PLA-2145, Annual Financial Rept 1983
| ML18040B048 | |
| Person / Time | |
|---|---|
| Site: | Susquehanna  |
| Issue date: | 12/31/1983 |
| From: | Campbell R, Curtis N PENNSYLVANIA POWER & LIGHT CO. |
| To: | Harold Denton Office of Nuclear Reactor Regulation |
| References | |
| PLA-2145, NUDOCS 8403270195 | |
| Download: ML18040B048 (53) | |
Text
REGULATORY 1
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ACCESSION NBR:8403270195 DOC ~ DATE:
NOTARIZED!
NO DOCKET FACIE:50 387 Susquehanna Steam Electric Stationg Unit li Pennsylva 05000387 50 388 Susquehanna Steam Electric Stationi Unit 2i Pennsylva 05000388 AUTHeNAME AUTHOR AFFILIATION CAMPBELLgR<K, Pennsylvania Power 8 Light Co ~
-CURTIS~R,Ki Pennsylvania Power 8 Light Co, AEC IP ~ NAME RECIPIENT AFFILIATION, DENTONiH ~ Re Office of Nuclear Reactor egu'lationi Director>>
SUBJECT; Annual Financial Rept 1983.N/840322 'Itr.
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Contents Highlights President's Letter Year in Review Financial Review Selected Financial and Operating Data Financial Statements Notes to Financial Statements Supplementary Information on Changing Prices Summary of Quarterly Results Common Stock and Dividend Data Officers and Directors 1
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IIARRISBURO LANCASTER Pl II LA DE LPI I IA MD BALTIMORE Cover A PP&L line truck moves along Interstate Route 80 near Lock Haven, Pa. at the western border of PP&L's service territory-the area is just one of many examples ofbeautiful Central Eastern Pennsylvania. PP&L's service area has itall-good transportation, a conscientious work force, recreation opportunities in abundance, and excellent educational institutions.
With a low-cost and reliable supply of electricity, available industrial and commercial sites, and attractive, agreeable lifestyle opportunities in a pleasant blend of urban and rural areas, Central Eastern Pennsylvania has all the qualities for business and personal development. You'l find examples throughout this report of why PPEcL has so much pride in its service area. This is a great place tobe!
Service'rea Pennsylvania Power &LightCompanyis based in Allentown. It provides electric service to more than a million homes and businesses throughout a 10,000.square. mile area in 29 counties of Central Eastern Pennsylvania. Principal citiesin the PP&L service area are Allentown, Bethlehem, Harrisburg, Hazleton, Lancaster, Scranton, 1Villiamsport and IVilhes-Barre.
Customers (a)
Common Shareowners (a)
Kilowatt-hours of Electric Energy Sales 1983 1,026,144 169,142 1982 1,013,623 169,127 Customers 23.1 Billion 22.3 Billion Interchange Power 16.4 Billion 6.9 Billion Kilowatt hours of Electricity Generated Operating Revenues Capital Provided by Investors (a)
UtilityPlant (a)
Net Plant in Service Construction Work in Progress Common Stock Data 37.7 Billion 29.6 Billion
$ 1.2 Billion
$5.3 Billion
$ 1.2 Billion
$5.0 Billion
$3.8 Billion
$2.1 Billion
$1.7 Billion
$2.9 Billion Return on Average Common Equity Earnings Per Share Dividends Declared Per Share Book Value Per Share (a)......
Times Interest Earned Before Income Taxes 12.29%
$3.06
$2.40
$25.12 2.34 13.60%
$3.35
$2.32
$24.71 2.08 (a) Atyear end.
k Where the PP&L Income Dollar Went in 1983 3c Earnings Reinvested 14c Net Cost ofEnergy 17c Dividends Income includes revenues, other income and the allowance for funds used during construction.
A, 14C Taxes 19C Interest 14C Employees 7c Depreciation 120 Materials, Services, Rents, etc.
President's Letter Following a very successful startup testing pro-gram, the first of PP&L's two Susquehanna nuclear generating units was put into commercial operation on June 8, 1983. This event highlighted a year of significant achievement in several areas, achieve-ments vital to meeting our commitments to customers and shareowners.
The timely completion and the safe and efficient operation of these new generating units continues to be the focus of the company's priorities. By the end of 1984, when both nuclear units are expected to be in commercial operation, the company willhave met its construction needs formajor new generating capacity for at least the balance ofthis century. PP&L's excep-tionally favorable capacity outlook, based on a good mix ofcoal and uranium fuels, further strengthens the company's position as a supplier of reliable and competitively priced electric energy.
The company's strategy forthe balance ofthe '80s is to market the effective use of this strong generating capability in a way that willhelp spark renewed economic prosperity in central eastern Pennsylvania.
Since the financial health ofthe company is directly linked to the prosperity ofthe communities we serve, an economic turnaround in our service area is vitalfor achieving a reversal of the company's relatively stagnant sales growth of recent years.
PP&L's commitment to superior customer service provides an important foundation for promoting uses of electricity in those many applications where its value to customers far exceeds its cost. Our programs are aimed at achieving an average annual increase in kilowatt-hour sales of about 3 percent over the next decade or more.
After rates are increased to recognize the com-mercial operation ofSusquehanna Unit2, requests for future base rate increases can be largely or entirely offset by revenue from increased customer usage. A sales growth of about 3 percent per year, therefore, supports the financial health of the company in an expanding and more prosperous service area while also reducing the need for future rate increases.
Progress toward completing construction ofSusque-hanna Unit 2 continues to proceed on schedule for commercial operation in the fourth quarter of 1984.
When both units are on line, an average of about one-third of our customers'lectricity needs willbe supplied by lower-cost nuclear fuel.
The company's significant progress at Susque-hanna again in 1983 is due to the uncompromising commitment to excellence of PP&L people in all aspects of our nuclear operations.
Financing and Earnings As construction of Susquehanna winds down this
. year, the company's needs for outside financing will continue to decrease. After Unit 2 is in commercial operation, most ofthe company's future needs fornew funds should be met by internal cash generation.
And because of the company's relatively small future construction and financing requirements after both Susquehanna units are on line, we do not expect to sell any new shares of common stock after 1984.
The company's 1983 earnings of$3.06 per share were down 29 cents per share from 1982. The main reasons forthe earnings declinewerethelingeringeffectsofthe recession on our service area economy, an increase in the number of common shares outstanding and the disallowance of about $90 million in the company's request for higher rates. Future earnings willdepend on the outcome of the rate-increase request the com-pany plans to file in the second quarter of 1984 for Susquehanna Since Susquehanna Unit 1 was placed in com-mercial operation last June until it was shut down in December to permit the tie-in of Unit 2 systems, Unit 1 generated nearly 3.2 billion kilowatt-hours, about 27 percent of the electricity PP&L customers used during that period.
This outstanding record for its first six months of commercial operation demonstrates Susquehanna's value in serving the energy needs ofour customers. By operating at an average of nearly 79 percent of its capacity, Susquehanna made an essential contribu-tion to PP&L's record 1983 energy savings. These energy savings permitted the company to reduce our customers'nergy charge in January of this year.
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Susquehanna Unit 2 and on achieving higher sales levels as a result of an improving economy and our stepped-up marketing efforts.
Benefits of PP&L's Capacity Mix Although excess generating capacity was the reason given for over half of the disallowance in the company's last base rate filing,the fact remains that all of our generating capacity is necessary to assure reliable and economic electric service. From the view-point of overall system economies, PP&L has no excess capacity. Without our existing and planned capacity mix, long-term reliability and cost ofservice would be adversely affected.
It was specifically because of PP&L's favorable capacity position that the company was able to sell 16.4 billion kilowatt-hours to neighboring utilities last year, which resulted in benefits for our customers ofabout $219 million.These energy savings, by far the largest in the company's history, were made possible
. by the effective operation of all of our generating plants.
For example, by using lower-cost nuclear fuel for PP&L service area customers, Susquehanna frees more ofthe company's coal-fired generation forsale to neighboring utilities. This, combined with the con-tinued outstanding performance of PP&L's other generating units, resulted in achieving the very significant levels of energy savings experienced in 1983.
The benefits derived from PP&L's generating capacity are the result of a good mix of low-cost coal and uranium fuels, efficient base-load operation and the fact that the company's capacity is greater today than needed to meet current minimum reliability requirements.
Having both Susquehanna units in service will further strengthen those advantages.
And by selling power to other utilities, the company uses its strong generating capacity to keep PP&L's electric rates below the average charged both regionally and nationally. Those power sales also provide a measure of the enormous long-term advantage of the com-pany's capacity mix for meeting the growth and economic development objectives ofthe communities we serve.
Managed Load Growth Another important objective ofPP&L's strategy for the '80s is to expand electricity usage without experi-encing corresponding increases in peak load growth.
Promoting the wise use ofelectricity to accomplish our customers'bjectives is fullycompatible with manag-ing relatively small increases in peak load growth.
However, moderating the level of load growth that normally accompanies increases in kilowatt-hour sales'requires that we offer meaningful economic incentives for customers to shift more oftheir electrici-ty usage to times when system peak demands do not occur. By using the company's generating capacity in this more efficient manner, additional off-peak sales result in significant savings for customers and shareowners.
PP&L's recently approved residential off-peak electric rates are an important step in meeting the company's objective to increase total kilowatt-hour sales without significantly increasing residential usage of electricity during on-peak hours. These new rates offer residential customers a wide choice of options and economic incentives to shift more oftheir electric usage to off-peak hours.
Since a basic objective of our marketing strategy is to attract and hold job-producing businesses, the company also is actively developing a variety of economic incentive rates for business customers to expand their operations and usage of electricity.
However, because business uses of electricity gener-allystimulate economic development whether used on or off-peak, load growth considerations for these applications are secondary to encouraging the produc-tive business uses of electricity for achieving eco-nomic prosperity in the company's service area.
Susquehanna Unit 2 Rate Filing The company plans to file for an increase in base rates in the second quarter of 1984 to recognize the commercial operation of Susquehanna Unit 2. These higher rates, however, are not expected to become effective until 1985 followingextensive investigation and hearings before the Pennsylvania PUC.
Consistent with our long-term objective to hold increases in the price ofelectric service at or below the rate of inflation, we are considering requesting that this rate increase be phased in over more than one year to moderate the impact on customers.
Notwithstanding the rapidly rising fuel and capital costs experienced over the past decade or so, PP&L's average price of electric service is still only slightly above the Consumer Price Index as measured from the CPI base year of 1967. Maintaining or improving on this record is important in achieving our marketing objectives.
The continued support from you, our shareowners, and the dedication and talent of PP&L's employees gives us confidence that we willsuccessfully meet these challenges ahead. We willbe doing all we can to bring jobs and prosperity to central eastern Pennsyl-vaniaand vigorous financial health to your company.
Respectfully submitted, Robert K. Campbell February 29, 1984
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Year.in Review Qyerations Ear'nings for 1983 were $3.06 per share of common stock, compared to $3.35 for 1982. Earnings were adversely affected by higher costs, by a Pennsylvania Public Utility Commission (PUC) decision that is not allowing the company to earn a return on 12.6 percent ofits invest-ment in generating facilities, by the lingering effects of the reces-sion during early 1983, and by an increase in the number ofcommon shares outstan'ding. An in-depth analysis of the year's financial results begins on page 22.
Dividend Increased PP&L's quarterly common stock dividend was increased 2 cents per share to 60 cents beginning with the April 1, 1983 dividend. The quarterly rate had been 58 cents per share since April 1, 1982.
Revenues and Sales Operating revenues of $1.25 bil-lion were up slightly from $1.22 billion a year earlier. Lower revenues associated with a de-crease in the net cost of energy essentially offset the effects of higher base rates granted by the PUC in August, and the effects of an overall increase in energy sales for the year.
Kilowatt-hour sales to PP&L's residential customers were up
'lightly over a year earlier. After lower sales in the first six months of 1983, reflecting the effects ofthe business recession, industrial and commercial electric energy sales showed strong gains in the sec-ond half of the year with overall increases of 4.1 percent and 2.9 percent, respectively. As a result, total sales to PP&Lcustomers were up about 2.7 percent over 1982.
Sales to other regional utilities, including other member com-panies in the Pennsylvania-New Jersey-hfaryland (PJM)
Interconnection, increased by 9.5 billion kilowatt-hours, or 138 percent more than a year earlier. Total energy generated by the company was up 28 percent in 1983 over 1982.
¹zo Peak Demands Recorded A late-season spell of warm weather produced a new summer-time peak demand record for both PP&L customers and customers of the PJM Interconnection.
PP&L's peak summer demand of 4.03 millionkilowatts occurred Sept. 6, 1983. The previous record was 4.01 million kilowatts set earlier in the season on July 18, 1983 which exceeded the old mark of 3.95 millionkilowatts set in September 1980.
PP&L, unlike most PJM com-panies, is a winter-peaking company. The winter peak-use record is 5.2 millionkilowatts, set in January 1982, during severe cold weather.
PJM maximum demand reached a new mark of 34.7 million kilowatts on Sept. 6 also, up from a 34.4 million kilowatt record reached in July 1980.
Kutztomn Is Neiv Customer The borough of Kutztown, Pa.,
became the 16th PP&L resale cus-tomer on Sept. 11. The Berks County municipality had been purchasing electricity for its 1,830 customers from Metropolitan Edison Co.
In becoming a PP&L resale cus-tomer, Kutztown joined 14 other municipalities and one investor-owned utilitythat purchase bulk power from PP&L and distribute it through their own systems. Kutz-town willincrease company sales by about 40 millionkilowatt.hours a year and add a system demand of about 12,000 kilowatts.
Atlantic City Buys Power Difficulties developed in early 1983 regarding a 1979 contract calling for Atlantic City Electric Co. to purchase 125,000 kilowatts, or 6.6 percent, of the capacity and energy of PP&L's share of the Susquehanna nuclear units until 1991.
The agreement was accepted by the Federal Energy Regulatory Commission (FERC) which has jurisdiction in the matter. How-ever, the New Jersey Board of Public Utilities had ruled that Atlantic City would not be allowed to include in its rates any costs related to the pact.
In an effort to avoid extended and costly litigation, PP&L and Atlantic City in June signed an additional agreement which calls forAtlanticCityto purchase about 125,000 kilowatts of PP&L's coal-fired capacity from 1991 to the year 2000.
The New Jersey board in October reversed its earlier decision and approved AtlanticCity's participa-tion in both contracts. The second contract has been submitted to the FERC for approval. Atlantic City Electric Co. serves nearly 400,000 customers in southern New Jersey and is also a member of the PJM Interconnection.
Construction Expenditures As construction of the com-pany's Susquehanna nuclear plant near Berwick, Pa., nears comple-tion, capital expenditures are dropping dramatically. In fact, combined budget figures of $474 millionfor 1984 and $214 million for 1985 are only slightly more than the $649 million spent for construction in 1983 alone.
'P&L anticipates spending about $255 million in 1984 and 1985 to complete Susquehanna.
Another $ 185 million during the two years willgo toward additions,
replacements and improvements to transmission and distribution facilities, $23 millionforprojects to minimize the effects of PP&L's operations on the environment, and $225 millionforother expendi-tures, including modifications under a program to extend the life of existing generating units. Addi-tionally, about $ 112 million of nuclear fuel willbe purchased during the two-year period.
PP&L owns 90 percent of the 2.l-million-kilowattSusquehanna plant. Allegheny Electric Coopera-tive Inc. of Harrisburg owns a 10 percent share. PP&L's share of the estimated
$4.1 billion total plant cost willbe about $3.7billion.
Rate Activities The PUC allowed the company to increase its electric rates by about $203 milliona year effective Aug. 22, 1983. An additional
$ 17 million a year increase in the state tax surcharge also went into effect at the same time.
The PUC decision came after many days ofpublic hearings and a nine-month~investigation by the commission of a $315 million rate increase request made by PP&Lon Nov. 22, 1982. The company's request included about $296 mil-lion in increased rate revenues, and about $19 millionforincreases in the state tax surcharge.
About two-thirds of the com-pany's rate increase request was related to the recognition of Susquehanna Unit 1's inclusion in the company's rate base. The other third was to reflect increased costs of doing business. While the PUC permitted Unit 1 to be included in the rate base, it ruled that 945,000 kilowatts (or 12.6 percent of FP&L's system) is excess generat-ing capacity on which the com-pany should not earn an investment return. At the same time the commission trimmed the company's allowed return on com-mon equity to 15.5 percent from the 16.3 percent the company requeste'd.
The company does not agree with this ruling. The request filed was conservative and fullyjusti-fied. The generating capacity adjustment fails to recognize tHat Unit 1 and all of PP&L's other generating facilities are operated for the benefit of the compap'y's'ustomers.
These units are currently provid-ing reliable and economic service to the company's ratepayers and are making energy available for economic sales to other utilities.
Such operation is producing sub-stantial energy cost savings which benefit all customers because the savings flow directly through to ratep ayers.
Indeed, at the beginning of 1984, PP&L reduced its Energy Cost Rate from zero to minus 0.162 cents per kilowatt-hour and customers began to see the savings as a credit item on their bills. This was made possible by the better-than-ex-pected performance of PP&L's generating units, the large volume of transactions with power sys-tems outside the PJM Interconnec-tion, and the high rates received for sales to the interconnection.
Even after the August rate in.
crease, PP&L customers were paying prices lower than the state 0
The 10,000-square-miles of Central Eastern Pennsylvania provide an agreeable blend of urban and rural areas to fit practically any life-style. Whether it's the all-American dream ofthe single-family home, or an attractive apartment complex, condominium, or a restored townhouse, such as the ones shown at the right in restored Old Town Lancaster-you'l findit allin PPAL's service area.
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0 ~ 0 Whether it's advanced-technology research and de-velopment, the assembly of trucks to be used around the world, the garment industry or any of the diverse com-mercial and industrial concerns located in Central Eastern Pennsyl vania... the worker is the key. People provide the vital extra ele-ment and are the state' greatest resource. Their varied backgrounds, many with old-world ties, provide a rich heritage of conscienti-ous, dependable employees.
and regional averages.
One of the but the effective date of the in-company's long-term objectives is crease would be delayed for 50 to keep the price ofelectricity to its days, until March 4, 1984.
customers below those averages.
that would moderate the impact of higher rates by spreading the increase over several years.
Wholesale Rates A request to increase rates to the company's resale customers by about 20 percent was filedwith the FERC on Nov. 14, 1983.
The request affects only the 15 boroughs and one investor-owned utilitythat buy power from PP&L for resale to their customers.
The increase would recognize higher costs experienced by PP&L since the previous increase for wholesale customers in July 1982.
Ifallowed by the FERC, the new rates would raise PP&L annual revenues by about $4 million.
On Jan. 6, 1984, PP&L sub-mitted to the FERC, for its approval, a settlement agreement between the company and its resale customers. Under the terms of the agreement, the company's request would be granted in full, Phase-In Concept The company expects later in 1984 to file a request for higher rates that would recognize com-mercial operation of Susquehanna Unit 2. The unit is expected to go into service during the fourth quarter of 1984 and the new rates would be requested to become effective shortly thereafter.
PP&L received assurances from the PUC in November that the company could ask for a possible phase-in of the rate increase asso-ciated with bringing Susquehanna Unit 2 into base rates, without fear of having the request rejected on procedural grounds.
Traditionally, new rates go into effect immediately after the PUC makes a final decision, and cus-tomers start paying those higher rates at that time. The company is considering a phase-in approach "Windom"Approved The company again requested and was granted a "window in time" in which Susquehanna Unit 2 could go into operation with-out affecting the rate-setting process.
Under traditional rules, the company would have to predict closely the in-service date of Unit 2 more than nine months be-fore it became operational. This would have been necessary so costs associated with the plant could be reflected in base rates at just the time the unit begins operation.
This kind ofprecise foresight is vir-tually impossible with a unit as complex as Susquehanna Unit 2.
With the "window" neither the company nor its customers are penalized ifthe plant goes into operation either earlier or later than expected. The windowconcept
was followed in the rate request associated with Unit l. At the state consumer advocate's request, the PUC has agreed to reconsider its decision to grant the "late" por-tion of the Unit 2 window.
Security Sales During 1983, the company raised
$363 millionin the capital markets down from the record $947 mil-lion of securities sold a year earlier. This reduction reflects the winding down of construction activities at the Susquehanna plant.
The company's dividend rein-vestment plan permits holders of common, preferred and preference stocks to reinvest their dividends in common stock at a 5 percent dis-count from the market price, and to make optional cash payments of up to $15,000 per quarter for stock at the market price. During 1983, about $82 milL'on was raised through this plan.
During the first four months of 1983, the company raised a total of
$56 millionthrough three private placements of preferred stock at dividend rates that range from 11 to 11.25 percent. Additionally, during February the company completed a private placement of
$50 million of 12'/8 percent first mortgage bonds.
In May, $50 millionofdepositary preference shares were offered to the public by an underwriting group at $25 per share to yield 11.6 percent. Each depositary share represents one-quarter share of the company's $11.60 preference stock.
In November, the company offered $125 millionof 13'/e percent first mortgage bonds to the public through underwriters at 99.076 per-cent of face value to yield 13.25 percent.
Susquehanna Project
.'nit 1 at PP&L's Susquehanna nuclear plant was put into com-.
mercial operation on June 8, f988.
PP&L's share of the 1,050,000-kil-owatt unit is 945,000 kilowatts, making it the largest generating unit in the PP&L system.
Ground was broken at the Susquehanna site in Luzerne County in November 1973. The first nuclear fuel arrived at the plant in October 1981, and, after receipt of an operating license from the Nuclear Regulatory Com-mission, the first fuel was loaded into Unit 1's reactor in July 1982.
The unit began test operation in September 1982, and began gen-erating electricity in November 1982. Unit 1 achieved 100 percent power forthe firsttime in February 1983. During its start-up and test-ing period, it generated more than a billionkilowatt-hours ofelectrici-ty for PP&L's customers.
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for all reasons.
Whether it' minter sports in the Pocono mountains, camping along a quiet, lazy stream, golfing on championship courses or boating or fishing on PP&L's 5,700-acre Lake Wallenpaupack Central Eastern Pennsylvania provides tourist attractions and outdoor activities to suit every interest.
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Thk unit performed extremely well during its start-up and testing program. The 10 most recent boil-ing water reactors placed in service before Susquehanna took an aver-age of 330 days from the start of fuel loading to the end of 100 per-cent power testing. Susquehanna Unit 1 took 254 days. This out.
standing performance is a tribute both to those who operate and maintain the plant and to those who built it.
There were a number of other significant events involving Susquehanna during 1983:
~ The company received high marks for a full-scale drillto test the emergency preparedness and response capabilities for the plant. The March drill, which included the sounding of 110 emergency sirens within a 10-mile radius of the plant, also involved municipal, county, state, and federal emergency agencies.
~ The NRC issued PP&L a license in Aprilfor the operation of its low-level radioactive waste hold-ing facility at the plant. The shielded concrete warehouse is capable of holding four years'orth of such items as protec-tive clothing and tools that be-come mildly contaminated with radioactivity during the course of normal plant operation, as well as material such as resins from filters used in the plant. The facility was built because of serious concern and uncertainty about the availability oflicensed outside disposal facilities forthis waste.
~ In May, Herbert D. Woodeshick was named special assistant to President Robert K. Campbell and is serving as the company's primary representative to those who live in the area of the Susquehanna plant. Woodeshick succeeded John H. Saeger, who was named vice president of the company's Susquehanna Division.
~ Unit 2 moved a step nearer to operation with completion of a fill-and-flush procedure that fills the 70-foot.high, 750-ton reactor vessel with water and flushes associated systems clean. A hy-drostatic test that confirmed the reactor vessel's ability to with-stand operating pressures followed in June.
~ In July, the company and the U.S. Department of Energy l
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OOO The diversity of historical, cultural, educational, athletic, and recreational opportunities in Central Eastern Pennsyluania pro-Uide a pleasant, character-building quality of life throughout the area. It's a great place to raise children.
(DOE) signed a contract for the disposal of spent nuclear fuel under provisions of the 1982 Nuclear Waste Policy Act. The contract provides for disposal services by the DOE beginning no later than January 1998 and continuing for the life of the plant. The material willbe placed in a repository to be sited and built by the DOE. The com-pany has the capacity to store spent fuel at the Susquehanna plant site until the scheduled operation of the first repository.
~ Fuel for Unit2 began arriving at the plant in August.
Economic Development/
Marketing Largely because of Susque-hanna, and because the company's other generating plants produce low-cost energy and are running well, PP&L is moving into the best position ever to provide an abun-dant, reliable and competitively priced supply of electric energy to help revitalize the economy of central eastern Pennsylvania, Using the theme, "Electricity-The Right Choice at the Right Time," the company launched a major economic development/
marketing program in 1988 aimed at improving the economic health of its service territory and increas-ing energy sales that offer customer benefits.
In economic development, PP&L is increasing its efforts to attract new job-producing businesses and industries to its service area and to help existing ones expand. In mar-keting, the company is actively promoting efficient uses of elec-tricityin selected applications.
These would include areas where electricity offers greater efficiency or where there are cost advantages of using electricity over other energy sources.
Managing the growth rate of peak loads willalso continue to be emphasized in the marketing effort so the company can get maximum productivity out of the capital dollars already invested in gener-ating facilities. This willbe ac-complished by combining load-management programs with efforts to promote efficient uses of electricity. Through these market-ing strategies, the company plans to "uncouple" increased sales of electricity, to the extent possible, from growth in the peak demand for electricity. By doing that through such incentives as off-peak and interruptible rates PP&Lcan use its plants more effectively and thus keep rates lower than they would be otherwise.
PP&L fully recognizes that its customers make an economic choice each time they flipa switch to operate a work-saving appli-ance, enjoy electronic entertain-ment, or improve productivity in the workplace. The company intends to see that this essential resource is ready and economically priced for industrial growth, jobs, economic progress, health care, ed-ucation and personal comfort.
Rate Initiatives The company proposed rate schedule and tariffrule changes in December that it expects will stimulate the servile area economy.
One revision would allowjhdus-trial and commercial customers who use time-of-day billingto save money by structuring their work schedules more effectively during the hours when electricity costs less. This would provide an incen-tive to increase production in PP&L's service area, rather than in another area, as second or third shifts are recalled in an expanding economy.
On-peak hours, the hours of highest overall electric use, now are 7 a.m. to 9 p.m., Mondays through Fridays or 14 hours1.62037e-4 days <br />0.00389 hours <br />2.314815e-5 weeks <br />5.327e-6 months <br /> each day. The new proposal would re-duce, for billing purposes, the number of daily on-peak hours to eight, and itwould allow customers some flexibilityin determining OO 0 tn Outstanding educational facilities are another great strength of Central Eastern Pennsylvania.
There are 88 universities and colleges, five community colleges and 24 vocational-technical schools in Central Eastern Pennsylvania. Public and private schools provide the latest in learning technology to help students meet the challenge of a rapidly changing society.
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wheh their particular on-peak hours b'egin.
These proposals, being seen as positive steps by many businesses, need PUC approval.
Supplemental Energy Use PP&L is working with a number of developers who are interested in making use ofsupplemental energy sources, or in generating energy in non-traditional ways.
Musser's Dam The largest customer-owned sup-plemental energy project to begin operation in PP&L's service area in 1983 was the Musser's Dam hy-droelectric plant on Middle Creek near Selinsgrove, Pa., in Snyder County.
Musser's Dam, built in the early 1900s, was in need of repairs, and the hydro turbine, which last turned in 1954, needed to be over-hauled. American Hydro Power Co. of Villanova, Pa., repaired the dam, rebuilt the original turbine and installed a second one to in-crease plant efficiency.
The facilityis capable of gener-ating 340 kilowatts, enough power to serve about 35 residential cus-tomers. Itis fullyautomated, using a programmable controller, and can be remotely operated by com-puter from American Hydro's headquarters.
Output from the facilityis sold to PP&L under the company's Pioneer Rate program which was established in 1981 to encourage the use of renewable resources.
Eighteen Other Projects Additionally, 18 PP&L cus-tomers are generating electricity for their own use or for sale to the PP&L system.
Four biomass-conversion pro-jectswhere waste materials such as manure or wood chips are con-verted into a gas to fuel electric generation are now operating in the company's Lancaster Division.
A dozen PP&L customers are operating wind turbines ranging in capacity from 1 kilowatt to 55 kilowatts, and two other small-scale hydro projects of 10- and 50-kilowatt capability are in operation.
PepperidgeFarm Greenhouses After successfully testing the concept ofgrowing premium quali-ty tomatoes in a 1-acre greenhouse using waste heat from PP&L's nearby Montour plant, Pepperidge Farm Inc. enlarged the facilityto 6 acres in 1983.
A20-inch-diameter underground pipeline carries warm water more than a mile from the coal-fired generating plant to the greenhouse where plastic pipes embedded in a porous concrete floor act as a heat exchanger to warm the green-house floorto about 70 degrees an ideal temperature for growing plants all through the winter.
The tomatoes are grown and harvested year-round using a hy-droponic method, where water and OOO Central Eastern Pennsylvania is rich with fine museums, folk festivals, historic and cultural events unique in the countryand people that honor their heritage through colorful ceremonies and patriotic celebrations.
17
nutrients are circulated to the plant's roots.
Bryfogle's floral greenhouse, which was the initial project built on the site, also expanded its opera-tions to 6 acres from the original 3.
When combined with the Peppe-ridge Farm facility,the 12-acre site is the largest waste-heat green-house project in the United States, and the only one that has gone beyond a demonstration project into commercial operation.
Even withthe present or planned facilities, only about 1 percent of the plant's waste heat is utilized.
Manpower Planning In 1983, PP&L projected an in-crease in the number ofemployees from 8,208 at the end of 1982 to 8,644 at the end of 1983. As a result ofa highly successful effortto limit the increase in manpower, PP&L had 8,160 employees at the end of 1983. Having fewer employees will stabilize wage and benefit costs.
Included in the manpower plan-ning strategy was a voluntary early retirement incentive pro-gram. There were 365 people eligi-ble. Of those, 251 or 69 percent elected to retire.
The key to the program has been limitingthe employmentofreplace-ments. Astrong efforthas been made to realign functions and re-sponsibilities with the aim ofulti-mately reducing the number of employees.
Appointment of a manpower broker and policies to secure other positions for displaced employees are among the programs under way to make the most effective use of the company's human resources.
Management Changes Harley L. Collins, senior vice president-System Power &En-gineering, and a member of the'ompany's corpora5e management committee, retired at the end of 1983.
Collins had been with the com-pany since 1949 and worked in various engineering and system operating functions. In 1966 he became the company's representa-tive on the management committee overseeing the operation of the PJM Interconnection. In 1978 he was named to direct the depart-ment responsible for operating PP&L's generating stations and transmission facilities, and the company's engineering and con-struction activities.
John H. Saeger was promoted to vice president of the company's Susquehanna Division on Aug. 1, 1983. Saeger joined PP&L as an engineer in 1960. He advanced through several engineering posi-tions before being named manager of Bulk Power Engineering in 1978. In 1981, he became special Skilled craftsmen abound in Central Eastern Pennsyl-vaniapeople who take pridein doing the bestjob,in whatever they build. Restor-ation of the proud old Lacka-manna train station in Scranton (far right) by the Hilton hotel chain demon-strates faithin the economic weIL-being and promising future of urban areas within PP&L's service area.
18
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With good transportation good workersavailable industrial and commercial sites and an attractive blend of cityand country, and withan electric utilityofferingreliable, abundant electric energy at highly competitive rates, PP&L's service areais clearly poised foreconomicprosperity in theyears to come. This trulyis a great place to be. Andfor those not already located in Central Eastern Pennsylvania, PP&L extends an invitationwe wish you were here!
assistant to the president and the company's represen'tative to those livingin the area of the Susque-hanna plant.
Saeger succeeded Charles E.
Fuqua, who retired Aug. 1, 1988.
Fuqua began his utilitycareer in 1947 with a predecessor
- company, the Scranton Electric Co. Scranton Electric merged with PAL in 1956 and Fuqua was named assistant to the Scranton Districtmanager. He was transferred to Allentown in 1958 as staff engineer for the com-pany's vice president-Operations.
In 1962, he was promoted to Susquehanna Division superin-n, r
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tehdhnt and three years later, to divisiori manager and vice president.
William F. Hecht, manager-System Planning, was appointed vice president System Power on Sept.
1, 1983. He is responsible for the System Planning, System Operations, Power Production and Fossil Fuels departments.
Hecht joined PP&L in 1964 and worked in various engineering functions before becoming manager-Distribution Planning in 1975. A year later he was named executive director ofthe Corporate Energy Planning Council and in 1978 he became manager of System Planning.
Donald J. Trego retired as the company's assistant treasurer and manager-Taxes on July 1 after 28 years with PP&L. He joined the company as assistant to the comp-troller. He was promoted to manager-Taxes and Research in 1958 and to his most recent posi-tion in 1966.
Board of Directors Elizabeth E. Bailey, dean of the Graduate School of Industrial Administration at Carnegie-Mellon University, Pittsburgh, Pa., was elected to the board of directors on June 22, 1983.
Dr. Bailey joined Carnegie-Mellon in May 1983 after serving since 1977 on the CivilAeronautics Board in Washington, D.C., most recently as vice chairman. Prior to that, she was supervisor of the Economic Analysis Group and research head of the Economics Research Department at Bell Laboratories at Holmdel, N.J.
She is the author of two eco-nomics texts and numerous economics articles in various edu-cational and trade publications.
~ I 4
Review ofthe Company's Financial Condition and Results ofOperations This review provides a discussion ofthe Company's financial condition and results ofoperation. Addition-al information on these matters is set forthinthe finan-cial statements, schedules and notes on pages 30-42 and the selected financial and operating data on pages 28 and 29.
Results of Operations Earnings per share of common stock were $3.06 in 1983, $3.35 in 1982 and $3.17 in 1981(excluding in 1981
$0.23 applicable to a nonrecurring credit).
The decline in earnings per share in 1983 from 1982 was due primarily to: (i) the Pennsylvania Public Utility Commission's (PUC) August 1983 rate deci-sion which disallowed a return on 12.6% ofthe Com-pany's investment in generating facilities (see "1983 Rate Decision" ), (ii)higher operating costs (exclusive ofthe decrease in the net cost ofenergy),(iii)theimpact of the recession early in 1983 and (iv) a 9% increase in the average number of common shares outstanding.
The higher per share earnings in 1982 over 1981 re-flects additional revenues from a $73 millionincrease in base rates which became effective January 1, 1982.
1983 Rate Decision In August 1983, the PUC issued a final order on the Company's request to increase rates to reflect the ef-fect of placing Susquehanna Unit 1 in commercial operation and the recovery of other increased costs.
The PUC granted the Company an increase in base rate revenues of approximately
$203 millionsome
$90 million less than the amount requested.
The additional revenues granted willimprove the Company's cash flowand overall financial condition, and willincrease the amount ofmortgage bonds issu-able under the earnings coverage test provision ofthe mortgage indenture. The return allowed on the Sus-quehanna Unit 1 plant investment included in rate base replaces the previously-recorded non-cash allow-ance forfunds used during construction. Costs such as employee wages, materials and supplies and outside skilled labor incurred to operate and maintain the unit are being recovered currently in electric rates.
The rate decision, however, was not wholly favor-able. The PUC did not permit the Company to earn a return on 12.6% ofits net investment in total generat-ing facilities. The PUC decided that 945,000 kilowatts (12.6%) of the Company's total generating capacity was excess and this reduced the amount of revenues requested by about $59 million. The impact of this change will be reflected as lower earnings available for common shareowners.
1984 Rate EilingPlanned The Company expects to file in the second quarter of 1984 for increased rates to reflect the effect ofplac-ing Susquehanna Unit2 in service and to recover oth-er increased costs of providing electric service. The Company is considering requesting a phase-in of the rate increase over several years in order to moderate its impact on customers. The excess capacity issue raised in the Susquehanna Unit1rate case may also be Earnings Per Share I2 Months Ended Each Quarter Dollars Per Share 83.60 Times Interest Charges Earned 12 Months Ended Each Quarter Times Earned (Pre Tax) 3'.60 0
79 80 81 82 83 79 80 81 82 83 22
addr'essed in the Unit2 proceeding, butthe Company is unable to predict what action the PUC willtake with respect to that issue.
Electric Sales and Operating Revenues Electric energy sales increased 3.4% in 1983 from the prior year, reflecting improved economic condi-tions during the last half of 1983 and increased con-tractual sales to other utilities. Energy sales for 1982 were down 2.9% from 1981, reflecting the depressed economic conditions during 1982. When compared with 1982, residential sales for 1983 were up 93 million kwh or 1.2%, commercial-sales increased 173 million kwh or 2.9% and industrial sales were higher by 299 millionkwh or 4.1%%uo.
The changes from the prior year in total operating revenues were attributable to the following(millions of dollars):
Base rate increases went into effect January 1981, January 1982 and August 1983. A decline in the net cost ofenergy, as discussed below, resulted in the low-er revenues applicable to recovery of such costs in 1983. Contractual sales to other utilities include the amounts received from Atlantic City Electric Com-pany for the purchase by Atlantic of about 6%%uo ofthe capacity and energy ofSusquehanna Unit 1 since the unit began commercial operation in early June 1983.
Sales to ultimate customers accounted for approxi-mately 97% of the Company's revenues from electric sales over the past three years. Such revenues are un-der the jurisdiction of the PUC. The remaining 3% of revenues relate to sales to others for resale which are regulated by the Federal Energy Regulatory Commis-sion (FERC) as are interchange power sales, which are classified as a credit to operating expenses.
Electric Base rate increases...
Recovery of fuel and energy costs........
Contractual sales to other utilities.......
~ Change in customer usage and mix of customers..........
Other................
Total electric...
Steam heat...
Total 14.8 9.5 30.4 (1.6) 28.8 (8.1) 3.2 7.5 7.8 87.2 245.8 (0.9) 2.0
$86.3
$247.8 1983 1982 1981
$ 141.1
$81.6
$ 84.6 (151.9) 3.1 142.2 16.9 3.1 8.0 Net Cost ofEnergy The net cost ofenergy decreased dramatically from the amount recorded in 1982 due to three major factors.
~ Susquehanna Unit 1 was placed in commercial operation on June 8, 1983 and generated 3.2 bil-lion kilowatt-hours of electricity from that date through the end ofthe year. The electricity gener-ated by the low-cost nuclear fuel unit was de-livered to customers. This made possible the sale to other utilities of electricity generated from the Company's coal-fired units which is generally lower priced than other sources of electricity 50 Sources of Energy Billions of Kwh Disposition of Energy Billions of Kwh 50
'0, 40 30
~
30 20 20 10 10
'9 80 81 82 C7 Hydro and purchased power C3 Nuclear generation C3 Oil fired generation M Coal. fired generation 79 80 81 82 83 C3 Company use, unbilled usage and line losses C3 Interchange power sales C3 Electric energy sales billed 23
available to these utilities.The Company's nuclear unit and coal units ran with minimal problems throughout the year.
~ Starting late in 1982 and continuing throughout 1983, the Company was able to make favorably priced power purchases directly from companies other than those in the FJM Interconnection.
Most of this power was sold to other utilities at some markup.
~ Various outages ofgenerating units ofother utili-ties placed them in the market for more power in 1983. In fact, the Company's oil-firedunits, which have the highest fuel cost ofany Company units, generated 76% more electricity than in 1982, most of which was sold to other utilities.
pense incurred to finance construction expenditures and the depreciation for income tax purposes of Sus-quehanna Unit 1 were major factors causing the tax losses. At December 31, 1983, the Company Pad a
$157 million state income tax loss carryforward and a $116 million federal income tax loss carryforward.
The Company's construction expenditures have en-abled it to qualify for substantial investment tax credits. At the end of 1983, an estimated
$242 mil-lion ofinvestment tax credits was available in excess of the amount used to reduce federal income tax pay-ments. These unused investment tax credits may be used to reduce future federal income tax liabilities.
For additional information concerning income taxes, see the Schedule ofTaxes on page 31 and Note 4 to Financial Statements.
Wages and Benefits, Other Operating Costs and Depreciation Wages and benefits and other operating costs in-creased in both 1983 and 1982 due to inflation.In 1983, the increase also reflects the costs related to the opera-tion of Susquehanna Unit 1.
Increases in deprecia-tion reflect additions to plant in service, including Susquehanna Unit 1 in 1983. The provision for depre-ciation, as a percent of average depreciable property, declined from 3.3% in 1982 to 2.7% in 1983 due to the use ofa modified sinking fund method ofdepreciation for the Susquehanna plant.
Income Taxes In 1982 and 1983, the Company had losses for in-come tax purposes. The large amount of interest ex-Allowance for Funds Used During Construction (AFUDC)
The amount ofAFUDC has increased steadily over the past several years due primarilyto the increasing level of construction work in progress related to the two Susquehanna units. Construction of the Susque-hanna units accounted for about $662 million of the total $692 millionofAFUDCrecorded during the three years 1981-1983. With the commercial operation of Susquehanna Unit 1, the Company stopped record-ing AFUDC on its $1.8 billion investment in that facility. After the completion ofUnit 2, scheduled for the fourth quarter of 1984, the amount ofAFUDC re-corded will decrease substantially.
See Note 5 to Fi-nancial Statements for additional information con-cerning the AFUDC.
Construction Work in Progress vs. Net Plant in Service Cost of Fossil Fuel Received
~
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W Construction work in progress C3 Net plant in service
~ After Susquehanna Unit 2 in service 79 80 81 82 83
~sa Cost ofcoalper ton c=i Cost ofresidual oilper barrel 24
Sttsquehanna Plant The Company's construction program for the past decade has been dominated by the construction ofthe Susquehanna nuclear plant. The Susquehanna plant consists of two nuclear-fueled generating units. Alle-gheny Electric Cooperative, Inc. owns a 10% undi-vided interest in the plant and pays on a current basis its proportionate share of construction and nuclear fuel expenditures a'nd operating expenses. Each Sus-quehanna unit has a net capability of 1,050,000 kilo-watts and the Company's 90% share of each unit is 945,000 kilowatts.
Susquehanna Unit 1 was placed in commercial op-eration on June 8, 1983 and Susquehanna Unit 2, which is the only generating facility that the Com-pany has under construction at this time, is scheduled to be placed in commercial operation during the fourth quarter of 1984. The Company currently estimates that its 90% share ofthe in-service cost ofthe two Sus-quehanna units, excluding nuclear fuel, willbe about
$3.7 billion.
Capital Expenditure Requirements With completion of the Susquehanna plant, con-struction expenditures are expected to decline sub-stantially. The schedule below shows actual construc-tion and nuclear fuel expenditures for the years 1981-1983 and current projections for the years 1984-1986.
Construction expenditures during the three years 1981-1983 totaled $2.0 billion and are expected to be about $0.9 billion during the three years 1984-1986, a decline of approximately $1.1 billion from the prior three years.
Improved Financial Condition Not unlike the pattern experienced by other electric utilities in similar circumstances, the extended con-struction period of the Susquehanna plantwith its heavy financing demands has adversely affected the Company's financial condition over a period of time as evidenced by such trends as: a decline in inter-est coverage; an increase in the portion ofnet income represented by the allowance for funds used during construction; and restrictions on financing capabili-ties due to earnings coverage test limitations.
The rate relief granted by the PUC in August 1983 reflecting the commercial operation of Susquehanna Unit 1 has helped improve the Company's financial condition. The Company's times interest charges earned ratio increased from 2.08 times in 1982 to 2.34 times in 1983, the first notable increase in this key fii-nancial indicator in the past five years. Funds from operations in 1983, as detailed on page 37, increased
$75 million over 1982, and the Company's ability to issue mortgage bonds under the earnings coverage test of the mortgage indenture has improved sub-stantially from the end of 1982.
At December 31, 1983, the Company would have been able to issue approximately $420 million of ad-ditional first mortgage bonds under the mortgage in-denture earnings test.
Ifthe PUC grants adequate rate relief to reflect the net effect of placing Susquehanna Unit 2 in service, such rate relief, together with that granted in August 1983 and the large decline in construction expendi-tures, should result in a substantial improvement in the Company's financial condition over the next several years.
Construction and Nuclear Fuel Expenditures (Millionsof Dollars)
--Actunl 1981 1982 1983
projected 1984 1985 1986 Construction expenditures (a)
Susquehanna plant Transmission nnd distribution facilities Environmental Other
$269
$ (14)(b)
$495
$638
$540 113 10 131 254 51
$305 81 104 10 13 114 ill 474 214 66 46
$540
$260 76 31 21 623 67
$690 69 62 19 4
32 43 758 649 53 77
$811
$726 Nuclear fuel requirements (c)
Total Allowance for funds used during construction (which is included in the above amounts)...............
$194
$246
$252
$153
$ (33)(b)
$ 13 (a) Construction plans are revised from time to time to reflect changes in conditions. Actual construction costs for projects mny vary from those projected becnusc ofchanges in plans, cost fluctuntions, environmentnl regulations nnd other factors.
(b) The Susquehanna station construction expenditures are cstimnted to be $31 millionin 1985. Those expenditures nnd AFUDC have been reduced by the estimated tnx reduction applicable to construction interest included in the tnx cnrryforwnrd loss expected to be used in 1985.
(c) Substnntinlly nil nuclear fuel requirements through 1986 are ex pected to be financed through sale nnd leaseback arrangements.
25
Financing The financing ofits construction program requires the Company to engage in frequent sales ofsecurities, including debt and preferred, preference and common stocks. Interim financing is obtained principallyfrom bank borrowings and the sale of commercial paper notes.
Outside financing totaled
$2.0 billion during the three years 1981-1983. In addition to securities sales, the Company sold and leased back $287 million of nuclear fuel during the two years 1982 and 1983. De-tails of the amount of securities sold and other infor-mation on sources and uses offunds during 1981-1983 are set forth in the Statement ofChanges in Financial Position on page 37.
The Company presently estimates that outside fi-nancing during the three years 1984-1986 willbe ap-proximately $0.5 billion,or about $ 1.5 billionless than required during the prior three years. Funds from these securities sales together with funds generated from operations willbe used to finance construction expenditures, repay $454 millionoflong-term debt ob-ligations and meet $ 137 millionofpreferred and pref-erence stock sinking fund requirements.
Funds generated from operations are expected to provide about 60% of total funds requirements in 1984-1986 compared with 17% of total funds require-ments generated from operations in 1981-1983.
Tentative Plans for Securities Sales The Company tentatively plans to issue approxi-mately $425 million of securities in 1984. This plan does not contemplate any public sale ofcommon stock.
Because ofa reduced need for equity capital, the Com-pany intends to modify its dividend reinvestm'ent plan by the end of1984 to eliminate the 5%discount and provide for the common stock to be obtained through market purchases rather than the issuance of new shares. The exact amount, nature and timing ofsales of securities in 1984 and subsequent years willbe de-termined in the light of market conditions, the Com-pany's ability to meet legal restrictions on the issuance of certain securities and other factors, in-cluding the granting oftimely and adequateraterelief.
Interest Charges and Preferred/Preference Stock Dividends During the 1981-1983 period, the Company's out-standing long-term debt increased
$576 million and outstanding preferred and preference stock increased
$204 million. The annual interest requirements on long-term debt increased from $ 191 million at the beginning of 1981 to $260 million at the end of 1983 and the annual dividend requirements on preferred and preference stock increased from $62 million to
$89 million during the same time period. This repre-sents a $96 millionor 38% increase in the annual cost of such securities over the three-year period.
Impacts ofInflation Certain effects ofinflation on the operations of the Company have been estimated on the basis prescribed by the Financial Accounting Standards Board and are set forth on pages 43-45.
,400 Capital Requirements Millionsof Dollars 31 Sources of Capital Millionsof Dollars 31,400 1,050 1,050 700 700 350 350 0
81 82 83 84 85 86 Aceuoj~Projecled~
E3 Susquehanna construction expenditures C3 Other construction and nuclear fuel expenditures C3 Other (principally retirement of securities) 0 81 82 83 84 85 86 Aceuuj~Projeceed~
Cl Outside financing C3 Other (principally from operations and the allowance for funds used during construction, less dividends)
Cl Sale of nuclear fuel 26
Management's Report on the Financial Statements
'he management ofPennsylvania Power &Light Company is responsible for the preparation, integrity and objectivity ofthe financial statements and other sections of this annual report.
The financial statements have been prepared in conformity with generally accepted accounting principles and the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission. In preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently available facts and circumstances.
The Company maintains a system of internal accounting controls designed to provide reasonable, but not
- absolute, assurance that assets are safeguarded and that transactions and events are executed in accordance with management's authorization and recorded properly to permit preparation of financial statements in accordance with generally accepted accounting principles. The concept ofreasonable assurance recognizes that the cost, of a system of internal accounting controls should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal accounting controls.
Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties and the utilization of written policies and procedures. In addition, the Company maintains an internal auditing program to evaluate the
- adequacy, application and compliance with the Company's internal accounting controls, policies and procedures.
Deloitte Haskins & Sells, independent certified public accountants, is engaged to examine and to render an opinion as to whether the financial statements, considered in their entirety, present fairly the Company's financial position, operating results and changes in financial
- position, in conformity with generally accepted accounting principles.
Their examination is conducted in accordance with generally accepted auditing standards and includes such procedures believed by them to be sufficient to provide reasonable assurance that the financial statements are not materially misleading and do not contain material errors.
The Board of Directors, acting through its Audit Committee, oversees management's responsibilities in the preparation of the financial statements. In performing this function, the Audit Committee, which is composed of directors who are not employees of the Company, meets periodically with management, the internal auditors and the inde-pendent certified public accountants to review the work of each.
Deloitte Haskins & Sells and the internal auditors have free access to the Audit Committee and to the Board of Directors, without management present, to discuss internal accounting control, auditing and financial reporting matters.
Index of Financial Data Selected Financial and Operating Data Financial Statements Statement of Income Schedule of Taxes Balance Sheet Schedule of Capital Stock Schedule of Long-Term Debt Statement of Changes in Financial Position Statement of Earnings Reinvested Notes to Financial Statements Auditors'pinion Supplementary Information on Changing Prices Summary of Quarterly Results of Operations Common Stock Price and Dividend Data 28 30 31 32 34 36 37 38 38 43 43 46 46 27
Selected Financial and Operating Data Income Items-thousands Operating revenues Operating income Allowance for funds used during construction Net income (a)
Earnings applicable to common stock (a)
Balance Sheet Items thousands (b)
Net utilityplant in service Construction work in progress Total assets Long.term debt Preferred and preference stock With sinking fund requirements Without sinking fund requirements Common equity Short-term debt Total capital provided by investors Financial Ratios Return on average common equity% (a)........
Embedded cost rates (b)
Long-term debt%
Preferred and preference stock%
Times interest earned before income taxes (a)....
Ratio of earnings to fixed charges total enterprise basis (a) (c)
Depreciation as% ofaverage depreciable property Common Stock Data Number of shares outstanding thousands Year-end Average Earnings per share (a)
Dividends declared per share Taxability of dividend income
% (d)
Book value per share (b)
Market price per share (b)
Dividend payout rate-% (a)
Dividend yield% (d) (e)
Price earnings ratio (a) (e)
Fuel Cost Data Cost per kwh generated cents Coal-fired steam stations Nuclear steam station (g)
Oil-fired steam station Combustion turbines and diesels (oil)......
Average Cost of fossil fuel received at steam stations Coalper ton Residual oilper bbl.
Employees (b) 1983
$1,248,397 289,930 251,548 296,011 210,173
$3,847,301 1,730,228 6,049,181 2,387,249 714,830 231,375 1,767,949 190,000 5,291,403 12.29 10.98 9.66 2.34 2.17 2.7 70,335 68,642
$ 3.06
$ 2.40 0
$25.12
$ 20'/s 79 10A8 7.48 1.68 0.66 5.23 10.21 2.15
$39.37
$29.79 8,160 1982
$1,219,548 223,083 246,423 278,886 210,572
$2,112,169 2,923,841 5,530,939 2,323,318 621,634 231,375 1,643,695 160,545 4,980,567 13.60 10.81 9.41 2.08 1.92 3.3 66,461 62,809
$ 3.35
$ 2.32 0
$24.71 21 70 11.95 5.79 1.77 5.62 10.74 2.20
$42.32
$30.94 8,208 1981
$1,133,278 211,050 193,861 244,077 183,182
$2,054,039 2,312,292 5,037,986 2,165,381 544,231 2311375 1,435,437 175,489 4,551,913 12.74 10.80 8.93 1.94 1.78 3.2 58,447 53,912
$ 3.17
$ 2.24 0
. $24.52
$ 17'/a 72 13.34 5.30 1.64 5.75 10.51 2.30
$39.59
$33.47 7,999 1980 885,451 168,659 141,241 179,759 120,384
$1,954,762 1,874,397 4,300,080 1,811,692 510,800 231,375 1,250,717 56,324 3,860,908 10.38 10.60 8.49 2.10 1.90 3.2 50,627 45,598
$ 2.64
$ 2.12 0
$24.68 155/s 82 12.01 6.68 lAO 4.55 7.89 1.96
$33.78
$26.44 7,702 19gt9 860,498 182,823 105,205 182,198 133,532
$1,885,978 1,473,220 3,782,228 1,557,158 441,400 231,375 1,113,441 30,775 3,374,149 12.91 9.02 8.43 2.72 2.40 3.2 43,497 40,231
$ 3.32
$ 2.04
~ 39
$25.57 17o/4 62 10.38 5.92 1.30 3.20 4.68 1.65
$30.70
$18.81 7,590 (n) 1981 net income nnd earnings applicable to common stock include n nonrecurring credit related to an accounting change, while indicated financial ratios nnd common stock data for that year are computed excluding the nonrecurring credit from earnings.
(b) Year.end.
(c) Fixed charges consist ofinterest on short. nnd long-term debt, other interest charges nnd the estimated interest component ofrentals.
(d) Based on holding one share of common stock for the entire year.
(e) Based on average of month-end market prices.
(f) The winter peaks shown were renched early in the subsequent year.
(g) The Company's first nuclear unit wns placed in commercial operation June 8, 1983.
28
'Sales Data Electric customers (b)
Average annual residential kwh use.........
Electric energy sales billedmillions of kwh Residential Commercial Industrial Other Total sales to customers Contractual sales to other utilities.........
Total electric energy sales billed.........
Sources of energy soldmillions of kwh Generated Coal-fired steam stations Nuclear steam station (g)
Oil-fired steam station Combustion turbines and diesels (oil)....
Hydroelectric stations Power purchases Interchange power sales Company use, unbilled usage and line losses Total electric energy sales billed.........
1983 1,026,144 9,051 8,138 6,119 7,623 699 22,579 478 23,057 26,885 4,509 5,581 45 700 37,720 3,880 (16,405)
(2,138) 23,057 1982 1,013,623 9,039 8,045 5,946 7,324 675 21,990 307 22,297 25,477 293 3,186 13 612 29,581 1,414 (6,900)
(1,798) 22,297 1981 1,006,570 9,157 8,088 5,893 7,968 696 22,645 309 22,954 24,841 4,705 32 622 30,200 744 (6,274)
(1,716) 22,954 1980 999,525 9,205 8,056 5,743 7,910 742 22,451 42 22,493 26,596 5,692 33 533 32,854 1,415 (9,798)
(1,978) 22,493 1979 987,005 9,353 8,066 5,554 8,135 758 22,513 42 22,555 26,487 5,777 37 799 33,100 2,124 (11,089)
(1,580) 22,555 Electric Revenue Data By class of service thousands Residential Commercial
~ Industrial Other energy sales Total sales to customers
~ Contractual sales to other utilities...
Total from energy sales billed Unbilled revenues, net...........
Other operating revenues...
Total electric operating revenues Average price per kwh billedcents Residential Commercial Industrial Total for ultimate customers.......
Total for all customers 529,911 386,617 367,950 36,367 1,320,845 29,402 503,557 363,233 347,726 35,232 1,249,748 12,499 411,668 292,984 295,006 30,098 1,029,756 9,386
$349,714 246,024 245,513 27,080 868,331 1,400
$341,987 232,610 244,265 26,154 845,016 1,510 1,350,247 (119,539) 12,972 1,262,247 (61,652) 12,708 1,039,142 76,884 10,142 869,731 10,595 846,526 9,941 6.51 6.32 4.83 5.91 5.86 6.26 6.11 4.75 5.74 5.66 5.09 4.97 3.70 4.59 4.53 4.34 4.28 3.10 3.90 3.87 4.24 4.19 3.00 3.79 3.75
$1,243,680
$1,213,303
$1,126,168
$880,326 8856,467 Generation Data Generating capabilitythousands of kw (b)
Winter peak demand-thousands of kw (f)
Generation by fuel source %
Coal Nuclear (g)
Oil Hydroelectric Steam station availability%
Coal-fired Nuclear (g)
Oil-fired.
Steam station utilization-%
Coal-fired Nuclear (g)
Oil-fired.
7,494 4,869 71.3 11.9 14.9 1.9 78.8 67.7 75.8 74.0 67.5 38.8 6,546 4,489 86.1 1.0 10.8 2.1 79.1 80.4 70.2 22.2 6,546 5,207 82.2 15.7 2.1 74.7 73.4 68.4 32.8 6,546 4,945 81.0 17.4 1.6 78.7 79.6 73.0 39.5 6,546 4,427 80.0 17.6 2.4 76.6 80.0 73.1 40.2 29
Statement Of InCOme (Thousands of Dollars) 1983 1982 1981 Operating Revenues (Notes 2 and 3)
Operating Expenses Net cost of energy Fuel Power purchases Interchange power sales 768,583 186,955 (740,964) 633,694 59,571 (302,149) 684,636 28,743 (320,240)
$1,248,397
$1,219,548
$1,133,278 Wages and employee benefits Other operating costs Depreciation Income taxes (Note 4)
Taxes, other than income Deferred Susquehanna operating costs and energy savings net (Note 3) 214,574 211,752 166,839 107,885 112,055 125,470 19,892 891,116 171,182 142,788 92,222 87,489 111,668 398,139 148,317 129,587 85,513 59,402 106,270 Operating Income Other Income and (Deductions)
Allowance for equity funds used during construction (Note 5)
Deferred Susquehanna capital costs (Note 3)
Income tax credits (Note 4)
Othernet Income Before Interest Charges Interest Charges Long-term debt Short term debt and other Allowance for borrowed funds used during construction Income Before Nonrecurring Credit.............
Nonrecurring Credit Related to Accounting Change, Net of Income Taxes ($13,236) (Note 2).............
Net IncomeBefore Dividends on Preferred and Preference Stock Dividends on Preferred and Preference Stock Earnings Applicable to Common Stock..........
Earnings Per Share of Common Stock (a)
Before Nonrecurring Credit Nonrecurring Credit (Note 2) 958,467 289,930 996,465 223,083 131,362 29,935 21,976 (9,518) 173,755 463,685 90,295 77,744 (588) 167,451 390,584 258,629 29,231 (120,186) 167,674 296,011 239,769 28,007 (156,128) 111,648 278,886 296,011 85,838 210,173 278,886 68,814 210,572 3.06 3.85 922,228 211,050 75,218 65,612 2,086 142,916 353,966 210,549 30,364 (118,648) 122,270 231,696 12,381 244,077 60,895 183,182 3.17
.23 Average Number of Shares Outstanding (thousands)
Dividends Declared Per Share of Common Stock.....
68,642 62,809 58,912 2 40 2.32 2.24 3.06 3.35 3.40 (a) Based on average number of shares outstanding.
See accompanying Schedules and 1Votes to Financial Statements.
30
Schedule Of TaxeS (Thousands of Dollars) 4 ~
Income Tax Expense (Note 4)
Included in operating expenses ProvisionFederal State Deferred-Federal State Investment tax credit, netFederal Included in other income and deductions Provision (credit)Federal State Included in nonrecurring credit DeferredFederal State Total income tax expense-Federal State Detail of deferred taxes in operating expenses Tax depreciation Test operation of generating unit...........
'eferred Susquehanna operating costs and energy savings net......
Unbilled revenues
~ Recoverable fuel and energy costs State utilityrealty tax Other Reconciliation of Federal Income Tax Expense Indicated federal income tax on pre-tax income at statutory tax rate (46%)
Reduction due to:
AFUDC, less unused construction interest deduction Tax depreciation Tax and pension cost Deferred Susquehanna capital costs Other Total income tax expense Effective income tax rate 1983
$ 15,823 6,787 22,610 94,689 (938) 93,751 (4,306)
$112,055
$ (15,216)
(6,760)
$ (21,976)
$ 90,990 (911)
$ 90,079
$101,728 (10,856)
(11,411) 11,266 3,024
$ 93,751
$177,601 65,088 221 6,314 13,770 2,129 87,522
$ 90,079 23.3%
1982
$ 55,109 9,762 64,871 55,351 (591) 54,760 (32,142)
$ 87,489
$ (67,981)
(9,763)
$ (77,744)
$ 10,337 (592) 9,745
$ 58,024 (3,373) 2,213 (2,104)
$ 54,760 3132 770 110,827 4,922 6,833 443 123,025 9,745 3.4%
1981
$ 54,971 18,030 73,001 (22,868)
(5,483)
(28,351) 14,752
$ 59,402
$ (52,596)
(13,016)
$ (65,612)
$ 10,546 2,690
$ 13,236 4,805 2,221 7,026 513 (248) 1,057 (22,483)
(6,269)
(921)
$ (28,351)
$ 115,507 89,176 10,758 6,061 2,486 108,481 7,026 2.8%
Taxes, Other Than Income State gross receipts State capital stock State utilityrealty Social security and other
$ 60,112 20,074 31,803 13,481
$125,470
$ 56,515 18,243 26,591 10,319
$ 111,668
$ 46,149 15,650 34,724 9,747
$106,270 See accompanying iVotes to Financial Statements.
Balance Sheet at December 31 (Thousands of Dollars)
Assets UtilityPlant Plant in service at original cost Electric Steam heat.....................
Less accumulated depreciation Construction work in progress-at cost Nuclear fuel in process at cost (Note 8) 1983
$4,761,151 8,704 4,769,855 922,554 3,847,301 1,730,228 10,609 5,588,138 1982
$2,939,242 8,593 2,947,835 835,666 2,112,169 2,923,841 8,562 5,044,572 Investments Associated companies-at equity Receivable from litigation settlement Nonutility property and otherat cost or less 16,614 28,500 8,410 53,524 13,514 29,500 7,017 50,031 Current Assets Cash Accounts receivable (less reserve: 1983, $5,020; 1982, $4,732)
Customers Interchange power sales Other Unbilled revenues Fuel (coal and oil)-at average cost Materials and supplies at average cost Other 6,753 109,934 39,510 6,205 56,744 127,090 21,400 15,743 383,379 6,562 85,924 39,233 22,603 82,887 157,082 22,435 10,256 426,982 Deferred Debits 24,140
$6,049,181 9,354
$5,530,939 See accompanying Schedules and ¹tes to Financial Statements.
32
Capitalization Common equity Common stock Capital stock expense Earnings reinvested Liabilities 1983
$1,223,064 (15,973) 560,858 1,767,949 1982
$1,141,649 (14,116) 516,162 1,643,695 Preferred and preference stock With sinking fund requirements Without sinking fund requirements Long-term debt 714,830 231,375 2,307,073 5,021,227 621,634 231,375 2,264,238 4,760,942 Current Liabilities Long-term debt due within one year Commercial paper and other notes Accounts payable Taxes accrued Interest accrued Dividends payable Deferred income taxes Energy revenues to be refunded Other 80,176 190,000 92,563 27,063 64,578 64,428 27 773 93,396 32,815 672,792 59,080 160,545 83,487 28,762 57,695 55,875 16,507 33,125 495,076 Deferred and Other Credits Deferred investment tax credits Deferred income taxes Other 111,038 205,916 38,208 355,162 110,466 123,862 40,593 274,921 Commitments and Contingent Liabilities (Notes 8 and 11)
$6,049,181 85,530,939 See accompanying Schedules and Notes to Financial Statements.
33
Schedule of Capital Stock at December 31 Shares Authorized Shares Outstanding 1983 Outstanding.
Thousands of Dollars 1983 1982 Preferred Stock-$ 100 par, cumulative (a) 4'/e%
Series 629,936 10,000,000 530,189 5,191,766 53,019 519,176 53,019 470,212 Preference Stockno par, cumulative (a)
Common Stock-no par (a)
Dividend reinvestment installments received 5,000,000 85,000,000 3,740,097 70,334,870 572,195 523,231 374,010 329,778
$1,222,393 671
$1,140,550 1,099
$ 1,223,064
$1,141,649 Sinking Fund Provisions(c)
Shares to bc Redeemed Redemption Annually Period With Sinking Fund Requirements Series Preferred 7A0%
7.50%
7.75%
8.00%
8.00%, Second 8.25%
8.75%
9.24%
10.75% (e) 11.00%, Adjustable (e) (i)...
11.00% (e) 11.25% (e) 14.00% (e)
Preference
$8.625 (e)..................
$11.00
$11.60 (i)..................
$13.00
$13.00, Second (i)..........
$15.00 (i)..................
16,000 150,000 120,000 25,000 20,000 100,000 30,000(d) 30,000(d) 53,000(d) 30,000 260,000 15,000 (g) 1984-2003 1985 1984-1988 1984-2002 1985-1989 1985-1989 1985-2004 1984-2005 1986-1990 1989-1993 1988 1989.1998 (g) 1986-1990 1984-2000 1989-2008 1984-1998 1989-2008 1988-2007 102,000 25,000(d) 25,000(d) 12,500(d) 25,000(d) 25,000(d)
Details of Preferred and Preference Stock (b)
Optional Redemption Price Per Share 1983
$104.44 112.00 103.45 112.00 112.00 112.00 115.00 115.00 115.00 125.00 125.00 125.00 124.00 None 106.60(h) 114.00 107.15(h) 114.00 120.00 320,000 150,000 600,000 475,000 100,000 500,000 600,000 648,210 265,000 150,000 260,000 150,000 340,000 510,000 408,200 500,000 171,897 500,000 500,000
$ 32,000 15,000 60,000 47,500 10,000 50,000 60,000 64,821 26,500 15,000
~
26,000 15,000 34,000 51,000 40,820 50,000 17,189 50,000 50,000
$ 33,600 15,000 60,000 50,000 10,000 50,000 60(000 67,756 26,500 34,000 51,000 44,088 19,690 50,000 50,000 Shares Outstanding Outstanding Thousands of Dollars 1983 1983 1982 Without Sinking Fund Requirements 4'/Bo Preferred...............
Series Preferred 3.35%
4AOo/o 4.60%
8.60%
9.00%
Preference
$8.00
$8AO
$8.70 110.00, 103.50 102.00 103.00 107.00 107.00 103.00 104.00 103.00 530,189 41,783 228,'/73 63,000 222,370 77,630 350,000 400,000 400,000
$714,830
$ 53,019 4,178 22,878 6,300 22 237 7,763 35,000 40,000 40,000
$231,375
$621,634
$ 53,019 4,178 22,878 6,300 22 237 7,763 35,000 40,000 40,000
$231,375 See accovrpanying Notes to Financial Statements.
34
Increases (Decreases) in Capital Stock (shares and amount in thousands) 1983 1982 Shares Amount Shares Amount 1981 Shares Amount Common Stock Public offering Dividend reinvestment plan Employee stock ownership plan..
Series Preferred Stock (j) 7 40%
8.00%
9.24%%uo 11.00%, Adjustable (f)............
11.00%
11.25%
14.00%
Preference Stock (j)
$9.25
$11.00
$11.60
$13.00
$13.00, Second
$15.00 3,874
$81,843 (16)
(1,600)
(25)
(2,500)
(29)
(2,935) 150 15,000 260 26,000 150 15,000 (33)
(3,268) 500 50,000 (25)
(2,500)
(16)
(1,600)
(17)
(1,667) 340 34,000 (18)
(1,771)
(16)
(1,559) 500 50,000 4,000
$77,124 3,971 69,930 43 702 4,000
$65,440 3,657 55,989 163 2,676 (16)
(1,600)
(56)
(5,577)
(40)
(4,000)
(41)
(4,141)
(13)
(1,251) 500 50,000 (a) Each share ofpreferred, preference and common stock entitles the holder to one vote on any question presented to any share-owners'eeting.
(b) Liquidation prices per share of preferred stock (payable in preference over the preference stock) and preference stock are as follows (plus in each case any unpaid dividends):
Involuntary Voluntary Class Liquidation Liquidation 498o Preferred
$ 100
$ 100 Series Preferred
$ 100 Redemption price in effect.
Preference
$ 100 Redemption pricein effect, except forthe $8.625 Series which is $ 100.
(c) The aggregate amount of sinking fund redemption require-ments through 1988 are (thousands ofdollars): 1984, $22,850; 1985, $52,850; 1986, $61,850; 1987, $61,850; 1988, $86,950.
(d) On certain sinking fund redemption dates the Company may redeem additional shares up to the number ofshares of these series required to be redeemed annually.
(e) In the event there is a loss of certain federal income tax benefits to corporate holders of these stocks, the Company would bc required to make indemnity payments to the owners upon the sale or redemption ofthe stocks to provide an agreed upon effective yield after federal income taxes. The Company estimates that as of December 31, 1983 it could be required to make such indemnity payments in the future not in excess of
$4.5 million.
(f) Effective April 1, 1988, the dividend rate is subject to a one.
time adjustmcnt pursuant to a formula based on the then current prime rate.
(g)Thc 14.00% Prcfcrred Stock has a sinking fund provision which requires redemption of the followingnumber of shares annually at $ 100 per share: October 1, 1986.1987, 85,000; 1988-1989, 51,000; 1990, 68,000.
(h) The $ 11.00 and $ 13.00 Preference Stocks may not be refunded through certain refunding operations prior to July 1, 1985and October I, 1984, respectively.
(i) Ownership of the $ 11.60, $ 13.00, Second Series and $15.00 Preference Stocks may be evidenced by holding Depositary Preference
- Shares, each representing
'/~ share of Prcfercnce Stock.
(j) Decreases in Preferred and Preference Stocksrepresent:(i) the redemption ofstock pursuant to sinking fund requirements, or (ii)shares reacquired through market purchases which have been cancelled. The reacquired and cancelled shares are used to meet sinking fund requirements.
Sec accompanying Notes to Financial Statements.
35
Schedule of Long-Term Debt at December 31 First Mortgage Bonds (a) 3'/s%
97/s/o 15%
97/s%
1ls/~%%uo 15%%uo
'7/s%
3s/s%%uo 15%
16'/s%
14'/4%
16'/s%
16'/s%
16'/2%
16'/s%
4/s% to 16'/s%
4s/s% to 6s/4%
7'%%uo to 9%%uo 8'/4% to 9/4%
13'/s% to 15/s%
Pollution control 4/s'%%uo to 5/s% Series A 77/s% to 8~/s% Series C 11'/4% to 11'/s% Series D Maturity Date (b)
March 1, 1983 June 1, 1983 February 1, 1984 June 1, 1984 December 15, 1984 February 1, 1985 June 1, 1985 August 1, 1985 February 1, 1986 August 1, 1986 December 12, 1986 August 1, 1987 September 1, 1987 August 1, 1988 September 1, 1988 1989-1993 1994-1998 1999-2003 2004-2008 2009-2013 (c)
(c)
(c)
Outst Thousands 1983 25,000 33,342 16,665 33,329 30,000 16,665 33,329 25,000 16,670 30,900 50,000 36,000 10,400 10,100 10,400 351,700 90,000 345,000 555,000 325,000 23,500 20,000 70,000 16,665 33,329
~ 30,000 16,665 33,329 25,000 16,670 30,900 50,000 36,000 10,400 10,100 10,400 301,700 90,000 345,000 555,000 200,000 25,000 20,000 70,000 anding of Dollars 1982 Other Long-Term Debt (Note 6)
Secured term notes (a)(d)
Nuclear fuel trust (d)
Miscellaneous promissory notes Unamortized (discount) and premiumnet Less amount due within one year March 31, 1991 February 1, 1987 1984-1989 2,099,658 300,000 796 2,400,454 (13,205) 2,387,249 80,176
$2,307,073 1,984,500 300,000 50,000 924 2,335,424
'12,106) 2,323,318 59,080
$2,264,238 (a) Substantially all utility plant is subject to the lien of the Company's first mortgage and certain utility plant is also subject to the lien of a second mortgage.
(b) Aggregate long-term debt maturities through 1988 are (thousands of dollars):
- 1984,
$80,176;
- 1985,
$75,964;
- 1986,
$98,599;
- 1987,
$47,429;
- 1988,
$21,511.
Maximum sinking fund requirements aggregate
$32.8 millionthrough 1988 and may be met with property additions or bonds.
(c) Pollution control bonds mature annually as follows (thou.
sands of dollars): (i) Series A on May 1,
- 1985,
$800; 1986-2002,
$900; 2003, $7,400 (ii) Series C on April 1, 2000,
$4,000; 2006-2009,
$2,000;
- 2010,
$8,000 (iii) Series D on November 1, 2002, $ 15,000; 2012, $55,000.
(d) Variable interest rate.
See accompanying Notes to Financial Statements.
36
Statement of Changes in Financial Position (Thousands of Dollars)
Source of Funds Funds from operations Net income (1981 includes $12,381 nonrecurring credit)
Charges (credits) to income not involving working capital Depreciation Noncurrent deferred income taxes and investment tax credits net.................
Deferred Susquehanna costs-net.............
Allowance for funds used during construction Other Outside financing Common stock Preferred and preference stock First mortgage bonds Long-term bank loans net increase......
Secured term notes Nuclear fuel trust notes net increase....
Short term debtnet increase (decrease)
'orking capital (excluding debt)decrease (a)
Sale of nuclear fuel 1983
$ 296,011 107,885 78,178 (10,043)
(251,548) 694 221,177 81,415 106,000 175,000 29,455 391,870 170,768 74,319 8 858,134 1982 278,886 92,222 20,404 (246,423) 1,208 146,297 147,475 84,000 365,674 300,000 50,000 (14,944) 932,205 54,862 215,897
$1,349,261 1981
$244,077 85,513 7,830 (193,861)
(42) 143,517 124,729 50,000 179,071 175,000 119,165 647,965
$791,482 Application of Funds Construction expenditures Nuclear fuel expenditures Allowance for funds used during construction Securities retired Preferred and preference stock First mortgage bonds Long-term bank loans net decrease...
Nuclear fuel trust notes-net decrease Dividends on preferred, preference and common stock Working capital (excluding debt)increase (a)
Othernet 8 648,661 77,267 (251,548) 474,380 12,804 59,842 50,000 122,646 251,182 9,926 8 858,134 757,878 53,299
~(246,428 564,754 6,597 178,000 375,000 559,597 216,601 8,309
$1,349,261
$623,594 66,704 (193,861) 496,437 16,569 500 17,069 183,886 112,561 (18,471)
$791,482 (a) Changes in components of working capital (excluding debt)
Cash Accounts receivable Unbilled and refundable revenues, net of deferred taxes Fuel (coal and oil)
Accounts payable and accrued taxes...................'.
Other-net Increase (Decrease) 191 7,889 (130,805)
(29,992)
(7,377)
(10,674)
$(170,768) 827 60,894 (G3,869)
(G,746)
(20,536)
(25,432)
S(54,862) 8 (419)
(17,363) 130,249 36,951 (G08)
(36,249)
$ 112,561 See accompanying Schedules and ¹tes ta Financial Statements.
37
Statement OfEarningS ReinVeSted (Thousands of Dollars) 1983 1982 1981 Balance, January 1
Add Net Income (1981 includes $12,381 nonrecurring credit)
Deduct Cash dividends declared Preferred stockat required annual rates..........
Preference stockat required annual rates.........
Common stockper share:
1983, $2.40; 1982, $2.32; 1981, $2.24 Issuance cost ofretired preferred and preference stock..
Balance, December 31
$516,162 296,011 812,173 47,268 38,570 165,344 133 251,315
$560,858
$453,885 278,886 732,771 38,730 29,584 148,287 8
216,609
$516,162
$393,708 244,077 637,785 38,513 22,382 122,991 14 183,900
$453,885 Notes to Financial Statements
- 1. Summary ofAccounting Policies Accounting Records Accounting records are maintained in accordance with the Uniform System ofAccounts prescribed by the Federal Energy Regulatory Commission (FERC) and adopted by the Pennsylvania Public Utility Commission (PUC).
Associated Companies Investments in unconsolidated subsidiaries (all wholly owned) and in Safe Harbor Water Power Corporation (ofwhich the Company owns one-third of the outstanding capital stock representing one-half of Safe Harbor's voting securities) are recorded using the equity method of accounting. Unconsoli-dated subsidiaries operate in the United States and are engaged in coal mining, holding coal reserves, oil pipeline operations and real estate investment.
The Company believes that its financial position and results of operations are best reflected without consolidation of these subsidiaries since they are not engaged in the business of generating or distri-buting electricity. All unconsolidated subsidiaries considered in the aggregate would not constitute a "significant subsidiary" as that term is defined by the Securities and Exchange Commission.
UtilityPlant and Depreciation Additions to utilityplant and replacement ofunits of property are capitalized at cost. The cost ofunits ofproperty retired or replaced is removed fromutility plant accounts and charged to accumulated depreci-ation. Expenditures for maintenance and repairs of property and the cost of replacement of items de-termined to be less than units of property are charged to operating expenses.
The annual charge for depreciation is computed on a straight-line method for financial reporting purposes, using rates based on the estimated useful lives of property, with the exception of the Susque-hanna nuclear plant which is depreciated on a modi-fied sinking fund method in accordance with a PUC order. Provisions fordepreciation, as a percent ofav-erage depreciable property, approximated 2.7% in 1983, 3.3% in 1982 and 3.2% in 1981.
Cost ofDecommissioning Nuclear Plant The estimated decommissioning costs of the Sus-quehanna nuclear plant allowed for ratemaking purposes are charged to operating expense.
Such amounts, net of income taxes, are invested in securi-ties kept in a segregated account which can be used only for future decommissioning costs.
38
Alloivance for Funds Used During Construction fAFUDC)
As provided in the Uniform System of Accounts, th'e cost of funds used to finance construction pro-jects is capitalized as part of construction cost. The components of AFUDC shown on the Statement of Income under other income and deductions and in-terest charges are non-cash items equal to the cost of funds capitalized during the period. The equity funds component is reduced by the tax savings real-ized due to the tax deductibility of construction-related interest. AFUDC serves to offset on the Statement of Income the interest charges on debt and dividends on preferred and preference stock incurred to finance construction. In addition, a re-turn on common equity used to finance construction is imputed.
See Note 5 to Financial Statements for informa-tion concerning a limitation of the tax reduction reflected in AFUDC due to the Company's tax loss.
Investment tax credits result in a reduction of federal income taxes payable. Such tax credits, other than credits resulting from contributions to the em-ployee stock ownership plan (ESOP), are deferred and amortized over the average lives of the related property.
See Note 4 to Financial Statements for additional information concerning income taxes.
Nuclear Fuel The Company leases nuclear fuel for use in the Susquehanna plant. Nuclear fuel rentals are charged to fuel expense based on the quantity of heat pro-duced for electric generation.
Under the Nuclear Waste Policy Act of 1982, the U.S. Department of Energy (DOE) is responsible for the permanent stor-age and disposal ofspent nuclear fuel removed from nuclear reactors. The Company currently pays DOE a fee for future disposal services and recovers such costs in customer rates.
Revenues Revenues are based on the amount of electricity delivered to customers to the end of each account.
ing period. As a result, the Company records unbilled revenues representing the amount customers willbe billed for electricity delivered from the time meters were last read to the end of the respective period.
The Company's PUC tariffs contain an energy cost rate under which customers are billed an estimated amount for fuel and other energy costs. Any differ-ence, between the actual and estimated amount for such costs is collected from or refunded to customers in a subsequent period. Revenues applicable to en-ergy cost rate billings are recorded at the level of actual energy costs and the difference is recorded as payable to or receivable from customers.
P Income Taxes The Company and its subsidiaries file a consoli-dated federal income tax return. Income taxes are allocated to the individual companies based on their respective taxable income or loss and investment tax credits.
Income taxes applicable to the Company are al-located to operating expenses and other income and deductions on the Statement ofIncome. Under other income and deductions, the income tax credits relate principally to the tax reductions associated with the interest expense which is offset by the borrowed funds component of the allowance for funds used during construction.
Deferred income taxes are recorded for timing differences between book and taxable income to the extent they are permitted in rate determinations by regulatory agencies.
The two principal items for which deferred taxes are not currently recorded are (i) certain pension costs and employee-related taxes capitalized for book purposes but deducted currently for income taxes and (ii) a portion of tax depreciation in excess of book depreciation related to property placed in service prior to 1980.
Retirement Plan The Company has a noncontributory retirement plan covering substantially all employees.
Com-pany contributions to the plan include current ser-vice costs and all amounts required to amortize un-funded prior service costs over periods of not more than 20 years.
- 2. Change in Accounting for Revenues To provide a
better matching of costs and revenues, effective as of January 1, 1981, the Com-pany adopted a policy ofrecording revenues collect ible from customers based on electricity delivered to customers to the end of the month. Prior to 1981, revenues were recorded when bills were rendered to customers based on electricity used at the time of monthly cycle meter readings.
The Nonrecurring Credit of $12,381,000 (after related income tax of $13,236,000) shown on the Statement ofIncome for 1981 represents the cumula-tive effect prior to January 1, 1981 ofthe accounting change.
- 3. Rate Matters In accordance with rate orders issued by the PUC, electric base rates for ultimate customers were in-creased by approximately $97 million annually in January 1981, $73 millionannually in January 1982 and $203 million annually in August 1983.
The August 1983 increase resulted from the Com-pany's filing which reflected the effect of placing Susquehanna Unit 1 in service. The PUC's order did not permit the Company to earn a return on 12.6%
($287 million)ofits net investment in all generating facilities. This adjustment, which reduced requested revenues by about $59 million, resulted from a de-cision by the PUC that 945,000 kilowatts (12.6%) of 39
the Company's generating capacity was excess. The Company was permitted to recover depreciation, op-eration, maintenance and fuel costs associated with all its generating facilities.
The Company plans to file with the PUC in the second quarter of 1984 for an increase in electric rates to reflect the effect of placing Susquehanna Unit 2 in service and to recover other increased costs of providing electric service. A decision by the PUC on this filingwould not be expected until early 1985.
In accordance with a declaratory order ofthe PUC, the Company has deferred $ 10.0 millionof costs as-sociated with Susquehanna Unit 1 and has recorded approximately $11.4 million of related deferred in-come taxes. The deferred costs were incurred prin-cipally from the date of commercial operation ofthe unit (June 8, 1983) untilthe new rates went into effect (August 22, 1983) and include all operating costs (fuel, wages, depreciation, etc.) and capital costs (in-terest and the carrying cost ofequity securities), net of energy savings (reduced net cost of energy). The Company expects to seek recovery of such deferred costs after the PUC renders its decision on the rate request the Company plans to filein the second quar-ter of 1984.
The PUC has issued a declaratory order similar to that previously issued for Susquehanna Unit 1 which (i) authorizes the deferral of Susquehanna Unit 2 related costs in the event the unit goes into commercial operation before the end of the future test year and (ii) provides that in the event Unit 2 goes into commercial operation after the end of the future test year, the portion of the new rates reflect ing the Unit 2 costs would go into effect shortly after the unit begins commercial operation. The PUC has granted a petition filed by the Pennsylvania Office ofConsumer Advocate forreconsideration and clari-fication of certain aspects of the declaratory order.
The Company is unable to predict what action the PUC may take with respect to this petition.
The FERC permitted a $2 millionincrease in rates forwholesale customers effective in August1981 and a $3 millionincrease effective inJuly 1982. The Com-pany and all involved parties have filed a settlement agreement with the FERC with respect to the Com-pany's pending request for an increase in wholesale rates of approximately $4 million annually. Ifthe agreement is accepted by the FERC, the rates, as filed, would go into effect in early March 1984.
- 4. Income Taxes The Internal Revenue Service (IRS) has com-pleted its examination of the Company's federal income tax returns for the years 1973-1978. Based on final settlement with respect to the years 1973-1976 and adjustments proposed for 1977 and 1978, the Company does not expect any material change in its income tax liabilityfor these years.
The Company has tax loss carryforwards at De-cember 31, 1983 of approximately $156.6 millionfor state income tax purposes and $115.9 million for federal income tax purposes. About $70.9 millionof the state tax loss carryforward can be used to reduce state income tax liabilities in 1984 with the re-mainder usable through 1986. The carryforwhrd period for the federal income tax loss expires in the years 1997 and 1998.
The Company has investment tax credits not y'et utilized which aggregated approximately $242;1 mil-lion ($31.3 millionapplicable to ESOP) at Dec'ember 31, 1983 and may be carried forward to reduce future federal income tax liabilities. The carryforward period for these credits expires in the years 1994 to 1998.
- 5. Allowance for Funds Used During Construction (AFUDC)
AFUDC is recorded on an after-tax basis withthe equity component reduced by the income tax savings realized due to the tax deductibility of construction-related interest. Since 1982, the Company has been in a tax loss carryforward position, due in part to the large amount of construction interest incurred.
As a result, the income tax reduction reflected in AFUDC has been limited to the tax applicable to construction interest determined to be usable as a tax deduction. The combined federal and state in-come tax effect ofthe construction interest that could not be used as a deduction was $6.3 millionin 1982 and $55.5 million in 1983.
The Company expects that most of its carryfor-ward tax losses willbe used to offset taxable income in future periods. As such carryforwards are used, AFUDC recorded in future years willbe reduced by an amount equal to the tax reduction applicable to the construction interest included in the carryfor-wards so used.
- 6. Credit Arrangements The Company maintains lines ofcredit aggregat-ing $120 million with various domestic banks. The arrangements require the maintenance of compen-sating balances (not material in amount) or the pay-ment of commitment fees. Borrowings under these lines of credit are generally for one year at the prime interest rate and may be prepaid at any time with-out penalty.
The Company has a loan agreement with a group ofdomestic banks pursuant to which the banks corn-mit to lend the Company up to $600 millionon a re-volving basis with loans to mature on February 27, 1987. Atthe option ofthe Company, the interest rate on borrowings would be based on the prime rate or interest rates applicable to certificates of deposit or Eurodollar deposits. Atthe time any borrowing ma-tures on February 27, 1987, the agreement permits the Company to borrow up to $600 million, the prin-cipal amount of which would be repayable in semi-annual installments over the followingthree years.
A revolving credit agreement with a group of foreign banks permits the Company to make short-term borrowings up to $100 millionthrough June 15, 1984. Borrowings under this agreement would bear interest at rates based on the average rate at which certain participating banks accept Euro dollar deposits.
40
'Zo. the extent the full $350 million commitment under a'nucleic fuel lease arrangement is not being utilized to finance nuclear fuel, the Company may borrow from a nuclear fuel trust for general corpor-ate purposes. Borrowings bear interest at the aver-age rate of the trust's outstanding debt, would ma-ture on February 1, 1987 and may be prepaid at any time without penalty.
During 1983, the Company borrowed and repaid
$150 millionunder terms ofthe loan agreement with domestic banks and also prepaid $50 millionof bor-rowings which were outstanding at December 31, 1982 under the nuclear fuel lease borrowing arrange-ments. At December 31, 1983, there were no borrow-ings outstanding under any ofthe Company's credit arrangements.
All revolving credit agreements are maintained by the payment of commitment fees. Commitment fees incurred to maintain the Company's credit ar-rangements aggregated
$2.6 million in 1983, $2.9 millionin 1982 and $2.8 millionin 1981.
- 7. Retirement Plan The actuarial present value of accumulated plan benefits and net assets at the end ofthe plan's recent fiscal years are as follows (thousands of dollars):
I'ctuarial present value of accumulated plan benefits: (a)
Vested-Nonvested Net assets available for benefits June 30 1983 1982
$189,313
$169,318 10,501 10 452
$199,914
$179,770
$257,315
$173,995 (a) Excludes accumulated plan benefits which are the obligation of four insurance companies under insurance contracts.
- 8. Leases Certain ofthe Company's leases are capital leases in accordance with criteria established by the Fi-nancial Accounting Standards Board (FASB) ~ An accounting standard issued by the FASB requires that the Company record such leases on its balance sheet by 1987. Ifsuch leases had been capitalized at December 31, 1983 and 1982, approximately $369.7 millionand $298.3 million,respectively, would have been recorded as assets and as lease obligations.
Recording capital leases would not affect income.
The assumed rate of return used in determining the actuarial present value of accumulated plan benefits was 69o for both 1983 and 1982.
Pension costs charged to expense for 1983, 1982 and 1981 were $27.5 million, $23.8 millionand $19.7 million, respectively.
Most of the capital leases obligate the Company to pay maintenance, insurance and other related costs.
The rental cost of capitalized leases amounted to
$45.3 millionin 1983, $18.7 millionin 1982 and $16.1 million in 1981, the major portions of which were charged to operating expenses.
Future minimum rentals on capitalizable leases to which the Com-pany was committed at December 31, 1983, exclud-
.ing leased nuclear fuel, are estimated as follows (millions of dollars): 1984, $13.8; 1985, $12.4; 1986,
$11.3; 1987, $9.3; 1988, $7.9 and 1989 to expiration of the leases,
$37.4.
Arrangements with a trust permit the Company to lease up to $350 millionof nuclear fuel to be used at the Susquehanna plant. Nuclear fuel rentals cover the amortization of the cost of nuclear fuel based on the quantity of heat produced plus applicable fi-nancing charges. The unamortized cost of nuclear fuel under lease was $300 million at December 31, 1983. Upon completion of heat production, the Com-pany willreceive title to the nuclear fuel.
At December 31, 1983, minimum rental commit-ments under operating leases were not material with respect to the Company's financial position.
- 9. Joint Ownership of Generating Plants At December 31, 1983, the Company owned un-divided interests in three generating stations as follows (millions of dollars):
Generating Station Susquehanna Keystone................
Conemaugh.............
Plant Investment Ownership
$3,435.7(a) 90.00%
33.5 12.34 34.2 11.39 (a) Includes $1,677.4 applicable to Unit 2 and common facilities under construction.
The Company receives a portion of the total sta-tion output equal to its percentage ownership. The Statement of Income reflects the Company's share of fuel and other operating costs associated withthe stations.
Each participant provides its own financing.
- 10. Associated Company Transactions The Company purchases bituminous coal from associated companies at a price generally equal to the entire operating costs of those companies. Pur-chases of coal from associated companies were (millions of dollars):
- 1983,
$263.8;
- 1982,
$255.1; and 1981, $183.5. An oil pipeline subsidiary trans-ports oil to one of the Company's generating sta-tions. The oil transportation
- charges, which are based on a PUC approved tariff, were (millions of dollars): 1983, $15.1; 1982, $8.2; and 1981, $9.0.
The operations of associated companies resulted in after-tax charges against the Company's net in-come of$4.2 millionin 1983, $0.3 millionin 1982 and 41
$2.6 millionin 1981. The increase in such charges in 1983 was due primarily to a subsidiary charging to expense certain interest costs and property taxes that in prior years were capitalized as part of the subsidiary's cost of coal reserves.
See Note ll to Financial Statements for informa-tion concerning the Company's guarantee ofcertain obligations of associated companies.
- 11. Commitments and Contingent Liabilities The Company's construction expenditures are estimated to aggregate
$474 million in 1984, $214 million in 1985 and $254 millionin 1986, including the allowance for funds used during construction.
See the sections entitled "Susquehanna Plant" and "Capital Expenditure Requirements" on page 25 for additional information concerning the Company's planned construction expenditures.
The Comp'any is a member of certain insurance programs which provide coverage for property dam-age to members'uclear generating plants. Facili-ties at the Susquehanna plant are insured against property damage losses up to $ 1.0 bilhon un'der these programs. The Company is also a member of an in-surance program which provides coverage for the cost ofreplacement power during prolonged outages of nuclear units caused by certain specified condi-tions. Under the property and replacement power insurance programs, the Company could be assessed retrospective premiums in the event the insurers'osses exceed their reserves. The maximum amount the Company could be assessed under these pro-grams during the current policyyear is $16.3 million.
In the event of a nuclear incident at any of the facilities covered by the federal government's third-party liability indemnification program, the Com-pany could be assessed up to $5 millionper incident, but not more than $10 millionin a calendar year in the event more than one incident is experienced.
These amounts will double when the Company re-ceives an operating license for Susquehanna Unit2.
At December 31, 1983, the Company had guar-anteed capital and other obligations of other com-panies (principally subsidiary coal companies and a subsidiary pipeline company) totaling$256.1million.
42
Auditors'.Opinion DELOITTE HASEINS &SELLS Certified Public Accountants One World Trade Center New York, New York 10048 To the Shareowners and Board of Directors of Pennsylvania Power & Light Company:
We have examined the balance sheets of Pennsylvania Power & Light Company as of December 31, 1983 and 1982 and the related statements ofincome, earnings reinvested, and changes in financial position for each of the three years in the period ended December 31, 1983. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, such financial statements present fairly the financial position of the Company at December 31, 1983 and 1982 and the results ofits operations and the changes in its financial position for each of the three years in the period ended December 31, 1983, in conformity with generally accepted accounting principles consistently applied during the period subsequent to the change, with which we concur, made as ofJanuary 1, 1981, in the method of accounting for unbilled revenues, as described in Note 2 to the financial statements.
'February 3, 1984 Supplementary InfOrmatiOn On Changing PrieeS (Unaudited)
The F<inancial Accounting Standards Board (FASB), an organization that establishes rules for accounting and financial reporting, has issued a
statement that requires the presentation of certain information on the effects of general inflation and changes in the prices of certain specific types of assets.
Customary financial reporting generally has not attempted to specifically reflect inflation. The F'ASB statement requires that certain aspects ofinfla-tion be computed in accordance with prescribed techniques and reported on an experimental basis.
The FASB recognizes, and the Company cautions users of this information, that there is no consensus on the general practical usefulness of this supple-mentary information. There are also unresolved implementation problems and conceptual differences regarding the manner in which the effects of changing prices should be measured.
The F<ASB statement attempts to measure the effects of changing prices in two different ways:
- 1. Constant dollarsIn a period of inflation, the amount of goods and services one dollar willbuy declines.
Since financial data often involves dollars expen'ded in different years, itis suggested that combining or comparing such dollars is misleading. The constant dollar method shows the effects of general inflation by adjusting data to dollars of the same purchasing power by applica-tion ofthe U.S. Government Consumer Price Index for AllUrban Consumers (CPI-U).
The constant dollar method simply restates amounts recorded on a company's books to the level of average dollars for the current year. F<or example, the average CPI-U was 217.5 in 1979 and 298.4 in 1983. The restatement of $ 1.00 of property acquired in 1979 to average 1983 dollars would be accomplished by multiplying the $1.00 by the ratio 298.4
. 217.5, resulting in $1.37 of property in terms of average 1983 dollars.
- 2. Current costIn a period of inflation, prices of most goods and services increase but not neces-sarily all at the same rate. The current cost method shows the impact of inflation on a company by measuring the estimated change in prices of the specific goods and services used by that company.
The Company has elected to present the "Supple-mentary Statement of Income" data in accordance with the partial restatement provision of the F<ASB statement. Under this provision, utilityplant, net of accumulated depreciation, and depreciation expense are the only items restated to reflect general inflation 43
(Constant Dollars) and specific price changes (Cur:
rent Cost). F~uel inventories and the cost offuel used in generation have not been restated from their histori-cal cost since, under rate regulation, the recovery of the cost of fuel is limited to the actual cost of the fuel burned. Revenues, income taxes and expenses other than depreciation are presented at the amounts reported in the basic financial statements.
Set forth under "Other Impacts ofChanging Prices" are the following:
- 1. Gain from decline in purchasing power of net amounts owed.
Inflation also affects monetary assets, such as cash and receivables, which lose purchasing power during inflationary periods since these assets will in time purchase fewer goods or services.
Conversely, holders of monetary liabilities benefit during such periods because less purchasing power willbe required to satisfy these obligations. Monetary liabilities include preferred and preference stock issues with sink-ing fund requirements, long-term debt, current li-
'bilities, deferred taxes and tax credits and other deferred credits. The Company is in a net mone-tary liabilityposition.
- 2. Increase in the current cost ofnet utilityplant as a result of specific price changes experienced, The increase in the current cost amount of net utility plant is shown before and after elimi-nating the effects of general inflation as meas-ured by the CPI-U.
- 3. Adjustment of net utilityplant to net recoverable amount.
Under the ratemaking prescribed by regula-tory commissions, only the historical cost of utilityplant is recoverable in revenue as depreci-ation.
Therefore, the difference between the amount of utility plant stated in terms of con-stant dollars and current cost (after deducting the effects ofgeneral inflation) and thehistorical cost is reflected as an adjustment to net recover-able amount.
The adjustment in terms of constant dollars reflects only the effects ofgeneral inflation on the historical cost of utilityplant and is a reduction in 1983. The adjustment in terms ofcurrent cost is computed after the general inflation effect is deducted from the increase in the specific price amount of net utilityplant.
Supplementary Statement of Income for 1983 (Thousands of Dollars)
Operating revenues Operating expenses Depreciation (a)
Other Interest expense Other income and deductions net...........
Dividends on preferred and preference stock As Reported in Financial Statements (Historical Cost)
$1,248,397 107,885 850,582 958,467 167,674 (173,755) 85,838 1,038,224 Earnings applicable to common stock.........
210,173 Other Impacts of Changing Prices Gain from decline in purchasing power of net amounts owed......
Increase in specific prices (current cost) of net utility plant during the year (c)
Increase in current cost of net utilityplant ifchange in general price level were applied Excess of increase in specific prices over increase in general price level Adjustment of net utilityplant to net recoverable amount(reduction)
Adjusted on the Basis of General Inflation (Constant Dollar)
(Stated in Average
$1,248,397 226,456 850,582 1,077,038 167,674 (173,755) 85,838 1,156,795 91,602(b) 125,670 (76,282)
Adjusted on tice Basis of Price Changes Experienced (Current Cost) 1983 Dollars)
$1,248,397 240,245 850,582 1,090,827 r 167,674 (173,755) 85,838 1,170,584 77,813 125,670 447,957 (337,391) 110,566
$ (173,059)
(n) Constant dollar utilityplant wns determined by applying the CPI-U index to the historical cost of surviving plant. The current cost of utility plant wns determined by applying construction cost indices maintained by the Company to the historical cost The respective adjusted provisions for depre-ciation were determined by applying the functional class de-preciation accrual rates to the respective average year.end balances of depreciable plant adjusted for general inflation (constant dollar) and specific price changes (current cost).
(b) Including the reduction to net recoverable amount, earnings applicable to common stock on a constant dollar basis would have been $ 15,320 for 1983.
(c) At December 31, 1983, the current cost ofnet utilityplant wns
$9.67 billion, while the historical cost or nct amount recoverable through depreciation was $5.59 billion.
44
%he following schedule presents a summary of selected data c0mparing items as they are normally reported in financial statements or other statistical summaries to items adjusted for changing prices.
Supplementary Comparison of Selected Data (Thousands of Dollars) 1983 1982 1981 1980 1979 Income ItemsConstant Dollar and Current Cost Amounts in Average 1983 Dollars Earnings Applicable to Common Stock As reported (a)
Constant dollars Current cost Earnings Per Share of Common Stock As reported (a)
Constant dollars Current cost Amount by Which the Increase in General Price Level of Net UtilityPlant is Greater Than or (Less Than) the Increase in Specific Prices of Net UtilityPlant..........................
Adjustment of Net UtilityPlant to Net Recoverable Amountwrite-up (reduction)
Constant dollars Current cost Gain from Decline in Purchasing Power of Net Amounts Owed Net Assets at Year-End (b)
As reported onstant dollars urrent cost 210,173 91,602 77,813 3.06 1.33 1.13 210,572 99,647 90,889 3.35 1.59 1.45 (76,282)
(173,059) 125,670 1,999,324 1,965,727 1,965,727 (63,987)
(331,143) 116,374 1,875,070 1,913,546 1,913,546 (110,566)
(275,914) 170,801 76,479 74,513 3.17 1.41 1.38 120,384.
43,369 33,765 2.64 0.95 0.73 (274,196)
(338,517) 245,821 1,666,812 1,766,880 1,766,880 (403,826) 3,984 318,436 1,482,092 1,711,518 1,711,518 (66,287) 398,206 133,532 93,681 72,289 3.32 2.33 1.80 253,240 (471,669)
(197,037) 346,606 1,344,816 1,734,948 1,734,948 Other Supplementary Data (c)
Operating Revenues As reported Average 1983 constant dollars.........
Cash'Dividends Declared Per Common Share As reported Average 1983 constant dollars.......
Market Price Per Common Share at Year-End As reported Average 1983 constant-dollars.......
Average Consumer Price Index (CPI-U)..
d
$1,248,397 1,248,397 2.40 240 20.62 20.28 298.4 2.32 2.39 2.24 2.47 2.12 2.56 2.04 2.81 21.00 21 43 289.1 17.12 18.15 272.4 15.62 17.75 18.04 23.04 246.8 21,7.5
$ 1,219,548
$1,133,278 885,451 860,498 1,258,779 1,241,447 1,070,578 1,180,564 (n) 1981 excludes n nonrecurring credit related to an accounting change.
(b) Net assets (shnreowners'quity) for purposes of this supple-mentary disclosure include common equity nnd the preferred nnd preference stocks without sinking fund requirements. The
~preferred nnd preference stocks with sinking fund require-ments have been excluded since they were treated ns monetary items.
(c) Other Supplementnry Data is n comparison ofitems as norm.
ally reported nnd as adjusted to average 1983 constant dollars by applying the CPI-U index.
45
Summary of Quarterly Results of Operations (Unaudited)
Quarter Ended Operating
-Revenues Operating
~
Not Income Income Thousands of Dollars Earnings Applicablc to Common Stock Earnings Per Share of Common Stock (a) 1983 March June September December
$305,088 270,909 285,151 387,249
$62,643 55,956 73 373 97,958
$79,823 69,332 68,902 77,954
$60,055 47,868 46,523 55,727
$0.89 0.70 0.67 0.80 1982 March June September December
$363,764 279,262 284,450 292,072
$72,802 48,690 49,735 51,856
$83,386 56,970 65,028 73,502
$66,486 40,088 48,220 55,778
$1.12 0.66 0.74 0.84 (a) Based on the average number of shares outstanding during the quarter. The total ofthe four quarterly earnings per share amounts may not equal earnings per share for the year due to changes in the number ofcommon shares outstanding during the year and rounding.
Common Stock Price and Dividend Data Quarter Ended 1983 March June September December 1982 March June September December High Low
$24'/2
$207/s 24'/s 20'/4 23'/>>
20'/>>
24'/s 20
$19'/>>
$16'/~
20'/>>
17'/i 20>>/~
17'/>>
217/>>
19~/>>
The principal trading market for the Company's common stock is the New York Stock Exchange.
The stock is also listed on the Philadelphia Stock Exchange. The number ofrecord holders ofcommon stock was 169,142 as of December 9, 1983. The high and low sales prices ofthe Company's common stock on the Composite Tape for the past two years as reported by The Wall Street Journal were as follows:
The Company has paid quarterly cash dividends on its common stock in every year since 1946. The dividends paid per share in 1983 and 1982 were
$2.38 and
$2.30, respectively.
The most recent regular quarterly dividend declared by the Company was 60 cents per share (equivalent to $2.40 per annum) paid January 1, 1984. Future dividends will be dependent upon future earnings, financial re-quirements and other factors.
The Company has estimated that all of its 1983 dividends paid on common stock and 19.16% of its dividends paid on preference stock willnot be tax-able for federal income tax purposes as dividend in-come, but will constitute a return of capital which reduces the tax cost basis ofthe shares on which the dividends were paid.
46
Fiscaf. Agents TRANSFER AGENTS FOR PREFERRED, PREFERENCE AND COMMON STOCK Industrial Valley Bank and Trust Company 634 Hamilton Mall Allentown, Pennsylvania 18101 Morgan Guaranty Trust Company of New York 30 West Broadway New York, New York 10015 Pennsylvania Power &Light Company Two North Ninth Street Allentown, Pennsylvania 18101 REGISTRARS FOR PREFERRED, PREFERENCE AND COMMON STOCK The first National Bank of Allentown Hamilton Mall at Seventh Allentown, Pennsylvania 18101 Morgan Guaranty Trust Company of New York 30 West Broadway New York, New York 10015 DEPOSITARY FOR DEPOSITARY PREF<ERENCE SHARES Morgan Guaranty Trust Company of New York 30 West Broadway New York, New York 10015 DIVIDENDDISBURSING OFFICE AND DIVIDENDREINVESTMENTPLAN AGENT
"'ice President and Treasurer Pennsylvania Power & Light Company Two North Ninth Street Allentown, Pennsylvania 18101 Securities Listed On Exchanges NEW, YORK STOCK EXCHANGE 4'/~% Preferred Stock (Code: PPLPRB) 4.40% Series Preferred Stock (Code: PPLPRA) 8.60% Series Preferred Stock (Code: PPLPRG) 9.24% Series Preferred Stock (Code: PPLPRM)
Preference Stock, $8.00 Series'(Code: PPLPRJ)
Preference Stock, $8.40 Series (Code: PPLPRH)
Preference Stock, $8.70 Series (Code: PPLPRI)
Preference Stock, $11.00 Series (Code: PPLPRL)
Preference Stock, $13.00 Series (Code: PPLPRK)
Depositary Preference Shares Representing:
Preference Stock, $11.60 Series (Code: PPLPRP)
Preference Stock, $13.00 Second Series (Code: PPLPRO)
Preference Stock, $15.00 Series (Code:PPLPRN)
Common Stock (Code: PPL)
PHILADELPHIASTOCK EXCHANGE 4'/2% Preferred Stock 3.35% Series Preferred Stock 4.40% Series Preferred Stock 4.60% Series Preferred Stock 8.60% Series Preferred Stock 9% Series Preferred Stock 9.24/o Series Preferred Stock Preference Stock, $8.00 Series Preference Stock, $8.40 Series Preference Stock, $8.70 Series Preference Stock, $11.00 Series Preference Stock, $13.00 Series Depositary Preference Shares Representing:
Preference Stock, $ 11.60 Series Preference Stock, $ 13.00 Second Series Preference Stock, $15.00 Series Common Stock 47
Officers Directors h
ROBERT K. CAMPBELL,President and Chief Executiue Officer ROBERT R. FORTUNE, Executiue Vice President-Financial JOHN T. KAUFFMAN,Executive Vice President-Operations JACK R. CALHOUN,Senior Vice President.IVuclear MERLINF. HERTZOG, Senior Vice President-Human Resource & Deuelopment LEON L. NONEMAKER,Senior Vice President-Division Operations JOHN R. BIGGAR, Assistant Treasurer GENNARO D. CALIENDO, Vice President and Chief Counsel-Regulatory Affairs NORMAN W. CURTIS, Vice President-Engineering & Construction. Nuclear CHARLES J. GREEN, Vice President. Harrisburg Diuision WILLIAMF. HECHT, Vice President. System Power BRUCE D. KENYON, Vice President-1Vuclear Operations JOHN P. KIERZKOWSKI,Assistant Treasurer CARLR. MAIO,Vice President-Lehigh Diuision GRAYSON E. McNAIR, Vice President-Marketing & Customer Seruices EDWARDM. NAGEL, Vice President, General Counsel and Secretary HERBERT D. NASH JR., Vice President. Central Division JOHN E. ROTH, Vice President-Northern Diuision CHARLES E. RUSSOLI, Vice President and Treasurer JOHN H. SAEGER, Vice President. Susquehanna Diuision EDWINH. SEIDLER, Vice President-Engineering &
Construction System Power &Engineering BRENT S. SHUNK, Vice President-Lancaster Division JEAN A. SMOLICK,Assistant Secretary GEORGE F. VANDERSLICE,Vice President and Comptroller PAULINEL. VETOVITZ,Assistant Secretary HELEN J. WOLFER, Assistant Secretary Corporate Management Committee: Robert K. Campbell, chairman; Robert R. Fortune John T. Knuffman, Jack ILCalhoun, MerlinF. Hcrtzog, Leon L Nonemnker nnd Edward F. Reie, Director.Corporate Planning, serving as the committee's executive secretary.
CLIFFORD L. ALEXANDERJR., Washington, D.C.
President, Alexander & Associates Inc.
Consultants to business, government &industry ELIZABETHE. BAILEY,Pittsburgh Dean, Graduate School of Industrial Administration, Carnegie-Mellon University ROSWELL BRAYTONSR., Woolrich President and Chief Executive Officer, 1Voolrich 1Voolen MillsInc. Manufacturer ofgarments for outdoor activities JEFFREY J. BURDGE, Camp Hill Chairman of the Board and Chief Executiue Officer, Harsco Corporation. Manufacturer ofprocessed and fabricated metals ROBERT K. CAMPBELL,Allentown President and Chief Executive Officer EDGAR L. DESSEN, Hazleton Physician. Radiologist EDWARD DONLEY, Allentown Chairman ofthe Board and ChiefExecu tiue Officer,AirProducts and Chemicals Inc. Manufacturer ofindustrial and commercial gases and chemicals ROBERT R. FORTUNE, Allentown Executiue Vice President-Financial FRANCES R. HESSELBEIN, New York City IVational Executive Director, Girl Scouts of the U.S.A.
HARRY A. JENSEN, Lancaster Director and former Chief Executive Officer, Armstrong 1Vorlgf Industries Inc. Manufacturer ofinterior furnishings and specialty products JOHN T. KAUFFMAN,Allentown Executi ue Vice President Operations W. DEMINGLEWIS, Bethlehem President Emeritus, Lehigh Uniucrsity HAROLD S. MOHLER, Hershey Former Chairman ofthe Board, Hershey Foods Corporation. Diversified manufacturer offood products RALPH W. RICHARDSON JR., State College Consultant, agricultural and enuironmental sciences NORMANROBERTSON, Pittsburgh Senior Vice President and Chief Economist, Mellon Bank, N.A.
DAVIDL TRESSLER, Scranton Chairman of the Board and Chief Executiue Officer, northeastern Bancorp, Inc.
Executive Committee: Robert K.Campbell, chairman; Edgar LDessen, Harry A. Jensen, W. Deming Lewis nnd Norman Robertson.
Audit Committcc: Harold S. Mohler, chairman; CliffordL Alexander Jr., Elizabeth E. Bailey, Rcswell Brayton Sr., Ralph W. Richardson Jr. and David L. Trcssler.
Corporate Responsibility Committee: Edgar L Dessen, chairman; Jeffrey J. Burdge, Frances R. Hesselbein, Harold S. Mohler and David L Tressler.
Management Development and Compensation Committee:
Roswell Brayten Sr. chairman; CliffordL Alexander Jr., Elizabeth E.
Bailey, Edward Donfey, W. Deming Lewis and Norman Robertson.
Nominating Committee: Ralph W. Richardson Jr. chairman; Jeffrey J.
Burdge, Edward Donley, Frances R. Hesselbein nnh Harry A.Jensen.
The Company's annual report filed with the Securities and Exchange Commission on Form 10-K willbe available mid-March. A shareowner may obtain a copy, at no cost, by writing to Pennsylvania Power &
Light Company, Two North Ninth Street, Allentown, Pa. 18101, attention: Mr. George
- 1. Kline, Investor Services Manager.
48
Board of Directors
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Pennsylvania Power & Light Company Two North Ninth Street
~ Allentown, PA 18101
~ 215/ 770-5151 SULK ftATE "
LL S. POSTAGE PAID Allentowg, Pa.
'ermit No. 104 Susquehanna Unit 1Commercial Operation Ju ne 8, 1983 Unit 1 at PP&L's Susquehan-na nuclear plant was placed in commercial operation on June 8, 1983. Susquehanna, along with our excellent fossi I-fueled generating plants, willprovide abundant, competitively priced electric energy to power thejobs, the lifestyles, and the futures of those livingin Central Eastern Pennsylvania from now into the 21st century.
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