ML20195C612

Pennsylvania Power Co 1987 Annual Rept

ML20195C612
Person / Time
Site:	Beaver Valley
Issue date:	12/31/1987
From:	Cole A, Rogers J PENNSYLVANIA POWER CO.
To:
Shared Package
ML20195C529	List: ML20195C524 ML20195C612 ML20195C626 ML20195C644
References
NUDOCS 8806220238
Download: ML20195C612 (28)

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• -^ PENN POWER w

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l Financialliighlights l'or the Years Ended llecember 31.

1957 193*i

('hange (in \\lilliono Kilowatt flour Sab

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Operating l'evenue3

$2312

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546 6

545, FuelEslen-e 55.1 117.o

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( eratine Inninie 1 11. 0 Sl.2 - 10. l' ; Allow ance for l'und-lied I)uring ('on. t ructio.. Net 23.-l DU; ei. 7<; 337 e + Intere-t Esl* :. e 11.2 12.7 - : U ;' ' $34 3 Net inn'me 37.0 11.7 - l ei. o< < Ear. tin e-on ('<,n:n nin 81ock eti.5 .3 - 2i ui'; ~ 1)i;idende on l'apital St ot E $ b.h $ ';7.2 + If; ('apital Espeiol;ture.- l'on-t ructisin of Faellitie- $ 51.5 $ 31.0 Ntic! car Fuel 5.4

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$ til.2 e eil.ii - o.79 Ir. terr.ally t ienerated ('a-h 27,9 l-... -.ai.2'r . etIl!1afring dettiilies j.N 1 10 3. !* ) nonen on au. rage n,mn>en byWIl) !I.74 11 l# r 1 1 l <-._w. ,,, ~ _, - - - -,.., - - - - - ..,,------,,--,,.n.wn,., sm, ww

Message to Stockholders l Indutrial sn!a s jaaw% shle ntial a nd comnu rchnt sala llulk Pouvr Sales climb to r, cont u n Is In !!b7, sales to other utilities climtel 5.2 percent. Since i Perry ( %tI in op, mti,m Compro "mr in a pos, tion to !!M the Ohio Edison System has ken aggrtwive in the bulk n p. 3t co31 n corecy, power sales market. A long-term bulk pmer sales agreement . Sou t/a r" wrWre un a 1,lonmve.ht s u nfold. with I'otomac Electric l'ouer Company al'EPCOI that was Refimmring to,n rs Co" p* A d. M ar vu//'erry I' nit 1 announced in January 1937 became effective in June. Under in te n 3 r..rpi o, s d4 6 en J. this agreement, l'enn I'ower and Ohio Edi on will rell appnm imately 50 billion kilowatt-hours to PEPCO, pnniucing $150 lletail Sales Climb million in average annual revenue, of w hich Penn l'ouer will Signi0 cam gains in a!! markets increa ed n-tai! sa!c3 1.7 per-realize an aserage of $11 million annually. cent for the year. An encouraging M 1 creent rise in inihbtrial -ales c an le attributed to new co-tomers and ewan3 ions, in Net income lleclined w hich the CompanyV 3pecial incentis e rate-playist a part, arni Net income declined in lim 7 by $7.1 nullion, or 10 percent, increa3ed onfers for 3 teel and other prnluct3 manufacturnl in becau-e of -everal factors. the area. In, July, the Pennsylvania Publie Utility Commi~ ion fl'PUQ l.a3t April, Sharon Steel, our large>t indu-t rial ca-tomer, took into cen,ideration the effect of the PEPCO sales agreement 1%l for Chapter 11 bankmptcy protection; de-pite reorganiza-and the Tax l'efonn Act of 1166. There considerations, along tion proceedings. kilou at t-ho -ale-t o t h i< cus t onm r increa-ed. with a PPCC deci+ ion to hmer the Company's a!! owed rate of ihlk fa ongoing -ervice to t, i3 cu3tomer are being paid on a return on common njuity, resulted in a $13 million reduction current han in retail rate 3. The new rates were the lowest since IN. ('ontinaed grouth uit hin the Co m pa ny'- service area, in addition, an ( >ctober !!n? decision by the Supreme Court particularly in tht southern portion, led to recon! Lilou att-hour of Penn9 tania res ersal PPCC and low er court th ci3 ion <, and 1 sale ~ to commercial and resdential cu tomer'.1: ate ineentis e3 di allowed our recos cry of the co3t3 of four nuclear units for both commere,al and nmidential customers enahM! the canceint in !!bn. The decision'- impact w as a net w rite off of Company to be competitise in the marketp! ace. Sale to com. $7.3 million for the y ear. Inercihl cu-tomt rsjumped 11 percent, u hile ales to re-idential A slight increve in operating and maintenance expense, u a-cu-tomer-climbed 1.2 percent w h n comparni to the pres jou3 off et by reduction < in fuel and related costs As a n+ ult, total par. A recon! De resalential heat pump in-tallatime m Itn7 operating exlen-e, including taw, w ere dou n $1.7 million. repn-ent a 221 percent increa,e comparni to t he previou-During the past tu oyears, we eserci ed ouroptien to rnleem year. Each heat pump repn~ ente an addition of approximately $m million in long term debt, $15 nulhon of u hich n a3 redeemed loJa o ki!"u att hour-in electric sales in lin7. This debt u a replaced with lou er rate long-term debt. A -ummer heat u ns e helped boo-t < air 3 to residential and re uiting in a $2.2 nullion reduction in inten+t on long-term commercial cu-tomers, and on July 21, pro luced a load peak debt for the Company in lik7. The Company al-o deferred reconl of dll n o kilow att3 interest expen-e-attributed to the Compann investment in Perry l' nit 1-and will reek recowry of these deferrals in a Growth Within Company's Sor ice Area future rate ca3e. Penn Poui ri economic dew!"pment rider to indu3t rial rate 3 encourage, mdet rics to locate a ithin our ren ice area and pro Perry Unit I in full Operation side-incentis e< for esi ting indu-tries to expann. In !!o7, four On November IN Unit 1 at the Perry Nuclear Power Plant new con panies and three exi-ting compar.!c3 qualified ar.d began operating commercially. receiwd rpecial rates under th rider. Thirtyeis companic3 The con-truction of the Perry Plant by the Central Area bas e beneGtnl from the r; der -ince it we first offered in !!al. Power Coordination Group <CAPCO constituted the large-t re-ulting in more than lp o r.ew job-part of the CompanyN construction activities in recent years. Commential and residential grow th i taking place in the in !!NT, Penn Power spent $515 million for its construction -outhern portion of the -er icc arca notably in Cranherry Town-pregram. During the la315 year., the Company 3 pent M12 ship. UranMTy, a 25 muare-mile area north of Pitt-burgh, has milhon for construction. With Perry l' nit I completed, the beconm ths fa-te-t-growing te n-hip in Pem.,ylvania. In fact, Company has budgeted $21.2 million for 19e construction, the The Wal! Stn e t,lournal reported that Cranberry i-the tbrd low est amount since the early 3es entie3. Additions and improw-fa-test-growing town 3 hip in the nation. 8ince l>n, Uranberryi ment-are estimated at $110.2 million for the lh e, war }vriod population ha, grow n n. arly 32 percent. Crantwrry' proqmnt) 19v through 1992. has already fueled grow th in surrounding communitie-that we Construction of Perry Unit 2 was su3 pended in 194 Under 3t rye, pri6mi3ing TWW !Darket oji}Wrlunities review are variinus septions [dir its future, inClWiing ru-jonding In 19G, w e announced a 5-year plan to inen a-e letad market coin-tructisin indet',nitely, resuming work on the Unit and term-sale-The plan cal!cd for additional annual sales of 115 million inating the unit, kilowatt hours. In lio?, Penn Pou t r exceeded its ta g+ t for the r thini con ccutiw year, with new connections representing a I crision Pending on Iteemering Perry Costs pote ntial increa e of $6 9 milhon in annual no enuc3 in June, the PPUC denied the Compann request to keep ?

m = PENN POWI R t I it< Mn.9 million retail rate increa3e requent ifiled in June !!o61 en hohl, pendine the commercial operation of Perry I!mt 1. We sought the extension to avert a delay in cost recovery and to avoid a dup!icate filing. The following month, the PPlT denied our reque3t to include Perry Unit 1 in ba<e rates because the unit was not in comm(reial operation within the time frame associated with the rate ca-e. In Augu t, we renled with the PPlT >eeking to increa3e annual revenues by N..) million, phased in over four year 3 The rate increase reque3ted in this ] current rate case reflect 3 the CompanyN $W2 mi! lion inve-tment in Perry Unit 1, as w cll as the operating co3t.- associat ed u ith t he unit. With Perry Unit I now 3enir.g the electrical needs of our cu -t ome r3, there will be no need for the PPUU to delay further i its con-ideration of our reque3t to include the unit in rate ha-e. The PPUU uill decide in early Slay on our htte3t request. ELECTRIC PLANT Employ ees C.ommitted to Safety and Senice CONSTRUCTION EXPENDITURES ~ During 1187, bot h the Pean 3ylvania Electric A.--ociation and UMoomP the Edi-on Electrie Institute cited Penn Power for its <afety achie\\ ement 8. In addition to bemg committed to 3afety, employee are gdy" 581 3 sgog committed to providing our customers with the he3t po-shm 3el'Vice. I n t sur annua} reshlerd;al cu-t(@er sitri ey, l'q'3]Mindent-e\\pt e--ed a high le\\ el of Oc ahOdence in t he 3ers ice w e ppng gde, uith M percent ratine Penn Power escrilent or gmL l't nn } \\iWt l'.11-emp!'i) t'em a!H1 cu-It>Nern tl*pelher Sulinirt the l'rojret 1:EM'll liard3 hip Fund that provide < emergency t fierCv grant s tai a33i-t needy fanuH.4 u ith t heir u inter energy ~ SM 0 WS - bill l ymelh. ('U-tome" contact emldisyees partic!l> ate in the "Gatcheeper Program" t hat help-place su:reralde chlerly [M r.-W - ifl t <iu rh U lt h a-3 5-tance agencies We ci tan cral our employ ee3 for their ded! cation on the job alvl th>-tr in\\ td\\ emt nt in tht' Usernunity. The fut uri de;* nils n them -t renct h. lone a tra ldion at Pt nn Pov.t r. IM 2 / M/ 4 CJ 4~*/ i t'ha!rinan of the lh6ani l l'lV-b le n t j Neu Ca-t Ir. I't n!;-)!\\ af.'.a .gq.;g g ggg y y j )lart h %, ] !i'3 dc3 Chrd Leases i a l 3 i ,._,_--_.w

Operating Statistics j 1 19s7 19'6 l!W5 1941 1933 llevenue from Electrie Sales tThous,mda: !!esidential $ 74,615 $ 75,751 $ 71,316 8 69,1:t1 $ 63,991 Conuncreial 10,209 10,772

9.266 35,512 36,311 Indust rial 69,95x 75,923 77,N G 77,210 61,959 Other 6,611 6 982 6,916 6.!* LI 6,9 s9 Subtotal 191,3td 199,12*

lik,:Iol 19.615 169,7M Sales to l'tilities 18,12.0 15.15i 20,125 11,721 3.306 -.215.126.. -.. $2iG,569 $ 178 J.i>9 Total ..$_2_09,513 $211,wl I es enue from Electric Sales 'e I esidential 35.09 13.3'i II.o'i 31.o'4 15.9'i Commercial 19.2 19.9 13.0 17.5 20.7 Indu< trial 33.4 35.3 35.6 37.9 al.s (Ither 3.2 I.2 3.2 3.1 3.9 Subtotal 91.1 92 5 W.3 92 3 95.3 Sales to l'tilities 5.6 7.2 9.2 7.2 1.7 Total Im.v4 Im.o'; Im.o'; 1m.oq 1m.oq

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-== Kilow at t.llour Sales ( 31illionM: 1:esidential. !*;1.3 022.2 391.3 Nio.7 376.0 Commercial 627,8 597.5 M5.5 S ix..l Sw9.5 Indu tnal 1,717.5 1,667.3 1,705.9 1,519.7 1,627.:1 Other 126.7 122.0 1212 125.9 123.7 Sub tal 3,163.3 3,309.5 3.21* L 5 3,114.7 3,216.5 Sale-to Utihties 719.0 6NL6 Nei.1 593.:1 329.o Tot al 1,132.3 3,993.1 4,139.6 1,013.0 3,515.5 Cu tomer> Sers ed at December 31: I llesidential 115,793 111,616 113,697 113 36x 112,768 Commercial 14,261 13,1C) 13,7th 1:lf,ol 13,474 Ind'i-t rial 273 27% "wa Ow5 Int Other 112 135 131 124 129 Total 130,169 12s,9s2 127,ss2 127,3x2 126,175

====~ !!esidential Custemer Averages: Averaec Kw h I'3ed er I:e<idential Customer 3,357 3,o91 ,, w > ,,sst 7.3n t l As crage l' rice per Ku h.ltesidential tCentM 7,77 N.19 3.31 7.76 7.30 Kilow att-llours Generated (.\\lithono. 4,197.2 3,th 1.012.9 -1,i n LI. 5 3,563.7 Peak Load t.ilegaw attM 611 5 17 569 59. .67 Co3t of Coal per 31ilhon IITl' 1.31 1.10 1.50 1.50 1.57 Generation Capability: Coal 74.6 9 30.2', ...5 ...5 ...9 Oil. 2.s 3.0 6.I 6.I 6.1 Nuclear 22.6 16.s 16.2 16.2 16.2 Total 100.09 loo.o's le n to'; Im.oq l oo.o'i Source-of Elect rie Generation: Coal 75.O'i 75.79 7:5. %' 79.39 77.19 i Nuclear 25.0 21.: 26.2 20,7 22.9 Total 100.09 100.0 9 Im.09 l oo.o'.4 loo.o't . - - = = x -- - - = _ -- = = - Numla r of Emplo. sees at December 31 1,725 -a =- 1,771 1,7 W 1,523 1,N s

.-- _

4

.- --._~ -.._ l l A ~.. D-PENN POWER Selected Financial Data l l i l 1937 19mi 1935 19st 1953 (t hdlars in Thousanda Operating llevenues $ 223.197 $ 2:11,' ra l 8 2 % 206 $218.501 $195,201 O vrating Income _$_ 4 M 91 1 {l._151 $ j3.51_1 $ 41,519 $ 43,97] l Net income til $ 37.591 -11.740 $ 46,593 $ 15,101 $ 31,313 Earnine on Common Stwk til - $ 26.511 -8_ u.529 _. $ hi,576 $ 36 -139 $ 27,017 _ = = x.= Cash Diviilend< en ( ommon Stock 8 27,676 $ 25dm 8 23#>o $ 20.M2 $ 19.203 ) i Total As-ets a: December al $ 979,890 $ !*15,0 u $ 961.735 $331.119 $302,w3 l I!tility Iht. $ 1,121,765 $1,iwi3,719 41.012,057 $930,510 $x37,t o l Deprecia'. ion 1:ncrve 2:b,0ll 210,103 192,521 173.05s 15s,715 Net l'tdity I'! ant $ Nd,751 $ 353.611 $ x19,533 $757,152 $6TM,2'9 Prole tv Ad litions $ 61,197 $ 61,625 $ t a l.320 $ 95.3<1 $ NI UT I.ong-Ti rm ohligations -50.2_77 8 51,45; _ 51,623 ...-816,M6 $ 57,192 CAPITAI.lZATION: Common 6ckholder'- Equity $ 278,510 $ 279,672 8 260,131 $217,otai $219,171 Preferred beh-Not SLhjt'Ct to blandd!ry IIedt mjat on ll,lo5 } } jh 6 ll,lM 0 I I,'.N O ll ja 0 Sub;ect to bi:c latory I:edempn,a 63,112 69.362 70,G:2 56,562 47,171 l ng-Term Drht 372,391 357,111 379.123 317,764 32.1.:Su Totai Cap tahmtion $ 760,914 4 T is,os .< 751,326 $661, :27 $c;2,213 (' APITA LIX ATh >N I: ATII & Conunon StocMAl-r's Eipi ty 36.67

7.4';

1.6'; 37.1, 31.7', Pre fe rred S t oo k - Not Suhjer! to )l:dida'or} liedemption d.a .ji .),6 6.3 0.6 NUIdiett til bla i!.lti rY } Mlrtnidis rl: 9.0 9.3 9 -l .%.. ) s..) l I on[ Term D1 ht ~ 4 s.9 4... 4 -1 !!.9 51.2 l i T...al t 'alta:iz tiim 1( u t.i t'i li n u r; li n u r ; limi t e; li n i.i r ; i ) e l 6 I e g k at a l( f+'. 1 i} t f * \\. '41 t'C*1Q Ci.' k t ' Fl Q 4k Uf*I\\ k of com a -on.ted u n h p, ned m s l. ar un t u bch u rre term:nmed in 19'n reruh us m a.5..:.oo# o rnlactmn m r, ' h.come and carm:2-on ci mmon u nd. Nec Not r 19-1 iu lud. - a r.onud d. preciation r-en e adjus m nt of $6.3mp o u ha nwn a-rd rs ' in-me al cari nv on c..m: o', s t oc k. t i I i i S i

Managemet:Es Discussion and Analysis of Results of O >crations and Financial Condition lle3ults of operations ' 6p. ratine n -uh - for P.W7 u en unpact o f by a n cent 9:preme l'o Irt of Pe! ' -yh.mu nd nc w ith re-pt et t o t b na ou r ', of cos for wir nw. ar c. ' wanne m J. u hh h u.-n. tern nateil e Uno, fn un de ( ' - Pr! 33ha; i l%!,e l't ihty ('omm:- r - r:1 ! } 'l'[l ') j a n i s s ' i ' l - t i' e ' r* + - t i* N: te : ) tlc n -u?ir;e u r!'e i'ff ;ual l1115- ! j" --i 0 D 'Iu '.t !- t i s cd-l $ >r f I j an'i -1} n ct,\\ t n9 ] (l a aia3ini ;q,finti!!g n st M e - t t he r e a t s l i' a s or.e t a \\t - I ', $2,.1t 381,1131, @, iil,d H h t a! a l i I.Il 91,l 8 h l. lht t.' t n -- peci n ci. a n 1 i r,t h-1-e.1 o' her n d en -t r \\ pi me In 8 D M,a 0 1 Li-um m a l.! ti oi approximate;y 3 '.m u n u u ntti n of! o car!.ier in t he 3 car i a re - W.!.,f ' ulan!- n cently pre-cr: si in t he l'in.ua cd Ai co c a me St amlani-1;.iani (l'.\\Slil i-ce.h, eu-- ! he!"U i The shove 'o una fn,m the-+ tuo eser t-t otah d approdmate! $ s.:H v o i a ' I w a-n~ p. -ihte 'or d. 20 !r - det n a-i m.. m cre on c, un m sot k m Mu! u L. n c, in l r.t h a i ' P, e -., s T! c m: decn a-c m carn:n e. s 1.n - u k for i x. i u ten c14 li } '. : n,l t. ! P. I' > u a3 j '! i'n! ' !y utir;}iu'alb t v s e\\q!' .; Pn3 u h"!. h-n < 'Le ( < apar:- m t o 19-ii ( )n.l a h 1, 19 > t he d ' m pa m -h pp.21 : a h. e U.h,u an '4.. l ' -ed d..r. t r m.\\1 l'In a n lai,. Pern I'm'. 2 u.not hat io (-*, ' Ni. O s'. 't ii in e !! I .\\ } 'l 'l H. ' i i .t r;! K. s ol al'j r \\'. i ma'.. !) N 'no o' m.. a n : n e - n 19 J>.\\.h %o ! a re t n 'a. h: to o d,r ('.\\l't't) i..n.l a: a c-f..r Uniir l "rio.1 l he, 'l [, .Tl.tli-I.c hl l .a h l i # ft

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.A_. PENN POWER -D The reduction in ha-e rates durine Ith7 redect a PPlT nite order effectis e.luly 17. Ito7, w hich is designed to reduce the Company - annual o: nitir.e res e nue - by appnaimately $ 13.m u '). In addition, a 3ctilement aercena nt ua, adopted l by the PPUC en Septe mber 5,1991. u herch, the Company I ha been makine refunds to its cu 'omer-in. nnection u;th I ct rtain ino rrne ta\\e-n'irmahZed in }irh er } ears. Ihr C[Iert of thi-.ttlernent.lecrea3e<l operatii.e revenu ind inci>nie taxes h3 i.h y m mal $7.20iu m, re-pectis ely, and increa-ed ot her int e re3' ex p. n-e by $7aym ih: ring IN. resultine in no matenal effed to net mcome for 194. ( M her revenue 3 redecta redue' on anil eventual e; minati.m of a capacity -a'e to (>hio EJron in m licaver VaHey Unit I d inng 19 7. The c haneo in furl o-ts dunng t he la-t t u o ycar-n a att ribu' aNe 'o the fokuine factor-: l>7 19 4 !!n Tlillionu lle-rea-. d prw, - $ < L24 $'hm (l ar.ee in mb f[U+lcarn-Umt,l }p I).I I I.!It re!me in r.e'. drIe Freil bit i 0 -t-19.9' 11.1) Net i icri a-e ( <lecriei-> $rII.9i R x.1 Itrcha-ed ami mierchanei <l pou. r a.crea-ed m 19*7 oier 19 6 pn napa:iy, a resa:t of the pun ha-e of a portion of (les elatal N E;ed ric li:s : e:.e Compan - l'eny I lut I capace> a al t he / cffect of the ca p; -a:e to tOo I:di-on !a i~re h n of w hwh / u..- recog o red a-a cre.ht to ira rcharee pow er ex pen-el 7 referred t o id " d e..\\ redlcD ! n el erg) req 1. rrna r. - m 19% ri -ultirg fro r adanat in e'ectric -ales, was j.r!raardV n -poti- -iNe f, r 11., d.-crea-e m purchau d and mt rehanced pow er for 194 w hen c. np; n41 to 19G TI;e n in; nt Trid! '-]' era'li.fi s.f } 't n'y l ) i } in Nt A em!* r 19-7 cont nhum! 'o tl e inen.m - in ot}a r ope rat ion, maa tenani. - - ~ ~ ~ ~ ~ and deprecLtion i sper -e-dur;ng 19'T The ails er-e i :fect of / the-r old;t o nal expen. - pnor t. n i owry thn ach emet ric i I" 6 ' e - ud-u in'a u ha* 8 3 + I li) 3 l'l'll' acn iu!:' ?:J tinier w hh h } *'rmit - II e ( h inij ht!.) ist I !" ft r l't !Ty I' nit I n+ - 'inti[t}cir n ci Jnit h a in l a'e-i-ce N i'+- 2 8 ( M I.e r t aj '+ rat i' q1 t \\l'eli-e, in p.'N ft Ct t t etl c rt il.!- iaf $2,94 h V N N ii}'i. t ai II.e n t n. actis e tid!];.g i ella r ( '.\\ l'( 1 l ci,mp: r. e-re ft rre 15 ab. a r Thi alp-t n + nt u a-pr.maril3 re-pe' yNe f~r t he nerea-. in 19" e x pe n-. 3 1;- u f.t

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-kg ~9 19"; aho reCett a M.m y m red uct -n :n p.1 - on co '- re-line hp$2 . L a u. h. fn m M.c ( 'om pa- - adop'oon m 19Cf a ne a p. - rn ac' < in'u.e 'y 99x%.y 5 /. +- w,4 1 -- -t a!.< hinl i-o,I li) t he I'.\\ S l l a pe - ~ s .\\- docu--.-d.d m, ot h, r int ome for 19 7 w a-n d we I hs a u rne n:f re- " :.e from t he Supn me Court de ci-on 11 e ( h'inj uny '* tenn t at a <n i f four nue:e ar g, f. erat :.e an? Tl e ad idio :.d u rJe e:Tural3onCerted iiother no. d..ru g 7

- -_~_ Miiiiingeiiieiit s nisctissioii iiiid Aiiiihsis <mnimuca, tLe firs q.a r'. r a n d n i int o : ) i ng -t ao hnl-pn. 10-. d upon earnu e for 1%7. t he ( ; re p..n3 u ou'd he penm%l, n -cnh d h3 'i e 1.\\ Sit ' n a h n,p.,e t !. of-ach I rop et o under o f ra no rteur unh ntme, to i -ue appn.sinia'ib I w' n,.v n e i l. - a n a u '. i,13 'ii he i st. 'iftlm [q( S;.".,i N ' ',1 N N i l n !. -{ l qd a m. Lt i t[ [,rst hu gt g,;g e } n i) 3 l-a d dn u l t w: !so i be o n '.,i d a ru il. pen d i f to n < os i r:. .ci n;'i res rat e of 115 hot u unbl ir ' treet t he n ipt nevnt - e,! na en:a - o f n.m cu- < e. rx m e - i La rt. r for t he i-rai! ol11 al preferred tis t To' al.\\ l'I 'I n. ' h.- !. n a-ed ou r il. la o 'uo u,n da ( in.\\u m'. 1+7 the ( 'o'o pay F.:v<l.m a ppla,' on u n h : Le prur.anb t e m n a n. -c deo tr on Nre upo uLh I'lT4 ' fo r en h.cn ec m e!n t ne ra'i u ta h i-d.- a ! 'o .\\lT l H ' 1 abJa ed r pt q.i:h I'. rr:, I % 1 AITi n ~ u m pr od uc approe a ch Aa. toop

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Tre inen.. -c s pn.pou d t. N phawd m ou-r , f I '. i r3 l'i 1. es er:d y or> r L d at an am et-di fenut durme ti.. plaw m n;4 ri < In'. n-e s p. 4 <hsnasd durma IV i ompan J t 19 u '. p, ni.d " i u!d 1." fo d3 rn ou n d by t Le i n.l of tLe fourt h 3 rar d.a. t o t Le n ih n.h !, f la c h ( ou p..n.h !.t. %. 11. i. H.c r tl, TI.s n.que -t ha hole-t he cos, i ua i,1 u ;t h I'erry l int 1..\\ i 19u;, iti Compun n 4 r e d S D.Dopu of h+e te no dek na e onier n i sp. i ted d.n me 'hi u i end quart r of le a t a h ca r r:. d a i. if., n e ama! 1 . n s rate of IM tlc fn t o f W. h mpt a - u a-p iri:au:. o % t in IM 7 hs the i -u a' i e m A;;u-til a n.o h i t h i :.d 5. ',5,t > H l.t h h l i nc % nn ih M u a h an a n'.al n.'i n ra'e ofto 1 r D.s..h al-on p n irrn d s t u L. i n evil m IW;i ser IX n Act w t Le n + ! cc -t e.[ .:).l.t. .. t } $ \\b j k M I,llq u >,,[ ).!, [ pri a ) ' g L, ;;; { },, [;., g.t }; i j 1.u' e r i i pig Thei 1.i'r u M r h e -t n n J;u..- h n i ' t o o i t o > c. r'. o 'r i u. n tSALES TO OTHER UTILITIES pri-- in - ,, s p.' r. - u r i a. th o m i a h,. a .i uunrtn.- r. [wNms of K+mm-hceeg. ! !..i (10 45 i [u!Q If s ilr i ilit i f ial t i-t - i.T natiii - la !,f,'- ir '.m/n.3 tr.. it-o!uf '.n.e n ' opati d t u ti. Q p 0~' u; . 1 o he n (, e t, < m t h. ( ; nym; - rat - 5 ('apit al l'.e nurres and 1.iquidih. s -,sM ' (, a p J. a n.[i.n mi ' - n ; P. W.. !. r !Le (.< ny. c -ii> s n itbin I.n t ra n. < a p.t al h a u - arol o.# ..o f'a ! u ci c a; pn s;; Jeh 0I})hHl hMi l is t r t },s. ', a - t [. \\,.., e ai-fla e n o p 3n n,e : - u i. re appn.d n.c. :. ' ">23 'n.v. t u b i a pp rm u o4 f D;7p op u u o p: n: b d h om cu. nu: nc-Tr e 19-x P A21 !r. ..n M00-p r. c nn. i l c. i t a; h o-e n y n r. ru - an c.iro nt h e' nn.a i d 6830 I, Sl;op o.ii o ie sc' n L g .,' i*. a r u. > JLti, d o .N u.!i 'i, .l. [,,, rt p q, f 6 n

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A___. PENN POWEH ~D 4 i Statements ofIncome l g l'or the Years Ended I)ecember 31, lih7 19'6 19s5 (In Thou and-) r i l' .-. 2. M.o2 I $ 235, l' W i S Operating l{es enues _$_22:I,197_ t)perating Expen es and Tases: Oj r ration - I'uel 55,100 Qi,1N ' 5',919 l'urcha3*41 and interchanced am t r. net 3,12w 7t*i 6,siio I Other operati.m exper res _4N.' l l. _._ 4 3.? l' lo.:;o:1 Total opera inn lini,772 11:1.621 It 9 U 01 31ainie nanu 13,977 1'.:;55 17.52* l'ron on for dej reciation t ul nne.1ization 22,517 21.:116 20,4: 1 t ;errral tase-11,91:1 11.*13 1:1,xti lh-fern,i l'erry Unit I co,13 ( N.te 2 r al 5551 inc. me t ase-15,*22 1:1.7: 2 2.;,905 Ti tal operating esp. n-e-aml tase-177,2i ni 131.37o Is!, tr2

0. 1 51,l'1

.ti,511 1)perating income 15,t 01her Income and I) eduction-E m an. e fir e.ia':y funit-u-e 1 during con-t ract ui 19.131 1 *,o7 s 17.15) .\\li-ci Haneou, net ( Note :; r t 9.2:il i 1,(;9 2,.,: ;6 ( Incom. tase3-creda 10,297 7,w70

7. 7.'.'

Totaii ti.er meon." an I ledaction-20[22-q7.737

27..M Total i ncome Gij,21s T s,911 s l.02.;

Net Interest: I r d e re-on bn.e term dela 15,79:l

!.

:97

O t t Intcre-t on nm : car far: old.ga:

,671

o77 1,193 lhfirkdl' err) l'n.t}.defe-I(N Mr21

( } :5G14 N!o,u nc. n rlerr a id f.:de - -d d arj e co -t ra t hr., ret 4 'lef<rredno me:ase-i9,216) n,1:9, r,191 ) litb r.rarre-t e s;w : 1,712 1.2GG 1t6 l l M i mit re

• 2w t;21 11,201 11, l';o

% t income '17,591 11,710 01,39:: l l' referred Stock l)is idend l!cquirement s Iloo<: 11,21I 10.017 l i ek(l! lIk% ll(I IINInI0III l N' ,.l s. .t .0I, I % l l tlc a, c i mi e :.,* N o a M pa rt of G -. -t a o 'o Imm H N a' erne: '- a re.. i l ] 4 i I i i i 9 t i

P 1 4 h l 6 l I 4 Italaiice Sheets Assets .\\t llecember 31, 19^7 lib'i t in Thousands) l'tility I'lant: In -en ice. it oneinal cost i Note $ 1,031,:107) $677,701 u L. --.\\ccuurd ited pros eion for depn.ciation $b,011 210, lus 7G,291 167,C! 'on-truction u ork m procre 4-- 4 l-:lcet ne plant ( Note 3i fti,62:1 'l*,237 Nac!rar fa ! 3:,N!7 37,671 1 lix,1GO

b,,97.s

_. _ _ _ _. -8NI,751 G 1,Gil 1 Other l'roperty and Ins e tments 1,2:19 911 ('urrent.\\ssets: ('a-h 19' 21-Temporary ca h ir a t.-t ract.t a'. ci. t, u ha h approx!rnate inarket s alae

• 50i l 17,( u n t I:ect a able--

l'u t onier-ile-- a( cuinu'at ed pr. i\\ i.-iii'i of 57:12.i n n l and $1169 #1, reslw t.t a ely, for uncol!cet th'e acco;ud-1 12,150 IG, As l'arent con:pany 11.9.;0 19.s79 ()t her 11.511 15,211 .\\lati nal and -aliphe, at as rive co-t - l'uel 12,727 9,112 <ither ..ow G,717 w l'repa) r,e nt. 2.370 1,1773 a f j T. i p.12 _9,i n ;o lieferred tharges: a lieferred farl eo t iNote si 1,1*;l 1,:G7 4 I l' rop. rty tau - 1,7' l 7tal l'i;ainortized co-t-of ternunat. d ron-;ruction pn.je4 t-I No'c li 1^ 11,5 9 ] !)eferred l'erry l' rut I co '- &te 2) ~.,2.' l ) tither 5,G l w T.::17, 1 ) 20y05 22,t G1 $ 979 sthi 8:= Gnu i 10

~ h l UL PENN POWER w \\ \\ r Capitalization and Liabilities At I)erember 31, !!IS7 !!Ni (in Thousands) ) Capitalitation (See Statements of Capitahzation r: Common tockhohler'3 equity $275,510 $27ti,ti?2 l're4rred stock-Not subject to man latory redemption 41 !ai5 11,tio5 Subiect to mandatory redt mption. 11%,142 titi,30.2 Lon;, term ilebt 372,::91 157,111 710,9 1 % 743,os! I,ung Term Obligations: Nucicar fuel r Note 6) ta,620

19,233 Capit al lea.-es ( Lt c 4 i 9,6'37 12.221 50,277 51,451 Current 1.iabilities:

Currently 1 ayah!c preferred -tm k, lor.eterm delit and Im.cterm obhgation-13,027 16.179 Ltc3 pay able to bank t Note Ti Account

• pay able -

l'arent company 4,363

1,41.

Other 33,!*;3

d,w; Accrued taxe-2,013 6,619

( A cc rueil int ere-t 9,519 9,276 (>ther l l,70si 12,$i9 30,156 36,377 1)eferred Credit <: Act umulated ileferred incon>e tase-11,719

17,617 Accumulated defet red ms e-tment tas credit.-

32,321 U,3+1s l'roperty taxe-4,751 Tial Other 9,661 7,171 Aw,509 79,249 Commitments, Guaranters and Contingencies t Lt. - 1 anil N $979,5!a l $' a in, Cd'i.1 The an ompanyine Lte-to Fmancial Stat. ment are an integral part of thc3e balance wheet, 11 y

l i I l l i Statements of Capitalization At ikcember 31, Ib7 19"i (In Thousando Common Stockhuhler's Equity : i Common nt. i. to par s alue, ei,Tn)y nsharu aut!w h l i 6,Du,in whan - out tan.img $1M,700 $19,700 Other 1s!-in t apital 212 212 lietantol earning- (Not e 5,a. 89,59% in,7'n Total common 3tudhohieri o siity 27*.510 - - _79.672-2 optional lh.h mption l' rice Numla r of share-Agettgate G at-t amlin g <In 19-7 19sn l'er Share Thou-a r s t-i l'rc ferred 8tock i Nue ab t. Cuma:atis e, $100 par va!a A ut horiznl - 1.p n el s hare > Not Sulje et to Mualatory 1:~de mp'.on: 1.24'n 4 M1 111.019 111,019 $lo2.9w1tc no $14,611 11.105 11.105 7Mupr; n yo l i s p io 103.27-104 47 12.27s l l,N io ll,wn .149.16', _ ling o_ - - - - -16.7-2 16 o lutno 1 1 cop u l o.l. Tr. li ci.20 Tmal n. t ubj et to j 1 ma r..a t ory l'olt lOl tt iun l]9,019 419,o lf f h l3.cIFl 4 1,9115 ll,9115 Subject to Man,latory i l Mit ftlitie t (Niste Ist f w 21';.lo rs; 17op o 175p n slo t 12.lo;y, 91.o ; 17p o 17,To i 11 m7 II.7m 311.616 151,591 lo129.lowJti 36,436

11312 15,1 5's 13 N,.15t m 1o n l uiy n 111,oTrlit ol Di,22%

is n l=p o lh.lcmptmn w it hm one y ear i t.22i o (1,297 Tot al -abject io rnb r.d at or,v re le '. l.! P 04 f2Lt.616 Il k *e9) $74.7j7 l'O,1 jj c[0,alij laing Term ikht INote T h: fir-t mor* gage bond, - 11 TM u e6 hte.! as erwe iMert -t rate, dac 177 t hrough IMr2. Tr, *'.o 765a 10.167 u iigMol as crave inti re t r:ite, due !?r.t3 t trough 11r*7 75.No 4o. M n

• 7#i w eichied as erage interi-t rate, due l!Ph {[pnggh pprj,

{ % g *,g f,g {g ) 9.ol'; n e ighteil as er ace mti re-t rate. due $ nl3 through $ n7 17.0w l s,1:M l 9 NPi u c!ghtml as trage inte re t ra'e, dac ? m W. 259 m) 25.1 m n l l eal f.r t mortoge 1 end-247,31s 2?>.2 41 , ikib1 I' 1 4. '* a ! H .I P [a 1*b' 7.467 w e ightnl as erage irJere-t rate, due 19e throuch IMC. 1,7 7,, 1,756 11 l*7 w ewhtm n erace ir. ten -t rate, due l&ed through Itr*7 17,o n; 17,o47 10317 w c:chted as erage intere-t rate, dae !!@ throuch ser2. y;, cog 2;,cy2 7.TM w e ightol as eracr ir tere-t rate. dae ? ni t hrough 9 n? 25.766 2/uTGi 9.7W w ochial aurace o tere-t rate. duc 2o13 thr.uch 2015

32. l N i 32.15o 1;1,411 131.411 Amount hi bl by Tru ice

' l_.c3 0

1. 2.221i Total -ccun,1 not e3 an.1 oN. gat nm 112.791 1.-t11 Cl I

N+ t unamort zed d. munt on debt an,I oth, r 1777) i v.11 !.ong.u i n debt dac u a h;n one y ar r5.4111 I3. 43 h I Totallong term debt a72..:91 ni,141 Tot al capshrat mn $7F i.94* $74.ost 1 The utompany.f g Note s to financial.Y atrmrt?- are an uJt gral }to't of the e t a's Int n*- 4 l \\ l l I2 l .I i

i; i 1 O. ~- PTNN POWER W 4 Statements of Retained Earnings For the Years Fnded l>ecember 31, 1987 ItNi 19*5 (in Thousand*) llalance at beginning of > ear $ tH), da $ NI,22i) $ 70,1N Net income 37,591 11,710 46,593 ) 128,:151 107,960 116,739 Ca3h disidends on common stock 27,G70 25,99^ W,5Go Cash dividend >n prefern d stock ___I leyj __1 Mo2 __ lo,m9 as,756

17,200 33,Ts;9

. --8 90.?.?. . $ N,22ij __ $ 39,i. - _'_t. - Italance at end of 3 ear (Note 5a) Statements of Capital Stock and Other Paid in Capital l* referred Stock Subject to Not Subject to M andat ory i Common Stock ilandatory liedemption 1(edemption I Other Number l'ar l' aid,In N u mber l'ar Number l'ar j of Shares Value Capital of Share,, Value of Shares Value l (1)ollarn in Thousand*) l 1:a!ance,,lanuary 1,19G 5,M a i.i a o $17G,700 $2m 119 o19 $ 11,ta t. .>.0, GIG Si7,iw;2 -l Sah ef 11.58Fi Sene-ll of f I' referred Stock 150,i n n i 15,i k u l Sinking l' mal i;edemption -

• 24'< Si rie3

( 5,t *

• h

( Si n h 11.in N S. nc-11 (1.o w ( l o'.o f 11 dam e,1)ecemler 31,19G 5,N* i.i n n 176,700 211 119,019 11,1

• G Il 1.Tes 71,1NI Sale of Comnv.n Stock i m ikal 12.i a "

Sinkinc fund I:edemptmn3-3.219 Series i S,i n a h (Ts u h .i ll.4 N f } Sene-I 8 2,!a;IT ) (Z41) l Italance, t h cembr 31,1"Ni G.C a l.i m a l l '.' 7m 212 119.019 11,1= 15 7t ni,591 To,G59 Smking Fund I;edeml ; ion-- j %,21', S. rie-( 5,l k h o 1581ii) __ _ 9756 ._. 7_97) (7 1 I 11.iare Se rie-4 It. dance, I)cci mbt i 31,1947 G,2 0,inni $_19,7i m i $212 419,019 $ 11,ia G G101,616 $G9,::G2 l l l Tite act,,miiariyirig.Nute s t,i Firiaticial Statenit iit * :iri ari irit egral iart iif tlii si state niciit s. l 13

Statements of Cash Flow I Y For the T ear, Ended lict ember 31. 19*7 19'6 19w5 iin 1 hou sando ()swratin g.h tis ities: Nethurrr,e $ ;;7,Tol $ 41,710 $ 44.Wt l'nrxi ul no u h it er.- i t h pn, nst o,n an.l ana rihon W.1*7 2N5?'

29. Nil ilefi rreil inn n e taxes Il.:LB 4.701 11,Ci In u. ' n xi.t ta x ( n41.t. r2 '

(l.nlli 5.119

3. " "i l'rou n.n fmr reu nue n f.; al 3.i rjl 7,p r,

.\\lb.u ar.w for cept 3 f aral u-c.i during con trus 6..n (19,1*ll iINHIN 117.47!! 14fe rn J ft. I co '. n, t 0;19 N 512 (l.Mih Wnte+ff of te e na,atuli.n t rade.n projitt-l H, 4 7'; liefern~l l'er n l' rat 1 i n 's M.'2246 Workb c raprtai apg l t M.r opir. vion-1,771-. 134 I: _ _ _ 'A l L : ca A pnis n h 41 In t ol ranon-14.617 N '.w i N '.t m l Hs idend l'a.s mr nt s: Umn m -m k. 27.676 25.im .'.:.:n i l'n fi n ol -M L l l.ON I l l,$ r2 log s 1 To' a!. a-h ae! I-d.s nh oi-

b.756

';7.:.m 1..69 hnaru ing h tnities: (

m..

...k 12p ni I'n f. n i d x 15p u i 1 o', N no ii. hi a,' 'a S t.;' W 5 l.'> & 5 r!'..h!, a n.! - x.:Cl 6.ra9 9.: 1s La e !.m en f no! h. hl m e s n.a '. i. i 1.3 12 11.!>=2 ht r U.. ou-(Soih 72.+ <91> j 11413 "O,7. ;u w9.9 9 No ca-h i h:, v n.n.ru ur m t &, 2 11 n tam t u.21 s i T. 'al ra d f ro : n. a Gn., o r e A 'n2 i *. iil wi,7 41 lh p.o .r P, f, n cd - m L 1.* i7 791 rm J I.. 6 o rt-d, 19.176 T2.a7-27,ra Is c n i m ol., p.n. a. - 9_77 7,77i 9,46 'l < t al ( A -nl f r i e FO 30.2~l b l,9 l} 7, ri l 2 e N. ' i a-t, u..; a b d D . a-,. i f., i f mu, 'e,,', 4.*11 <l63_7;n __.63.129 j i l Inse ting h tnities: 1 i 8 h l '11 l 'll$A { 1,. ihi p h f rfl.* - 9 e ,b l .\\!:ou :e o fmespt,f;. a a-mi harmc ci s n. ' il9.lwl) tlsuTsi (17.1;]i I k-f, rnsi iu. - 'au on aJ.w a e f., 18 Pill #U l't ld - [5 ' ~3 L [fe[ [ { - l] ! ji.![ t \\ t !.J l.!, ' :h b-;il f' a II.II) I, Cili n.l b) !

n. ' of.ii f, i t J t or i 6.7ofo i6,112; ss

,o l i ) i 'a p0 3h o f h is s., m - pg, nd 2, r.2 mi E. ;:2 ,r eum N. toma } %t . I f-r.r u. e e a1 o .'n-4'i,9 22-17 S t s ' 75.i ca i 'j Nt ! 1m n.rt - h ( n a - ' 1, i h a. I ta. i ' r.. t * $ (" $6I % )l,7 (i 61 $ li, ll' \\ .s t,s L;. 15.. is...n ; #1 e c Nos - N 1 r ..i ;'. .t'.an an a p.d pa rt. <f t t.. ' O. 1. i I i 14 l 1

_ _ _.. _ ~ _ l f i b 'I l I 4 .A,,,, i ~-- PENN POWER W k Statements of.Rwes l ) For the Years Ended licccmtwr 31. 19'I !!Ni 19 0 (In11uiu aivle a i I General Tases: i Stnte grow rt cept < $ d.fA 6 9.211 $NW ih al arnl ]w r. onal preperty 2320 1.74! 2 2>'J 5 tate rapital s'm k 1 G2 2.12' 2.WJ MLd secunty aral unercploy mer.t 1.ful 1.VJ 412 M:x e:laneou.- I.., l a,l .i Total gereral taw $14fid 414.'13 513.'11 I J l l'rai ion for income Tases: Currently jay b!e - [ Federal $ 2.Tal3 $ 2.741 $ 1. % 1 su State ...9 ....o i ..4 it'd tw Lul2 ].f s.G i k ferr.,l. r et r-ce t,-h w t - Fed rM 10.'21 7.114 10.1 % Rat 515 i2.71o) 1.129 i 11,:2 1.Tol 1 1.e;2.. -.1.014 ) _-5.11_9_ ( _ _. W Inus-tnwi t tas ered A n t < f amort aation w 4 2 T.tal pros i. m for in < m t a u-- $12.9 r2 41i.7. e 27,.m7 f

-

Income Statement ClaeificaOnn nf l'rmi inn for income Tases i open.t:r:e esp. !,e- $ 15.'22 fla 7 0 + 2.u r.G I e t r i:.. (I".2971 ( 7. * !m 47 7223 Abm ace 6.r h nvu d f a i :-ed .. ~. j darn e con in. i.n .m. x. ..I s. -,1 Tot.d pr a e. ion for nao Ne < l 4,7, 92, m; $ 12.9 r2 J Source nf li ferrid inenme Tuse-t E s ci of tas m r imk i.1 r, t.c n.. : t $1G.$i7 s#W-

• 4%1 A U.iss.a s't-f. T ' n Tros\\ t,I I.'a la U-hl tI anj g i

cu.* rm < n, a L c h !- ( r. d.ml t. p! r 7 177 -*7* y24 1)e ftn i d f... I co b ra t 275 4..;4 rb wi i l hn i reJ o. re

• m !.

. d na.m ar fuel u t M' 41,461, il.;715 T e nn.n.d ed co i n; ' t n prr ;i s t.- i 3.wTo r22 t t2 J'ros m in f <r res e: e a f and. r. ' (1.34 h

n i l'ro;

• rt., t as e 1.724 c,4 i tim li. 'i rn.l l' rn l'r.n 1 m '

l.Wi Abn tot ! a n tas d.. n al U t.12 h ? i - G rr) [ ir A a n!. ( I. *2' ' l t >] >. Fa' 5 _. _I_2 d 1,1( 47,1 1 f 4121 (iib r.fa Ni t J. f< rn d u ,.t.a.- $11.:a _ 1 In t 311.c;, I flerunriliatinn of Feth ral Im ome 'I as F. spen e at f Statutors !! ale to Total l'rns i ion for im ome Tase-i it.ok u5c. e he foi.. pr..s i-i, i f a a Go. 4fi

• 17,

(TEGm e nac-i D I. II !

• 27 % 4 NU 977 j

Fi dt rd rx t as r s p. i1 'a' t .,r) ra e i ( lu n a-t-i n du -,n i tau - n e fm 1 a j f.i e h i-et! d er ! A'l. M a l d e f..F i i g f 4 ci e t n.ct b.n. n b h d,4 - n'n 2. 4 t aso! dc hn ief'io (IJ J S I 6 4- ".lc' ( *. 4 r,,,'I l ? ! a' e n.i. e. ' a u - ?. of I ed( n.l un r e t a s b. v. 314 !!*li 2.2,- l An.c. ..n of ms e-t n:. ni tas t n d.t i1,743' t 1,4'J i i ). ~. M l E se. - of1.keuitasdi.;re4'a' n r.. u t 1.nJa 7 'T 427 l 1:cu rs d of ta u s d. fen i d a. pn.r y c.o - < N 'i l ' + 2. 41G i 7%' .7. h i7 tit. r.n.' i1-- Ti a i l i n i-. r. ' t t is - 412. '" C

• 14. 7 - >

$ 2.'.. ' 7 l m ue.n e. e n e N+ m i s, oa: m. m, s o c a: p.o t f s - s u i 15 l l

j j Notes to Financial Statements x tr . o ) 1 1 1 (11 Suminary of.significant Arrounting Iblic les: on the !!alance Sheet under utihty plant at De cember 31,157, The Company a u houy ow ned -uh-i har) of (lhin Ednun include the felbming: Comp;my iEih3 on, fe'u > the an.cntme 1 'Heies and practice-i i pn-crilel by the ikn 3h unia Pub:ic l'tihty Commi I and the [,t dend Etrig.\\ l,eguhitfiry (imnaob >H 1[.-sion1PPID I tiht) h t umulated f eitht rut 16een ('oluiu n t 't I [,.13,1 l unt t.rm i ion r..r h k in omr h'ip i s kne rating i nit

• in N n ie r i k pru iat h.n Progrr *in I nt.m t I

b 00 AD - L tin 1hou and*i The Comp;myi retail customer-are meterni un a (wie ba-i-WHv s - $nio s u'u, i "s a,

• n %

l, ienue i Iro gni/ed for e.wctrie 3t n ice ha3ed on nwirrs read w.. w' a through the enil.if tim rrmut h. a s, y n.. i 1 *icidh-fn.m Shanoi Steel Ci rl initiioi, ti.e (;4m}'anyi ca s s -c.. '

.+.>

0.. la rge-! CO M Omer, anb @t eil til a lrj m ik if na t t '} \\ 8211 N r (lii W I, IEO i r G $2 I,IllI,1 M N ' alal $2b. INl.Ill)ll, in NWI, UWN un i I.Wh rt*l>er-7.'.l[ 8 [ tiu ly, n pnm m mg tm, loE ar.d 10 W, re3p. et hely, of t he (impanji tohd openJ ng revenac3. On Apnl 17, UN7. Shan >n i3 .. /.m 1.. p.. ni stt el tbl u l'etition under Chapter ll of the Fe h ralliankruptcy hm' __fo 'tr. I ) Nhs The (1mpany ha-fbi a pninf of claim in thi-pn creding L/ 816 * $oo of appn>xm;at e!) boo,'a o for e:ect nc 3en ice fanu-la d t o Shaeon 3 Sin 1 pnor to the Chap 9 r !! he. The (impany i-earrently + tui,i c,,.,, p. i - m. Er o,,,.... o. a 4 -p. i b4 ine paid on a dauy kni-for c:cetne -enice furni4ed ioni 3. ,e lu - m a ldd on acennndated a 3ub-1.mt ial re cunt 3 d. post pur-uant to O e onler of u e lh nLruptcy ( %#. Nut lear l'uel-lieferrni l'url ( ht - Tlx (1mp; m, amortin tlw oi-t of nu lear fuel ha-nl mi t he The (; mpas, recowr-fael o-t 3 v i ot heru ne n2 nu1ed rate of con-umptio: The ( im pany '3 e!cct ric rates ini bnic tla oach hcc roter fu m .N cusomer-tLn wh an anmial .onoura - for t Le future ilspos t of-l+nt nudear fael ba-ed upon }c\\ c!)/ed" e f.t PJy o d nJelli('l(> Tim 1:CI: w hich a i hah, the f,rma!a uwd 'o compute payment-t o tLe If niini State- .o lj o tme' t for any ou r or i der conection fn m nrtmners, liepar mi nt of Energ3 o recalculah il i ach.u ar. Aeronia.el, !Le Company de fer-tl e { 3 d.ff remv he u ce n actual energy co-t - avl t L. anm u Allouante for i'und lini lluring Construc tmn-corn Lth rn m end in.m it urtona r AFl'In ' reprnens de n i fmodtg co-t > cantabnl to n.n-l'efi rence % ma.le to Ne ar 3 with n y.ni to rn i \\ e r) of 'la -inyt h m w ork m lngre' durirg t he con 3t na ' iin ].en 41. TLe < o-t of 1:n i e M e -fb Ll 14ar.t coal horn. uni fu mis pe &n n fect-capitabed inh re,t pay na nt, and the t ytoty fuMl porti. ; repn+ cot !Le none.rh raphalva-I tility l'hmt and lieprn iation-tion of ;mputed ec.t> co+ u ha h an. ihargni to con-t nwtion l'f d.t y ][at.t l'i f ect - t h ' e r!.na l t, a! t i[ D +n-! n et h., Ma i c l-A fl *l M ' \\ ane-acn.nhrg lo ([Jrgn m the leit lie [ 0,n3t nkt u m L H c pa) ro!) WI n ! ited o J clh as !au ,l m ob and Mkif uolk W pn' grew an i m the co t o[ capMah Ibe (Empani lom-i fru ge beni fa a.hra t rame aol gi u ral o -t s aol aCwn.m pun-Al'I'IM' n he a net rf tas noe. u Lit h i-con -n nt i %r fural-i ni ilar.ne n '-truct n i Al l'lhi u n h t he rate in at ment. Tia Al l'lW rate related to mch ar Tl e t a.pany prm e b-f+ r depreciat in on a e ra;cht.bne ha r f;a 1 finamni onl3 ihnmgh tLe ha urrenw of leh rm ohbea. n at s anoa nde-ou r t Le e draated hum of I n p rty un md..I t i.. - n.co Note Q.- N -cd on act ual iuere-t un runt on t Le in pha.! m -en ;ce. The a nnual o.mp.-it e nc. - f.,r t h s in c id*' ohHem na r d#ng the pen d. Tim a un.al ratt - u ed 1,y tLe w e re I l'. in Un7 and 1 & :n Pim al PN TL. (; n.p ny ( 'ompa ny fo r d o' Ler <. o rt na-t io n o> n ;ec t - u i re lo P ; m un7 4 o 1 ree+.R ' U J c - a delirena! ' rn e \\l *1 -. t -tHna!nl W % ar dec 2 ,e. I ajqc,\\Maated 4 0'; in MWI asi l!W3 l n';--U mil e o O - a-t he co-t - ate i n. d e n,l in m ( u

• i t a r-A f W Fifit - (i > n ('s il In nn 5 a'a ' e r-f.'r ile n eh nd -

':lt'3 an-Inneme 13\\e%- I iccumulated in i -< f oo an ;u.t - la A. f 01 n tal pnn: on for u s ome t ne-are Joa n m t le p' ati rne nt - of Ta se. Th di fi cred u.. one t a u 3 n'au from ('iHolmen (lu nership fif ( Arth ratillR l'arilitic%- t ; nH ') J d. ! rt In* Mt !!a-I t % i e nd 'io n i.f l ei r t - alple \\l= n e - 8 The ( ; mr my and i.dsr ( '. m ral.\\ rea l'ou er ( '. ont nat m f ir tas aul an ountiv p rp ~ - Gn.up < CAlO n rmpan s-u a n,,n t emu a m comm~n, s ar. t - Tle (; m p. ah -. - t he m i n, i n b. > i f.t u lo ch re - a h - p.u t r p t yratu s f iciLt a - E.uhi.itb <icl.a'n.-i-aligatnl ni m it d ere-t * \\lw e re!a'nl t ii o ' Mr'a t e m u >rh :n l.n'd i - o to p.e a 3 ha re toe o ' H nkt on o r - of g ph !!) i:u t ed to anima fase-i redit o Med 'ad r ot h r meon x i al fw.hty in (Le vlw po p Tt.on a-l' - ow n. i + p in t en 't. Th. dedmta - m il e P at en a ut,..f I n. om. Co m pan) 4 p en of op.nt ur e\\p n-n a-- n i nd u al t Lew in Api d Psi the S ipn n. i brt of l'enn-3 h an-a na d m joua !) oo m d f.a it a, n ua ludel m t he i orn -p n h /.p rat c 6 f.a or o f t b C. <.na r A h m at e of l'. r -y h.naa m an app.d e \\ p. n -e - o n t he 9 a5 nar N oflo mne neam i % refectnl . n :n m a Un t (in.nc nua? L C e deci+n, a M h nph. hl i I l l 1 j '6 1 a i

---

.---,------,--_~n._-_m,-.--,n,.,-,+-., -

-ne

- PENN POWER r D 1 F the bm; my' !!N2 PPll' n tail rate < ae ihs u m a!bming lietirement Ilenefits-nornudtwmoofincome taw-a.-ociatnl u ith eertm ;lil tndim! The company s t rusteed, noncont nbutory defan d benetit all fut! tinte employeet Upm wtin~ depreci dion hene0S The Supreme Court iis h ut,l > tate peimon plan envers almo e inent, emp!oyt es nweh e a montHy pen +n he.,I on h-ngth of inune ta x i.3nnahmti.m and rerlauled to the l' plt for funber st udy t ra practice of fuleru! u;come tn nonnahn. tion. Un rersice and compensaion Pnor m hly 1, IN, the Compan, Septemlvr 25,19% a settlem. t t agreement na3 apprmed b3 fmaled pe -iea co-ts accrued using the frezen initial habihty th* II'll$ Are'ardm/ y. 45}GitioJ rtm enues arel illn'me l'txts actuarial [uniling nielhia!. Eff ethe July 1.19<, t he (;>mpany l were n doo-d by $6,M7p o and $7.2.t2,ir,o. repet h ely ml changed to t he projectol unit ensht method for fmalb.g purp.-es j intere-t expense wa< n:rica-ed h,s $Opo during IN 'o and has v to n mquimd to make le: - on cont nhutions riou-tecuenin the amour.t-n fm.dah:e to cahmers a a re-uh of June m, IN Contributiou of $2.23:'po were inade duriw t he >Pitlt Mt Mt. This -ett! na nt had no material etTts t <;n 1:et the fn t six nomths of 1R4 income for PK The Comp ny adopt.i the puvi-ion

• of Sl'AS L. 87, The Company expecu i hat d-fern,i taxi-w hit h have r4 t lx en "Empleyeri Accounting for l'twiota" a of Jatary 1, liisi prmidnl w!H he co%ted from its cu omerr a b.' the taxe-As a re-ult, n poned ni t meom-for 194 wa.- approxinntely Itcome pa% de, hwd uj e_n t he e3tal'll-hed rale making j t.it!M e

$9t oJ 8 MI higher than *.Vou!d ha* e ht en u;de.' the pre'.iom. of tL PPD' and the FE!:C As of IW mber 31,19si, the accountir.e -tamlanl. eunm:atise n. t inceme tax timing.hffenmces for w hich deferrol The fonowing.-et funh the futMed rtatu-of the I an am! l d incomt taws hoe not N en provnh d were apprusanately amounts recognized on the Balanet Sheet- [ s $2mp op o. Th+ (Sansmy defer, ime tment tax credit- (ITM ' tihmd At llecember al, 197 !!Ni i and amelzes there credit < to n.come m r the estinnaed hfe I Act uarial pre ent ulur of e j o,. t he re,.ated propeny. The,uts I,,cform Act of 11%. repealed henef t *.hhgation-I theITt,ehyecib e J a man 1. ,.9%. e m pt for certain t ran4 tion \\. d AN %. W H i < P,'191'iko property. A-m 1)eceniber ;,d,19s., approsunateiv.?l2p nipio

h. ~ ed heno0t

• e

" " "o'w'p o ' r hm. o n dT-et future.ederal m(ume taxo3 -1, h.'no i r nve-ted honeh.ts 2. of una-ed i FC u a-avana.. i Accumuhited bene G payaide, of w hich approxinutei) $ lop op o expiro at the end "Micati"n 511.94 # o ! 37m19.0 " of 2m) with the remaindi r exgring at the end of 2002. The ~ =- ) Company a'- ho approxinately $a,lmpo of alternath" A t asd pn wm @. w h, h may be carred farw ant gg g.9.d kwGt nununum tax endt e madabi. a indef mteiy. l.. admtir the Gmpany had approumately Mddtim $ CMo $ .*s w ge f e p,,2mp o of tax net ultratirg lo--e at Ikccmher m,19 7 Plan e-ets at fair value 717tp o 76,170p o l acaibbh to (arry banl untd 2m2. Ntch tax net operatine Iy""" "'!' * *\\ " "'"I. lo - -. - hm heen recogmu 1 by not pna hg deferred taxe-of pro;ed ed kn. M appn nim..tely $7,*.n o m 19-7 u hich wotdd othe rw i e ha e ) I d""' Db d"bl l eet n g in n i.let h Unn mniwd net 6 t eami 749p o Je ~mc'm n .fhe I.manend Accountmg SLndanl-l, mnl raently i-we.l l.nren gbl&d pner u 5ta,.e mt nt u,p [rmane;a,, Acc(cnt mg tandanl4 l b f,A >, n % i 9,, ,,p o L. o o a ruce t o-t m { ..Acet Cn d md f* T ll At ine.l. axe =, u h;ch, among 4 4lA r thihg, W. l.nrecognimd net quin ~. a chance m the met hod u-ed hv enterpri-e4 to accoum . ran-!! ion a -et i h. ps a n, ild w.l' m n' i n. s t n L2 far o. fern d ira ome taw. l. de r the new -tan lard, u t n h beco effu the in 19-9, the Wmpany u dl he required to u nie dow n L!Pd "n hah!!.ty $ 1,cl o $ 1, ;m o it-net defern I tax hiances to ref s t the na lo.u r urome tn rate-inc..rp. rated in t h Tas ikfonn Act of 19-4. In-tea i The aweb ef 'le Wn n.n- -t primruy of emmon se l of merea-ng meome due to ilus potemial w rite dow n, the 4 im-Urdted Rati-p.urwent Md, and o.rpaw 64 L+ pan 3 u Hi defer t he-e amount 4 A na ' nie t hem a-a n,i xt !. n p., si,,n emb & r 19-7 nd IDW m n wyM e Me m nier m future rate proo r.hna The ra u -tm. dant t o cos-u dl alui nymre the l'. n pan) ti'In ord a deft rn d tax habl.!3 g g' for tax henr0t-t hat haw pn4 9 a-13 hn n Cowed 'hnwh to w rum-t ,oen, t b earned < a M w r t al an e-uned deferred tax liakhty appheaNe to "WI l*fU d S b2 IIM "' $ 2.h P C t!a equit3 camp ra nt..f.\\ Pl'lW f,e uhhh m uaena 'ax I M " fC 'I "h M "F'! "I t,nung d&rence esi^ un Ier < urn r> as cou nt h s, a hud- '" I " I?' d I 93""I Nnie the (\\4mpany ex}.nt-thM '!a a ld.t nq;al iiefe rre<l tax "I" ' 2' I 2U M " 'I2MI AM" ham!am u d he cob. t e.] fn qn it c5 durr-w h-the taw / '" I b ' t dehnal uniM m GM9p oi A 791p o Im o ne p.,aNe, an a--et u ul be to.c md fmr t hat pnd.aUe Mpo 4 12sp o future n wnne. Lt iwon co,t ~

t I i NOlCS komintled) The asrumed ihwunt' rate and mie of intn are in future the costs of the terininated unito The Sopteme Cauhiwision wmpen+ation level 3 u3ed in detennining the actuanal pn ant we ba-eiits interpretation ofSection 1315 cf tho Pennsylvama value of the prob'ed benefit oblication were 10 and 79, Pub!!c Utility Code ( w hich was in effect at t he cime vf the lTlX7 re+cet n ely for 1937 and I!M, The asm&d exlected long-t erm rate erdet1, w hieh it concludal bars the nwvery of such costs rate of arturn on plan arets w fW for 1937 and HM. thne.gh the rate making pmcen The Company wnste o1Y the Under the pn vious pen-ion accounting standant, the unamoni7al costs of t he tenninated anit s ap;dicable toits PPUC Compmyi pension e.sts for IN vere $1,3n5,om. Of thi-jurinlictional cu3tomets and established a !!abihty for p>tential amount, $1N7pM was primanly hded to the other CAPCO customer ivfunds of pn+iely reemend co-ts, eeducing net companies or chael to cetmetion; the balance was cham d incon e by apprmimately $7.3n0MN in the fourth quaner of to operating egenn. In addition, pen-ion costs fer IN were 1937. The Company ha< askal the U S. Supreme Court to hear furt her n duced by $1.422,% due t o ret reat tive hpho > otbr an appealof t he decison of the Suprenw Court of Pennsylvania CAPCO companies. Such ewts included the amortization of i unfuncled peuervice c nt

• on an wt uarial t asima r an year 3.

< 0 t,en-co i The Company provides a minimum amount of noncentnbutory The ningmy hwes a pirtion ofit3 nuclear fuel requirements i hfe insurance to retiltd employee ill addition to oj tional con

• certain t rw nn9 ion facihties, com puter eq lipment, nMee 3 pace l

tributory ilmirance ft atuth llenlth c:nr benefits, w hich mdude and other projen) WV} equipment Mder cancelable and noncan-cenain emplayt+ deductibles and copay ment >, are alm ava%ble colable team. Consistent w:th the nyulatory treatment, n ntal i to retinst emi oyees, their dependents and, under critain payments for espital and operating fea-es awharge,i to o}mrat-d circu ms tar n s, to their 3un hors The Company pays in3unmee ing espew on tie Satements of Income. duch mts for the l premium to coser a PMioa of the3" heneth in exces of wt t hn e y ears ended Ocet mber 31,194 anmummamul as fdlou I 4 timits, au anmunt up to the limits are paid by the Company. { Expene a.+ociate i u ith kalth care and life in-acance benefb IN IN IN for retin e amounted to ElIJm. $19730 and MWH in ~ '.in Thou anda ^ ~ ~ ^~ 19%, 199; and Hy.>, repttn ely, and are (harted to incom" s dunng the apphcanle payment pt riod" b re-t on captal le- $1M $ 1,% &:.174 hintion 4 c@:.l lew S. G 3N1 MM l l Op rdry he

• 1 ITt i s*J W

Significant Parent Company Transm tion

• Operating rrtenue* fcr h,11% and 19N melade $s,,>llyM,

,g ya go g gpg g;,q $1!?93Jm and $11,W1Jm nepecthely, attnbutshie to tran actions with Eden. Such noenues neulted primarily from E,h ow purchase of capac:ty fron the Company % ow$er hip In accordance with WAS L 71, the lieumber m,19so t interest in licaver Valley I mt 1. hnchued and interchanged Italanco Sheet and the Staten>nts of Ca h Flow for the year-pow cr, net, rek to chrges v en,htM of <!!2Wh. ($2, Won ended 1(ecember 31.1W and IN, haw ken netated to recog-and $1NJ,im dae to t he Company % net receipt (deliservi of we cupmd leae entern) into poor u Jamry 1, IN [ l interchanged power to and from Edi+n dunng 19s7, lid and T 19'ye future minimum n nt.d commitomnts as of Decemkr dl. ] 194, reqective ly, in aihhtion, other ob ration eyen3es for i 19w7, IWi and 194 include Sh512/ m, $U. lip C and $.t,502J ni. t nmpecthely, primanly attributah!e to data pmeening sen ir e, Capital Operating renden-d by Edi-on to the Company. l e es Lea es 19e $5,WJm $ 17.W C Deferred Perry Unit 1 Cost %: 19 9 3.G9 p e liupo The PPUC enten d t he rompany to deremps ration anWmainten-19'o 2,203J m 120p u anee co-ts inet of eneryy 3asire from l'erry Unit 1s ik preciatian 1991 1,79-J m 112, & expense. propeMy taxc3 and intereR c\\ pen

• aeocihl with 1992 1,G21J m llop M h ny I'mt 1. from its hember la 19N conunemal ope ration Lars thenefter.

17, Al",rm 2,9 t s p o date until each cut.- un recognnwd m the Comi anyk electne Total minimum hwe rates Itmed e thi4 onler, the Comhmy de fenrd $7n224p u in 177 for futun~ recosery fnim its retail cu tomer.

oyment-U12,tm

$ 3411 m i i Eucutory co-ts UT2 on - a_ - m Terminated Construction l'rojecto Net minimam h ase In Jana:uy 19Ni, the Company and all ot her CA P('t i companie* oaymt ut > %,1 lop u tenmnated plan-t o con-truct four nuclear pocrating unit 3. (in Intere t Fortion 12..M7p H ()cta der 15,19'I, t he SupMne Coult of Penn-y! vama Dicr.wd a gir ent vd'F of &t MMm dt eP hin 6 8 the th mrniinVea}Ih tilan of I'enn yhama w h:ch lease ist meet- $ 1.1.Glya n ny dnnul the PPU(9 deel* ion to permit the Company to treos er e J 1 iS i t ~-. - ' - ~ I

I - PENN POWCR 1 i l l W Capitalization: long ti rm debt for the next fke yeas ;or: M llets.inet! Carnine-Uraler the Companyb Chahr, the Company nained earn-19e S '>,-l ll # o ings utmt r9ted for, myna t of cah daihl-or, 'lw Com-ItWi 3,El.m i panyi comme 2 stwk um e SCW7,mo at Ihwnher 31, 67. Iv0 5,tnip o 1991 5,t m.t oo j th) Preferred Stock-I Mr'. b,115p 6 At the CompanyN opt vin. ali pivfeired M na.,. be n-dermed in w hde. or in p u+ at cny tirm upm nut les than M nor more The s mehted a arxe interest rates Am n on tb Stat ments of r pitahzathin tr Lie to h.ng-n m debt eut taniling at i thsn 60 day, no* u, uMer of herww noted. Redempt o. of a'.! a prefern-d -toch bel u nhin t he pa-t $m 3 car-wi Mt t o December T,1F cc ttain restricti m, rm.rh n fu: dine oncrudons. TL optional T-t al recunal noter orbt anding at Dee-mber 31 '"*7 and !!K n6mption price. shm n o $ th, Sta'ewrt s ofi kp:t duim will ese!ude $ 1,Q L. n o an ! $2J*2ipAi, rr per;tivelv, of cenein de:Une to eu nted nuarnan 4 p-r snan accordine w the Nihr pJution contn i nnte. the pniceeds of w hkh w ere theWa e.-en e enniw ' hat ertabh h ea. h .m poung their dn hurrement for cons tniction of pdlution eontnd facilac. The t L mpmyi obligations to repay mtain pollution i f ci 1% feried Ah Subject to Endator3 Pedemption-con'nd notes are + urnt by rne3 of first mortgage lands Amr.ai i,nhine fund pno hi"n for the i Mp-.n3% 1 n fen %I -v aC ', % hfh ah ',)Iln d a $ U Ni j F dMrc hd-UcerW"I lb h!CQl-(NI !sOnNhrIn (NdlMallon*! I 8 an a-fohw ( l'enn-yh anisi l'om r Fuel Corlmration ra corporation in u hk h the (limjnday h;U f anIM nt I.-hit a Int e rt%t i lin i\\ id h's futpl- ['T t he 5eries Shares Date Ibginning pn%n i~nt of mh 6M on behalf of 0 e U"mpany. The Com- !N bI'l I C E UNM "O w in HI {ha e n)her 1 i;I l i.['8 U v &g M4 q( ) nat the aciju -ah >n i1f nudear lmtt el]al l k urv 1 ti! kvi i)l a w; 1?o JM3 ;5' I! u that ui!} ultim itely be med io fuel sariou < 300 l gennntmg 15 oi n nx e un n.o um i n+r monaomreunwaoces d-C"nex m"W '#1' f"r nudcar f uel a-it i-con-ainnh Fmancing on behalf n :nr ; io. o Ju$ 1 I F. 'o Ilh }; upo

e. pu nbe r 1 IM of the ( ompanc of up to $1*v o,mi qf g hich $1390,'u) hyl N er ut ds d a-of Det end < r 31, l d bw t f rmen t he I ennoivada IWe Nel(p i i cutwntly asa a Min bono A rdi 2@,

i orpirat ton, cit h. r t brough ' o mnn md iit N i re n,e n t - rf t he si ru - b c, e N cu r. n \\"hg nuht anwrnwnb or N Lu;oae e is.;mr. u hich i, rupp ced by a bank letter of creda, or a combina-i tion of both f

• toem of u1> to $N'him tof u hich $1r m' olo Tbc t oncun; -aoang furl nync,o b' r d.c n"u m e ha ! litM utIJ781! d* I IIreeml'er M, h"D I? M alI.d de I' k S U..

) ygggg on b. half of the Cornpany, subjet to et riam hm,tation-1 Tbc Conyny aand inwn -t appheable to thq nudear fuel in 1.,"o n 3 png 7% g,, ohhgatium ifer fel a Meh i-not inchided in utihty plant l'1 a " I bT I b b GI " M ' M Id\\ U 181 til i >pl honming, tme bei n or are espected to be made again-t t he lyn c /o o be rICn"ht m adable to the fuel corpondion; the fuel carpe p.rx 6.22o u tion ha. i,-acl. col ha-out-tarehng comm. rcial paper-apported l6 t he brr tif Undt. Tis !b e\\le!;l that Iu'rnm ing, are leH than ids l Aing.Torm Dg hl Q $hgypH gadaM*Unthrthi cadthne. t he fuel (orin-l TL mort csge a; l n-supp'. " + t S u h a h ~ s u re Ji or d e ndso nre t p;r, a ronuniina ni fcc or ! 6 to l:21 on the avadaNe Urmpan A fir t negag' . A n n e a :hn a tir-t u e ca,;e pm,n of de h>. of en d.t. It abo pay-a fee of 5 W to T M bt on -ub-anNMy ab pn ted) ; I fram L -e. i& r t han t;tr t he let t e. '>f (n,1 t i.n the aggrecate amount of out tan hnc p r n nly e serp'ed pq t its, im L. d hy t he ( Dimp ui). cong,.,.10 al paj i n IMernt on ( 3 ICT pan base comm.tment, i-llael on O i amoue of 6nd-W b ' ' wa'n! by t b Tnat, e at n u w M L \\ ar) fn.m 1-1 6 to 1 12. owr 'he imen't thn ueh DeermN r R noi, the 4 W,i au : M -ahe ad rc-apphco% to ur'dn ih a!er pbd commercial paper. The , n p% e m. > ' f a nd reg n r n ' ' - f~ r a 3 Mr d-cl i nh r ti. . Hectne awrage ann ul int. n t rm - app! #c to nicar fuel nme r a c ammmN ei $ 1,3p o Tb i 'o va n

• s p. < t -

owg at., - c. + n. U,, m and 9 7. e nk g Uni, I N and ridyire un! i'n h d IM n -l.cct ni lv. - Abf3 t b -e rmaruen - m 19 e by + I pn -pe n) adh L,r.3 '1M 2. <ifthe n q: re ! n mt. A-of I b o mL i Jd. Im?. Il e Gnixp Cnk : fu sl rm ure-n m! I

f. T et r' am -el b - of dr ' m li v Me li %d3.O! M hrn4 i

i L i [ 19

k i 4 l Notes (wti:iiiued) The Company en+cntly espect to make pay ment 4 applimble nrmery ofit s ime<tment in h rry Unit 2 over a ten-yet r period. to these obhatiorni dunng the nest Cve years a foUowe Duquwne he wiviel the 1 I UU that it will not agree to rwump-tbn of the cort-truction ofl'ent l' nit *.' thiquesnei dern. inn ue 19 * $7.Llw n) inderndently made tant does not rnpresent a dtwiaion on the part IM 6,noT,mn of the Company to alandon l' nit 2 for nite nuking or any other t IW NllDzo primes. liowe,er, any futun deci ion on the status of l'erry 1:rs1 O m oon CrJt 2 vil h.we to take mto account 1)uque3ne's laition and wap M2 5, W Uson uill hme to be fomul to anommulate its positwn if constnaction on Ihe unit b to thulne. (D Nntes l'a>nble to llanks ami 1.ines of Creilit: IWy in the cumpletion,tf l'erry I' nit 2 can lx exiveted to Tsw Cornpany ha* Ime4 of credit with bmb the pnai,le for inc?va-e it3 total co-t by 3m< un9 w hich are not presently deter-borrow ing< of up to Mo# a Vionat the prmaihng prime or similar minalde. If a decision wcre made to terminate Dit 2, certain intenst rate. phort term bornm mg* nu;; be rnmle under these co3ts uhich an currently arignnt to Unit 2 would be reewnt l. hnes of ennht on the (impanyk un<erunst rutes. The Cominny w h-n apprepnate, to Urut 1. liowner, cancellation charges pay 53 nMp25n11 to 144) colnmi'mt nt [ees thai \\ arY f5Nnt :!Wl to 1/2* E aIEe to runtivetors amt other nots of terrnination cimbl be in-io a sun t he auWabthty of thew knes of en1ht..Ml of the curri d Pending completion of the CAPCO rniew, the Cotr:pany cuntnt 1.ne-expire 1)ccen Ar 31, lim howewr, ar) unused is unalde to pndiet whether the con-truction on Unit 2 will a hiam nuy bo carMnl by the banb at any tune continue or. if continu!. no what ba i, such continuation udl pnveed, lladed on Set tmn *du of the Penn3)lvania hddie '*tihty N Commitments, Guantntees ami Contingencien: Code (w hich openfm.dly permits utihties to acour trium of, but ('onstf uction Progrant-not a ret urn on, pnpl antly incurtyd rowl s of any part hdly ro!njdeti+d The Cornpany's rurrent buket fon cast nect* expmhtt.nw facinty w hen cancel lation i< found by t he PPIT to be in the pubbe of approum;.tely $110,000 nuo for propeny ad.htion and inten-t for any generating unit canceh,I after October 10. IW improwment* fnim 19e tbrough IM, of u hich appnnimately the Company be!iew it couM n ceritsime tment in Unit 2 witb $219@o i< apphcab6 ta 19w in ail htmn, the Co.npany n~pect to ita Pl'l'C junobctional cu+ti mess if a decision were esIrct to inte t appnnimately $9.'uo#H for nuclear fuel mxle to terminate h rr) I nit L the G mlunyb reponni net ivame darme the IM 194 period, of wlach appnnmutek $wp o.no would be n duenl at that time hy the ibffen nee hetween the co t i-appucable to 19" of Peny Fr.it 2 arnt the pnwat due cf nsenue to be colheted 1 The (1mpany curn ndy h.e a rate inenS-c iwpe-t pet 4ng from PPCC juri-dwtional customets apidicable to the unit. I,rfon t he Pl'l't ' u hich nx holr3 it - im t *t!T.ent in Perry I' nit 1. The Ills ' nri ntl) rin i-id it s i= da y wit h wsl=<t to nros ciing l In the ('omp,oni We4 rae onb r, the PPIT fomul that no the co-t> of tenninated con truction project lf Perry Unit O wen. l 1 ml.m tmi ni f~r impnnien<c attnbutab!c to Perry Un.t 1. houhl termuuted. the Comparu anuhl be n quinst to w nte offoned.a!f he nale fo+ all esp. rahtun, incunwl throuph the En h IW of it 3 ime twnt appheabie to its ITI;C jurishetional customer, fui t loa.h in a recent 16 pc3ne Liel t Compan) i l la. j u e-r.c ) if ud to the estent that the ITIK re i-ed pohcy i, apphcaNe. rote ca-c, tl.e pn.wi.ne Mmir.i ind n e Law.bnige. rubog on l'nder such circum tanec3, the remaming costs, plu a n turn on e\\]Wiplit un > beunt il [ nim th-fut i U la I dDie tit re smmerria! the unanbidl7ed inie t! Dent, wouhl be n cinert11 [!hm 114 11ll[ opera mn. n nwnendnt no adiue meet for oopolence jurishctional cu-toraer, The CA111' comred.~ an erm n.uing t" nw w the tat e of Perry l'mt 7. ( hrrenth, no -ienife ant work i Iwine perfonnni Quarto Pntjed - j on the uf at..b of.!uh 1,194. the t'ompam stopped mehnbre The timpany, toget her with the other t 'A14i> compans, l MTDC n ! ' ire to i mt 2 in net incune. ii.til ro iew of the ha entend into an aereemerc with Consolidation Coal Com-I statu of Udt 2 has be. n c.-tnpirted, t nere d! b. no de fin. d pan 3 Wor,soh under w hrh Con ol aepred aM t hr eommon.-tock ] -. hedh for e r compi tion; t he con-t r+ t mn ca m.at n for t he of Qmoto Mining t on~pany iQuart o; and r--tated in it. enan ty h* I?>2 period & n J inc! bh-any amuM apphcSe to h rr) the co;d 'upply retract for the f rm e. Man-fa ld Ibnt. The Un,t 2 if n urxtv-n ~f the umt on to le re-uwd Po #c t 3hli companii s' w nd guaranten of remain Quado debt i alteroatnr-lu n.g n s b wed w dh n'pn't to I'mt 2 mehvic mdrf-and h are old gat mn an D.P affrcle I by the t hangm in the nate ep nsion of (oretnwtion e n t he mut. n um} tm i of v or L acreement..b of Ibette r 31,194, the (bmpeyi hare of on the umt and Iern.u ;aimn ef t he utat i n accon hm ce w it h t hi the gaanmtce m $21,N2Po The prin under t he coal supp!) U,\\ h l > an en ment s nm, of Rrw.Qrrr.a m my 1. im;+ cont e u ', w hich inohalm redain minanum payment s, ha been metsti d w it b at t he aj.] no bl of U.o h '*f the $ 314 l) t'Hnj dl5m altt e IM'Hal kQ t h n4 d tii t v- -ufNelrl;t to Mt h fy Qaadib ddd 1 Da pe-H\\ claimed %le fx to" al,a nd um 11, for t & tM W' .ml tra-c ohhv.O mn The t 'empan3% tof al payna nts under the j u,rpo-.- of it, l '. H miemt a Perry Umt 2 a a aco pwd 4 t urn +t contr a t mt h ConW an.1 the pnq iou. Quado nint r.o t, ihe PPrF m a n-t nu u rar r&c ed D me o, n-a w i na imhnanmant> nbted to mine conanwt inn co+, amount ed i i [.) a

A ~ PENN POWER ~D to s,unn,mi, sa,uw and suilc.om dunne w!, Pe and the d"u nwina cate. w petdion uniturad of e m 9 e It<>. re-pectiwly. 'Jnder % coal upply cont ract, the Company'. particu! ate el Sg emirion-fnm a numkr of so)nye; in Uluo future minimum payment-rela'.ed solely 'n rnine con tniction ard other -tate-includmg pitentiaMy Samini I mt e. ' c\\ i n ce t-13 art C ID 'fI bfibIC fIl 'IUIO' haw al.i.i.a d the El'A's de ci-b ut to t he l'.S. I bun of A ppeal for t he Drt rict ef('o!ambhi, a-king that the l! m s 2,917 '" " decrion he reucu ed and n wr-ed, mmLCed or set a ide. Eih on, !!' 9 2 M,n 'n abine with otimr elcetric utintie-and other, ha interwned m I V, # ) 2.71! U " " ' the case. The ca-e ua aivurd in 1)ecerni er 19<> an,1 a 3econal INil 2.C.U"" ond argument ha heen scheduk d for April 20,1tr 3 TheCom-l!U2 2,.N $,INhl jiany mgahlt ti, jin,lict ([x inut eillne of the-e ]in >Cee(llog-j Year-thermne; 11 A19,0 0 gn g.* & r !N. the 118. Court of Appeal for t he Di trict of Columbia rewr3ed -ewnd -icuineant p,rtions of the Elm The IPl't ' oniern! the Company to d"fer lhe En30ebl n.pdation-on t he m. t hods ust11 by the El'A to detennine t he l'! ant coal co-t in esceu of gercrally i retailire mai b i prim amount of nu k !anht en dit for e3taldi-hing in lividual 3ouiw hia% eier, amount de fern 1} are loing Peri 6ered I,n>M CU-tomt T3 gg4g g;g jg j - p g gpg { g, .,p,gy. ('gy pt dygg [ flaring lCriinl* that gt'nf rMUy }in vai}[nd Inaliel jintt's e\\ce'91 g g . g g,, .g ,p p, g g eb ( g r;pt,g A gqq.yJ l$ruce blan30ebl l'lant Mal Co-t 3 A of becem ber3},19 I the qccj,j g gg Jgly }94 [g, { j aA g,.] gg m ( h..jgt Companyi u urcowred coa: emt, :unouninl t u 31,7nl.m L regulation to contenn a it h the court'- decuio : b new nyu-lation wen appeabl to the 118. Court of Apprai for the E,nu,ronmental Matter" Comt meniU, Eih3"n and others 1)i t&t of Cobmliia by the Company (in d Wriou-fnleral, state.uol b al authontic3 n % ate In" M mn e l.d 3ewnd J mrv 24 15 the Comp my u ith swani to air and u at er <inht v and ot ht r endron-igMGJant ponion-of the Elm Juh 19<> regulat:on3. The El'A menud m7 ers. I ha,ompany e-timytes that compinuice require-g n.y;,..v ml pnedn'e rdatie ci n*,-tem with the tt +1 htlon(u ewnal exWnihtme3 o! appro\\lmatel) MJa#U581 't** opnim TL- ( HM l-h inmm MM l'n. tat b m Accm-(. u luch n n.cluded in t he con truction e-timate giwn ahow under and the l'enn-ylvania lh paliment of Etnininn:elu, d 1,e ource- "Ca ir.st ruct v in l'n grani,, fi er t he { C riod ItM t hn 'u J h IW2. A part of the trautberuhttisininf the iran Air AfI,leC3!athett N',embi% Ends W!er th'ir l'W-Clik e mm t t h n rWMV g g g ) M die N b Eln 6m mimd ha-heen introde d in ( ongre-to ail.h c3-the -o-cabnl ' Al any i c\\ i-ed lim!!- nece--art to confonn to t.ie new reeu,iation, i rain" lIn idem. \\.anir b h.lb ilit n Mim ell %'iabl I t"pn re I n!act b 'n-g{4 g p g g j h g g, g g. g g,gg g, gg m enu--mn< of su'fer thoside m i a and mle-of mt nen fn,m um'-y pow er pLu.1 and at her c.aw-b rated m -e u n'd -tat e-N @e c\\i-tif t [dm. t a aTd! increast1l capital tit.- an. l 1)}lt ratinC i ou t come o f t ht-p oceci h n. g, to premet the i expen-e-1 he (,o m pa n y u current h. unaln,e ini.ludig ()hiii anil l'eni 3) h af aa. Thi t,iii,l any is u t :al,i - t< > pn dict u hether lea-lanon uiu be enacted arsi,.f so, to a hat estent,if any, the erm yion hm!'- at the ( ornpan)j in b IK t b El'A o, wW n W.n-murig -d , p!.u.t-u ouM tbdA uter mi-3im-he u'ih Mikr3. MtMud the m the em --ion honb (olbl m he aO,celnl Muh-tar.!!a! chanJe3 (,d imliaM, has an8'Mncl5h.lp nu,ere-1 M a' generatil:R u!,l, 'In i I. re ult t!' the need fiar thangtm m Ci al sujijdy, -idllbCa!ll l'3}d.ta,i ,,p { [, j, g g, g . g.; g, , g, g, mw-tments in hue ga-de-u!furitation e guipment or the clo-me e v. --h e maM p.mieu! ate emi-n m ui3 he f.oun I, t he (.vmpam. of -ome co,d-f rnl generating wpality 10 a--ure comj;h.a r.Ce. lf I Unah'e to pn dict th u!!imaIC c!'ft et ef the-e n gidat5on-Cue ea-de-uifanzatmo equipment were to be m.ahed on a,d Wim n, nt to the em m,nmental pneceihng3 de-enk ' of m ger.eratme ur.it to as hiew comphance, a etrem rianc" Mi , t he Comp *v Wie et s tbt ny wl htion: 1 c:.ph al co-t-that f na; he ph',-team r iml=, 3ih!c becauw e'f -pa r, nutaun W h h may lie rnpnrni a-a n>td,< ist stidi l.nici nline a will h w at 8ammi 1. . t he (.ompany stimate' that the n p:tal co t-mt.. a - a m. ,wud u.timat t h. i i a

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' reijuin~l increa-e in operat mg co,, In n et v\\ e/t'd [D im it s CM-('Cer-The (%miumy i s!ect-that any such valutal i,-t , a-ut, e any increa-e 1 operatine coa - aunciatnl u it h -ueh cyu p m' uitahl u.t;maIelv I." n n i\\ e rn l fn tm I! 3 ct b!( @t (* l t >n Drn mb. r 3,1%1, the fi dend Em i orunental IWtn tio' Agent ) ( El'A i dena <l a +titi< m fn e t he (;enu.nweith i.f l'e: myh an;a and the tate-of Lw Wrk and Line, whh oucht to fon e t he El'A to make Endme-un Ier Sn t mn la of I the t ' lean Air Act. Set tun Ui prm iile a n moly for a dow nu unl 1 3 tate t hat can 3how a her3e impact h, taa-e air petion in an apu md 3 tate cauw-nonattamment of an apaht) taulwl-m l l 21

NotCS kontinual) 00 Summary of Quarterl.s Finantial 1)ata Wnaudited): The following rummari.w eettair olerating irsult, for the four qu,uters of 19%7 and 1936. 4 31 arch 31, June 30, Septe mber 30, 1)ecember 31. Three \\lonth* Ended Ita? 1957 lin? ItW7 (In Thousands) O ierating ih s enues $719,Titi !?A,0i c $~O,161 $.51,16" l C;cratir:g Exten es ara! Taxe4 -16,'317 12,741 13.211 11,s T2 (livrating income 13.,526 1:1,216 12,7Tc 6,197 0;ber income and Deduction.- 6,0 13 7,791 7,titi (1,210 Net Intere<t 7,721 7,' h 7,d2 fi, tail & t liwonw al.o3 > $ 11,.x 1 w $13,119 $13,007 $ t7lo) Earn:ne< < I,ou.\\ ii>lieabir l to 0 mni"n Stock .$ 9,uT6 $10,677 $ 10.2 ;6 $ 13,1_;9 41a rrh 31, June 30, Sept ember 30, December 31 Three \\lonth, Ended lin6 I!Ni 19s6 I!KG (I n Thou sa nd * ) ( ywrating 1:es, nu,, 9%fil6 $l,9,5 C 1 S?a. !!G $ T,9,'49 (ytrating Esi+rw and Taxe-16,ics 17,1:16 12,1!=i 16,7,16 i y w ram. : I nnime i 1, Iw 11,u s 11,3t G 13,13.1 i O'Ler Inconn and 161uctior.- 6.311 6,wil 7,o' c 7,01 ht-t Intertml 5,9I t ) ,% chi ) .%, 6146 3,02I) Nc!Inconie $ 12.W.I $141.159 $ 9,791 $ 12,1731 Earning

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$ 9,7,o7. $ 7,:M $ 6,9w $_ 9,6731 1 l ) I 1 1 4 \\ 4 4 4

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