ML19317D188
| ML19317D188 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 12/31/1977 |
| From: | Verrochi W PECO ENERGY CO., (FORMERLY PHILADELPHIA ELECTRIC |
| To: | |
| Shared Package | |
| ML19317D181 | List: |
| References | |
| NUDOCS 7910160305 | |
| Download: ML19317D188 (17) | |
Text
._
f.
7 V
+.1,a..w w.i.
m L Penelec>/GPfJ
%4sM,.
V g
- d a
I
[Q, a..S -:
~
e qr.,. '.
> p w' a",j,,e Q,
Y.a. J. r,,s <., i-r(h.e *,.
w%.,
..,. ii.
- f s
e p
w ae h w-mm.,a p...
oh
( b 3,4
. &t. 4 a
- e4 a.48+m,4 4,.=,g 4,-
4
%? +,1, @ - 3.' M.. t g
% p." '
^
l
~
k; 1.
.s
,- as i Q *&
,.9,,
-: t..:M,.sy :DN.
v m-eh.7..
v__-
n KYbN, '
i sa
'r.u s w.r' C e,,Q*y p,-.
i rt E.
,)9 p,s J,y,.n g
.M. <
e q^ ;g m,N %,q t,)p;g;, D,,,n.~(%.
s.
.; e 9 u
s s
+e p' ':m}@m )
' y'9q: -..
- . w w s
y
+
4 f
t! ; k #};,
2 i
.s-f i wm,,-3* Q '
e ~p3_-
Mri h,/
7 rk. Q 4 -Agg.zr,,.g*
i g.
.4%&..= +fr% ; b,.g, =by-
>.~c. g:, p @m ~v n w';~.Lw. y = =
=
- pg
@M FM3:tr :,dj.:.r:c;npOt em,.r.
- w y w,., -
n,.. n.
a w
n.
.a ga l
5 k.u.a h aI h, b ' k D -'\\ ? W
, w; A, r., '
e n
4
~ ~$
~m a$
$ f, n.,,f
' 7 ffY n.
m, 4.d). mtc.-
u G
m e,
qh,'
,t
, a.,
,,.]
47.';e gg ',
_ f,
-['..
~
AE r,9 ed.., g ' '
[Y
. f-
+
fJ-
' ** aL A L'
G\\
' Y; e '
+ -+ r
- r. e
~~
.nt, f '4:(-h y %>
A@fkk _:- JgQ=g n.'
pe9J h.wh. e(.=:,GY, m% o.w.
hY
.f
~'
' %g'QC I. 2.$
un-Kr-;
r a
a w
. c%' :
Y c--
~. _. m K"d;. '%.1% <;';Mt** 1 %S elN,,,s.
fi%
,m
? r?
.g s
1' " **f f-
M k.
A f.
4up
< *I,4,
- 3., l g'
\\
w' ;O ^
, s,
,e, c
\\
~.- Q, '
%n "7'.3 =p 1
- ~
&~Q~iHg%
ta th
- _f
-4 t w cw e,,' +,
x.
m
(
I' a
w y'
. aa
..v.
yA
' 2.!
. mm
,rg I
u.
5**
e a'
o' e,. f. L-f,... m s.AY Y gx,e 1.A y, y '.
,.~,,W-1 m..<m qv sp'5r W" ' k YN '.*.
S
,,..,. t, c,$,,jp 1
,,+,e*
y
..pg4... ',
i
,i,p A;;=
N /r ydPN "4.v.g. w,v ",,
- .n
.e
. w.pm s
J ykhw s$
kh:h f?lh(* (4's,
M' '..
' ~
1 t
m am.umw m]g.w y
- Y m
pn -ww wme 24 v,,,
a ~n yv.p.,; s, ggp.P x ; + m. q y.
.. L+
,s e
~,
-a, sh
.;e,
. ye h..j.ng,;,;.~,y'a',%:Q;,Qq.N-
,,$,24
.e v
gy
%ff'
- Nk&mG.U M.M U W S Qa er; ;" ;Q _
r wv-
"e
. e
~
. e" - M *_V?. A ' " *. W( b'pj et.,.4
,. 4 c
I % )F.
,1y WS&y,(Ef?the;rAk&Mn%
%~ & _ M.: W.-._? w_ W~.r/' 4 Q N Y G5 Y 1)1? s.-J_
g L
Y rl iA L ;
~ Mf f f llf hl: :.i=*
jh)
(,A
. b lf d=.:f m o w e.yQ y-
. RWEMQ
.'_ 1 pn&QmQ W
n ggD& h, t
a 4., W M. M @, p2" g) i.. _
v g'as em e.
xy, w8=.. MM~ W hA
~
N4 m
w.
J
.f x.
- ~ - - - _
TO THE STOCKHOLDERS:
The year 1977 will stand The use of a " future test Financial Results out in Penelec's history as a year" concept in determining h 19n Mbdow de period in which we were rate requirements was put t increased 4 percent and called upon to meet some of the test in our February 1, revenues other than those our sternest challenges.
1977, rate filing, marking th W6h of gy Among these were the coldest first time a maior rate case increased $10 million, or 4 and cruelest wmter weather allowed for consideration of percent, which resulted fron since the founding of the future test year data covering increased sales. Inflationary Republic, the devastation of projected revenues and f
led 2 h is yet another Johnatown flood, expenses in support of the of revenues due to the flood the start of a prolonged increase request. Such and unusually cold weather national coal strike and the support data had previously ibm to a est gain continumg impact of inflat,on been based on historical or in peradng income.
i and regulatory lag, experienced costs which resulted in utilities having to The Future is Now Adversities notwith-
"# H ' "'"E ""**
Even while the 1977 wint standing,1977 also must be ec n mi catch-up.
- named by the news medi regarded as a year of major achievement insofar as our Our filing with the PUC as the top story of the year -
Company is concerned, and a in February was for unleashed its severest blow pivotal period that offered the
$67.8 million from our retail January, we managed to portent for regulatory customers and would have maintain adequate supplies improvements in the represented a rate increase of electricity to our customers immediate future.
about 14 percent.
due to our advance load f re asting and load We saw last,' ear the In February 1978, the PUC management programs, an beginning of wl.st must be approved a $28.4 million rate pa yn viewed as a mot
- toward increase,less than half of g,n d
p improvement in the what we requested. Th,is regulatory clima e of amount is simply not E".
""****U" Fennsylvania with the signing adequata to cover our costs of dectric service to into law of new legislation, providine future.
effective in October 1977, our customers. The PUC has obligating the Pennsylvania in effect disallowed any And we're making these Public Utility Commission to consideration for the Three same types of decisions tod reach a decision on rate Mile Island Unit 2 costs that to insure the electric energ increases within a nine-month were a part of our original our customers require will period or otherwise have the filing along with other costs there when they turn on th proposed rates go into effect we felt were fully justified.
switch through 1988 and subject to refund.
We are disappointed in the beyond. Our forecast shows decision because it means that steady annual growth of Penelee will have to file for about five percent for the another rate increase, since next 10 years in the electri the new i.uclear unit is in its energy needs of our final stages of construction customers.
and is schecuted to be placed To meet these needs, we into commercial operation in spent $122 million in new "I*
construction in 1977. Our 1978 construction budget i
$76.8 million, allowing for proposed sale of 60 percent our 25 percent interest in l
l l
I i
l l
l t
Three Mile Island Unit 2 to We closed out the year 1977 Dauphin County Industrial Jersey Central Power & Light by placing a new third Redevelopment Authorities Company and purchase from generating unit into operation and the signing of a contract at our llomer City Generating with National Miner
- 4r them of a 25 percent ownership in the Forked Station (shown on cover) -
the sale of flyash - a ry-
. River Nuclear Generating owned 50/50 by Penelee and product of burning coal to New York State Electric &
produce electricity.
Station Unit 1.
Gas Corp. Placement of the A whive ege-Our present timetable for 650,000-kilowatt capacity unit ment audit by an outside new generating capacity into operation is of major consulting firm is nearing additions - that is, tanits to
,ficance to our customers completion, and cost savings sg be owned jointly by Penelee in both the added power and efficiency recommenda-cnd the other GPU operating production capacity it offers tions are already being
? companies - to meet the and in the beneficial econom.ic implemented to improve our projected needs of our impact the installation and operations and productivity.
customers looks like this:
operation of a major coal-fired
-Three Mile Island Unit 2 unit will have on the region.
That we passed such severe (under the proposed 10 Other Maj,or challenges as we had in 1974 percent Penelee ownership)
Achievements is a tribute to the ability of will begin feeding 91,000 kilowatts into our im.es in In listing major achieve-our employees, at all locations mid-1978.
ments for 1977, the November and all levels. Moreover, these dedication of our Multi-challenges came during a
- In 1983, the nuclear Strcam Coal Cleanmg facility time of major change in the Forked River Generating at the 'c!omer City Generatmg senior management levels at Station Unit 1 in New Jerry Station must stand out among Penelee, owing to the (under the proposed 25 the most sigmficant. This new irch of sevd W percent Penelec ownership) pr cess for cleaning coal is company #4ficials - Company will add 292.000 kilowatts.
seen as an alternative, or President J. Franklin Smith, Our growth farecast takes supplement, to stack gas.
Operations / Personnel Vice mto account continued energy scrubbers m controllmg air President Earl J. Miller, and
~
conservation efforts by our pollution and could greatly Technical Vice President Paul I^
6 customers as well as expand environmental L. Lumnitzer. It is much to improved msulation and acceptance of coal -
their credit, and to the credit f
rppliane efficiency stand-particularly Pennsylvam.
ne m oUim -
a crds. We have experienced coal - as a fuel for Operating Vice President exceptional success with our generating electricity.
D vid J. Bechtold. Technical four-year load management Scrubbers for the II,mer City N.ce President Jack A. Poole, program - the shifting of plant would have cost about and Personnel Vice President electric power use from on-three times as much as the James R. Reesman - that we Ni peck to off. peak hours. This installed cost of the coal can reflect positively on our k'S
/
effort has enabled higher cleaning plant.
accomplishments during the
/
(
r-
.,3, utilization of our larger, more Am ng n table cost aavmgs year.
g
?
efficient generating units en rts to control inflationary f
f-
-a with a consequent economic impact were the financing of
!g, /l 'V"V N td S
iN-
- wg$
benefit to our customers.
$16.4 million in low interest 3
h Some 47,790 kilowatts were c st revenue bonds for William A.Verrwhi reduced from peak load p llution control facilit.ies Presider.t during 1977 - 12.540 through the Cambria and kilowatts by commercial customers,23,290 kilowatts by industrial customers, and 11,960 kilowatts by residential customers.
-,%6p@&~5
w - m a-a.u.
u -a
,'.~........ -
MANAGEMENT'S COMMENTS ON EARNINGS The Company has experienced improved earnings for In 1976 KWH sales increased 5% Revenues other than 1977 and 1976 resulting from annual growth in KWH sales those related to the cost of energy, increased $24 million of and a rate increase in June 1976, which $11 million resu!ted from KWH sales growth and $13 million resulted from increased rates.
In 1977, KWH sales increased 4% and revenues other than those related to the cost of energy increased $10 million Revenues related to the cost of energy increased $4 or 4% resulting from increased sales.
million from 1975 to 1976. Corresponding energy costs consisted of: power purchased and interchanged increased Revenues related to the cost of energy increased $42
$17 million (252% - resulting from major generating million or 43% Such revenue increase covered increases in station outages and increased system requirements) of which energy costs consisting of: a $1 million (1%) increase in fuel
$3 million was not recovered through energy related
+
costs ($4 million increase due to higher unit costs and a $3 revenues because the fossil fuel clauses in effect during the million decrease due to decreased generation), increased first half of 1976 excluded interchanged costs in the power purchased and interchanged of $27 million (116% -
energy cost determination; fuel increased $2 million (2% - a primarily as a result of the 1977 Johnstown flood rendering
$6 millian increase due to higher unit costs and a $4 million a major generating station inoperable), and an $11 million decrease due to decreased generation). This was partially reduction in deferred energy costs. The remaining $3 offset by an increase of $12 million in deferred energy costs.
million was due to the change in mid-1976 from a fossia hel clause to an energy adjustment clause which includes Payroll and other operation and maintenance costs went interchanged costs in the energy cost determination.
up $10 million or 14% over 1975 and on a cents per KWH basis rose 9.1%. The payroll increase resulted primarily Payroll and other operation and maintenance costs grew from wage increases while other operation and maintenance about $9 million or 12% and on a cents per KWH basis costs reflected increased inflationary factors.
increased approximately 8% Increased payroll resulted i
from an increase in employees and higher wage rates, while Depreciation went up $2 million or 8% resulting from the rise in other operation and maintenance costs reflected increased plant in service and increased accrual rates as inflationary factors, evidenced by the composite rate increasing from 2.78% in 1975 to 2.86% in 1976.
Depreciation increased $3 million or 10% resulting from an additional $171 million of plan + in service in 1977 and an Taxes increased $6 million or 16%, most of which were increase in the accrual rates from a composite rate of 2.86%
attributable to higher taxable income.
in 1976 to 2.88% in 1977.
During 1976, the Company invested $134 million in new Taxes decreased $1 million which includes a $3 million plant and equipment requiring capitalization increases of meresse in state revenue taxes and a $4 million decrease in
$104 million. Of this,71% or $74 million (reflecting $48 income taxes due to a decrease in taxable income.
million Londs and $35 million.eLrred stock) came from the sale of additional fixed income securities. This resulted During 1977 the Company invested $122 million in new in increased interest and preferred stock costs of $10 plant and equipment requiring capitalization increases of million, of which $9 million affected income, since $1 million
$93 million. Of this,52% or $48 million (including $16.4 was related to construction projects and was offset by a million bonds) came from the sale of additical fixed income credit to income. The remaining 29% came from increases in securities. This resulted in increased interest costs of $4 common stock capital of $30 million (cash capital million, of which $3 million affected income, since $1 million contributions from GPU, parent company).
was related to construction projects and was offset by a credit to income. The remaining 48% came from increases in Earnings available for common stock decreased $4 common stock capital of $45 million (cash capital million or 10%, including a $2 million increase in the credit contributions from General Public Utilities Corporation for equity funds applicable to construction projects. The
("GPU"), parent company).
return on common stock equity was 11% for 1976 and 13%
for 1975.
Earnings available for common stock increased $2 million or about 4%, including a $3 million increase in the credit for equity funds applicable to construction projects.
The return on common stock equity was 10.3% compared 'o 11% for 1976.
1 1
l l
CONSOLCATED STATEMENTS CF INC2ME l'ennsylvazia Electric Compa: y a nd Subsidiary Compar. irs (In nousanda for tAe Years Ended Deceml<r St.
1977 1976 1975 1374 1973 l
Operating Revenues
$393.758
$339.886
$312,400
$261.283
$218,197 Operating Expenses:
96,906 96.118 "5.885 76.010 47.462 Fuel..........
Power purchased and interchanged, net:
Affiliates (2,055)
(21.818)
(2.352) 2,870 (3,193) 52,744 45,282 9.020 12,105 7,498 Others......
Deferralof energy costs. net (Notes t and 7)..
(1,909)
(12.396)
(645)
(7,499)
Payroll.......
38,445 34.410 31,645 31,599 28.039 Other operation and maintenance (excluding payroll)(Note 10) 49,556 44.165 37,007 36,736 31.771 32,549 29,653 27,534 23,853 22.175 Depreciation (Notel)..
28,530 23.675 22.054 19.475 16.715 Taxes. other than income taxes (Note 10)...
Totals..
294.766 239.089 218.148 195.149 150.467 Operating Income Ilefore h come Ts.xes 98.992 100,797 94.252 66.134 67,730 Income Taxes (Notes 1 and 6):
Federal and state income taxes (4.201) 11.048 12.089 1,684 8,037 Deferred income taxes, net 10,003 12.580 5.862 7,710 1,832 Investmenteredits. net..
19.474 3.679 4.401 533 121 Tota' Income Taxes Charged to Operations..
25.276 27.307 22.352 9.927 9,990 73,716 73.490 71.900 56.207 57.740 Operating income...
Other income and Deductions:
Allowance for other funds used during construction 14.852 11.817 9.125 10,157 7,045 (Note 2)..
1,300 1,188 1.479 1,734 1,518 Other income, net.
Income taxes on other income net (1,059)
(965)
(1,014)
(958)
(774)
(Notes 1 and 6)...
TotalOtherincomeand Deductions.
15.093 12.040 9.590
, 10,933 7.789 Ineome llefore Interest Charges.
.88.809 85.530 81.490 67,140 65.529 Interest Charges:
38,208 35.349 28,960 24.764 20,686 Intereston firstmortgagebonds...
5,413 5.541 5.668 5,797 5,933 Intereston debentures Otherinterest 2,292 971 2,991 2.481 1,083 Allowance for borrowed funds used during construction--credit (netof tax)(Note 2)..
(5.372)
(4,136)
(3,123)
(2,929)
(4,149)
Income taxes attributable to the allowance for (6.099)
(4.648)
(3.600)
(3.321)
(656) borrowed funds (Notes 2 and 6).......
Total lnterest Charges,.....
34,442 33,077 30.896 26.792 22.897 Income Ilefore Cumulative Effect f A ccou nthg Change.....................
54,367 52.453 50.594 40.348 42,632 Cumulative effect of accounting change
( Notes 1 a nd 7)...................................
1.926 N e t I n co m e.................................
54.367 52.453 50,594 42.274 42.632 Preferred Stock Dividends 14,969 14.581 8.511 5.664 5,664 Earnings Available forCommon Stock..........
$ 39.398
$ 37.872
$ 42,083
$ 36.610
$ 36.968 De accompanying notes are en integral part of the consolidatedf1nancial statements.
5
CONSOLCATED BALANCE SHEETS Pennsylvania Electrie Company ead Subsidiary Compazirs (in Thousandsl 1977 1976 pre,marr si.
ASSETS Utility Plant (at original cost):
I n service.........................
$1,264.695
$1/<93.922 Less, accumulated depreciation (Note 1)...........
292.279 266.422 972,416 827.500 Net.............................
Construction work in progress (Note 3).....
199.265 266.052 IIeld for future use.........................
7.511 6 6.917 1.179.497 1.100.469 To tals...............................
31,673 22.710 Nuclear fuel (Note 3)..............................
Less. accumulated amortization (Note l)..................
7.353 6.628 24.320 16.082 Net nuclear fuel....................
Net utili ty plan t.........................................
1.203.817 1.116.551 Investments:
Other physical property, net.........
348 351 18.750 16,400 leans to non affiliated coal companies (Note 9).
Other, at eost.......................
344 352 19.442 17.103 Totals..
Current Assets:
11.196 11.732 Cash (Note 4)..
7.294 4,211 Special deposits................
46,889 38.601 Accounts receivable..............
Inventorier at average cost or less:
6.820 5.456 Materials and supplies for construction and operation 36,654 20.685 Fuel...................................
856 551 Prepayments..........
Other..............
89 2.330 Totals......................................
109.798 83.566 Deferred Debits:
Deferred energy costs (Notes i and 7)...
26.542 24.633 Unamortized.nine development eosts (Note l)......
9,663 10.176 Other.........................
16,328 7.590 Totals..................................................
52.533 42.399 Total A sse ts.......................... "......................................
$1.385.590
$1.259.619
% accompanying notes art an integral part of the consolidatedfinancial statements.
6 I
l
{
o
tin Thousamla 1977 1976 LIABILITIES AND CAPITAL Ieng-Term Debt. Capital Stock and Surplus:
First mortgage bonds (page 10).....
$ 535.007
$ 518.669 Debentures (page 10)...........
72.920 74.760 Unamortized net premium (discount)on tor.g. term debt............
(147) 4 Totals 607.780 593.433 Cumulative preferred stock (page 10)....
174,753 176.000 Premium on cumulative preferred stock.....
423 423 Less, capital stock ex pense................
3.222 3.811 Totals................
171.951 172.612 Commoa stock and consolidated surplus:
Common stock (page 10)......................
105,812 105.812 Consolidated capital surplus (Note 5)...
266.530 221,530 Consolidated retained earnings (Note 5) 33,021 30.623 Totals.............
405.363 357.965 Totals 1.185,094 1.124.010 Current Liabilities:
Securitiesduewithinoneyeartoberefinanced(page10).......
3.168 3.172 Notes payable to banks (Note 4) 38.825 3.700 Accounts payable-Affiliates..
673 697
-Others 31,090 23.376 Customerdeposits...
826 700 Taxes accrued (Note 6)...,.......
10.586 17.911 Interest accrued......
10,144 9.869 Other..........
15.055 14.104 Total s........................
110.367 73.529 Deferred Credits:
Deferred income taxes (Notes 1 and 6).................
49,439 37,403 Unamortized investmenteredits(Notes l and 6)..............
31,952 15,421 Other........
6,149 6.202 To tal s............................
87.540 59.026 Reserves:
Pensions (Notes l and 11)....................
1.858 2.323 Amortization reserve-Federal....
731 731 Totals............................................
2.589 3.054 Commitments and Contingencies (Note 8)
Total Liabilities and Capital.....................................
$1.385.590
$1.259.619 7
CSNSELIDATED STATEMENTS GF SEURCES GF FUNDS USED F2R CZNSTRUCTISN Pennaufrania E:lectric Company and Sulmidiary Cmnpanira Un Thousandel for the rears Ended December.tr.
1977 1976 1975 1974 1973 Sources of Funds:
Funds generated from operations:
Netincome
$ 54.367
$ 52.453
$ 50.594
$ 42.274
$ 42.632 Add. items not requiring current cash outlay or (receipt):
Depreciation (Note l) 32,549 29.653 27,534 23.853 22.175 2.258 2.268 3.724 1,318 Amortization of nuclear fuel (Note 1) investment eredits, net (Notes 1 and 6) 19.474 3.679 4.401 533 121 Deferred income taxes. net (Notes l and 6) 10,003 12.580 5.862 7.710 1,%2 Allowance for other funds used during construction (Note 2).....
(14.852)
(11.817)
(9.125)
(10.157)
(7.0453 103.799 88,816 82.990 65 531 59,715 Totals Less, cash dis idends-common stock 37,000 37.500 39.700 33.900 35.500
-preferred stock..
14.969 14.581 8.511 5.664 5.664 51.830 36.735 34.779 25.967 18.551 Totals....
Other sources (uses):
(1.909)
(12.396)
(645)
(11.592)
Deferred energy costs (Note 1).
Loans to non-affiliated coal companies (Note 9)..
(2.350)
(650)
(1,500)
(950)
Unamortized mine development eosts (Note l) 513 526 471 (1,085)
(2.096 Changesin-cash (Note 4)..
536 (3.831) 4,427 (6.001) 765
-accounts receivable (8,288)
(2.715)
(6.831)
(6,611)
(4,333
-accounts payable.
7,690 1.197 11,460 1,272 2.240
-inventories-materials supplies and fuel (17,333)
(4,0S8)
(1,569)
(9.402)
(351 275 988 1.052 1.159 212
-interestaccrued.
(7.325)
(17) 7,960 (3.535) 664
-taxes accrued.....
(10.139) 2.107 631 1.267 3.125 Other, net..
(38.330)
(18.879) 15.456 (35.478) 226 Totals Funds from financings:
Saleof bonds..
16,420 72.000 45.000 50.838 30.000 35.000 57.000 Saleof preferredstock..
Bank borrowings. net (Note 4) 35.125 (6.300)
(42.915) 50.415 (4.500 Retirement or redemption of bonds, debentures and preferred stock (3,176)
(26,671)
(1.920)
(6.440)
(5.840 Cash contributions from General Public Utilities Co@ ration.parentcompany(Note 5)...
45.000 30.050 4.140 35.000 Totals 93.369 104.079 61.305 94.813 54.660 Totals
$106,869
$121.935
$111.540
$ 85.302
$ 73.437 Construction Expenditures:
$111.226
$125.440
$116,698
$ 93.083
$ 76.530 Utility plant..........
10.495 8.312 3.967 2.376 3.952 Nuclear fuel....
Totals 121,721 133,752 120,665 95,459 80.482 Allowance for other funds used during construction (Note 2)....
(14,852)
(11.817)
(9.125)
(10.157)
(7.045 Totals
$106,869
$121.935
$111.540
$ 85.302
$ 73.437 Do arrwnpanying notes are an integral part of the runsolidatedfinancial statements.
8
CCNSOLIDATED STATEMENTS CF RETAINED EARNINOS l'ennsylvania Electrie Cor.pany and Subsidiary Companies (In Thousands) 1977 1976 1975 1974 1973 For the Years Ended Dere=6er st.
Balance,beginningofyear.
$ 30,623
$ 30,251
$ 27,868
$ 25.158
$ 23.690 54.367 52.453 50.594 42.274 42.632 Add. net income.........
84.990 82.704 78.462 67.432 66.322 Totals.................
Deduct. dividends on capital stock (in cash):
Cumulative tcferred stock (at the annual rates indicateu below):
250 250 250 250 250 4.40% Series B ($4.40ashare)...
359 359 359 359 359 3.70% Series C ($3.70ashare)....
258 258 258 258 258 4.05% Series D ($4.05ashare) 135 135 135 135 135 4.70% Series E ($4.70ashare)....
193 193 193 193 193 4.50% Series F ($4.50ashare).......
349 349 349 349 349 4.60% Series G ($4.60ashare) 2.090 2.090 2,090 2.090 2.090 8.36% Series H ($8.36 ashare) 2.030 2.030 2.030 2,030 2,030 8.12% Series t ($8.12 a share).......
2,673 2.820 2.189 11.72% Series J ($11.72 ashare)..
10.88% Series K ($10.88 ashare)....
3,482 3.482 658 3,150 2,615 9.00% Series L ($2.25ashare)..
Common stock (not declared on a per share basis) 37.000 37.500 39.700 33.900 35.500 51,969 52.081 48.211 39.564 41.164 Totals
$ 33.021
$ 30.623
$ 30.251
$ 27.868
$ 25.158 Balance.cndof year (Note 5)...
The arrompanying notes are an integral part of the consolidatedftnancial statements.
REPORT OF AUDITORS To the Board of Directors PENNSYINANIA ELECTRIC COMPANY Johnstown. Pennsylvania We have examined the consolidated balance sheets of Pennsylvania Electric Company and Subsidi of December 31.1977 and 1916. and the related consolidated statements of income, retained earni used for construction for each of the five years in the period ended D such other auditing procedures as we considered necessary in the circumstances.
As more fully discussed in Note 8 to Consolidated Financial Statements. the Company may be re refunds to customers fcr certain payments made for coal. At this time it is uncertain whether or to w refunds will have to be made.
In our opinion, subject to the effect, if any, on the consolidated financial statements of the ultim matter discussed in the preceding paragraph. the aforementioned statements (pages 5 through consolidated financial position of Pennsylvania Electric Company the five years in the period ended December 31.1977, in conformity with generally accepted acc consistently applied during the period, except for the change in 1974, with which we concur in acco as described in Note 7 to Consolidated Financial Statements.
COOPERS & LYBRAND February 10.1978 Philadelphia. Pennsylvania.
LONG-TERM EEST Pennsylvania L'lectrie Compa y and Subeidivy Compaxies
[kermberst.1977 (in Thousands, First Mortgage Bonds-Series as noted (b):
1 % due 1978-1984....... $ 596 4 %due1988
$29,000 8 % due 1999...... $28,000 2%% due 1979.............
11.000 5 % due 1989........ 15.000 e %% due 2000.......
25.000 3%% due 1981.............
5.000 5 %due1990 12,000 7%% d ue 2001....... 30,000 3%% due 1982.............
9,500 4%%due1991
...... 10,000 8%% due 2003......... 30,000 4 %% due 1983............
12.500 4%%,due 1994 20,000 10%% due 2004....... 50,000 3%% due 1984...........
12,000 6%% due 1996..
25,000 9%% due2006.
60.000 10%% due 1984..........
45,000 6%%,due 1997 26,000 7%% due 2006........ 12.000 3%% due 1986...........
12,500 6%% due 19S8.......
38,000 6%% due 2007....
16,420(c)$534.516 Divisional Liens:
Erie County Electric Company (assumed by the Company, norcallable).
6% funding mortgage gold bonds. due 1980........
74 Northern Pennsylvania Power Company (assumed by the Company),
2%% Series First Mortgage Bonds. due 1980...........
500 535,090 1% due 1978-1984 (current portion)........
(83 535,007 Debentures-Series as noted (a):
5%% due 1986............ $ 8,160 7 % due 1992.
$ 8,000 8%% due 1996.....
$17,600 5 % due 1990.............
15,195 8%% due 1996.......
25,800 74.755 Balanceofsinkingfund requirementsduewithinoneyear.....
(1.835) 72,920 Unamortized netdiscountoniong-termdebt.......
(147)
Total....................
$607.780 (a) For the years 1979 through I982 (based on debentures outstanding on Ekcember 31.1977) rash sinkingfund requirements u ith respect to these debenturra arill be $1,840.tno per annum.
(b) Substantially all the utility plant of the Company is subject to the lien of the nurrtgage.
(e) Sold during 1977.
CAPITAL STOCK Pennsylvania Elretric Company and Sulmidinry Companirs Ekermber31.1977 (In Thousands)
Cumulative preferred stock, without par value, 11.435,000 shares authorized (2,810,000 shares issued and outstanding):
56,810 shares. 4.40% Series B (callableat$108.25 pershare)....
$ 5,681 97,054 shares, 3.70% Series C (callableat$105.00pershare) 9,705 j
63,696 shares, 4.05% Series D (callableat$104.53pershare).........
6,370 28,739 shares, 4.70% Series E (callableat$105.25pershare).....
2.874 42.969 shares, 4.50% Series F (callableat$104.27 pershare) 4,297 75,732 shares. 4.60% Series G (callable at $104.25 pershare).
7.573 250,000 shares, 8.36% Series il (callableat$108.27pershare)....
25,000 250,000 shares, 8.12% Series ! (callableat $107.59pershare).
25.000 225,000 shares,11.72% Series J (callable initially, subject to certain limitations.at $111.72 per share)......
22.500(,
320.000 shares,10.88% Series K (callableinitially, subject tocertainlimitations,at$110.88 pershare).....
32.000(o 1,400,000 shares, 9.00% Series L (callableinitially,subjecttocertainlimitations,at$ 27.25pershare)......
35.000(c 176,000 Series J, sinking fund requirement due within oneyear....................................
(1,250)(
$174.750 Common stock, par value $20 per share,5,400,000 shares authorized, 5,290,596 shares issued and outstanding........................
$105.812 (a) The Company is required to rederm, on Aprd I of each year,12.500 sharre of the Series J eumulatiw prefernd stock, and on October 1 of each year, commencing October 1.1980.16.000 shans of the Series K eumulatiw preferred stock.
(b) Sold in 1975.
10 *'d i' "'**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1%nsytrania Electrie Cmnpany and Subsidiary Companies tax return are severally liable for the full amount of any
- 1. Summary of Significant Accounting Policies:
tax, including penalties and interest, which may be assessed General: The consolidated financial statements include the against the group. The consolidated Federal income tax accounts of the Company and its subsidiaries, Nineveh liability is allocated among the participants in the Water Company and Waverly Electric Light and Power consolidated returns pursuant to agreements generally designed to allocate such Eability in proportion to the Company, each of which is wholly-owned.
participants' respective contributions to such liability. The It is the general poh.ey of the Company to record.
agreements also provide that a participant other than GPU additions to utility plant at cost, which includes material, will not pay a tax in excess of its separate return tax labor, overhead and the allowance for funds used during liability.
construction. The cost of current repairs and minor replacements is charged to appropriate operating expense The revenues of the Company in any period are and clearing accounts and the cost of renewals and dependent to a significant extent upon the costs which are betterments is capitalized. The original cost of utility plant recognized and allowed in that period for rate-making retired, or otherwise disposed of, is charged to accumulated purposes. In accordance therewith, the Company has depreciation.
employed the following policies:
Operating Rcrenues: It is the general policy of the Company to include in operating revenues only those sales recorded by Tax Depreciatiore The Company generally utilizes meters read during that period.
liberalized depreciation methods and the shortest depreciation lives permitted by the Internal Revenue Depreciation: The Company provides for depreciation at Code in computing depreciation deductions and provides annual rates determined and revised periodically, on the for deferred income taxes where permit: 2d in the rate-basis of studies, to be sufficient to amortize the original cost making process.
of depreciable property over estimated remaining service lives, which are generally longer than those employed for tax purposes. The Company uses depreciation rates which, Investm. ent Credits: The 3% investment credits are be on an aggregate composite basis, resulted in approximate amortized over a 10-year period while the 4% and 10%
i d over the annual rates of 2.88% 2.86% 2.78% 2.60% and 2.63% for theest,estment credits are being amort zeimated s mv years 1977,1976,1975,1974 and 1973, respectively.
Effective January 1,1977, to conform with rate-making Investment credits applicable to the Tax Reduction treatment, the Company is charging depreciation expense Act Employee Stock Ownership Plan ("TRAESOP") are with the cost of removal (less salvage) as meurred rather remitted to the Plan Trustee and have no effect on than meluding it in the provision for depreciation.
I " ***
Amortization of Nuclear Fuel: The amortization of nuclear fuel is provided on a unit of production basis. Rates are Pension Plans: The Company has a pension plan applicable determined and periodically revised to amortize the cost to all employees, the accrued cost of which is being funded.
over the useful life. Prior to December 1,1976, amortization The cost of a supplemental pension plan applicable only to of nuclear fuel costs included estimated costs of reprocessing supervisory employees was not funded prior to 1976. The such fuel and estimated credits for residual uranium.
previously unfunded supplemental pension plan costs are Due to the uncertain future of government approvals for being funded over five years, eff::ctive January 1,1977.
reprocessing and plutonium recycling. the Company, Prior service costs applicable to all plans are being effective December 1,1976, began using amortization amortized and funded over twenty-five year periods.
rates, at the Three Mile Island station, which estimate zero values for reprocessing costs and for residual uranium Deferred Energy Costs: Prior to 1974, the Company recorde credits. Future off-site storage costs for the Three Mile the cost of fuel used for generation and of net interchange Island station will be provided for when required. Should purchased in the period of such use and purchase, even reprocessing eventually be undertaken, the Company though part of such cost was recouped in subsequent perioc expects that any difference between such costs and credits under the Company's fuel adjustment clauses. Effective will be recognized prospectively in the rate-making process.
January 1. IfC1, the Company adopted a policy providing for the recognition of such costs in the period in Nuclear Plant Decom,miasmning Costs: The Company in its which the related revenues are billed.The balance of current rate proceeding is seekmg recognition for rate-makmg purposes of a systematic provision for the future deferred energy costs is recognized as a component of rate costs (estimated to range between $30 to $40 milhon in base in rate-making proceedings. Since July 1976 the current dollars assuming in-place entombment) of Company's Pennsylvania retail adjustment clause has been based on changes in its total costs of energy, whereas decommissiomng the Three Mile Island Unit,No. I at the previously such adjustment clause was based =olely on end of its useful life. In past rate determmations, the changes in fossil fuel costs and did not accurately track Pennsylvama Public Utility Commission ("PaPUC") did not changes in total costs. The clause of the Company in effect allow a provision for such costs. Proceedings are pending since July 1976 provides for recovery of the portion of before the Nuclear Regulatory Commission which may require owners of nuclear facilities to make provision for energy costs not covered by base rates within five months.
incurrence.
such costs.
Income Taxes General Public Utilities Corporation ("GPU")
Mine Derclopment Costs:These costs are being amortized and its subsidbries file consolidated Federal income tax income over the estimated life (20 years) of tiie mines.
returns. All particimnts in a consolidated Federal income L.
....~.
Pennspirania Elaetrie Company and Subsidiary Compa ios
- 2. Allowance For Funds Used During Construction:
$70 million and $99 million, respectively. Substanti;.lly The applicable regulatory Uniform System of Accounts provides for allowance for funds used during construction The maximum aggregate amount of bank borrowin
("AFC") which is defined as including the net cost during outstanding at any month-end during 1977 was $54 the period of construction of borrowed funds used for million. For the year 1977, the average daily amount construction purposes and a reannable rate on other funds outstanding was approximately $29 million, having a when so used. While AFC results in a current increase in weighted average interest rate of 6.7%. Bank borrowing utility plant to be recognized for rate-making purposes and outstanding at December 31,1977 aggregated $38.825,0 represents, in this fashion, current compensation for the use having a weighted average interest rate of 7S%
of capital devoted to construction. AFC is not an item of current cash income; instead, AFC is realized in cash after The maximum aggregate amount of bank borrowin the related plant is placed in service by means of the outstanding at any month-end during 1976 was $24 mill allowance for depreciation charges based on the total cost of For the year 1976, the average daily amount outstandin the plant, including AFC.
was approximately $7 million, having a weighted avera interest rate of 6.9%. Bank borrowings outstanding at On February 2,1977, the Federal Power Commission December 31,1976 aggregated $3,700,000, having a
("FPC"), now the Federal Energy Regulatory Commission weighted average interest rate of 6%%
("FERC"), issued an order which prescribed a formula for the calculation of the maximum allowable AFC accrual
- 5. Consolidated Capital Surplus and Retained Earni.
rate. While the Company did not utilize this formula during 1977, the accrual rate utilized did not result in any material Consolidated Capital Surplus:
difference from that derived from such formula. The order During the period January 1,1973 through December also directed that, effective as of January 1,1977, the 31,1977, cash capital contributions from GPU aggregat interest component of AFC should be shown as a credit to
$114,190,000 (1973, $35,000,000; 1975, $4,140.000; 1976.
interest charges, rather than as a component of other
$30.050,000; and 1977, $45.000.000) were credited to income. The consolidated statements of income for all Consolidated Capital Surplus.
periods have been reclassified for comparability to give eifect to this repositioning.
Consolidated Retained Earnings:
Consolidated retained earnings at December 31,1977.
To the extent permitted in the rate-making proceedin :s include $10.084,000, which amount is restricted as to the of the Company, the income tax reductions associated with declaration of cash dividends on common stock in the interest component of AFC have been allocated to reduce accordance with provisions contained in the Company's interest charges and correspondingly, have not reduced mortgage, debenture indenture and articles of incorpora mcome taxes charged to operatmg expenses. Pursvant to This restriction does not affect the Company's present pi such rate orders, the Company has been employmg a net of with respect to the distribution of dividends on its comn tax accrual rate for AFC since September 1,1973.
stock.
The Company has accrued AFC using rates which, on a
- 6. Income Taxes:
composite basis, would result in rates of 8.38%,8.13%,8.05%,
7.89% and 8.60% for the years 1977,1976,1975,1974 and Examination of Federal income tax returns through 1973, respectively.
1974 has been completed and the years 1975 and 1976 al currently under review. The Company has provided for :
- 3. Utility Plant:
anticipated liabilities that may result from such examination.
The Company and two of its affiliates, Metropolitan Edison Company (" Met-Ed") and Jersey Central Power & Light Income tax expense for the years 1973 through 1977 Company ("JCP&L") own (in the proportion of 25% by the was less than the amount computed by applying the Company,50% by Met-Ed and 25% by JCP&L) Unit No. 2 of statutory rate to book income subject to tax as follows:
the Three Mile Island nuclear generating station as tenants g yffff, in common. On December 17,1976, the Company filed with 1977 1976 1975 1974 the Securities and Exchange Commission ("SEC") an application for approval of its preposed sale of 60% of its Operating income before 25% interest in Three Mile Island Unit No. 2 to JCP&L and incometaxes.
$ 99 3101
$94
$66 to purchase from JC?&L a 25% ownership in the Forked Otherincome. net.
1 1
2 2
River nuclear generating station.
Totals.
100 102 96 68 Intemtexpmse.
96)
M2)
(38) m
- 4. Compensating Halances and Short-Term Borrowing Arrangements:
Book income subject to income tax
$ 54 8 60
$58
$35 The Company has informal lines of credit with various Inc me tax at statutory lenders whereby the lenders have agreed to provide rate (48%).
$ 26 $ 29
$28
$17 specified maximum amounts as a temporary source of funds Excess of tax over for itt capital program. These arrangements generally book depreciation provide for the maintenance of compensating balances (fl w-through portion) ranging from a minimum of 10% of the available line of
@ ** II - -
W (o
(5)
(6) credit to a maximum of 10% of the line plus 10% of the loans outstanding, as determined on a daily average 1 asis. These
,ysoyd 3
t mformal arrangements expire at various dates m the next f
g twelve r. onths and are expected to be extended or new Other adjustments.
(1)
(1)
(1) arrangements negotiated with other sources.
Income tax expense... $ 20 $ 24
$20
$8 At December 31,1977 and 1976, the lines of credit m. g2%
Effectiveincome tax rate..
g% g9% g, available under these arrangements totaled approximately 12
Income tax expense is comprised of the following:
an affiliated company ($C million) as described ia Note 3.
1 The Company has incurred substantial commitments under its construction program.
g gj 1977 1976 1975 1974 1973 The Company is engaged in negotiations with various
[(7)(a)/h)$ 8 88
$1
$5 suppl,iers, relating to the, latters' claims for delay or Federalincometax.
(
termmation charges or increased fees which such suppliers Stateincome tax,.......
3 3
4 1
3 assert result from the Company's revisions of its Income taxes on construction plans and schedules and/or from the increased other income. net........
I i
1 1
1 scope of supply. The Company s management does not Income taxes attributable expect, at this time that such negotiations will result in any to the allowance for material increase in costs that would not be subsequently borrowed funds (Note 2)..
(6)
(5)
(4)
(4)
(1) recovered through the rate making process.
provision for taxes currently payable The PaPUC directed that independent studies be made (refundabic)......
(9)(a)(6) 7 9
(1) 8 of the fuel procurement policies, practices and procedures o Deferredincometaxes. net..
10 13 6
8 2
Pennsylvania electric utilities and their application of the Amount equivalent t fuel adjustment clauses in 1974 and that reports of such investment eredits.,
21(a#6) 5 6
2 I
studies be filed with the PaPUC. By legislation subsequent!
Amortization of accumulated enacted in 1976, the PaPUC is required to order any public investmenteredita...
(2)
(1)
(1)
(1)
(1) utility which is found by the PaPUC, after a hearing, to have Income tax expense.
$20
$24
$20
$ 8/c) $10 improperly paid a sum in excess of its contract price for coal during 1974 to refund said improper excess amount to its customers. The independent auditors of the Company (a) Reflects 1976 investment tax credita of $3 million, ruultingfrom made such study with respect to the Company and adoptwn of TRA ESol'in 1977 and thr electhm to ria nm nrestment submitted a report. to the PaPU.C on March 1,1976. This las credits under the progress pmoment methaul (6) Includn $1 millhm of 1977 T/61ESOl'inrestment tai crrdds.
report found that in,1974 certam payments to coal suppliert (c) lhws not include $2 millhm rrlated to the non-recurring credit were m excess of original contract arrangements. The for the chanur in accountingfor encruv cost,.
report identifies $4.5 million of paynients m excess of escalated contract prices due to renegotiations of existing The provi.as for deferred income taxes, net, result from the contracts and that certain suppliers did not deliver 400.000 following timing differences:
tons required under the contractual arrangements. This (In.11illions) report also stated that "[a] part of these additional costs was unavoidable since they were caused by external 1977-1976-1975-1974-1973-conditions beyond the control" of the Company and "to some Liberalized depreciation degree, because of its coal procurement practices which th.
(Note it.
rep rt found to be " informal and not well documented". The
~
$,7
$6
$5
$3
$2 Federal.
Company s alternatives were limited and it was not m a 3
3 3
qt,g, strong bargaining position to contend with 1974 conditions,
~
Deferral of energy costs the report stated, but added that, m retrospect, the (Note 1).
Company might have done more to contain fuel costs.
Federal.
1 5
3 despite such conditions and procurement problems.
State 1
1 Although the report said that the Companyb primary e mmitnient is to maintain reliable electric service, it addet Totals
$10
$13
$6 88
$2 that the Company "could have been more responsive to the developing procurement problems and taken more effective The consolidated statement of income for 1975 action to cope with them".
reflects an investment credit carry-over of $3 million from 1974.
In March 1976, by complaints filed against several Pennsylvania electric utilities, including the Company, the
- 7. Deferred Energy Costs:
PaPUC ordered an mvestigation of their charges made and The net effect of the deferral of energy costs incurred rates received through fuel adjustment clauses.
durh.g 1974 ($11,592.000) less energy costs incurred prior to January 1,1974 ($4,093.000) and billed during 1974 was to In April 1977, the PaPUC issued an amended complain effect of the account,by $3,529.000. The cumulativemg change for periods prior to January that were $4.9 million in excess of those required by its merease net income asserting that the Company made payments in 1974 for coa 1,1974 was $1,926,000 (net of related mcome taxes of contracts, and that such excess payments were without If such accounting change had been employed
$2.167.000).,tisl operation of the energy adjustment clauses,justification and directing the Company to show cause why from the im it should not be required to refund $4.9 million to its net income would have been $40,348.000 and $42,948,000 in customers. The Company believes that the payments which 1974 and 1973, respectively (see Note 1).
it made were justified and that there is no basis for requiring such refunds and it has so responded to the complaint.
- 8. Commitments and Contingencies:
l The Company expects to make net expenditures of The PaPUC is auditing the amounts spent by the l
approximately $77 million for construction purposes during Company for fuel in 1975 and 1976. Such audit may result 1978, after giving effect to the sale of a portion of the Three in additional complaints against the Company but the Mile Island Unit No. 2 nuclear unit to an management of the Company is unable to state whdher j
affiliated company ($105 million) and the purchase of a such additional complaints will be filed or, if filed, the i
portion of the Forked River nuclear generating station from magnitude of the claims that will be asserted.
3
In May 1976, the PaPUC required all Pennsylvania
- 10. Supplement:ry Ine:me Str.tement Inform tion:
I electric utilities to file supplements, effective August 1.
Maintenance and other taxes charged to operatm.g 1976, to their fuel adjustment clauses providing that the expenses u nsisted of the followmg-application of such clause shall be subject to continuous review and audit and that, if it shall be determined by gf, ygyg,,,;
e final order that such clause has been erroneously or 1977 1976 1975 1974 1 improperly utilized, the utility will rectify such error and Maintenance (including apply credits against future fuel cost adjustments.
applicable payroll charges) gggg,,
Other taxes:
- *I """
The Company believes that the amounts paid by it for 8**j
$17
$15
$13
$11 fuel in 19741976 were fully justified and that there is no Capitalstock
. '.. ' 7. ' ".
5 3
3 3
valid basis for requiring any refund of any amounts Iteal estate and personal collected by it under its fuel adjustment clauses. In the property 4
4 4
3 aftermath of the Arab oil embargo and OPEC actions Other..
3 2
2 2
doubling the price of oil, and in the presence of the threat of
,g.ds
$29
$24
$22
$19 a prolonged coal strike m 1974, competition for coal was i
intense. The Company believed it would not have been able For the years 1977,1976.1975,1974 and 1973, the cost, to obtain delivery of coal from its contract suppliers without to the Company of services rendered to it by GPU Servic<
agreeing to the higher prices that it paid. The other Corporation, an affiliated service company, amounted to alternatives would have resulted in even higher costs or approximately $7,144,000, $6,170,000, $5.040.000,
- u. nreliable service.to its customers. However, the Company
$5,045,000 and $4,445,000, respectively,of which is unable at this time to predict the outcome of these approximately $6.374,000, $5,508.000, $4,610,000, $4,445.(
matters.
and $3,805,000, respectively, were directly charged to income.
I
""I""
In March 1977, in a case involving a non-affiliated utility, a U.S. District Court held unconstitutional the Total pension costs for the years 1977,1976,1975,1974 Federal Price-Anderson Act limiting the liability of the and 1973 amounted to approximately $6.1 million, $5.4 owners of nuclear plants and their suppliers to the amount million $4.4 million, $3.7 million and $2.5 million, of available insurance and government indemnity ($560 respectively. Based on the latest available actuarial repor million per nuclear incident). This case is pending on appeal as of January 1,1977, th ! actuarially coniputed vested in the U.S. Supreme Court. Subsequently, in 1977, four New benefits under the plans exceeded the actuarial value of l
Jersey cou: ties filed a complaint in the New Jersey U.S.
trust assets or reserves created in respect of such plans b.
District Court against the Nuclear Regulatory Commission
$3.6 million and the unfunded past service liabilities for t and four electric utilities (including an affiliated utility) plans amounted to approximately $35.6 million, or 38% of the total reserve requirement.
seeking a judgment (a) declaring unconstitutional the liability limits of the Price-Anderson Act,(b) enjoining
- 12. Quarterly Financial Data (Unaudited):
further construction of riuclear power plants (including one under construction by the affiliated utility), and (c)
The 1977 ed 1976 quarterly financial data are as follow enjoining the operation of two existing New Jersey nuclear
~
(In Thousan.is) generating stations (including one owned by the affiliated utility),"provided the defendants be given a reasonable First Quarter suond Quart.
period of time to pay potential losses and damages." This 1977 1976 1977 11 proceeding is being held in abeyance pending decision by OperatingRevenues
. $106,58a.
$91.930 $9 8.379
$83 the U.S. Supreme Court in the case pending before it.
Operatingincome....
$ 21,502 $a0.351 $15.582 $16 NetIncome......
$ 16.554 $15.382 $10.299 $11 Earnings Available for On July 20,1977, Johnstown, Pennsylvania, the Common stock...... $ 12,784
$12.109 8 6.566 $7 headenarters city of the Company, was swept by flash Third Quaner Founh Quart, floods. While a substantial portion of the Famages and 1977 1976 1977 U
additional expense incurred will be recov. red under the Company's insurance policies, approximately $2.8 million of Operating Revenues... $ 94,649
$7.t.693 $98.145 $89 the increased operation and maintenance expenses will not Operatingincome.
.. $ 17,843 $16.826 $18,789 $19 be recovered. The Company is seeking authorization from NetIncome........ $ 13,123 $11,011 $14.391 $14 the PaPUC to amortize this $2.8 million (less related Earnings Available for income tax reductions of $1.5 million) over a ten-year Common S tock...... $ 9.390
$ 7.242 $10,658 $10 period.
- 13. Replacement Cost Data (Unaudited):
Because of inflason, the cost of replacing the Company's
- 9. loans to Non-Affiliated Coal Companies:
plant in service today would significantly exceed the historical cost amounts reported in the consolidated The Company is providing financing to non-affiliated financial statements. The Company believes that any higl mining companies supplying coal to the Homer City replacement cost experienced will be recovered through i generating station under long-term contracts. These loans normal regulatory process. The replacement cost data bear interest at a rate which is 1%% per annum above the required by the SEC will be reported in the Company's prime interest rate, annual report to the SEC.
14
CZ'MPANY STATISTICS Pennsylvania Electrie Company and Subsidiary Companies 1977 1976 1975 1974 1973 Generating Capacities and Peaks (MW):
Installed capacity (at year-end).......................
2,358 2.172 2.157 2,157 1,977 A nnual hourly pen load (a)..........................
2,022 1.994 1.880 1,766 1,790 Reserve (%)........................................
16.6 8.9 14.7 22.1 10.4 Net System Requirements (in thousands of MWil):
N e t ge ne ratio n......................................
9,950 10,192 10,604 10.301 10,318 Power purchased and interchanged. net..............
1,479 935 (35) 139 Total Net System Requirements................
11,429 11,127 10.569 10,440 10.318 Lo ad Fac to r (%)....................................
64.5 63.5 64.2 67.5 65.8 Production Data:
Cost of fuel (in mills per KWil of generation):
Coal..............................................
10.62 9.94 9.52 7.23 4.45 Oil..............................................
36.80 32.49 32.51 29.01 14.21 N u c l ea r..........................................
1.66 2.11 2.70 2.68 Other.............................................
25.87 18.82 14.48 11.60 9.15 A v e ra ge......................................
9.64 9.32 8.81 7.44 4.58 Generation by fuel type (%):
Coal.............................................
84 88 85 90 98 Oil..............................................
I 1
1 2
1 N u c l ea r........................................
14 11 13 6
Other (gas & hyd ro)...............................
I 1
2 1
Totals........................................
100 100 100 100 100 Electric Energy Sales (in thousands of MWII):
Res i de nt i al.........................................
3,014 2,935 2,796 2,726 2,682 Com me rc i al........................................
2,171 2,079 1,964 1.833 1,868 I n d ust rial........................................
4,499 4,340 4,237 4,328 4,203 Other..............................................
773 705 589 646 633 Totals.......................................
10,45]
10,059 9.586 9.533 9.386 Electric Operating Revenues (in thousands):
Res i d en ti al.........................................
$135,101
$120.292
$112,044
$ 93,814
$ 80,830 Com m e rc i al......................................
91,222 79,120 72.874 59.123 51,830 I nd ustrial..........................................
129,734 107,432 101,387 84,462 67.434 Other...............................................
24,471 20,415 14,646 13.366 9.100 Totals from KWH Sales........................
380,528 327,259 300,951 250,765 209.194 O ther reven ues......................................
11.143 10.659 10.009 9.424 8,160 Totals........................................
$391,671
$337,918
$310,960
$260.189
$217,354 Customers-Year End (in thousands):
Rend en ti al........................................
437 434 428 422 417 Com merc i al........................................
52 52 51 50 49 I ndust r i al..........................................
5 5
5 5
5 Other...............................................
I 1
1 1
1 Totals........................................
495 492 485 478 472 Price per KWH-all eustomers (cents).................
3.64 3.25 3.14 2.63 2.23 fa) Company's rak has histoneau orrumd during the uinter.
w i
If '
Pcnnsylycnia El ctric Company A embridhry of the Genmd 1%blu Utdities Corpwatwo Officers and Board of Directors William G. Kuhns William R. Thomas Northern Pennsylvani.
Chairman of the Board of Directors Secretary and Treasurer Power Company Bond and Chief Executive Officer rgan Guaranty Tm John W. Bonarrigo
"#*"Y William A. Verrochi Assistant Secretary President and Chief Richard N. Killen ew ok 10015 Operating Omcer Assistant Comptroller and Board Member Indenture Trustee mas wry nnsy ania atric Richard G. Baker Ass. tant Comptroller Company Debentures is Vice President Consumer Affairs
""f and Board Member Elroy Simmons, Jr.
p
^ * * ' ' " " **" "
David J. Bechtold New York, NY 10015 Vice President-Operations Transfer Agent and Board Member Preferred Stock The Annual MeetinK f stockholders Mellon Bank, N'A~
Ralph W. Conrad was held in the office
- fiburgh, Vice President-Generation
- E*"# I" 15230 Johnstown, Pa.,'on and Board Member Registrar March 16,1978 at
- nM ieckamp Preferred Stock which time directors d
Pittsburgh National Bank for the ensuing year F. Allen Donofrio Fourth Ave. and Wood St.,
were elected.
Comptroller Pittsburgh, PA 15222 Fred D. IIafer Mortgage Trustees Board Member Pennsylvania Electric Company Bonds Jack A. Poole an rs mst Gmpany Vice President-Technical 16 Wall Street, James R. Reesman New York, New York 10015 Vice President-Personnel Erie County Electric Company Bonds Girard Trust Bank Broad and Chestnut Sts.,
Philadelphia, PA,19101
'W M
-A
((he.If
'N w
.a.
a,,,,
1.e
- Y"*****
- n. -d*
i
,c
, h&,. mand "
c..t d.h 6
+-
r-T
.<a m
s, c
5
.~
c
't k hi ry.
nn
+
M&rd u 4.m. par.
I,6it e.
.' d s6. a.)
"**"'g.
wa' -
s <. *
' M***b N'
BrNene b
8' PENNSYLVANIA H.desen 8
P.ein.nd M P &=A-=['
3,,,w, s
MM-s,.
a.ne. -
- s. cotics.
. m
?.
-~
,,_# g - w >*--
8 Erie, ',s3
"'"U A& s.-d W H. sow r
j Maw[.h;,
- 1 dc,.a d s.,4 l
.h
.u n qh Maeid.adith.
^ h/
^J c.:
""*t
.t,,,,,,,
..s m,, m,7 -
v~
Hymtman T.yereo.
bht
,a.
, n A c as mc H.a M w 6. m
@ ri,ds e m EEE rea.i.,b.a.we c p.,
a
' SECURITIES AND EXCHANGE COMMISSION Washington, D. C.
20549 p
FORM 10-K pg to Section 13 Annyal Report Pursuant or 15(d) of the Securities Exchange 4
Act of 1934 g
For the fiscal year ended December 31, 1977 Commission File No. 1-3522 a
PENNSYLVANIA ELECTRIC COMPAMY p
~
(Exact name of rcgistrant as specified in its charter)
Pennsylvania 25-0718085 (State or other jurisdiction (1.R.S. Employer of incorporation or organization)
Identification No.)
i 15907 hroad Street, Johnstown, Pennsylvania 1001_fress of principal executive of fice)
(Ad (Zip Code)_
Registrant's telephone number, includi.q area codes (814) 5?.6-6611-Securities registered pursuant to Section 12(b) of the Acts Name of each exchange on Title of each cla_ss.
which registered Cumulative Preferred Stock, without par value 8,
stated value, $100 per share I
4.40% Series a Philadelphia Stock Exchange-3.70% Series C Philadelphia Stock Exchange 4.05% Series D Philadelphia Stock Exchange 4.70% Series E
-Philadelphia Stock Exchange 4.50% Series F Philadelphia Stock Exchange 4.60% Series G Philadelphia Stock Exchange 8.36% Series H Philadelphia Stock Exchange 8.12% Series I Philadelphia Stock Exchange 11.72% Series J Philadelphia Stock Exchange 10.88% Series K Philadelphia Stock Exchange
+
stated value, $25 per share 9
% Series L Phila;1elphia Stock Exchange,
Securities registered pursuant to Section 12(g) of the Act None a
Indicate by check mark whether the registrant (1)
~
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrcnt was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES X
NO W
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report Common Stock, par value $20.per share, 5,290,596 shares outstanding O
'^ ^
l PART I v
ITCM 1.
BUSINESS.
Pennsylvania' Electric Company (the " Company") is.a subsidiary of General Public Utilities Corporation ("GPU")',,'
a holding company registered under the Public Utility llolding Company Act of 1935 ("1935 Act").
The Company's transmission, principal business in the production, purchase, distribution and sale of electricity.
The Company has two minor wholly-owneo subsidlaries.
The Company is af filiated with Jersey Central Power,'&
'igh' Company ("JCP&L") and Metropolitan Edison Company
~'
- " Met-Ed") and with GPU Service Corporation, a mutual service company serving the GPU System, all of which are
~
wholly-owned subsidiaries of GPU.
The Company provides electric service within ~
General.
northern and south' central -
a territory located in western, Pennsylvania extendine from the Maryland state line northernly to the New York state line, aggregating approxi,
39% of the area of mately 17,600 square miles, or about 1,500,000, Pennsylvania, with a population of about is concentrated in ten citics approximately 30% of which and thirteen boroughs, all with populations over 5,000.
The Company, as lessee of the property of the Waverly a wholly-owned subsidiary, Electric Light and Power Company, also serves a population of about 8,400 in Waverly, New York and vicinity.
The Company's other subsidiary, Nineveh is also wholly-owned, supplies water Water Company, which to one of the Company's generating stations and to private' customers in and around Seward, Pennsylvania.
The generating and transmission facilities of the interconnected and are Company, Met-Ed and JCP&L are integrated and coordinated system.
Majar operated as an facilities of the integrated systen are designed and installed on an over-all system basis to achieve maximum-reliability.
operating economy consistent with service The electric transmission facilities of the integrated system are also physically interconnected with neighboring nonaffiliated utilities in Pennsylvania, New Jersey, Maryland, Ohio and New York.
The Company is a member Interconnectioi.
of the Pennsylvania-New Jersey-Maryland
("PJM") and Mid-Atlantic Area Couacil, an organization in providing coordinated review of the electric utilities interconnection facilities are used for the PJM area.
The substantial capacity and energy interchange and purchased power transactions as well an emergency assistance.
sales for the year 1977 to residential customers Electric tor appror.imately 35% of the Company's operating f
accounted i
>' t
a revenues, sales to: commercial customers 23t, sales to industrial customers 33%, and sales to municipalities, street and highway lighting and miscellaneous revenues 9%,
The revenue derived from the two largest single industrial,
customers, Charmin Paper Company and Bethlehem Steel
- ~
Company-Johnstown Works, each accounted for approximately 2% of the gross electric operating revenues for the year 1977 and the 25 largest industrial customers in the' aggregate accounted for approximately 16% of such revenues.
' Reference is made to " Company Statistics" on page 15 of'.the
^
Company's annual report (included herein as Exhibit'4) for.
further information concerning the Company's sales and reveaues.
~
Financing and Construction Program.
The Company's
~
construction expenditures for the year 1977 and the estimated cost of the Company's construction program and the principal categories thereof for 1978 and 1979 are se't forth below:
(In Thousands) 1977 1978 1979 Generation
$ 94,882 S 85,000
$1-10,000 Transmission 4,156 6,000 10,000 Distribution 21,304 25,000 26,000 Other...................
1,379 1,000 2,000 Gross Construction
$121,721 117,000 148,000 Less:
Net proceeds from l
transfers of interests (40,000).
in generating units (a)
Net' Construction.....
$121,721
$ 77,000
$148,000 (a)
The Company proposes to sell to JCP&L 60% of its.
25% undivided interest in Unit No. 2 of the Three Mile Island nuclear generating station, and to purchase from JCP&L a 25% undivided interest in the Forked River nuclear generating ste. tion.
Applications for regulatory approvals ~
of such transfers have been made (see " Properties - Projects Under Construction").
The timing of such sale and purchase will depend, in part, on whether and when such regulatory authorizations are obtained. These transfers are proposed '
to be completed in stages in 1978.
In addition, in 1978 and 1979, the Company requires approximately S3,000,000 and S14,000,000, respectively, to s
meet sinking fund obligations and to repay maturing senior indebtedness.
e 1.
G w
. e. -,
o o
=
transfers described Assuming the consummation of the its remaining 1978' the Company expects to finpnce from operations.
- above, capital r<>quirements by funds providedthe Company will.also, i
take place 3
If such transfers do not first mortgage bonds.
The Company' e
seek to sell additional also expects to have short-term bank loans outstanding during 1978.
The Company is unable to ascertain whether the to provide -
present construction program will be adequateThe Company's for the requirements of its customers.
cales of electric energy grew at an average annual rate of 1972-1973, 1.1% during the years 6.7% during the yearsin 1976. The Company's peak load grew 1974-1975 and 4.9%
at an average annual rate of 4.9% during the years 1972-1973, declined 1.3% in 1974 and increased 6.5% and 6.1% in 1975 and 1976, respectively.
For the year 1977, the Company',s sales of electric energy and peak load were 4% and 1.4%,
for 1976.
respectively, above those in the levels of The Company helieves that changes sales and peak load during the past five years were the increased' influenced by voluntary energy conservation, the lower level of economic cost of electric energy, unusually severe weather in 1976-1977, intended activity and, The Company's construction program is conditions.
to make provision for a growth in peak load requirements of about 4.5% per year and is designed to achieve a facilities with the bulk of the balance of generating Company's requirements being supplied by its base-load coal-fired and nuclear generating capacity with their relatively low fuel costs. If, however, customer usage trends, the Company's construc-patterns return to pre-1974 to maintain thu same' tion program will not be sufficient degree of reliable service that the Company has provided.
is limited.
The in the past unless peak load growth instituted a load-management program (consisting designed-Company has of certain tariff changes and customer education) to the rate of growth of peak load so as to inhibit If maintain its ability to serve existing customers.
efforts of this nature should fail to achieve their to modify its the Company would attempt its financing capability permits intended purpose, construction program if if available.
and/or to increase its purchases of power, financing and construction programs are increasing environmental The Company's continuously affected by changing and The financing (see " Environmental Matters").
for such requirements and construction programs contain provisionsneeds develop are correspondingly needs and when additional modified.
As is the case with the remainder of the if and to the extent that Company's construction program, inability to obtain adequate for any reason (such as the be and timely rate relief) such additional needs cannot !
l 9
met out of internally generated funds and the sale of additional securities, the installa, tion of new facilities is delayed.
Regulation.
The Company is subject to rate and other comprehensive regulation by the Pennsylvania Public Utility..
Conmission ("PaPUC").
As a subsidiary of GPU, which is a registered holding company, the Company is subject to
. regulation under the 1935 Act by the Securities and Exchang*c Commission.("SEC") with respect to accounting, the issuance-of securities, the acquisition and stle of utility assets,.
securities or any other interest in any business, the entering into, and perfornance of, service, sales and construction contracts, and other miscellaneous natters.
The Company is also subject to regulation by the Federal Energy Regulatory Commission ("F8RC") under the Federal-
/
Power Act as a company engaged in the transnission or sale.
at wholesale of electric energy in interstate commerce, as the co-licensee of a pumped storage project and as owner of certain small hydroelectric projects and by the Nuclear Regulatory Commission ("MRC") as the owner of an undivided.
interest in the Three Mile Island nuclear generating station..
Although the Conpany does not render electric service in Maryland, the Public Service Connission of Maryland has jurisdiction over the portion of the Company's property located in that state.
The Company, as lessee, operates-the facilities serving the Village of Waverly, New York, and tb. New York Public Service Connission has jurisdiction over such operations and property.
Reference is also na~de to "Environnental Matters" for additional regulations to which the Company is or may be subject.
General Problems of the Industry.
The Conpany has been experiencing problems comnon to the electric utility industry in general, such as the restriction on operations and increased costs and delays att'ributable to environmental considerations (see " Environmental Matters"), the high cost of capital and the difficulty in obtaining an adequate return on invested capital (see
" Rate Matters"), the frequent necessity of naking substan-tial commitments for, and investnents in, the construction of facilities prior to the completion of licensing and other proceedings by regulatory bodies necessary for the construction and/or oper-tion of such facilities and the difficulty in obtaining amequate supplies of fuel at reasonable prices (see " Fuel").
Rate Matter _s.
The Company's retail rates are subject to regulation by the PaPUC and its wholesale for resale rates are subject to regulation by the FERC.
On February 1, 1977, the Company filed with the PaPUC a proposed increase in base rates of approximately 281, or about $67,800,000 annually, based on a test year ending December 31, 1977. Approximately S28,700,000, or an 11.7%
1 increase in base rates (plus an associated tax surcharge i
of approximately S1,500.000), was requested to provide revenues to offset int ases in costs.
The balance of the Company's request gapproximately $39,100,000 plus.an associated L3x surcharge estinated at $1,600,000) is,
' required to provide a return on the Company's capita 1 investment in, and 'o reflect the operating costs of, the Company's 50% s'
. of Unit No. 3 of the llomer City generating station and proposed 10% share of Unit No. 2 of' the Three Mile Island generating station (see "Proporties -
Projects Under Construction") when such units are placed,in service. The Company anticipates that the placing of such e
units in service will result in a reduction of approximately
$19,400,000 annually in energy clause charges to its.
customers.
.on February 24, 1978, the PaPUC issued an order granting,' '
the Company a temporary rate increase in its base rates" designed to produce additional revenues of approximately
$28,385,000 annually.
The Company expects that this temporary' rate increase will be made permaaent upon the issuance of a' final order of the PaPUC in this proceeding.
The Company's existing tariffs contain an' energy
~
adjustment clause providing for increases or decreases in energy charges to its customers reflecting changes in
- energy costs as against those reflected in the Company's-base rates.
Regulations recently adopted by the PaPUC may have the effect of curtailing recoveries under such clauses.
Moreovdr, proposed leg'islation is pending before the Pennsylvania Legislature which, if enacted, would materially affect the operation of energy adjustment clauses.
The Company is unable to determine the impact on it of these' matters.
For information with respect to the status of certain proceedings before the PaPUC regarding claims for refund-of certain amounts collected by the Company pursuant to its energy clause, see Note 8 to the Company's Consolida'te,d Financial Statements incorporated by reference to the Company's annual report' included herein as Exhibit 4.
e g
4 e.
G 5.-
e e2'd '
"'m
~
,=.em
.m A
Fuel:
Fuels were utilized in the generation of clectric energy during 1977 in approximately the following*
percentages:
coal, 84%; nuclear, 14%; and oil, hydro and, gas, 2%.
The Company expects that such percentages for the'.*
year 1978 will be substantially the same.
The United States House of Representatives and-Senate have each approved. energy legislation containing significantly
- dif fering provisions, which bills have been referred to.a Conference Committee of the Congress.
The House bill would, e
among other things, (i) require utilities to offer customers residential energy conservation services, including ' loa'n's to be repaid through monthly utility bills, (ii) require utilities to adopt pricing policies which encourage energy conservation, (iii) prohibit existing industry and utility facilities with coal-burning capability from burning gas dr oil, with limited temporary exceptions, and ( iv ) discourage,
the use of oil by utilities by placing a tax of $1~.50 per
' barrel on oil used by utilities to generate electrici~ty.
beginning in 1983.
The Company cannot predict what.legisla.-
tion may be enacted by Congress or what effect such legisla tion may have upon the Company.
Fossil:
The Company has contractual commitments
~-
with its principal coal suppliers for approximately 77%'of-its total estimated requirements for 1978; the remaining requirements are expected to be purchased on a spot basis. -
These contracts, which contain force majeure provisions, 4
are supply commitment contracts which contain provisions' for price escalation under certain circumstances and have-expiration dates ranging from 1978 to 1999 with provisions i
for renewal.
The Company has adequate supplies of coal i
in inventory at its major generating stations.
1 The average cost of coal burned by the Company rose from
$9.98 per ton ( 41d per million BTU) in 1973 to $23'00 per ton (96g per million BTU) in 1977.
The Company and its affiliates are seeking to acquire
{
additional coal reserves.
As of December 31, 1977,the amount invested in such activities totaled approximately S7,400,000 of which'the Company's share was'approximately ~
$5,800,000.
During 1978, subject to obtaining the approval of the SEC, the Company, together with its affiliates, 4
. ~, - - - -
l
. anticipates making crpenditures...of approximately $10,90,0,0UG' (approximately $6,300,000 of which is the Company's share) for exploration, acquisition and possible development o'f*.'
coal reserves.
~
The Company's use of oil is limited and adequate supplies are presently available.
Nu0 lear:
Fueling a nuclear generating station e
involves various stages for which the Company contracts separately. Stage I concerns the mining and milling o.f ths natural uranium ore to produce a concentrate; Stage II deals with the conversion of uranium' concentrate into uranium hexafluoride; Stage III involves the enrichment process; and Stage IV entails the fabrication of tho' enriched uranium hexafluoride into usable fuel'assemblics.,
The following table sets forth the years through.
which the Company expects to be able to accommodate planned operations a t its existing and proposed nucle'ar-generating stations for each stage of nuclear fuel processing h*
based upon contractual commitments, subject to force majeure provisions:
t Three Mile Three Mile Island Island Forked Unit No.
l_
Unit No. 2(a)
River (b)
Uranium concentrate 1986 1987 1988 Conversion.........
1986 1987 1988 Enrichment.......... 2006 2005' 2007 Fabrication 1986 1990 1987 (a) This unit is expected to be placed in
. commercial operation in 1978.
(b) This station is expected to be placed in commercial. operation in 1983.
.The Company' and its affiliates presently e.pect that the majority of the 1978-1986 u ranium concentrate requirements for the Three Mile Island station will be supplied under a contract entered into in 1973.
The supplier under the 1973 contract is making deliveries under that contract and has stated in a letter dated O.
6 November 21, 1975, that it intends to continue shipments subject to force majeure "until cuch time as conditions render such shipments commercially, impracticable."
The letter stated that the supplier had not yet made a deter-mination whether or not such a condition currently existed but cited." phenomenal" cost escalations and other problems "which all present possible and probable expenses. -
of an enormous magnitude."
The price of uranium concentrate under this contract is substantially below current market,
~
prices.
The Company does not know whether a claim of commercial impracticability will ultimately be asserted 'b)(
r any supplier, or whether, if so asserted, such claim would be upheld, and is unable to determine the consequences' if such assertion should be successful.
The Company cannot predict its success in obtaining additional contracts, beyond the dates referred to above,-
/
for uranium concentrate or for the services involved in the conversion and enrichment of nuclear fuel and'the
' fabrication of nuclear fuct assemblies, nor can it estimate the costs thereof, which may be higher than present. costs.
The President has announced that he believes that the reprocessing of spent nuclear fuel should be deferred in-definitely. There are no reprocessing facilities currently in operation and the Company does not know whether or to what extent spent nuclear fuel will eventually be able to be reprocessed and reused by its nuclear generating stations.'
At present, the Company has sufficient on'and off-site storage capacity to accommodate, under normal operating -
conditions, spent nuclear fuel through 1983 for Three Mile Island Unit No. I and through 1986 for Three Mile Island Unit No. 2.
It may be desirable, however, to effect complete unloading of a reactor core; in order to do so, additional. storage capacity for the Three Mile Island j
nuclear generating station would'De required. Plans are i
being developed to augment the on-site storage capacity at the Three Mile Island nuclear generating station sufficient to permit the storage of spent nuclear fuel assemblies discharged through the early 1990's, while maintaining th'e ability to discharge the entire reactor core.
The energy costs currently employed for nuclear fuel include provisions for the estimated cost of storage of such fuel.
However,-
depending upon the development of governmental policies relating to the storage of spent nuclear f uel,.additionab costs, which are not now determinable, may be incurred in connection with the storage of such fuel.
The cost of nuclear fuel declined from 25g per million BTU in 1974 to 16d per million BTU in 1977.
See Note 1
' l to the Company's Consolidated Financial Statements incorpo-rated'by reference herein with respect to the amortization of nuclear fuel.
, \\
1 i
~
l
Environmental Matters.
The Company is subject to,
licensing of hydroelectric projects by the PERC and of nuclear power projects by the NRC.
Such licensing and other actions by Federal agencies with respect to prdj ect's *,
of the Company are also subject to the National Environmental,,
e Policy Act ("NEPA").
In addition, the Company may be subject under certain circumstances to environmental regulations under the Federal Highway, Railroad, and Aviation Admini,e-trations, to Federal water and air quality legislation and.
to regulations issued by the Environmental Protection r
Agency ( " EPA" ) and the Council on Environmental Quality.
Water:
The Water Pollution Control Act (the " Water Act") requires with respect to existing steam electric -
power plants, the application of the "best practicable control technology currently available" and, generally, -
compliance with state established wat-quality' standards; it also requires by July 1, 1983 tb splication of the "best available technology econom...11y achievable."
With respect to future plants, the Water Act requires the,
application of the "best available demonstrated technolog y,-
processes, operating methods or other alternatives" to achieve, where practicable, the zero discharge of pollutants.
The Water Act also requires that the location, design, construction and capacity of cooling water intake structures reflect the application of the "best technology available for minimizing adverse environmental impact".
The EPA has adopted regulations which establish thermal and other limitations for effluents discharged from both existi~g n
and new steam generating stations and regulations relating to the location, design, construction and capacity of.
cooling water intake structures.
Enforcement of ef fluent limitations and standard.s of performance is obtained through the issuance of dis-charge permits which specify the limitations to be applied.
Water quality certifications issued by the appropriate state or interstate agency generally are required in connection with the processing of applications for dis.
charge permits, and the terms of such certifications must be included as conditions of a permit.
The Company is attempting to modify its existing facilities in order to comply with these requirements, but four of the Company's generating stations are not in full compliance with the presently ef fective Water Act require-monts described above.
As a result, the operation of the facilities involved may be curtailed or delayed and additional costs or penalties may be incurred.
The discharge _ permits, which have been issued for all of the Company's steam electric generating stations expire at various times in 1980 and 1981.
The permit for the Three Mile Island generating station contains certain.
e l
conditions which the Company believes are unwarranted. 'The Company has been granted an adjudicatory hearing with respect. to this permit to resolve,nuch issues.
Required implementation of the conditions to which the Company has objected has been suspended pending the adj udicatory
- hearing.
- Appeals have also been taken to the Pennsylvania Environmental Hearing Board concerning certain provisions,
' of the certificates granted by the Pennsylvania Department of Environmental Resources ("PaDER") in connection with r
the permits issued for the Homer City, Seward and Williamsburg generating stations.
Tacre can be no assurance as to the outcome of these proceedings.
The PaDER has alsa adopted regulations designed to implement the Pennsylvania.and Federal statutes relating to water quality standards and is administering regulations,
adopted by the Delaware River Basin Commission relating to water quality, diversion and environmental regulations.
It is expected that the Company will be subject to similar.-
regulations expected to be issued by the Susquehanna River Basin Commission.
The Company is attempting to modify its existing facil-ities and is making studies and plans to install f'acilities
' and to change its operating procedures in order to meet'the Federal and Pennsylvania water quality criteria.
The Com-pany's present estimate is that the additional cost of.
facilities to meet these standards will be approximate 1y'
$12,200,000 (of which approximately $9,100,000 is included in the Company's 1978-1979 construction program) and that annual operating costs, exclusive of fixed charges, will be increased by approximately $1,100,000 upon the completion, of the installation of new facilities at its existing
- generating stations to meet EPA and PaDER water quality regulations.
Nuclear:
Since 1974, the NRC has required the intro.
duction of quantified environmental ef fects associated with the uranium fuel cycle into the NEPA cost / benefit analysis for each light water reactor. In 1976, the United States Court of Appeals for the District of Columbia, in a case '
not involving the Company, held invalid that portion of the NRC regulation dealing with the spent fuel reprocessing and waste disposal phases of the fuel-cycle.
On March 14, 1977, &he NRC issued an interim rule to replace that invalidated by the Court of Appeals.
The Supreme Court has agreed to review the decision, On April 1, 1977, the NRC entered an order concerning ten facilities aggregating 19 nuclear units, including Three Mile Island Unit Nos. 1 and 2, which directed the
. Atomic Safety and Licensing Appeal Boards to apply the,
d 6
~^- ~
e v-e =-
M
.w._-.
..e.
.m Am..
4,
March 14, 1977 interim rule with respect to those facilities.
In its ordet, the NRC noted its belief that the values in the old rule did not differ substantially from those in.
the interim rule, and it therefore' appeared unlikely.thqt the application of the new interim rule could tilt a cost /,
benefit balance against the facility, so as to recuire suspension of an outstanding license or permit or denial ',
of a permit that would otherwise have been approved.
By order dated August 8, 1977, theAtomicSafety'anh Licensing Appeal Boards concluded that the application of
^
the new interim rule did not tip the balance against Three'.
Mile Island Unit No. I and left the decision as to Three Mile Island Unit No. 2 to the Atomic Safety and Licensing.
Board which was then considering whether to authorize the
~'
granting of an operating license for Unit No.
2.
On December 19, 1977, the Atomic Safety and Licensing Board' did authorize the license to be granted, which decision' has been appealed by intervenors in the proceeding.
For additional information with respect to this proceeding',
See " Proper ties - Proj ects Under Construction".
There can be no assurance as to the outcome of these,'
~
proceedings.
Air:
The PaDER has adopted air quality r eg ulations' designed to implement both the Pennsylvania and Federal statutes relating to air quality.
The Company's present estimate is that the additional cost finally to complete facilities to meet these standards will be approximately
$7,000,000 (substantially all of which is included in the Company's 1978-1979 construction program) and that its annual operating costs (exclusive of fixed charges, and.'
incremental fuel costs related to low-sulfur coal) will be increased by approximately S600,000 upon the completion of the installation of new facilities at its existing generating stations to meet PaDER air quality regulations.
There i,s no assurance that the costs of meeting such criteria will not be in excess of present cstimates or that the technology.
presently available is adequate to permit continued operation of the generating stations on a satisfactory basis.
Current Pennsylvania environmental regulations prohibit, in general, the use in stations constructed before 1972 of coal with a sulfur content exceeding 2.4% at 12,000 BTU per pound of coal, with lower limits applicable to certain stations.
On a weighted average basis, the Company has been abic to obtain supplies of coal having a sulfur content of less than 2.4% at 12,000 BTU per pound of coal.
If, and to the extent that, the Company cannot meet such limitations with processed coal in the future, it may be necessary to refit operating stations with sulfur removal equipment which may require additional.
-,=
~ ~......
capital expenditures estimated at $100-S120 per Kh of installed capacity.
Such refitting, if it could oe accomplished in such a way as to permit continued reliable would take approx.,
operation of the f acilities concerneo, imately four years.
Stations constructed after 1971, however, may not utilize coal with a sulfur content level exceeding 0.7%
at 12,000 BTU per pouna of coal.
Unit No. 3 of tne Homer City station (see " Properties - Generating Stations".)
expenaiture by the Company of approximately has required the
$50 per KW of installea capacity (or an aggregate of approxi-mately $16,200,000) for sulfur removal equipment utilizing precombustion cleaning techniques in oraer to meet this limi-tation.
Certain other environmental regulations limit the into the environment.
The'.
amount of par ticulate discharge its existing coal-fired Company has installea equipment for generating stations which enables these stations to meet In addition', such the particulate emission requirements. installation of particulate limi tations necessitated No. 3 of the Homer City emission control equipment on Unit i
a cost of approximately $28 per KW of installed station at capacity, or an aggregate of approximately S9,100,000.
technology currently There can be no assurance that available will enable the Company to comply with such current estimates as to the costs of regulations or that be exceeded.
compliance will not The Company has entercd into a consent order ano agree-ment with the PaDER and anticipates that it may consent to for the Wester'n*
a decree of the United States District Court Distr ict of Pennsylvania, pursuant to agreement with the EPA, The to Unit No. 3 of the Homer City station.
with respect cleaning process Company has developed a multi-stream coalthe applicable sulfur dio to comply with the effective,
To obtain a data base for evaluating the Company ments.
the ag reements author ize cleaning until June 1, ness of that syntem, to use run of t.se mine coal without_the Company has been to the agreements, payments to the Pennsylvania Clean Air 1978.
Pursuant required to make Fund since compliance with applicable stanaards has not this testing period, but such yet been achieved dur ing in amount.
payments have not been material such f acilities and There is no assurance that changes in operating proccoures will satisfy such criteria or that the present estimates of the cost of meeting such criteria will not be exceeded.
the EPA proposeo regulations at tecting containing polychlor-On May 23, 1977, the marking and disposal of equipment in a liquio inated biphenyls (which are primarily used m
w
+
--.- ~
4 I
form as coolants), including distribution transformers and power capacitors used by many electric utilities including the Company.
The Company is unable to estinate the costs.
which would be incurred by the Company if such regulationu were adopted as proposed but it believes that they wo.uld,
i be allowabic for rate-making purposes.
Through 1977, the Company has made capital expenditures of approximately $176,000,000 in response to environmental considerations and has included approxinately $9,000,0.00 for this purpose in its 1978 construction program.
The operating, and maintenance costs, including the incremental costs of low-sulfur fuel, for such equipment were about S9,800,00'0 in 1977 and are expected to be approximately S13,100,000.in-1978.
Environnental regulations may in other respects'.
significantly increase the capital and operating costs of existing and new facilities of the Company but the amount of such other increased costs cannot be accurately estin,ated at the present time.
Franchises and Concessions.
The electric franchise rights of the C'ompany with minor and unimportant exceptioni.
are adequate and sufficient to permit the Company to engage.
in the business which it presently ccnducts.
These rights,-
which are genecally non-exclusive, consist generally of (a) charter rights to furnish electric service, (b) certifica.tes of public convenience and/or " grandfather rights," in each case to furnish electric service in a specified city,.
borough, town or township or part thereof, and (c) municipal.
. consents from cities, boroughs, towns and certain townships to' enter upon public streets and highways therein.
- Such, electric franchises, except in a few relatively minor cases,.are unlimited as to time.
The Company also has adequate like franchise rights for the steam heat business which it presently conducts.
The Company holds PERC licenses expiring in 1993 authorizing it to operate and maintain its Warrior Ridge and Deep Creek hydroelectric projects.
The Company has made application to the PERC for relicensing of the Piney hydroelectric project (the license for which expired in 1972) and holds an annual license for the Piney project which expires October 12, 1978 or earlier
- in the event of Federal takeover.
The Company has made application to the PERC for pernission to surrender its license for the Oakland hydroelectric project (which expired in 1970) and such subsequent annual licenses as are deemed to exist.
On May 11, 1977 the FERC accepted the surrender of such license.
In addition, the Company and The Cleveland Electric Illuminating Company hold a license expiring in 2015 for the Seneca pumped storage hydroelectric station in which the Conpany has a 20% undivided interest.
For the sane station the Company and The Cleveland Electric Illuminating Company hold a Limited Power Permit issued by I
\\
h' n
r
tihe Pennsylvania Water'and Power Resources Board which is unlinited as to time.
For purposes of the llomer City station, the Company and New York 6 tate Electric & Gas
~
Corporation hold a Limited Power Permit issued by the
', i Pennsylvania Water and Power Resources Board which expires in 2017, but is ren'ewable by the permitteen until-they have recovered all capital prudently invested by then in the project.
Employee Relations.
Aproxinately 53% of~the Company's regular employees are represented by three local unions of the International Brotherhood of Electrical Workers
("IDEW") and approximately 8% ace represented by one loc'al.
union of the Utility Workers Union of America ("UWUA").
The IBEW and UWUA contracts, which expire in May 1979, are for terms of three years and provide for an annual aggregate increase over the life of the contract, including fringe benefits, of approximately 12.3%. The contracts provide for increases of approximately 8.7% in wages and 1% in fringe benefits in the first year and for renegotiation of wages and certain fringe benefits in the second and third years.. '.
In the second year of the contract, wages were increased 8.09% and fringe benefits l.45%.
On February 4, 1977, Monroe Reese brought an action against the Company in the United States District Court for the Western District of Pennsylvania, claining that.the.
Company had violated the Civil Rights Act of 1964 by unlawfully discriminating against him, by reason of his race, in the assignment of work.
The plaintiff is seeking monetary damages of approximately $30,000 resulting from such alleged unlawful discrimination and related matters.
The Company has filed an answer denying the allegations of the complaint.
On February 11, 1977, Gerald Evans brought an action against the Company in the United States District Court for the Western District of Pennsylvania on behalf of himself and all others similarly situated, charging that
~
the Company had violated the Civil Rights Act of 1964 by discriminating in recruitment, hiring, job assignments, lay-off, termination and call back after lay-off, by reason of race.
The plaintiff is seeking, among other things, a declaratory judgment, monetary damages of an unspecified amount and injunctions restraining the Company from acts of discrinination and ordering the Company to take such affirnative action as may be necessary to redress the effect of its discriminatory acts and practices.
The Company has filed an answer denying the allegations of the complaint.
'j In addition, six individuals have filed complaints
~
with the Equal Employment Opportunity Commission ("EEOC")
alleging unlawful discrimination by the Company on the basis 4, 4_
i J
y
.a n
e' g
of sex, race or religion.
One of these complaints. purports' to be on behalf of all female employees of the Company and
~
.on behalf of all female applicants for hourly paid and salaried positions.
The matters are currently pending before the EEOC.,
[*
There can be no assurance as to the outcome of these preceedings.
Dividend Policy and Investment by Parent.
All of the' r Company's outstanding common stock is owned by GPU.
It is the policy of the Company to declare, in each year, dividends on its common stock in aggregate amounts substantially equ,al to the annual earnings applicable thereto.
In view of.
the fact that this practice involves the declara. tion of each quarterly dividend prior to the end of the quarterf
/
it has the temporary ef fect, at the date of the declara. tion, of reducing the balance of retained earnings below that shown at the end of the preceding calendar year.
However,.
since the aggregate dividends declared during any. year are,.
correlated with the anticipated earnings for that. year,.
any temporary reduction in the balance of retained earnings-arising out of any such dividend declarations is expected '
to be eliminated by the end of that year.
In the case of a growing electric utility, it is-necessary for additional common stock capital to be provided periodically to provide a portion of the new capital required to finance additions to facilities a'nd working capital, and to maintain a balanced capital structure.
The following tabulation sets forth the cash dividends paid by the Company on its common stock and the.
cash capital contributions received by it from GPU duriqg the past five calendar years.
Exc s of Cash
- Dividends Cash Capital Dividends Paid Paid on Contributions over Cash Capit&l Common Received from Contributions Year Stock Parent Received 1973
......S 35,500,000
$ 35,000,000 500,000 1974 33,900,000 33,900,000 1975 39,700,000 4,140,000 35,560,000 1976 37,500,000 30,050,000 7,450,000 1977 37,000,000 45,000,000_
(8,000,000)
Totals....$183,600,000
$114,190,000
$69,410,000,
The Company expects to receive no cash capital contributions from GPU during 1978.
P
ITEM 2.
SUMMAR OF OPERATIONS.
information required by Item 2 of Form 10-K and.
The incorporated herein.,
management's comments on carnings arethe Company's Annual and 5 of by reference to-pages 4 for the year ended Lacember 31,.
Report to Shareholders 1977, included as an exhibit hereto. -Reference is made to ' '
~
of financial Item 13 hereof which contains a list
. statements and schedules filed herewith.
ITEM 3.
PROPE R'TI ES.
The Company's generating stations.
Generating Stations.
in commercial service and their location are as follows:
Effective Net Station,
Capability Output Year of (Net KW)
(MhH) 1977 Name and Location Installation (Winter) _
Coal:
a llomer City Ilomer City, Pa. (a) 1969-1977 760,000 2,368,648(d) i Shawille Shawille, Pa.
1954-1960 627,000 4,065,122 Seward Seward, Pa.
1921-1957 219,000 807,147 1948-1949 86,000 521,419 Warren Warren, Pa.
Front Street Erio, Pa.
1917-1953 110,000 552,002 Williamsburg Williamsburg, Pa.
1944 34,000 109,313 Nuclear:
'1hree Mile Island Unit No. 1 1974 204,000 1,365,860 Dauphin County, Pa. (b)
Oil:
5 combustion turbines 1960-1972 168,000 87,278 Gas:
1 combustion 27,000 20,266 turbine 1971 5 stations (c) 1907-1969 123,000 52,568 Ilydro:
2,358,000 9,949,623
'Ibtals undivided interest in (a)
Represents the Company's 50%
this station.
l undivided interest in (b)
Represents the Company's 25%
this unit.
1,
L
,l
(c)
Includes the Company n 20% undivided interest in,
I the Seneca pumped storage station (76,000 KW) which is a' rather than a net producer of electric energy.
net user (d)
Includes Unit No. 3 pre-commercial generation'of ',
15,254 MWH.
The Company's peak load was 2,022,000 KW, reached on*
January 17, 1977.
I and 2',
The Homer City generating station Units No.
e which are owned equally by the Company and New York State Gas Corporation as tenants-in-common, has it was placed Electric &
experienced operating difficulties since in 1969.
For the year 1977, the station in service a level approximately 56% below its. effective,
included 8% due to scheduled
/
operated at capability, which reductionis undergoing modifications and.,
maintenance.
The station its reliability is being new equipment designed to improve The Company's. share of the cost of such-installed.
is estimated at $9,400,000,.
modifications and new equipment amendments to the Price-Anderson Act provide Recent that all. owners of nuclear reactors may be assessed up to incident
$5,000,000 per operating reactor for each nuclear occurring at any reactor in the United States, not to exceed $10,000,000 per reactor per year.
On March 31, 1977, the United States District Co.urt the the Western District of North Carolina held that for limiting liability provisions of the Price-Anderson Actof the owners of nuclear power and suppliers for such plants, to the amount of available-indemnity ($560 million per '
insurance and governmentalviolate the due process and equal pro-nuclear incident) the United States Constitution.
The tection clauses of Supreme Court has decided to review the decision.
U.S.
four New Jersey counties filed,a' Cn October 6,
- 1977, for the Dis,
complaint in the United States District Court trict of New Jersey against the NRC, an affiliate of the interests Company and other electric utilities owningin New Jersey nuc including the Forked River station.
or under construction, The complaint seeks a judgment (a) declaring that the lia-bility limits of tne Pr ice-Anderson Act be declared uncon-(b) enjoining the defendants from stitutional and void, toward the construction of any nuclear power
" proceeding the lives and property of the plaintiffs and plants until their residents are safeguarded" ano (c) enjoining the cations, "provided operation of two nuclear generating period of time to the defendants be given a reasonablelosses and damages".
provide security to pay potential for the A stipulation has been entered into with counsel I
t l.
l plaintiffs for the action to be held in abeyance pending a decision by the Supreme Court in the case involving the constitutionality of the Price-Anderson Act mentioned above.
g
~
' The Company presently intends to continue its nucl. ear.
program as currently planned.
If the Price-Anderson Act limitations on liability are ultimately held invalid, and if either or both of the requested injunctions are granted, i
however, under certain circumstances relating to the will-ingness of the Company's suppliers to deliver materials.and" equipment aru3 the availability of adequate alternativ.e in surance arrangenents, such ruling could have a materially, adverse effect on the continuation of the Company's nuclear program and upon its operations.
Proiccts Under Construction.
Unit No. 2 of the Threc
!!ile Island nuclear generating station is being constructed by the Company and two of its affiliates, Met-Ed and JCP&L,.
An operating license for Unit No.
2, which is scheduled to be placed in service in 1978, was issued on February 8, 1978.
On Decenber 19, 1977 the Atomic Safety and Licensing Board of the NRC issued a decision authorizing the grant-of the license.
Two environmental organizations,'which had intervened in the proceeding, filed exceptions to the decision with the Atomic Safety and Licensing Appeal Board and a petition for review with the United States Court of Appeals for the District of Columbia.
There can be no assurance as to the outcome of this proceeding.
Unit No. 2 is expected to have an ultimate capacity' of approximately 906,000 KW.
The estimated cost of the unit (including allowance for funds used during construc-tion) is approximately S650,000,000 (exclusive of nuclear fuel).
At December 31, 1977, the Company had invested approximately $154,334,000 (excluding expenditures for nuclear fuel) in Unit No. 2 of the Three Mile Island nuclear generating station, in which it presently has a 25% undivided interest.
As previously noted, the Company is seeking regulatory
- approvals for the purchase from JCP&L of a 25% undivided interest in the Forked River nuclear generating station, in which station the Company has no current ownership
~
-interest. In addition the Company is seeking regulatory approvals for the sale to JCP&L of 60% of its 25% undivided' interest-in Unit No. 2 of the Three Mile Island generating station.
It-is presently anticipated that these transfers will be made in installments and that they will be completed by the time that Unit No. 2 of the Three Mile Island station is placed in commercial service.
There can be no assurance that the requisite regulatory approvals will be obtained or that these transfers will take place when contemplated.
9
~""7-~
_w.
a
=-
4 The Forked River station is scheduled to have a not effective capability of 1,133,000 KW.
It is presently an-ticipated that construction will be completed in 1983 at.An aggregate estimated cost of $882,000,000 (exclusive of nuclear-fuel).
A provisional construction permit for the Forked The amount,to be River station has been issued by the NRC.
interest will equal't'he paid by the Company for its undivided t
book cost with certain adjustments, including allowance fot funds used during construction, at the time the interest,is conveyed to the Company.
At Decenber 31, 1977, JC?6L'had, invested approximately $198,000,000 (excluding expenditures e
for nuclear fuel) in the Forked River station.
in new base-lobd.'
The required investment per kilowatt coal-fired and nuclear generating capacity currently bei'ng times that, placed in service is approximately two to three required for new combustion turbines.
Although, especially in the case of nuclear generating stations, such costs arc.
expected to increase, the fuel and operating cost savings for nuch base-load generating capacity, if operated'for.ex '
tended periods, substantially exceed the carrying char.ges on the higher investment costs, and, therefore, result in 16wer over-all charges to customers.
(For example, under present,"
conditions, the fuel cost of the Company's nuclear genera-for its tion is approximately 1.7 mills per kwh and that coal-fired generation is approximately 10.6 mills per.kwh, whereas that for its combustion turbines is approximately 34.7 mills per kwh.)
For this reason, it is the Company's facilities, objective to achieve a balance of generating w th the bulk of its energy requirements being supplied'by i
its base-load coal-fired and nuclear generating capacity and with its combustion turbines relegated Lc supply energy at peak-load hours, but the Company's ability to achieve.-
and maintain this objective is subject to its financing
~
capability and to licensing and other requirements applicable to new plant construction.
Trarsmission and Distribution System.
At December
'31,,
1977, the Company owned 792 transmission and distribution substations which had an aggregate installed transformer capacity of 13,946,920 KVA, and 2,633 circuit miles of transmission lines, of which 235 miles were operated at 500 KV, 148 miles at 345 KV, 616 miles at 230 KV, 11 miles 115 KV, and the balance of 367 1,256 miles at at'132. KV, The Company's distribution system included miles at 46 KV.
5,787,771 KVA of line transformer capacity, 19,005 pole miles of overhead lines and 1,012 conduit miles of under-ground cabic.
During Additions and Retirements of Electric Property.
the period from January 1, 1973 to December 31, 1977,-the gross additions (including construction work in progress of
-S198,898,028 at December 31, 1977) to the Company's electric utility plant amounted to $523,597,943 and the retirements l
"' J m__
O of electric utility plant amounted to $41,148,725 resulting in not additions (including such construction work in progress) of $482,449,218 or an increase during that period of 49% on an oriqinal cost basis.
ITEM 4.
PARP.NTS AND SUBSIDIARIES.
All of the Company's comnon stock, its only class of Pennsylvania corpora.
voting securities, is owned by GPU, a shares of The Conpany owns all of the outstanding tion.
e connon ntock of Nineveh Water Conpany, a Pennsylvania corporation, and of the Waverly Electric Light and Power.
a New York corporation, which subsidiaries are
- Company, included in the Company's Consolidated Financial Statements.
ITEM 5.
LEGAL PROCEEDINGS.
Reference is made to " Rate Matters", "Environnental under Iten 1 above and Matters" and " Employee Relations" to " Generating Stations" and " Projects Under Construction" for a description of certain pending under Iten 3 above legal proceedings involving the Company.
INCREASES AND DECREASES IN OUTSTANDING SECURITIES
~-
ITEM 6.
AND INDEBTEDNESS.
Reference is nade to " Dividend Policy and Investnent' under Item I hereof with respect to cash capital by Parent" contributions received by the Company from GPU.
During the fiscal year ended December 31, 1977 the Company's indebtedness increased as follows:
On December 22, 1977, the Company issued to The Cambria County Industrial Development Authority ("The Canbria Authority") $12,310,000 aggregate principal anount Bonds, 6-1/8% Series A due December its First Mortgage of The Company issued such First Mortgage Bonds to 1,
2007.
The Cambria Authority pursuant to a certain pollution control facilities agreement under which The Cambria Authority sinultaneously issued and sold to a group of purchasers, represented by and including Bache llalsey
~
Stuart Shields Incorporated, Merrill Lynch, Pierce Penner
& Smith Incorporated, White Weld & Co. Incorporated, Snith Barney, liarris Upham & Co., Incorporated, and Drexel Burnham Lanbert Incorporated, S12,310,000 principal of Pollution Control Revenue Bonds, 1977 beries f
amount Neither The Cambria Authority nor any of the purchasers Pursuant to the pollution A.
is affiliated with the Company.
control facilities agreement, the net proceeds received
-l from the issuance of the First Mortgage Bonds to The including accrued Cambria Authority ($12,244,669.80in the amount of S43,982.60) interest from December 1, 1977 were placed in a construction fund to be administered by Manuf acturers llanover Trust Company, the escrow agent.
l -
_ _m
o issuance of these First Mortgage Bonds by the Company a
I registered unaer the Securities Act of 1933 based The in Section 4(2) of that Act.
was not upon the exemption contained Tne issuance and sale of the Pollution Control Revenue.,
registered under Bonds by The Cambria Authority was not the Securities Nct of 1933 based upon the exemption of that Act.
contained in Section 3(a)(2) issued to Dauphin On December 22, 1977, the Company (tne " Dauphin-County Industrial Development Authority of its aggregate pr incipal amount Authority") $4,110,0006-1/S% Series B due December 1,.2007.
First Mortgage Bonds,such First Nortgage Bonos to the Dauphin The Company issued to a certain pollution control facil,- -
Authority pursuant the Dauphin Authority simul-ities agreement under which taneously issued and sold to a group of purchasers, including Bach reprerented by and Pierce Penner & Smith Incorporatec, Merrill Lynch,Co. Incorporated, Smith.
Incorporated, White Wold &
Incorporated and Drexel Barney, Harris Upham & Co.,
Incorporated, $4,110,000 principal 1977 Sbrics "
Burnham Lambert amount of Pollution Control Revenue Bonds,the Dauphin Authority Pursuant to the pollution A.
Neither is affiliated with tne Company.the not proceeds receiv'ed control facilities agreement, f rom the issuance of the First Mortgage Bonos to the including accrued interest.
Dauphin Authority ($4,068,179.89 from December 1, 1977 in the amount of $14,684.69) were to be administered by placed in a construction fund Manufacturers Hanover Trust Company, the escrow agent.
issuance of these First Mortgage Bonds by the Company registered under the Securities Act of 1933 based The in Section 4(2).of that Act.'
was not upon the exemption containedissuance and sale of the Pollu The Bonds by the Dauphin Authority was not the Securities Act of 1933 based upon the exemption of that Act.
containeo in Section 3(a)(2)
Reference is made to the Company's Certificate Pursuant to Rule 24 of Completion of Transactions tiled under the 1935 in SCC File Public Utility Holding Company Act offor a more complete desc No. 70-6077 going transactions.
IN SECURITY POR IN SECURITIES AND CHANGES l
ITEh 7.
CHANGE REGISTERED SECURITIES.
None.
DEFAULTS UPON SENIOR SECURITIES.
ITEM 8.
None.
.{
- f 1
i-e
' ITEM 9.
APPROXIMATE NUl1BER OF EQUITY SECURITY HOLDERS.
The approximate nuriber of ho1Iers of record of each' class of the Company's equity securities as of December' 31, 1977 was as follows:
Number of Holders of Record Title of Class, Connon Stock, Par Value $20 per share l'
r Cumulative Preferred Stock, no par value,
$100 stated value -- 4.40t Series B 902 3.70% Series C 999 4.05% Series D 517 4.70% S'eries E 406
-- 4.50%' Series F 261
-- 4.60% Series G 439
-- 8.36% Series H 2,547
-- 8.12% Series I 1,394
--11.72% Series J 1,580
--10.88% Series K 1,116
$25 stated value
-- 9%
Series L 5,258 ITEtt 10.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None, except as previously reported in the Company's Quarterly Report on Form 10-0 for the quarter ended March 31, 1977.
ITEM 11.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, their ages, positions held and business experience during t'he past five years are as follows:
Name Age Position W. G.JKuhns (a) 55 Chairman of the Board W. A.
Verrochi (b) 56 President R.
G. Baker (c) 57 Vice President - Consumer Affairs D. J. Bechtold (d)
~61 Vice President - Operations R. W. Conrad (e) 53 Vice President - Generation J. A.
Poole (f) 41 Vice President - Technical 4
J.
R.
Reesnan (g) 49 Vice President - Personnel W.
R. Thomas (h) 61 Secretary and Treasurer P.
A.
Donofrio (i) 35 Comptroller 9
(a)
Mr. Kuhns was elected Chairman in September 1976.
He is Chairman and Chief Executive Officer of GPU, the l
Mr. Kuhns became associated with Company's parent.
GPU in 1955 and has served as Secretary, Treasurer, Vice President, President and as Chairman since 1974.
- s I
n a
-u is also Chairman and Chief Executive Officer and a director of the Company's, af filiates, Met-I:d, JC}%L lie and GPU Service Corporation.
~,.
Mr. Verroch.i was elected President in September _1977, (b) the-having served as an Executive Vice President of 1977.
From 1971 to 1974 he was Company since June Vice President-Design and Construction of GPU Servi,ce Corporation and from 1974 to June 1977 served as Vice President-Generation of that company.
e Baker's election to his present pos.ition (c)
Prior to Mr.
in October 1973, he served as Manager-Marketing Services of the Company.
(d)
Mr. Bechtold was elected to his present position in June 1977.
Prior to that tine, he was Manager of the, Company's Southern Division.
(c)
Mr. Conrad has been Vice President-Generation of the, Company since January 1973.
Poole became Vice President-Technical in July 197'7.
(f)
Mr.
From 1973 until that time, he served as Manager -
Electrical Engineering of the Company.
Reesman's election to his present position (g)
Prior to Mr.
in June 1977, he served, since 1973, as Manager-Employee Relations.
Mr. Thomas has been Fecretary and Treasurer of the (h)
Company since July 1969.
Mr. Donofrio became Comptroller in August 1970 From.
(i) 1972 until his election as Comptroller, he served the Staff GPU Systen as Supervisor of General Accounting, and Manager of Spe;ial Accounting of JCP&L Accountant and as Principal Financial Analyst of GPU Service Corporation.
The Company's executive officers are elected each year first meeting of the Board of Directors held following at the Executive officers hold the annual meeting of shareholders.
office until the next meeting of directors following the annual meeting of shareholders (presently scheduled for March 15, 1979) and until their respective successors are duly elect.d and qualified. There are no family relation-ships among the Company's executive officers.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ITEM 12.
The By-haws of the Company contain the following provi-sions with respect to the indemnification of directors and officers:
. 1
m
~
"Each director and officer of the corporation, whether or not then in office, and, in the event of his death, his Icgal representatives, shall be indemnified by the corporation ' wit. respect to any acts or omissions alleged to have occurred subsequent to the adoption.of this By-Law provision, against (1) all costs and expenses reasonably incurred by or imposed. -
upon him in connection with or resulting from any action,'
suit or proceeding prosecuted to final determination on the merits to which he or his personal representative may be made a party by reason of his being'or having r
been a director or officer of the corporation or of any other company which he serves as a director or offic',r e at the request of the corporation, except any costs or -
expenses incurred by or imposed q him in relation 'to matters as to which he shall be t-
- lly adjudged to oc liable, and (2) all costs and expenoes incurred by or
/
imposed'upon him in conn'ection with or resulting from.
~
any such action, suit or proceeding which is settled with the approval of the court having j u,r i sd ic t ion -
thereof, but only in such amount (which shall not include any sum ordered to be paid to the corporation by him) as such court shall determine and find to be reasonable in the circumstances.
"No present or future director or of ficer of the corporation (or his legal representatives) shall be l'iable for any act, omi.s s ion, step or conduct taken or had.in good faith after September 14, 1966, which (whether by condition or otherwise) is required, authorized, or ap-proved, or'is otherwise in compliance with or in reliance upon a regulation, rule, order or determination issued or madr by a department, agency, board, commission or author.
ity pursuant to any statute of any state or'the United States, including, without thereby in anywise limiting the generality of the foregoing, the Public Utility IIolding Company Act of 1935 and the Federal Power Act, whether-or not such regulation, rule, order or determin-ation shall have been subsequently amended, rescinded or '
determined by judicial or administrative authority to be invalid or illegal, or which is taken in contesting in good faith the validity or legality of any such regula-tion, rule, order or determination.
In any action, suit or proceeding based on any act, omission, step or con-duct, as in this paragraph described; the provisions hereof shall be brought to the attention of the court.
In the event that any of the foregoing provisions of this paragraph is found by the court not to constitute a valid' defense on the ground that such provision is not-applicable to the particular class of plaintiff, each such director or of ficer (or his legal representatives) shall be reimbursed for, or indemnified against all expenses and liabilities reasonably incurred by him or imposed-on him, in connection with or resulting from b
~
. ~...
~
any such action, suit or proceeding (other than for any sum ordered to be paid to the corporation by him).
Such expenses and liabilities shall include, but shall-not be' limited to, judgments, court costs and attorney's fegs, a
"The foYegoing rights of indemnification shall not be exclusive of any other rights to which any directog or officer (or his Icgal representatives) may be entitled as indemnification to a matter of law nor of any rights of (or his legal representa-which any director or officer may be entitled under any By-Law of the corporatfon tives) heretofore in effect, but shall apply to any liabilit of iis legal representatives).
any director or officer (orprc/isions of the Securiti,es Act.
arising under any of the of 1933, as amended, only'to the extent that such ri hts,
to be valid,by,a ' '
of indemnification may be dctermined court of competent jurisdiction."
Subject to certain exceptions, the directors and officers.
insured for 95% of loss applicable to the of the Company are to the next,$19
$1 million and 100% of loss applicable first million (sobject to a deductible of $5,000 for each director, or officer sut in no ever.t exceeding $20,000 in the aggrega.te for each loss) with an overall limit of $20,000,000 resulting from any claim or claims made against them, including claims
+
arising under the Securities Act of 1933 and caused by any any omission or any breach of duty -
any error, negligent act,in their capacities as officers or directors, while acting and the Company is insured to the extent that it shall have indemnified the directors and officers for such loss (subject' to a deductible of $100,000 with respect to each loss).
The premiums for such insurance are paid for by the Company.
directors and employees of the Company are
' Officers, also inzured against 100% of loss (subject to'a deductible of
$1,000 for each loss) with an overall limit of $15,000,000 under an Employee Benefit Plan Liability - Breach of Fiduciary Duty under the Federal Employee Retirement Income Security Act of 1974 insurance policy, for any claim or claims made against them under the Act.
The premiums for such insurance are paid by the Company.
Section 410 of the Pennsylvania Business Corporation Law officers and provides for indemnification of directors, others against certain liabilities as follows:
A business corporation shall have power to "A.
is a party or is indemnify any person who was or to be made a party to any threatened, pe nd ing threatened or completed action, suit or proceedir.q, whether civil, administrative or investigative (other than
- crininal, an action by or in the right of the corporation) by rea-is or was a director, officer, 4
son of the fact that he of the corporation, or is or was onployee or agent
[
L m
.~,
serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses ( 'inc lud ing attorneys' fees), judgments,,
fines and amounts paid in settlement actually and rea-sonably incurred'b'r him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with rerpect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by.
judgment, order, settlement, conviction, or upon a plea.
of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to,.the best in-terests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to.believe that his conduct was unlawful.
"B.
A business corporation shall have power'to in-demnify any person who was or is a party, or is threat-ened to be made a party to any threatened, pending or completed action or suit by or in the right of the cor-poration to procure a judgment in its favor by reason of the fact that he is or was a director, officer, em-ployee or agent of the corporation, or is or was serving at the requece of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterpr'se against expenses f
(including attorneys' fees) actually and reasonably in-curred by him in connection with the defense or settle-ment of such action or suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and except that no indemnification shall be made in respect, of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court of common pleas of the county in which the reg-istered office of the corporation is located or the court in which such action or suit was brought shall determine upon application that, despite the ad j ud i-cation of liability but in view of all the circum-stances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court of common pleas or such other court shall deem proper.
"C.
To the extent that a director, officer, employee or agent of a business corporation has been successful on the merits or otherwise in defense of -
~ " ' ' ' '
any action, suit or proc'ecoing referred to in sub-in oefense of any sections A or B of this section or claim, issue or matter the r'e in, he shall be inaemn4.-
(inclu6ing attorneys' fees) expenses fied against reasonably incur red by him in connection actually and therewith."'
REPORTS ON 5-K.,
ITEM 13.
FINANCIAL STATEMENTS, EXHIBITS FILED AND (a)(1)
Financinl Statements:
The consolidated balance sheets of PennSyl-vania Elec tr ic Company and Subsidiary Companies as of December 31, 1977 and 1976 and the related consolidateo statements of income, retained earnings and sources of for construction for eacn of the fiv e ye ar s,in ' ~
funds used 1977, are incor po r a ted the period ended December 31, to Pennsylvania Electric Company's' herein by referenceto Stockholders for 1977 which is attached Annual Report hereto as Exhibit 4.
f inanc'ial in'f o ri Schedules and supplementary mation, as listed on the index following:
'Pages S-1 Opinion and Consent of Indegndent Certified Puolic Accountants Schedule V - Property, plant and equignent, for the S-2 years 1977 ard 1976 Schedule VI - Accumulated depreciation and amortization S-3', S-4 1976 - 1977 of property, plant and equignent, D-5
,S-7 Replacement cost data (unaudited) above have been (Schedules other than those listed the inapplicable or because omitted because they are information required is set forth in the financial-or because the amoun,ts statements and notes thereto, to be includea are not material.)
(a)(2)
Exhibits:
1977 to Supplemental Indenture dated as of November 30, as of January 1, 1942 1.
Mortgage and Deed of Trust dated between Pennsylvania Electric Company and Bankers (Incorporated by reference to Exhibit Trust Company.
to Rule 24 of Com-A-20(a) in Certificate Pursuant SEC File No. 70-6077.)
pletion of Transactions, G L
-r r- -
ra asam mm -
~
'2.
Supplemental Indenture dated as of December 1,
1977-to Mortgage and De'ed of Trust dated as of January 1, 1942 between Pennsylvania
, i Electric Company'and Bankers Trust Company.
(Incorpora'ted by reference to Exhibit A-21(a) i
-in. Certificate Pursuant to Rule 24 of Com-pletion of Transactions, SEC File No. 70-6077.)
/
3.
General Public Utilities Corporation and Subsidiary System Companies Tax Reduction Act Employee Stock Ownership Plan.
3-A General Public Utilities Corporation and Sub-sidiary System Companies Tax Reduction Act Employee Stock Ownership Trust.
- 4.
Annual report to chareholders of the Company for the year 1977.
- Except for those portions of the annual coport specifically incorporated by reference herein, such report is furnished solely for the information of 4
the Securities and Exchange Commission and is n'ot to be deemed to be " filed" as i
a part hereof.
(b)
Reports on Form 8-K:
No reports on Forn 8-K were filed during the last'
~
quarter of the period covered by this report.
4 i
1 e
e e
S 4
- PART II
~
ITEM 14.
PRINCIPAL SECURITY HOLDERS AND SECURITY HOLDINGS OP -
MANAGEMENT.
All of the Cdmpany's 5,290,596 outstanding shares.of,,
common stock are owned beneficially and of record by the Company's parent, General Public Utilities Corporation, 260 Cherry Hill Road, Parsippany, New Jersey 07054.
Officers and directors of the Company, as a group, do not own any shares of the Company's Cumulative Preferked'.
Stock, without par value, and beneficially own 10,191 sha,res of the common stock of GPU, the Company's parent, which,
ownership constitutes less than 1% of the outstanding shares.
[,'
ITEM 15.
DIRECTORS OF THE REGISTRANT.
The present directors of the Company and each p.rson e
chosen to be a director, their ages and positions with 'the Company are as follows:
Name Age Position W. G. Kuhns (a) (b) 55 Chairman of the Board' W.
A.
Verrochi (a) (b) 56 President R.
G.
Baker (a) (c) 57.
Vice President D.- J. Bechtold (a) 61 Vice President R. W. Conrad (a) (b) 53 Vice President.
H.
Dieckamp (d) 49 Director F.
D.
Hafer (e) 37 Director V..H. Condon (f) 51 Director (a)
Reference is made to Item 11 hereof with respect to tho' business experience of these directors.
(b)
Member of Executive Committee.
(c)- Alternate member of Executive Committee.
(d)
Mr. Dieckamp was elected a director of the Company effective March 13, 1975.
He joined GPU in 1973 as a Vice President and was elected President, Chief Operating Of ficer and Director of GPU in 1974.
He also serves as President, Chief Operating Officer and a Director of GPU Service Corporation and as a member of the Board of Directors of JCP&L and Met-Ed.
Prior to joining GPU,-Mr. Dieckamp was associated with Rockwell International Corp. from 1950-1953-and served as President of its Atomics International division from 1970-1973.
(c)- Mr. Hafer was elected a director of the Company on June 1, 1977, and after obtaining authorization of the FERC by its order dated March 17,'1978, assumed I
l
- 24
- _ -.c
=
office.
Since October, 1977 Mr. Itafer has been a Vice President of GPU Service Corporation, and has' been Treasurer of GPU and of GPU Service Corporation,
since 1970.
Mr. Itafer is also, a director of JCP&L and Met-Ed.
(f)
Mr. Condon was. elected a Director on March 16,'1978.
lie was elected Vice President and Chief Finan~cial Officer of GPU and Executive Vice President and.a Director of GPU Service Corporation in March 1978.
Mr. Condon had been Senior Vice President-Finance and Chief Financial Officer of AMBAC Industries (formerly
- American Bosch Arma), a multi-industry manufacturing company, which he joined in 1968.
The Company's directors are elected each year at the -
Annual Meeting of Shareholders hel'! on the third Thursday in March to serve until the next annual meeting of shareholders /
and until their respective successors are duly elected and qualified.
There are no family relationships among the directors and/or executive officers of the Company.
ITEM 16.
REMUNERATION OF DIRECTORS AND OFFICERS.
The following table sets forth all direct remuneration paid by the Company during the year ended December 31, 1977 to each director, and each of the three highest paid of ficers of the Company, whose aggregate remuneration exceeded $40,000, and.to all directors and officers as a group:
Name of Capacities Individual in Which
'Ibtal Estimated or Number of Remuneration Arjgregate Direct Annual Benefits Persons in Group Was Received Remuneration Upon Retirement (5).
J. F. Smith (1)
President and S 82,751
$ 26,893 Director W. A. Verrochi (2)
President and 70,743 39,746 Director
~
R. W. Conrad Vice President -
53,901 25,197 Generation and Director D. J. Dechtold (3)
~ Vice President -
47,749 22,838 Operations and Director R. G. Ebker Vice President -
44,685 21,015 Consumer Affairs and Director P. L. Lumnitzer (4)
Vice President -
41,784 21,356 Technical and Director All directors and officers as a group (11 persons)
S534,092
- in -
~-
i s
(1)
Resigned ef fective August 31, 1977.
s (2)
Elected Executive Vice President effective June 1, 19,77 e
resigned effective August 31, 1977 and elected President effective September 1, 1977.
Prior to June 1, 1977 his salary was paid by GPU Service Corporation.
(3)
Elected effective June 1, 1977.
^
(4)
Resigned effective June 30, 1977.
(5)
Based on assumed retirement at age 65 and continuation of present salaries until that time.
Does not include retirement benefits attributable solely to contributionh by said officers under this Plan.
The amounts shown give -
effect to the reductions in pensions payable at retirenent as a result of the designation by Messrs. Snith, Verrochi;.
Conrad, Bechtold, Baker and Lunnitzer of a joint and survivor pension under the retirement plan of thc Company.'
~
On July 7, 1977, the GPU System, including the Company, adopted, effective January 1, 1976, a Tax Reduction Act Employeg' Stock Ownership Plan
(" Plan").
In general, the Plan permits
~
the GPU systen companies to claim up to an additional 1-1/2%
investment tax credit for each year in which they make contribu-tions to the Plan, equivalent in amount to the additional tax credit, which contributions are used to purchase shares of GPU common stock for each eligible employee (including officers.but not directors who are not employees).
These shares are held in trust under the Plan.
Since the contributions are offset by the additional credit, the contributions under the Plan do not involve a net cost to the GPU'Systen.
In 1977, such contribu '
tions were used to purchase an aggregate of 88,331 shares of GPU common stock.
Of thenc shares, in accordance with the terms of the Plan 39, 39, 22, 19, 18 and 25 were allocated to Messrs.
Smith, Verrochi, Conrad, Bechtold, Baker and Lunnitzer, respectively and an aggregate of 251 shares were allocated to all officers and directors of the Company, as a group.
ITEM 17.
OPTIONS GRANTED TO MANAGEMENT TO PURCHASE SECURITIES.
NONE.
ITEM 18.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.
NONE.
-_n h,_
SIGNATURC i
Pursuant to the requirements of Section 13 or 15(d) of the' Securities Exchange Act of 1934, the r eg is t r an t has duly causeo' this report to be nigned on its behalf by the unaersigned the,re-unto duly authorized.
t PENMSYLVANT A ELECTRIC CO:iPANY,
( Reg i s tr an t )
By : /s/W.
A.
VERROCHI Date:
March 31, 1978 W.
A.
Verrocht, Presloent
/s/F.
A.
DONOFRIO F.
A.
Donotrio, Comptroller t
g
,, n pm ye - -
--,-n-o q=
___m_
s COOPERS & LY B R A N D cenrinco eunuc accoudrA~rs e
t lN 5'H4NCIPI6 hRf AS O*, THE WORLD e
OPINION AND CONSENT OF INDEPENDEHT CERTIFIED PUBLIC ACCOUNTANTS, We consent to the incorporation by reference of o'ur '
report dated Februar/ 10, 1978, which is subject to the effect; if any, on the con:;olidated financial statements of the ulti. mate resolution of the matter discussed in Note 8 to Consolidated Financial Statements, accompanying the consolidated financial statements of Pennsylvania Electric Company and Subsidiary Companies which appear in Pennsylvania Electric Company's Ann.ual-Report to Stockholders for 1977 In connection with our examinations referred to in our report appearing in the 1977 Annual Report to Stockholders, wp have also examined the schedules listed in the accompanyingfindex.
In our opinion, subject to the effect, if any, on the sch'edules' of the ultimate resolution of the matter discussed in Note 8 to Consolidated Financial Statements, such schedules, when read in conjunction with the consolidated financial statements, present.
fairly the information required to be included therein in conformity.
with generally accepted accounting principles applied on a consistent basis.
(<.
110 Y btf4u('
CO PERS & I/,, RAND February 10, 1978 Philadelphia, Pa.
i l.
mi
- - r*e e"--~
wt Tum i. -
=
3 i
r-PENHSYLVANIA ELECTRIC COMPANY and Subsidiary Compan[es SCIIEDULE V - PROPERTY, PLANT AND EQUIPMENT (In Thousands)
For the Years End8d
.a December 31,
'_11, 1977
_ 1976 Column F Column A Balance at and of Period Classification
~
UTILITY PLANT, at original cost:
Electric:
r Plant in service:
S 337 337 Intangibles Production:
312,099 461,046 Steam 99,561
'100,201 Nuclear 11,681 11,6;89 Ilydro 13,105 1-3,10 7/
Pumped Storage 14,755_
.14,.781 Combustion 451,201 600,824 Total production 181,097
.187,045 Transmission 414,830 429,8.12 Distribution 43,913 44,iO2 Cencral 1,091,378 1,262,120 Total in scrvice 265,977 198,899 Construction work in progress 6,917 7,816 -
Plant held for future use 1 164,272 1,463,835 2
Total electric Steam heating:
~
125.
Plant in service:
125 Production 1,715 1,728.
Distribution General 1,840 1,853 Total in service 69 134_
Construction work in progress 1,909 1,987 Total steam heating Water:
1 Plant in service:
1 289 Intangibles 289
'422 Collection 404 Distribution 10 lji 722 Purification 704 Total in service 6_
- 232, 954 Construction work in progress 710 Total Water 1,366,891 1,4 71,776, Total utility plant 22,710 31,673
- 395, NUCLEAR FUEL, at original cast 39ft OTilER P"YSICAL PROPERTY, at original cost
$1,503,844 lotal Property Plant and equipment
$_1 389,99 7 been omitted ;i r.c e The information required by Columns B, C, D and E have ither of the j
neither the total additione nor total deductions during e of such 10% of the ending balance to more than periods covered amount (Column C) amounted to $133,752 and (Column D) period. Total additions at cost Total retirements
$121,721 during 19 76 and 1977, respectively.
i v e l :.. Other amounted to $5,940 and $7,973 during 19 76 and 19 77, r l
- 1977, changes respectively.
s-2
.-n,m PENNSYLVANIA ELECTRIC COMPANY and Subsidiary Codpanies SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION g
0F PROPERTY, PLANT AND EQUIPMENT for thc_ year ended December 31, 1977 (In Thousands) e Column A Column B Column C Column D Column E Column F Balance Addit ic ns Other Balanc,e at Charged to Changes at.
Beginning Costs and Add End of' Period Description of Period Expenses Retirements (Deduct)_
e ACCUMULATED DEPRECIATION OF UTILITY PLANT:
Electric
$266,038
.$31,328
$ 5,981
$ 4'89
$ 29'1,8 74' 155 42 27 1
171 Steam 229 7
2 234 Water Totals
$266,422_
$31,377(a)
$ 1 010
$ 490(b), $_292 ; 279 ACCUMULATED AMORTIZATION OF NUCLEAR FUEL 6,628_
$ 2,257(c)
$ 1,532
$ 7,353 OF OTl!ER. PHYSICAL PROPERTY 45 2
(1)
' 4j ACCUMUI.ATED DEPRECIATION Reconciliation to depreciation expense in consolh.ited statement of income:
(a)
$31,377 Total, per Column C Cost of removal (less salvage) charged directly 1,172 to depreciation expense
.I
$32,549 Total (b)' Other changes:
Charged to other accounts
$302 188 Miscellaneous Total
$g 4
.(c)
See Note 1 to Consolidated Financial Statements.
e l
S-3
i, PENNSYLVANIA ELECTRIC COMPANY cnd Subsidiary Companies SCl!EDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT for the year ended December 31, 1976 (In Thousands) r r
Column A Column B Column C Column D Colu:dn E Column F Balance Additions Other
- Balance at Charged to Changes at, Beginning Costs and Add End Description of Period Expenses Retirements (Deduct) of' Period ACCUMULATED DEPRSCIATION OF UTILITY PLANT:
Electric
$242,339
$29,604
$ 6,424
$ 519 '
$266,038 -
Steam 133 41 19
. 155 Water 221 8
229
. $266',422 Totals
$242,693
$29,653
$ 6,443
$ 519(a)
ACCUMULATED AMORTIZATION 0F NUCLEAR FUEL
$ 5,043
$_ 2,268 (b) 684 1
6,628,
~
ACCUMULATED DEPRACIATION 0F OT!!ER PliYSICAL PROPERTY 47 1
(3)-
45-(c),Other changes:
Charged to other accounts
$301 Miscellaneous 218 Total
$519 (b)
See Note 1 to Consolidated Financial Statements.
e e
S-4
REPLACEMENT COST DATA (UNAUDITED)
The following data compare investment in.. utility plant in service (exclusive of nuclear fuel) as shown on the balance sheets of the Cempany at December 31,19 77 and 19 76 wi th the estimated cost to replace s u ch p l a n't '
at those dates, at prices in effect in late 19 77 and 1976. They also o
compare the related accumulated depreciation as shown on such balance sheets with the amounts that would have been provided had past depreciation accruals been determined on the basis of such replacement costs:
(In Millions)-
e 1977 Accual Estimated Historical Replacement Cost Cost Utility plant in service (exclusive of nuclear fuel):
Subjcct to replacement cost disclosure
$1,239
$2, 785 Included at historic cost - land 26 26 Totals 1,265 2,811 l.c s s, accumulated depreciation 292 6 71 Net utility plant in service (exclusive of nuclear fuel)
$ 9 73
$2,140
~.
=
(In Millions) 1976 Actual Estimated llistorical Replacement Cost Cost Utility plant in service
~
(exclusive of nuclear fuel):
Subject to replacement cost disclosure
$1,069
$2,377-Included at historic cost - land 25 25 Totals 1,094 2,402 Less, accumulated depreciation 266 596-Net utility plant in service (exclusive of nuclear fuel)
$ 828
$1,806 Nuclear fuel is excluded from the foregoing replacement cost data since the Company has a comprehensive energy adjustment clause under which in-creases in nuclear fuel costs would be charged to customers.
A substantial portion of the Company's existing mix of generating facilities was installed prior to 1973 when relative generation costs and.in-creasing environmental restrictions justified substantial reliance upon oil and natural gas-fired generation.
Total revenue requirements (including ec;t of fuel) for new generation in the Company's service area and the need to provide diversity of fuel supply result in plans for the Company to in-stall additional generating equipment to provide approximately 10% of its energy by oil-fired and hydroelectric generation and the balance by approxi-mately equal amount s of nuclear and coal-fired generation. Present forecasts of fuel supply availability and prices indicate that this approximate mi-would result in the lowest overall revenue requirements.
S-5 W
=
n
s In developing the replacement cost estimates, it was assumed that the existing system would be replaced b'y a system which would result in the.above energy mix.
A substantial portion of the Company's transmission and dis' tribution plant investment incorporates recent technological developments, and the replacement cost estimates do not involve anticipations of major changes in the mix of such facilities.
The gross replacement cost estimates for generating plant have been derived primarily on the basis of current construction cost estimates per kilowatt for each type of generating capacity based on the expected Unit, size, engineering design and current environmental requirements for each
^
type of capacity as of December 31,19 77 and 19 76.
The gross replac.ement J
cost estimates for transmission and distribution facilities and general plant have been -developed on the basis of standard industry or company indices applied to the original cost of such facilities and do not assu'me that replacement would require the substitution of underground for overhead facilities.
The accumulated depreciation reficcted in the replacement cost es-timates was derived by classifying replacement cost assets to the' lowest functional level for which historical cost depreciation records are main.
tained and then applying to the replacement cost amounts the historical' ratios of accuuulated depreciation to cost.
The following figures compare depreciation expense as shown in the Statements of Income of the Company for the years ended December 31,.1977 and 1976 with the depreciation expense that would have been computed on the basis of the estimated average replacement cost of depreciable plant applying depreciation rates currently in ef fect :
(In Millions)
Actual Estimated Historical Replacement Cost Cost Depreciation expense:
1977
$33
$ 74 197b 30 65 The Company cautions that replacement of existing plant will take place over many years. The larger unit sizes and newer technological developments applicable to such plant and the change in fuel mix discussed above should enable the Company to reduce operating expenses (mainly fuel costs) by amounts sufficient to of fset in substantial part the increase ~ in depreciation expense required by such replacement and thus moderate the increases in total charges to customers that are expected to be required as a result of such replacement.
While the Company has a comprehensive energy adjustment clause under 1
which the anticipated energy cost' savings would automatically be avail-able to customers, the Company believes that the ratemaking process should be influenced by changes in total charges to customers and should recognize, wi'S reasonable promptness, the increased depreciation charges and return on the required additional investment which would make such anticipated energy cost savings possible.
S-6
(
j r
=
- ~ = -
_.,-m A,
j.' ( De% i
\\Lt-The Company also cautions th a t replacemen,t cout is not necessarily tlie-current value of existing utility plant.
Replacement cost is an estimate" of the cost that would be incurred if such assets were replaced at Decembe'r,'
31, 1977 and 1976. Under t,he present ratemaking procedures to which the a
Company is subject, the di f ference between historic and replacement cost of net utility plant ir.v e s t me n t does not represent additional book o
value for common stock; instead, it indicates the capital funds (in c:: cess of booked depreciation and other prior capital provisions) that may of have to be provided to replace existing service capacity of the plant the Company.
Such capital funds would be supplied from the conventional sources of utility financing.
The Company believes that the difference between depreciation expense based on historic cost and depreciation expense based on estimated replace-ment cost (which difference is not deductible in determining income tax expense) is not an additional amount of depreciation expense which may properly be applied as an adjustment to financial statements prepared on a historic cost basis. Rather it is one theoretical measure of the investments which the Conpany would be making in the future to replace its existing utility p' :nt (assuming no growth in demands for service and no. fur.ther inflation in costs).
Replacement cost data with respect to materials and supplies for con-struction and operation, excluding fuel, have not been included because they are not material.
The foregoing replacement cost information is furnished pursuant to re-quirements of the Securities and Exchange Commission, which were announced 190.
In that Release, the in the Commission's Accounting Series Release No.
Cornission caut ioned inves tors and analysts against " simplistic use" of re-placement cost information.
In issuing that warning, the Commission stated:.
"***(The Commission) intentionally determined not to require the dis-closure of the ef fect on net income of calculating cost of sales and depreciation on a current replacement cost basis, both because there are substantial theoretical problems in determining an income effect and because it did not believe that users should be encouraged to convert the data into a single revised net income figure.
The data are not designed to be a simpic road map to the determination of 'true income'.
In addition, investors must understand that due to the subjective judgments and the many different specific factual ci-cum-fully comparabic among companies involved, the data will not be stances and will be subject to errors of estimation."
-~,
,.