urrent cost 1,965,727 1,913,546 1,766,880 1,711,518 1,734,948 Other Supplementary Data (c)
Operating Revenues As reported $ 1,248,397 $ 1,219,548 $ 1,133,278 $ 885,451 $ 860,498 Average 1983 constant dollars ......... 1,248,397 1,258,779 1,241,447 1,070,578 1,180,564 Cash'Dividends Declared Per Common Share As reported 2.40 2.32 2.24 2.12 2.04 Average 1983 constant dollars ....... 240 2.39 2.47 2.56 2.81 Market Price Per Common Share at Year-End As reported 20.62 21.00 17.12 15.62 17.75 Average 1983 constant-dollars ....... 20.28 21 43 18.15 18.04 23.04 Average Consumer Price Index (CPI-U) .. 298.4 289.1 272.4 246.8 21,7.5 d
(n) 1981 excludes n nonrecurring credit related to an accounting (c) Other Supplementnry Data is n comparison of items as norm.
change. ally reported nnd as adjusted to average 1983 constant dollars (b) Net assets (shnreowners'quity) for purposes of this supple- by applying the CPI-U index.
mentary disclosure include common equity nnd the preferred nnd preference stocks without sinking fund requirements. The
~ preferred nnd preference stocks with sinking fund require-ments have been excluded since they were treated ns monetary items.
45
Summary of Quarterly Results of Operations (Unaudited)
Earnings Earnings Per Share Quarter Operating Operating ~ Not Applicablc to of Common Ended -Revenues Income Income Common Stock Stock (a)
Thousands of Dollars 1983 March $ 305,088 $ 62,643 $ 79,823 $ 60,055 $ 0.89 June 270,909 55,956 69,332 47,868 0.70 September 285,151 73 373 68,902 46,523 0.67 December 387,249 97,958 77,954 55,727 0.80 1982 March $ 363,764 $ 72,802 $ 83,386 $ 66,486 $ 1.12 June 279,262 48,690 56,970 40,088 0.66 September 284,450 49,735 65,028 48,220 0.74 December 292,072 51,856 73,502 55,778 0.84 (a) Based on the average number of shares outstanding during the quarter. The total of the four quarterly earnings per share amounts may not equal earnings per share for the year due to changes in the number of common shares outstanding during the year and rounding.
Common Stock Price and Dividend Data The principal trading market for the Company's The Company has paid quarterly cash dividends common stock is the New York Stock Exchange. on its common stock in every year since 1946. The The stock is also listed on the Philadelphia Stock dividends paid per share in 1983 and 1982 were Exchange. The number of record holders of common $ 2.38 and $ 2.30, respectively. The most recent stock was 169,142 as of December 9, 1983. The high regular quarterly dividend declared by the Company and low sales prices of the Company's common stock was 60 cents per share (equivalent to $ 2.40 per on the Composite Tape for the past two years as annum) paid January 1, 1984. Future dividends will reported by The Wall Street Journal were as follows: be dependent upon future earnings, financial re-quirements and other factors.
Quarter The Company has estimated that all of its 1983 Ended High Low dividends paid on common stock and 19.16% of its 1983 dividends paid on preference stock will not be tax-March $ 24'/2 $ 207/s able for federal income tax purposes as dividend in-June . 24'/s 20'/4 September 23'/>> 20'/>> come, but will constitute a return of capital which December 24'/s 20 reduces the tax cost basis of the shares on which the dividends were paid.
1982 March $ 19'/>> $ 16'/~
June . 20'/>> 17'/i September 20>>/~ 17'/>>
December 217/>> 19~/>>
46
Fiscaf. Agents TRANSFER AGENTS FOR PREFERRED, PREFERENCE AND COMMON STOCK Industrial Valley Bank and Trust Company 634 Hamilton Mall Allentown, Pennsylvania 18101 Morgan Guaranty Trust Company of New York 30 West Broadway New York, New York 10015 Pennsylvania Power & Light Company Two North Ninth Street Allentown, Pennsylvania 18101 REGISTRARS FOR PREFERRED, PREFERENCE AND COMMON STOCK The first National Bank of Allentown Hamilton Mall at Seventh Allentown, Pennsylvania 18101 Morgan Guaranty Trust Company of New York 30 West Broadway New York, New York 10015 DEPOSITARY FOR DEPOSITARY PREF<ERENCE SHARES Morgan Guaranty Trust Company of New York 30 West Broadway New York, New York 10015 DIVIDENDDISBURSING OFFICE AND DIVIDENDREINVESTMENT PLAN AGENT
"'ice President and Treasurer Pennsylvania Power & Light Company Two North Ninth Street Allentown, Pennsylvania 18101 Securities Listed On Exchanges NEW, YORK STOCK EXCHANGE 4'/~% Preferred Stock (Code: PPLPRB) 4.40% Series Preferred Stock (Code: PPLPRA) 8.60% Series Preferred Stock (Code: PPLPRG) 9.24% Series Preferred Stock (Code: PPLPRM)
Preference Stock, $ 8.00 Series'(Code: PPLPRJ)
Preference Stock, $ 8.40 Series (Code: PPLPRH)
Preference Stock, $ 8.70 Series (Code: PPLPRI)
Preference Stock, $ 11.00 Series (Code: PPLPRL)
Preference Stock, $ 13.00 Series (Code: PPLPRK)
Depositary Preference Shares Representing:
Preference Stock, $ 11.60 Series (Code: PPLPRP)
Preference Stock, $ 13.00 Second Series (Code: PPLPRO)
Preference Stock, $ 15.00 Series (Code:PPLPRN)
Common Stock (Code: PPL)
PHILADELPHIASTOCK EXCHANGE 4'/2% Preferred Stock 3.35% Series Preferred Stock 4.40% Series Preferred Stock 4.60% Series Preferred Stock 8.60% Series Preferred Stock 9% Series Preferred Stock 9.24/o Series Preferred Stock Preference Stock, $ 8.00 Series Preference Stock, $ 8.40 Series Preference Stock, $ 8.70 Series Preference Stock, $ 11.00 Series Preference Stock, $ 13.00 Series Depositary Preference Shares Representing:
Preference Stock, $ 11.60 Series Preference Stock, $ 13.00 Second Series Preference Stock, $ 15.00 Series Common Stock 47
Officers Directors h ROBERT K. CAMPBELL, President CLIFFORD L. ALEXANDERJR., Washington, D.C.
and Chief Executiue Officer President, Alexander & Associates Inc.
Consultants to business, government & industry ROBERT R. FORTUNE, Executiue Vice President-Financial ELIZABETHE. BAILEY,Pittsburgh JOHN T. KAUFFMAN,Executive Vice President-Operations Dean, Graduate School of Industrial Administration, JACK R. CALHOUN, Senior Vice President.IVuclear Carnegie-Mellon University MERLIN F. HERTZOG, Senior Vice President- ROSWELL BRAYTON SR., Woolrich Human Resource & Deuelopment President and Chief Executive Officer, 1Voolrich 1Voolen Mills Inc. Manufacturer of garments for outdoor activities LEON L. NONEMAKER, Senior Vice President-JEFFREY J. BURDGE, Camp Hill Division Operations Chairman of the Board and Chief Executiue Officer, Harsco Corporation. Manufacturer of processed and fabricated metals ROBERT K. CAMPBELL, Allentown President and Chief Executive Officer JOHN R. BIGGAR, Assistant Treasurer EDGAR L. DESSEN, Hazleton Physician. Radiologist GENNARO D. CALIENDO, Vice President and Chief Counsel-Regulatory Affairs EDWARD DONLEY, Allentown Chairman of the Board and Chief Execu ti ue Officer, AirProducts NORMAN W. CURTIS, Vice President- and Chemicals Inc. Manufacturer ofindustrial and commercial Engineering & Construction. Nuclear gases and chemicals CHARLES J. GREEN, Vice President. Harrisburg Diuision ROBERT R. FORTUNE, Allentown Executiue Vice President-Financial WILLIAMF. HECHT, Vice President. System Power BRUCE D. KENYON, Vice President-1Vuclear Operations FRANCES R. HESSELBEIN, New York City IVational Executive Director, Girl Scouts of the U.S.A.
JOHN P. KIERZKOWSKI,Assistant Treasurer HARRY A. JENSEN, Lancaster CARL R. MAIO, Vice President-Lehigh Di uision Director and former Chief Executive Officer, Armstrong 1Vorlgf Industries Inc. Manufacturer of interior furnishings and GRAYSON E. McNAIR, Vice President- specialty products Marketing & Customer Seruices JOHN T. KAUFFMAN,Allentown EDWARD M. NAGEL, Vice President, Executi ue Vice President Operations General Counsel and Secretary W. DEMING LEWIS, Bethlehem HERBERT D. NASH JR., Vice President. Central Division President Emeritus, Lehigh Uniucrsity JOHN E. ROTH, Vice President-Northern Diuision HAROLD S. MOHLER, Hershey Former Chairman of the Board, Hershey Foods CHARLES E. RUSSOLI, Vice President and Treasurer Corporation. Diversified manufacturer of food products JOHN H. SAEGER, Vice President. Susquehanna Di uision RALPH W. RICHARDSON JR., State College EDWIN H. SEIDLER, Vice President-Engineering & Consultant, agricultural and enuironmental sciences Construction System Power & Engineering NORMAN ROBERTSON, Pittsburgh BRENT S. SHUNK, Vice President-Lancaster Division Senior Vice President and Chief Economist, Mellon Bank, N.A.
JEAN A. SMOLICK, Assistant Secretary DAVID L TRESSLER, Scranton GEORGE F. VANDERSLICE, Vice President Chairman of the Board and Chief Executiue Officer, and Comptroller northeastern Bancorp, Inc.
PAULINE L. VETOVITZ, Assistant Secretary Executive Committee: Robert K. Campbell, chairman; Edgar L Dessen, Harry A. Jensen, W. Deming Lewis nnd Norman Robertson.
HELEN J. WOLFER, Assistant Secretary Audit Committcc: Harold S. Mohler, chairman; Clifford L Alexander Jr., Elizabeth E. Bailey, Rcswell Brayton Sr., Ralph W. Richardson Jr. and Corporate Management Committee: Robert K. Campbell, chairman; David L. Trcssler.
Robert R. Fortune John T. Knuffman, Jack IL Calhoun, Merlin F. Hcrtzog, Corporate Responsibility Committee: Edgar L Dessen, chairman; Leon L Nonemnker nnd Edward F. Reie, Director. Corporate Planning, Jeffrey J. Burdge, Frances R. Hesselbein, Harold S. Mohler and David L serving as the committee's executive secretary. Tressler.
Management Development and Compensation Committee:
Roswell Brayten Sr. chairman; Clifford L Alexander Jr., Elizabeth E.
Bailey, Edward Donfey, W. Deming Lewis and Norman Robertson.
Nominating Committee: Ralph W. Richardson Jr. chairman; Jeffrey J.
Burdge, Edward Donley, Frances R. Hesselbein nnh Harry A.Jensen.
The Company's annual report filed with the Securities and Exchange Commission on Form 10-K will be available mid-March. A shareowner may obtain a copy, at no cost, by writing to Pennsylvania Power &
Light Company, Two North Ninth Street, Allentown, Pa. 18101, attention: Mr. George 1. Kline, Investor Services Manager.
48
Board of Directors
. "le
-'u'~
'I uI. 9<" .' ~
I
~T I h
7 Alexander Bailey Brayton Burdge
-'ha Dessen Donley Hesselbein Jensen I
~P 7 7.
,I,h.l>h
<<"1 Lewis Mohler Richardson Robertson 7
Tressler Corporate Management Committee Reis Nonemaker Kauffman Campbell Fortune Hertzog Calhoun
SULK ftATE "
Pennsylvania Power & Light Company LL S. POSTAGE Two North Ninth Street ~ Allentown, PA 18101 ~ 215/ 770-5151 PAID Allentowg, Pa.
No. 104 'ermit Susquehanna Unit 1 Commercial Operation Ju ne 8, 1983 Unit 1 at PP&L's Susquehan-na nuclear plant was placed in commercial operation on June 8, 1983. Susquehanna, along with our excellent fossi I-fueled generating plants, willprovide abundant, competitively priced electric energy to power thejobs, the lifestyles, and the futures of those living in Central Eastern Pennsylvania from now into the 21st century.
Litho ln U.