ML18040B098

Annual Rept 1984. W/850321 Ltr

ML18040B098
Person / Time
Site:	Susquehanna
Issue date:	12/31/1984
From:	Campbell R, Curtis N PENNSYLVANIA POWER & LIGHT CO.
To:	Harold Denton Office of Nuclear Reactor Regulation
References
PLA-2437, NUDOCS 8503250232
Download: ML18040B098 (56)

Text

REGULATO INFORMATION DISTRIBUTION STEH (RIDS)ACCESSION NBR s 8503250232 DOC~DATE 80/12/31 NOTARIZED~NO DOCKET'FACIL:50 387 Susquehanna Steam Electric Stations Un)t 1E Pennsylva 05000387 50-388 Susquehanna Steam Electric Stationi Unit 2<Pennsylva 05000388 AUTH,NAME AUTHOR AFFILIATION CAHPBELLiROK, Pennsylvania Power L Light Co.CURTISiN,I>05000387 05000388 RECIPIENT ID CODE/NAME.

NRR LB2 BC PERCH R COPIES LTTR ENCI 1 0 0 RECIPIENT ID CODE/NAME NRR LB2 LA 01 COPIES LTTR ENCL" 1 1 INTERN: REG F IL EXTERNAL: LPDR NOTES!04 03 1 1 2 2 3 SP NRC PDR 02 j,].1 1 TOTAL NUMBER OF COPIES REQUIRED: LTTR 11 ENCL 9 gg@Pennsylvania Power&Light Company Two North Ninth Street~Allentown, PA 18101~215/770.5151 Norman W.Curtis Vice President-Engineering

&Construction-Nuclear 21 5/770-7501 MAR sy~gsg Mr.Harold Denton, Director Office of Nuclear Reactor Regulation U.S.Nuclear Regulatory Commission Washington, D.C.20555 FILE 841 SUSQUEHANNA STEAM ELECTRIC STATION ANNUAL FINANCIAL REPORT ER 100450 PLA-2437 Docket Nos.50-387 50-388

Dear Mr.Denton:

In accordance with 10CFR50.71(b), attached are ten copies of the 1984 annual report for Pennsylvania Power&Light Co.The annual report for Allegheny Electric Cooperative, Inc., will be forwarded when it is issued later this year.Very truly yours, N.W.Curtis Vice President-Engineering

&Construction-Nuclear Attachments cc: Mr.R.H.Jacobs-USNRC Ms.M.J.Campagnone

-USNRC

-NOTICE-THE ATTACHED FILES ARE OFFICIAL RECORDS OF THE DIVISION OF DOCUMENT CONTROL.THEY HAVE BEEN CHARGED TO YOU FOR A LIMITED TIME PERIOD AND MUST BE RETURNED TO THE RECORDS FACILITY BRANCH 016.PLEASE DO NOT SEND DOCUMENTS CHARGED OUT THROUGH THE MAIL.REMOVAL OF ANY PAGE(S)FROM DOCUMENT FOR REPRODUCTION MUST BE REFERRED TO FILE PERSONNEL.

DEADLINE RETURN DATE II~WS aa Bb aa ag Ik LL LL L RECORDS FACILITY BRANCH P'Qo SAN Fl5/2 8, PD OO'O'Ci N%ANN@FR iMNMI"'3"!~I't,~

ppg 8503250232 84i231 PDR ADQCK 05000387 I PDR 43 COVER PP&L's Illuminated 23-story corporate headquarters stands as a visible symbol of PP8L's optimism and commitment to Central Eastern Pennsylvania's bright future.Except for a peri-od during World War II, the building was continuously illu-minated from 1929 to the mid-1970s when the lights were turned out and removed in re-sponse to the energy crisis.With the company's Susque-hanna nuclear units now on line, the relighting of the com-pany's General Office building demonstrates PP&L's ability to serve customers with adequate generating capacity now and in the future.The symbolic ges-ture also provides an excellent example of the efficient use of electricity.

The high-pressure sodium and metal halide light-ing, which replaced the earlier quartz lights, uses about one-fifth the electricity of the old system.Other photos in this report show additional applica-tions of electricity that touch the lives of everyone.CONTENTS'ighlights President's Letter Year in Review Financial Review Financial Statements Notes to Financial Statements Selected Financial and Operating Data Common Stock and Dividend Data Officers and Directors 4'2 28 44 46 I 48 SERVICE AREA Pennsylvania Power&Light Co., based In Allentown, Pa., pro-vides electric service to more than a million homes and busi-nesses throughout a 10,000-square-mlle area in 29 counties of Central Eastern Pennsylvania.

Principal cities in the PP8L ser-vice area are Allentown, Bethlehem, Harrisburg, Hazleton, Lan-caster, Scranton, Willlamsport and Wilkes-Barre.

With an abun-dant supply of reliable, economical electric energy, PP&L's ser-vice area is poised at the core of an industrial and commercial market area where 70 million people live within a 300-mlle radi-us.Please contact Joseph R.Lesko, manager of Economic Development, toll.free at (800)523-9854 to talk about plant loca-tion opportunities in the heartland of this great Northeast marketing area.TOLEOO TORONTO ALBANY BUFFALO 1co BOSTON PITTSBURGH WASHINGTON, D.C.NEW YORK CITY I~PHILADELPHIA

/ATLANTIC CITY CHARLESTON RICHMOND 1984 1983 Customers (a)Common Shareowners (a)Electric Energy Sales, Kilowatt-hours

..Interchange Power Sales, Kilowatt-hours

.Electricity Generated, Kilowatt-hours

..1,039,381 1,026,144 162,903 169,142 24.5 Billion 23.1 Billion 15.4 Billion 16.4 Billion 37.9 Billion 37.7 Billion Operating Revenues.Capital Provided by Investors (a)..Utility Plant (a)$1.6 Billion$5.6 Billion$1.2 Billion$5.3 Billion Net Plant in Service$3.9 Billion Construction Work in Progress...~.....$2.0 Billion Common Stock Data$3.8 Billion$1.7 Billion Return on Average Common Equity Earnings Per Share Dividends Declared Per Share Market Price Per Share (a)........

~Book Value Per Share (a)..........

Times Interest Earned Before Income Taxes 12.309o$3.12$2.48.....$25'/s.....$25.46 2.35 12.29Fo$3.06$2.40$20'/e$25.12 2.29(b)(a)At year.end.(b)Restated to reflect change in accounting for capital leases.Where the PAL Income Dollar Went ln 19B4 3c Earnings Relnvested 14c Net Cost of Energy 16c Dividends 16c Taxes 18c Interest V 13c Employees 7c Depreciation 13c Materials, Services, Rents, etc.Incomo Includes revenues, other Income and tho allowance for funds used during construction.

When Susquehanna Unit 2 was put into commercial operation in February of 1985, it marked the success-ful completion of the largest construction project in the company's history.It also marked another out-standing year of progress in meeting the long-term needs of our customers for reliable and economical electric service.In addition, by concluding the largest financing program in the company's history, it marked a significant step forward in our efforts to earn a fair return for our shareowners.

With both Susquehanna nuclear units now in com-mercial operation, the company has met its construc-tion needs for major new generating capacity for at least the balance of this century.This exceptionally strong capacity position, based on an efficient mix of coal and nuclear generation, opens up important op-portunities to broaden the scope of energy services offered to our customers and to strengthen the finan-cial position of the company.The combination of PP&L's competitively priced electric power and relatively small future construc-tion program provides an enormous long-term advantage for meeting the growth and economic de-velopment objectives of the communities we serve.Recognizing that the financial health of the company is linked to the prosperity of our service area economy, promoting economic development in Central Eastern Pennsylvania continues to be the focus of PP&L's marketing programs.Reliable and competitively priced electric power is a vital economic development resource.As national trends clearly show, energy efficiency and improved productivity are increasingly being achieved in homes, businesses and industries through the use of electricity because of its versatility and high end-use efficiency.

The strength of PP&L's generating capacity and our relatively small future construction program also are factors which set PP&L apart from most of the nation's electric utilities.

In the years ahead, we will emphasize the importance of this strong competitive position as a supplier of electric power to attract and hold job-producing businesses in the communities we serve.Sales, Earnings and Financing Aided principally by the recent economic recovery, kilowatt-hour sales increased by 6.3 percent in 1984 over 1983.This annual sales growth, PP&L's largest in eight years, was led by significant gains in our electrically heated home market and by increased sales to commercial and industrial customers.

The company's total sales increase also reflected the benefit of the first full year of selling electric energy from Susquehanna under our long-term contract with the Atlantic City Electric Co.The company also has a contract now awaiting ap-proval by the New Jersey Board of Public Utilities to sell 945,000 kilowatts of electric power to the Jersey Central Power&Light Co.from a proportionate share of PP&L's total generating system.This agreement will substantially increase the level of PP&L's con-tractual power sales to other utility companies over the fourteen-year life of the agreement.

The company's contract to sell power to Jersey Central is consistent with the Pennsylvania Public Utility Commission (PUC)ruling in our 1983 rate increase request.It was decided in that case that 945,000 kilowatts of PP&L's total generating system was surplus capacity.Selling the electric output from this portion of our total generating system to Jersey Central will enable the company to recover the return on investment disallowed in the 1983 rate case.It also permitted us to reduce the rate request now pending before the PUC.The rate increase received in 1983 helped improve the company's financial condition mostly by replac-ing a portion of the non-cash allowance for funds used during construction on Susquehanna Unit 1 with customer revenues.This increase in liquidity is reflected in PP&L's improved interest coverage which is important in determining the company's credit standing.The company's 1984 earnings of$3.12 per share were up 6 cents from 1983.This earnings improve-ment was largely the result of increased electric ener-gy sales reflecting the economic recovery in our service area and colder-than-normal weather.Al-though the company's earnings continued at a reason-able level last year, the 1985 earnings outlook is largely dependent on continuing to achieve sales growth and on the outcome of the rate increase re-quest we expect will be decided in April of 1985.With the construction of Susquehanna now com-plete, PP&L's needs for outside financing have been significantly reduced from the high levels reached in recent years.And since the company's relatively small future construction program should be met largely by internal cash generation, we do not expect to be issuing additional shares of common stock for the foreseeable future.Operating Performance The dedicated and talented PP&L people who oper-ate the company's electric system, from fuel supply to customer service, achieved outstanding results again in 1984.The following summarizes the operating ac-complishments of special significance at this time for PP&L's customers and shareowners.

~Susquehanna Nuclear Units Since June of 1983, when Susquehanna Unit 1 was placed in commercial operation until it was shut down for its first refueling outage in February of 1985, Unit 1 generated 9.3 billion kilowatt-hours, about 21.5 percent of the electricity PP&L customers used during that 20-month period.In spite of a one-time outage to connect plant systems common to both nuclear units, Susquehanna Unit 1 operated at an average of 65.7 percent of its capacity during 1984.This is an excellent record, particularly for a nuclear plant operating in its first fuel cycle.

The very successful start-up testing program which brought Susquehanna Unit 2 on-line, while Unit 1 also was in its first year-and-a-half of com-mercial operation, again demonstrates the'commit-ment of PP&L people to superior performance in all aspects of our nuclear operations.

With both Sus-.quehanna nuclear units now in commercial opera-tion, it is our goal in 1985 to achieve, through safe and efficient operation, an average capacity factor of 80 percent for Unit 1, excluding its refueling outage, and an average capacity factor of 70 percent for Unit 2.~Total PP&L Generation Again last year, PP&L's power plants maintained among the lowest total outage rates within the 11-member Pennsylvania-New Jersey-Maryland power pool.The fact that these very efficient gener-ating units could only be replaced at several times original costs, emphasizes the importance of the company's aggressive program to extend the life of our existing power plants.The outstanding performance by all of PP&L's gen-erating units is the principal reason that the com-pany's rates for electric service continued to be below the average charged both regionally and nationally.

Having Susquehanna Unit 1 in commercial operation p throughout 1984 enabled the company to sell more coal-fired generation to neighboring utilities while using lower-cost nuclear fuel for PP&L's service area i, customers.

Last year, this direct advantage of our strong capacity position and favorable fuel mix resulted in energy savings of about$171 million for PP&L's customers.

The essential conditions which make this an ap-propriate marketing strategy for PP&L are the com-pany's exceptionally strong coal and nuclear generating capacity and our competitively priced rates for electric service.Susquehanna Unit 2 Rate Filing About two-thirds of the$330 million rate request now pending before the PUC relates to the net cost of bringing the second Susquehanna unit into com-mercial operation.

To moderate the impact on cus-tomers, the company has requested that this rate increase be phased in over a period of several years.With both Susquehanna units in commercial opera-tion, and with no major new construction on the horizon, we anticipate that we are entering a period of relatively stable rates for electric service.This will help us to achieve our kilowatt-hour sales growth ob-jectives and more effectively promote the economic development of Central Eastern Pennsylvania.

As we successfully conclude the most challenging construction period in the company's history, we recognize that the dedication of our employees and the support of our investors is what made this sig-nificant achievement possible.It is this winning combination that continues to give us confidence that we will successfully meet the challenges ahead.Li--<<<<J P<<'<<<<W v<<Marketing and Economic Development Customer service is the unifying purpose linking all of PP&L's marketing and economic develop-ment programs-because the overall effect of these initiatives is to provide opportunities to serve our customers at a lower cost than otherwise would be possible.The objective of the company's mark-eting and economic development programs is to facilitate the most effective operation of the PP&L system by achieving optimal levels of kilowatt-hour sales growth while managing relatively lower growth in future peak loads.Over the long term, limiting growth in peak loads benefits customers by minimizing future investment requirements.

Likewise, promoting electricity usage to achieve revenues through increased sales will benefit customers by reducing future needs for higher rates.By offsetting the need for rate increases, revenues derived from sales enhance the company's marketing position as well as its financial strength.Achieving our marketing objectives also provides the higher Pevel of sales revenues which are necessary to permit us to meet our long-term objective of holding increases in the price of PP&L electric service at or below the general rate of inflation.

'II<<h<g y 0 1T f V~'0 i', I 1 l t i)f r, ,U" (, U I, J l l~~g~O pgh 9 g Q~';4., m<<<+I PP&L's service area boasts a number of high-technol-ogy companies.

The technician at A.Johnson&Co.of Morgantown (left), makes an adjustment to con-trols for a 2,000-kilowatt electron-beam furnace used to melt scrap titanium into ingots for reuse.Titanium is a strong, lightweight metal widely used in the de-fense and aerospace industries.

A technician tests equipment (A), at Accu-Sort Systems Inc.of Telford, that utilizes laser-beam technology to read universal bar codes for commercial inventory and parcel routing control.Components for computer disk drives (B)are assembled at a Xebec Inc.plant near Allentown.

Xebec located in the Lehigh Valley largely due to ser-vices provided by the Ben Franklin North East Tier Advanced Technology Center (see page 16).Pure sili-con crystals are"grown" in a high.temperature elec-tric-intensive process (C)at AT&T's Allentown works.The crystals are sliced into thin wafers to become memory chips for the semiconductor industry.Unlike most PJM companies, PP&L is a winter-peaking utility because of its large percentage of electric-heat cus-tomers.The previous PP&L winter peak use record of 5.21 million kilowatts, set in January 1982, was shattered during a record-breaking cold spell in early 1985.The new winter peak is 5.52 million kilowatts recorded on Jan.21, 1985, when temper-atures across PP&L's service territory dipped below zero.Poorer Sale Negotiated In August 1983, as part of the rate decision that recog-nized Susquehanna Unit 1 in PP&L's rate base, the Pennsyl-vania Public Utility Commission (PUC)ruled that PP&L had 945,000 kilowatts of surplus generating capacity, and would not be allowed to earn a return on$287 million of its net investment in generating facilities representing that surplus.After several months of discussions, PP&L signed an agreement in March 1984 which makes 945,000 kilowatts of the company's generating capacity and related output avail-able to Jersey Central Power&, Light Co.(JCP&L), a New Jersey utility.This amount is covered by the contract through the end of 1995, and decreases annually thereafter until the expiration of the contract in 1999.Under the agreement, the capacity and energy would not come from any one plant, but instead represents a proportion-ate share of each generating unit on the PP&L system.JCP&L will pay the cost of the portion of PP&L generation being made available-including an appropriate return on investment in that generating capacity.The Federal Energy Regulatory Commission (FERC)ac-cepted the agreement in May 1984.As of early February 1985, the contract was still pending review by the New Jersey Board of Public Utilities.

~~Co generation A greement Pennsylvania's first large-scale coal-cogeneration agree-ment was signed in May 1984 between PP&L and the Lock Haven, Pa., mill of Hammermill Paper Co.Cogeneration is the simultaneous generation of both electricity and heat energy by a utility customer.The agreement was the first in the state implemented under the 1978 Public Utility Regulatory Policies Act, which requires utilities to buy electric power from private energy developers.

The Hammermill facility was completed near the end of 1984.It burns bituminous coal to produce steam and electric energy.Under the agreement PP&L will buy any electric energy Hammermill produces beyond its own needs.The electricity is purchased under PP&L's Shared Benefit Rate program established in 1982 to encourage cogeneration.

Over the term of the agreement, the price PP&L pays for this ener-gy is expected to be below the incremental cost of energy available elsewhere in the power pool.This provides a cost benefit which can reduce the overall cost of energy to PP&L customers.

Construction Expenditures Reflecting the wrap-up of construction at PP&L's Sus-quehanna nuclear plant, construction budget figures for 1985 and 1986 are down significantly to$272 million and$274 million, respectively.

Expenditures for the following several years are expected to stabilize at about$275 million a year.While ongoing modifications during 1985 and 1986 at Susquehanna will require about$105 million, the biggest portion-about$126 million-will be spent on the com-pany's existing non-nuclear generating plants.Much of this money will be used for projects which are part of an extended life program.This program, which is a key corporate goal, includes efforts to extend generating plant life and to maintain and improve the performance of existing power plants.The aim is to extend as far as possible into the next century, the time when expensive new generating units will be required.Rate Activities The company had petitioned the FERC in November 1983 for about a 20 percent average increase in rates for 15 boroughs and one investor-owned utility which buy power from PP&L and resell it to their own customers.

The increase was to have been effective in January 1984.The resale customers agreed not to contest the increase and PP&L agreed to delay implementation until March 1984.The FERC accepted the settlement as negotiated, which will increase PP&L's annual revenues by about$4 million.Electricity touches people's lives in many ways that are taken for granted.Oxygen for medical purposes, as well as other industrial and commercial gases for welding and a myriad of other purposes are produced by separating the atmosphere at an Air Products and Chemicals, Inc.plant in Lancaster.

The electric-inten-sive cryogenic distillation process requires tempera-tures 300OF and more below zero.In the photo to the right the liquefied gases are pumped from storage tanks into insulated tank trucks.The simple pushlpull valves on detergents (A)are molded, counted and packed by the heat, motion and precise control in-strumentation of electricity at the Mack Wayne Closures Div.of the West Co.In Willlamsport.

Hard-wood boards destined for furniture and other con-sumer products at Meiser Lumber Co.in Millerstown (B&C)were aligned by laser beams for precision cutting and milled by constant-speed saws controlled by the precision of electricity.

Like a number of other saw mills In PP&L's territory, Melser Lumber recently switched from diesel power to all-electric operation for economy and dependability.

Interrupti hie Rates In April 1984, PP&L proposed an interruptible service plan for large-power customers to help attractnewindustries to the company's service area, and to help make some large industrial customers more competitive with those in other states and countries.

The proposal was designed to lower energy costs and, at the same time, limit peak load growth on PP&L's system.Slowing the rate of growth in peak demand-the time of highest overall energy consumption by PP&L customers-can help the company defer construction, and the costs of new generating plants, into the 21st century.The interruptible rates, which were approved by the PUC and implemented on July 1, 1984, are available to large industrial customers who agree to the interruption of their electric use under certain specified conditions.

This allows the company to utilize its generating capaci-ty for residential customers and others who have a firm commitment for power.It can also permit a greater volume of sales to the power pool when the power is most critically needed, and when the company can realize a higher price for these sales.The amount received from power pool sales, above the cost of power production, is passed on to PP&L customers in the form of lower energy charges, thus lower-ing the overall cost of service in the company's service area.A Rate Increase Requested The company, on July 27, 1984, asked the PUC to allow an annual increase in rates of$330 million, or about 23 percent, to be phased in over several years.About two-thirds Annual Meeting The annual meeting of shareowners will be hold at the Williamsport Scottish Rite Auditorium, 348 Market St., Williamsport, PA 17701, on Wednesday, April 24, 1985.Formal notice of the meeting, together with a reservation card for meeting attendance, will be mailed to shareowners of record March 8, 1985, on or about March 19, 1985.PP8t;L Profile Each year the company publishes the PP&L Profile containing more in-depth information about the company than is available in the annual report.The Profile includes a 10-year statistical review and discussion of some of the critical issues facing PPAL now and in the years ahead.If you would like to receive the 1974-1984 Profile, fill out, detach and mail the card on this flap.

I (i g J g r~I I (Y (.I'I j I If I j I If<<f ,f I<<ik>>h<<f<<I I'b~c Jg/,<<I I g I l f t j.f ff L-.;N j lt~~l I ff/fldf i/1 r.I 1+r f It (1 j t I I I I I I L J t I'c I L I'I/,'I I~E It.C;r<<gt't Q jjF l,f I I I tI jf 1'I F.It t"i ft r10 Electricity affects the quality of life.An Allentown real estate developer of historic properties enjoys an at-home movie with a video cassette recorder-one of the most popular items in today's consumer elec-tronics market.A Mlllersville University professor and his family (A)enjoy their jacuzzilgreenhouse area in the home they designed and built.In addition to its recreational and therapeutic benefits, the Jacuzzi Is part of the water-source heat pump which warms the home in winter and cools it In the summer.The green-house provides passive-solar gain during the winter heating season as part of its energy-efficient design.A Selinsgrove architect/developer and his wife (8)en-Joy late-night refreshments In their all-electric home, which was designed around the versatility of electric-Ity In lighting, heating, cooling, cooking and dozens of other applications which enhance their lifestyle.

of the increase would recognize in base rates the company's investment in, and cost of operating, Susquehanna Unit 2.The remaining third would represent recovery of other higher costs of doing business since the August 1983 increase.To moderate the effects of the increase, the company proposed that the full amount not be collected immediately, but rather be phased in over several years.Only half of the request, or$165 million, would be collected in the year starting on April 26, 1985.That amount represents about an 11.5 percent increase.The second$165 million increment would go into effect the following year, beginning April 26, 1986.The$165 million that was not collected in the first year would be deferred without interest and recovered in several subsequent years.If the plan is approved by the PUC, PP&L would become the first utility in Pennsylvania to voluntarily provide a rate phase-in.As with its previous rate increase request, PP&L filed a"net" request.The$330 million figure is the net of, or difference between, the company's total revenue needs of$466 million and energy cost savings of$136 million expected from the operation of Susquehanna Unit 2.The bottom line for PP&L customers would be the$330 million increase in base rates, plus a proportionate increase in the Pennsylvania tax surcharge, amounting to approximately

$18 million.A Hearin gs Held As expected, the PUC ordered full public hearings on the requested rate increase.A total of 19 technical evidentiary hearings were held in Harrisburg, beginning in late October 1984 and continuing through December 1984.In addition, public input hearings were scheduled by the PUC, and held in each of the company's six operating divisions to give customers another opportunity to express their views.The PUC is expected to reach a decision on the rate increase request by April 26, 1985.Weatherization Pro gram In early December 1984, in response to a PUC order, the company asked the commission to approve a proposal for a$2 million weatherization program aimed at assisting low-income customers in cutting energy losses from their homes.Called WRAP (Winter Relief Assistance Program), the plan is directed at low-income PP&L customers who use electricity for space heating or water heating.Included in the program's first-year goals are: the weatherization and caulking of 2,000 or more homes of low-income customers with electric space heating;and a loan program for improvements to about 2,000 multi-family rental units occupied by low-income people.WRAP grew out of a PUC investigation into how the company's rate structure affects low-income customers.

After concluding the investigation in August, the commission asked the company to broaden its existing weatherization program to include those customers.

The PUC later set a spending level of$2 million a year, and the company asked the commission to allow a monthly 20 cent charge per residential customer to fund the program.

The program, with modifications, was approved on Jan.17, 1985 and was to be put into effect March 1, 1985.The overall amount that customers will pay for the program, as well as the method of collection, will be part of the overall rate increase decision in April 1985.Security Sales The company raised$538 million in the capital markets during 1984.The sale of$125 million of first mortgage bonds in April and another sale for the same amount in November raised$250 million for the company.Interest rates for the two offerings were 13.50 percent and 12.75 percent, respectively.

The Lehigh County (Pa.)Industrial Development Authori-ty issued$153 million of its tax exempt 10.625 percent revenue bonds in 1984 to finance pollution control and solid waste disposal equipment at the company's Susquehanna plant.The authority bonds are backed by PP&L first mortgage bonds issued with terms identical to the revenue bonds.In April,$50 million of depositary preference shares were sold in a public offering.E~ach depositary preference share represents one-quarter share of the company's$13.68 prefer-ence stock.Another$85 million was raised during 1984 through the direct issue of common stock under the company's dividend reinvestment plan.With the completion of Susquehanna and the downturn in financing requirements, the company will no longer have to issue new common stock.As a result, beginning with the Jan.1, 1985 dividend, the plan was amended to provide for shares of common stock to be acquired in the open market with no discount in the purchase price.Because the common stock is being acquired in the open market, dividends which are reinvested during 1985 will not qualify for the$750 ($1,500 on a joint return)exclusion provided by federal tax laws.Electricity provides many options to keep people comfortable.

A young Hazleton family chose a supple-mental electric storage system for their new home (right).Their SESS features a modified heat pump that utilizes an insulated 120-gallon water storage tank that is heated or"charged" during off-peak hours to serve as a source of stored heat during on-peak periods.Special off-peak rates make this an at-tractive residential load management option.A cou-ple staying at the Lackawanna Hilton Hotel (A)in Scranton enjoys the convenience of an individually controlled heat pump unit In their room.The room units have the versatility which allows heating rooms in some parts of the building, while cooling others on the sunny side of the hotel-an advantage for days of in-between weather where all-heating or all-cooling systems would leave some rooms uncomfort-able.A retired woman In the newly completed Not-tlngham Village Retirement Center (B)can control her own comfort level.Each apartment has its own unit allowing all residents to set the heatinglcoollng temperature that suits their individual needs.Susquehanna Project 1984 was another year of milestones for the company's Susquehanna nuclear plant near Berwick, Pa.These activities were capped when Unit 2 was placed in commercial operation on Feb.12, 1985.~The year began on a high note for the company when an evaluation by the Institute of Nuclear Power Operations (INPO), released in early Ftebruary, provided confirmation that the plant is being operated in a safe manner by qualified personnel.

INPO, an industry-sponsored organi-zation, conducts evaluations of all operating commercial nuclear plants in the United States.The INPO team visited PP&L in September 1983 and examined the Susque-hanna plant organization and administration, technical adequacy of the facility operations, maintenance, techni-cal support, personnel training and qualification, radio-logical protection, and chemistry monitoring.

~Mechanical and electrical connections between Unit 1 and Unit 2 were completed in Ftebruary allowing Unit 1 to be placed back in service after an ll-week outage, and clearing the way for Unit 2 to begin test operation.

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~.p g a 1 lj, pip H pl~@gll~g~~J fQ t~Q7 Q J f li/i 4<gCP-;Bi'gg"'I 1~/V Ji,~<3 I-l/'<)'ly,W~';-.~, rp-/~I t~el, r r~cia II'.6,'/n~P;~.J q't.a 1'1.'&i'~~e~~l t v~j@PI E t V 14 Electric lighting serves many purposes.Using PP&L's innovative new off-peak greenhouse rate, J.L.Dillon Inc., a wholesale florist in Danville, can use supple-mental high-Intensity lighting (left)to stretch the growth period of Its crop to 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day.The com-mercial rose grower thus can produce more flowers than If only daylight were used.The lights also help heat the greenhouse.

Electric lighting aids com-merce, by providing a safer and cheerier nighttime environment (A)for downtown shoppers patronizing stores along Allentown's Hamilton Mall.In addition to all the lifestyle and comfort amenities that electricity powers Inside an all-electric Hazleton home (B), It also provides security and accent lighting outside.~The Nuclear Regulatory Commission (NRC)granted an operating license for Unit 2 on March 23, and the first of 764 fuel assemblies was loaded into the reactor five days later.Fuel load went extremely well and was completed April 13, eight days ahead of schedule.~An NRC-observed drill, conducted in early April to test the company's emergency preparedness and response capabili-ties, earned the company high marks from that regulatory body.~In May the company completed negotiations to purchase nuclear fuel originally intended for use in an Ohio nuclear plant that was cancelled.

The purchase will result in a savings of at least$10 million compared to buying similar quantities of nuclear fuel on the open market.~Also in May, the company received a report on an NRC review of Susquehanna plant operations, conducted before the Unit 2 license was issued.The report commended the way the company is managing and operating the facility.~A license granting the company permission to gradually take Unit 2 up to full-power operation was issued by the NRC on June 27, and on July 3 the unit produced its first kilowatt-hours of electrical energy.~After a series of meticulous checks and tests to assure the integrity of all the plant's safety and operating systems, the unit reached 100 percent power on Sept.28.~The 1,230 people of the company's Nuclear Department also passed a milestone in mid-December

-an unprece-dented company safety record'of 3 million employee-hours without a lost-time accident.Coal Supply In mid-December 1984, after more than 20 years of pro-ducing bituminous coal for PP&L power plants, Lady Jane Collieries ceased underground mining operations after all re-coverable coal reserves were depleted.Lady Jane is a PP&L subsidiary and had provided the company with about 250,000 tons of bituminous coal annually-or more than 5 million tons throughout its operation.

The coal-cleaning plant and related loading facilities at the Lady Jane site will continue to be used to process purchased coal for PP&L power plants.Unit Train System The 5,000th unit train delivery of bituminous coal to the company's Brunner Island power plant near Harrisburg, Pa.took place in May 1984.PP&L unit trains-which each trip carry 10,000 to 13,000 tons of coal in more than 100 cars-have been operating for 20 years and have delivered over 100 million tons of coal in 10,000 trips to PP&L power plants Silt Fees Paid After several legal appeals, PP&L in late December paid the Office of Surface Mining in the Department of the Interior more than$2 million in contested coal land reclamation fees and interest.

At issue was whether the 1977 Federal Surface Mining Control and Reclamation Act applies to the removal of waste piles containing anthracite silt.The company's position was that removal of the silt is not surface mining of coal and should not be subject to the fee.The fees are passed through to the company by silt sup-pliers, and are a cost of fuel which PP&L customers must eventually bear on electric bills.Anthracite silt-a fine waste product that results from washing anthracite

-is an approximately equal mixture of anthracite and non-coal waste material.Low in sulfur, but also low in energy content, silt can be burned only when enriched with higher quality coal or petroleum coke.The low-cost silt is used as part of the fuel mixture for generating units at the company's Sunbury and Holtwood power plants.A retired guest relaxes in the sunroom (right)at the all-electric, energy-efficient Nottingham Village Retire-ment Center.Nottlngham Village is an example of a new concept in retirement communities.

Built adjacent to a modern nursing and convalescent facility, the center provides individual apartments for its guests who can also use common living, recreation and din-ing areas, which provide a sense of community.

Should they be needed, doctors, nurses and advanced health care equipment are only moments away at the nursing facility.Electricity also powers modern, high-tech health care equipment at St.Joseph's Hospital in Hazleton.A technician prepares a patient (A)for diagnosis using a computed tomography (CT)scanner, which can xcay a very thin slice of anatomy, providing a three-dimensional image clear through the body.Marketing/Economic Development The company's strategy for the'80s is to market its strong capacity situation, and its abundant supply of electric energy, in ways that will provide economic benefits for Central Eastern Pennsylvania.

In 1984, PP&L aggressively stepped up its marketing activities in an effort to promote new jobs and increased production among industrial and commercial firms in the company's service area.A goal of developing a net increase of 5,000 new jobs for the area was met and exceeded as 124 new or expanding firms provided a net increase of 5,316 jobs in PP&L's service territory in 1984.In February 1984, the PUC endorsed economic develop-ment initiatives, including rate schedule and tariff rule changes, that provide incentives for existing customers to re-main in PP&L's service territory and increase production, and for new customers to locate within the state.The rate schedule changes could affect nearly 900 industri-al and commercial customers who use time-of-day metering and billing.Customers who take advantage of this option pay lower electric rates during off-peak hours, when overall electric use is less.The first customer to take advantage of the interruptible rate incentive discussed earlier, was an energy-intensive air separation plant in Lancaster, Pa.This rate is particularly attractive to certain customers which have a very high energy use in their production facilities.

An innovative rate put into effect in late 1983 helped to make the greenhouse industry in Central Eastern Pennsylva-nia more competitive during 1984.The rate provides an off-peak incentive for greenhouse operators who use supplemental lighting in their crops'row-ing process.The incentive rate was offered with the under-standing that the company would be able to interrupt the lighting load with one hour's notice, if the electricity was needed elsewhere during periods of peak use.A Ijf W Ben Franklin Partnership Advanced technology has the potential to make a positive contribution to Pennsylvania's economic future.The develop-ment and attraction of high-technology industries, coupled with the revitalization of traditional industries, can mean a I I I I I I I('I U0IUU~I cr~I 0-~IU~'-==--Iglf-,~,--~~cia~

~ll%',.~'1~'~Olin~ClllS~'anln~ty~~~Mll~~~KlllR&l 1[1 I~~'ERIK~>II INKS<<i, I>I~UUIY 1 r e g 5 I'""<',5i<'.-5

~','Sp hr 5'5t 5 l 5r 5g5 5 j, 5 ,5f50 5i';i 5 4 5 5'r r5554 55 I 5 l 5 5 18 (j ,5 Electricity helps people have fun.Besides providing high-intensity lighting to enable skiers to pursue their sport after dark, electricity also powers the 1,500 horsepower compressors necessary for the snowmaking equipment at Tanglwood Ski Area near Lake Wallenpaupack.

With PPBL's off-peak rate in-centives, Tanglwood is one of a number of ski areas that found it economical to switch to all-electric oper-ation from diesel-powered compressors.

Young and old alike enjoy one of the thrill-rides (A)at Dorney Park near Allentown.

The attractions in the 100-year-old park are powered by electric motors with a com-bined total of nearly 900 horsepower.

Overhead light-ing provides 24-hour-a-day recreation opportunities at the Allentown Racquetball Club (B).Electricity also makes possible the therapeutic benefits of steam rooms, saunas and Jacuzzi whlrlpools at the club.A'$P'~Q ,v'r~<f)e more and better jobs for Pennsylvanians.

A major step to bring about these improvements was taken in 1982 when the Commonwealth of Pennsylvania instituted the Ben Franklin Partnership Challenge Grant Program for Technological Innovation.

This led to the establishment of four locally supported consortiums and advanced technology centers across Pennsyl-vania.PP&L is a supporting member of the North East Tier Advanced Technology Center at Lehigh University, Bethle-hem, Pa.The consortium, made up of representatives from business and industry, education, organized labor, economic develop-ment groups and financial institutions, has established three primary objectives:

~To help established industries implement new technolo-gies to improve productivity and profitability.

~To diversify the economic structure of the region by attracting both large and small advanced technology firms.~To assist start up firms, or"incubator companies," through its varied resources.

The North East Tier Advanced Technology Center has chosen four areas of concentration:

~CAD/CAM (computer aided design/computer aided manufacturing).

~Research programs in the polymer sciences, composite materials, and man-made sources of fiber, rubber and plastics as viable alternatives for use in automobiles, air-planes and furniture.

~Microelectronics, or solid-state technology using the sili-con chip as the basis for devices in control systems, com-puters, appliances and communication products.~Biotechnology, which explores the use of microorganisms, plant and animal cells, and enzyme catalysts, to develop new technologies to convert these raw materials into new products.The Ben Franklin Partnership is already making a notice-able impact in PP&L's service area, and as its momentum grows is expected to provide new job opportunities that did not exist just a few years ago.nfl~~~P Q>j Management Changes Robert R.F<ortune ended a PP&L career o'f nearly 36 years when he retired July 1, 1984, as executive vice president-F<inancial.

F<ortune joined PP&L in 1948, after starting his financial career as an accountant with the public accounting firm of Haskins and Sells in 1940.He became assistant treasurer in 1952 and comptroller in 1954.He was named vice president-Financial in 1966, and in 1975 he became executive vice president and a director of the company.In anticipation of his retirement, he did not stand for re-election as a director at the April meeting of shareowners.

Succeeding Fortune was Charles E.Russoli who became senior vice president-F<inancial and a member of the com-pany's Corporate Management Committee effective March 1, 1984.He became chief financial officer upon F<ortune's retirement.

Russoli joined PP&L in 1955 as a graduate trainee.After serving for two years in the U.S.Army he returned to PP&L and held various data processing positions until his promotion to financial analyst in 1965.He became manager-Budgets in 1969, manager-Financial Planning and Reporting in 1971, vice president-Finance in 1979, and vice president and treasurer in 1981.John P.Kierzkowski was appointed vice president and treasurer effective March 1, 1984.Kierzkowski joined PP&L in 1971 as manager-F<inancial Research and was named assistant treasurer in 1981.John R.Biggar was named vice president-Finance on March 1, 1984.He joined PP&L in 1969 as an attorney in the Legal Department.

He became manager-Financing Services in 1975 and manager-Finance in 1979.He had been an assistant treasurer since 1981.Merlin F.Hertzog became an executive vice president on March 1, 1984, to head the company's newly created Corporate Services Department.

He also was elected a director of the company at the board's February 1984 meeting.Hertzog became executive vice president-Corporate Ser-vices after nearly 26 years with the company.He joined PP&L in 1958 as a mathematician specializing in engineering and scientific programming in the F<inancial Department.

He held various data processing positions until he was named manager-Methods in 1968.In 1973, he was named director-Systems&Computer Services, and in 1978, he became vice president-Consumer

&Community Services.Hertzog was named to head the Human Resource&Development Department in 1980 and became senior vice president-HR&D in 1981.Robert S.Gombos was named vice president-Human Re-source&Development in the Corporate Services Department effective March 1, 1984.Gombos joined PP&L in 1965 and was a home-heating representative until 1967 when he moved to Allentown as a staff assistant in E<mployee Relations.

After four years in systems analysis, he became a labor relations analyst in 1972, then labor agreement administrator.

He was named assistant director-Union Relations in 1974 and assistant to the executive vice president-Financial in 1977.He became special assistant to the president-Susquehanna community representative in Berwick in 1979 and senior director-Industrial Relations in 1981.Clair W.Noll was named vice president-Procurement

&Computer Services in the Corporate Services Department effective March 1, 1984.Noll joined PP&Lin 1960 as a methods accountant.

In 1962 he advanced to assistant supervisor-Computer Center and later served as senior procedures analyst.He was named supervisor-Business Computer Systems in 1969 and four years later he became manager-Systems

&Programming.

He was promoted to director-Systems

&Computer Services in 1978.William R.White was appointed vice president-Power Production effective March 1, 1984.White joined PP&L in 1950 as a results engineer at the company's former Stanton power plant, where he advanced through several positions to assis-tant superintendent.

He was transferred to PP&L's Brunner Island power plant as supervisqr of operation in 1969.A year later he was promoted to plant superintendent.

In 1973 he was transferred to Allentown as manager-Power Production.

One of the applications of electricity that Is perhaps most taken for granted ls refrigeration (right).In just a few generations, people have gone from iceboxes and everyday trips to the grocer or butcher, to reli-able, virtually trouble-free electric refrigerators which can store fresh food for days or weeks, and frozen food for months.Refrigeration has literally changed the way our society functions.

Frozen convenience foods, such as the chicken rondelets being packaged (A)at Victor F.Weaver, Inc.In New Holland, often play a big part ln meal planning for busy, on-the-go families without the time for from-scratch meal prep-aration.Conversely, electricity powers the efficienc-iess and work-saving appliances that allow from-scratch institutional food preparation (8)at Millers-ville University in Mlllersville.

The university is con-verting to all-electric operation to take advantage of the economies and reliability of PP&L electric service.k 20 r e~J'v<-j jr fh ij 1 9 i'I.Z%g'L.I"'q r~, bl 1/>i p h ji.I'L 21 I I.hy Review of the Company's Financial Condition and Results of Operations This review provides a discussion of the Company's financial condition and results of operations.

Ad-ditional information on these matters is set forth in the financial statements, schedules and notes on pages 28-43 and the selected financial and operating data on pages 44 and 45.Results of Operations Earnings per share of common stock were$3.12 in 1984,$3.06 in 1983 and$3.35 in 1982.The slight earnings improvement in 1984 was primarily attribut.able to a 6.3'ncrease in electric energy sales during the year.The increased revenues associated with the higher sales somewhat offset the effects of an inade-quate rate increase allowed by the Pennsylvania Public Utility Commission (PUC)in its August 1983 rate decision.The decline in earnings per share in 1983 compared with 1982 reflected a partial year's effect of the in-adequate rate increase and also the effects of the eco-nomic recession early in 1983.1983 Rate Decision In August 1983, the PUC issued a final order on the Company's request to increase rates to reflect the effect 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 million-some$90 million less than the amount requested.

The return allowed on the Susquehanna Unit 1 plant investment included in rate base replaced the previously recorded non-cash allowance for funds used during construction.

Costs such as employee wages, materials and supplies and outside skilled labor incurred to operate and maintain the unit were included in electric rates established by the PUC.The rate decision, however, did not permit the Company to earn a return on$287 million of its net investment in total generating facilities.

The PUC decided that 945,000 kilowatts of the Company's total generating capacity was excess and this reduced annual revenues by about$59 million.This disallow-ance has adversely affected earnings available for common shareowners.

However, the Company ex-pects to recover the return on investment disallowed by the PUC when the sale of capacity and energy to Jersey Central Power&, Light Company (JCP&L)commences.

See page 23 for a discussion of the JCP&L agreement.

1984 Rate Filing In July 1984, the Company filed with the PUC for an overall increase in electric rates of approximately

$330 million.The increase reflects$466 million related to the investment and operating costs of Susquehanna Unit 2 plus other increased costs of doing business less an estimated reduction of about$136 million in annual energy costs associated with the operation of Susque-hanna Unit 2.To moderate the impact of the increase, the Company has proposed to bill customers only one-half of the amount requested ($165 million)in the first$3.60 Earnings Per Share 12 Months Ended Each Quarter Dollars Per Share Times Interest Charges Earned 12 Months Ended Each Quarter Times Earned (Pre Tax)3.40 3.20 3.00 2.80 2.60 80 81 82 83 84 80 81 82 83 84 22 year that new rates are effective.

The full amount of the rate increase would be billed in the second year and recovery, without interest, of the amount not collected from customers in the first year would begin in the third year.The issue of excess generating capacity has again been raised by certain parties in the current rate proceeding.

However, the Company is unable to pre-dict what action the PUC may take with respect to that issue or the Company's proposed rate phase-in plan.A decision by the PUC on the rate increase request is expected by April 26, 1985.Sale of Capacity and Energy to JCPdLL The Company has entered into an agreement to provide JCP&L capacity and energy from 945,000 kilowatts of the Company's generating facilities.

JCP&L will pay an amount equal to the Company's cost of service, including a return on investment in the generating facilities.

The agreement will not become effective until the New Jersey Board of Public Utilities makes a determination that the agreement is in the public interest.When the agreement becomes effective, the Com-pany would expect to recover from JCP&L the return on investment in generating facilities disallowed by the PUC in its 1983 rate order.However, if the agreement does not become effective before the PUC reaches a decision on the Company's current rate increase request, the Company's earnings would be adversely affected because depreciation and the costs to operate and maintain the facilities included in the JCP&L agreement would no longer be recovered in rates charged customers.

1984 1983 1982 Electric Base rate increases....

Recovery of fuel and energy costs........

Change in customer usage..............

Sales to Atlantic City Electric Company...

Other (principally tax surcharge)......

Total electric....

$257.5$141.1$81.6 (17.0)(153.9)1.7 31.1 15.2 (3.6)13.3 18.5 28.1 313.0 9.5 30.4 7.5 87.2 Steam heat...Total.1.4$314.4 (1.6)$28.8 (0.9)$86.3 Electric Sales and Operating Revenues Electric energy sales were 6.3%%uo higher in 1984 than 1983 and 3.4%higher in 1983 than 1982.The increased sales result from improved economic conditions and extremely cold weather during the 1983-1984 winter season.If normal weather conditions had prevailed in both 1984 and 1983, energy sales in 1984 would have increased 5.1%over 1983.When compared with 1983, residential sales for 1984 were up 316 million kwh or 3.9%%uo, commercial sales increased 408 million kwh or 6.7%and industrial sales increased 494 million kwh or 6.5%%uo.The Company also sold 148 million kwh more energy to Atlantic City Electric Company (Atlantic) in 1984 pursuant to an agreement whereby Atlantic purchases about 6%of the capacity and energy of the Susquehanna units.The changes from the prior year in total operating revenues were attributable to the following (millions of dollars): Sources of Energy I Disposition oi Energy 50 Billions oi Kwh 50 Billions of Kwh 40 40 30 20 10 10 80 81 82 83 84 O Hydro and purchased power O Nuclear generation O Oil fired generation O Coal.fired generation 0 80 81 82 83 84 O Company use, line losses and other O Interchange power sales 8 Electric energy sales to customers 23 Base rate increases for customers under thej urisdic-tion of the PUC went into effect January 1982 and August 1983.A large increase in sales of energy to other utilities during 1983 resulted in lower energy costs.This caused a substantial reduction in revenues applicable to recovery of such costs in that year.Sales to ultimate customers accounted for approxi-mately 96%of the Company's revenues from electric sales over the past three years.Such revenues are under the jurisdiction of the PUC.The remaining 4%of revenues relate to sales to others for resale which are regulated by the Federal Energy Regulatory Com-mission (FERC)as are interchange power sales, which are classified as a credit to operating expenses.Net Cost of Energy In total, the cost of fuel burned in 1984 was 6.2%less than in 1983.The decrease in fuel costs reflects principally less oil consumed by the Company's two oil-fired generating units where 1.5 billion less kwh were produced.This was partially offset by higher costs for coal and nuclear fuel.The energy produced by coal-fired stations was about the same in 1984 as in the prior year, but the cost of coal consumed was somewhat higher.At coal-fired stations the average cost of fuel per kwh generated increased by 4.8%.Susquehanna Unit 1 produced electricity throughout most of 1984 whereas it operated on a commercial basis for only a part of 1983.The increase in nuclear fuel costs in 1984 reflects the increased output from the unit.In 1984, the quantity of interchange power sold to other utilities was 1.0 billion kwh lower than the all-time high of 16.4 billion kwh achieved in 1983.Sales to the Company's own customers increased 1.4 billion kwh, resulting in less energy being available for~interchange sales.Susquehanna Unit 1 was out of service for about two months in early 1984 to permit a tie-in of common facilities with Unit 2 and for certain repairs.As a result, output from other units was required to meet customers'nergy needs instead of being available for sales to other utilities.

In addition, output from the Company's oil-fired steam station was down from 1983.This decrease was due in part to equipment problems and also to less need for energy from these units by other utilities.

Wages and Benefits, Other Operating Costs and Depreciation Wages and employee benefits and other operating costs increased in both 1984 and 1983 due to inflation and costs related to operating Susquehanna Unit 1.Increases in depreciation reflect additions to plant in service, including Susquehanna Unit 1 in 1983.The provision for depreciation, as a percent of average depreciable property, declined from approximately 3.3%in 1982 to 2.7%in 1983 and to 2.5%in 1984 primarily due to the use of a modified sinking fund method of depreciation for the Susquehanna plant in accordance with rate-making treatment.

Income Taxes In 1982, 1983 and 1984, the Company had losses for income tax purposes.The large amount of interest expense incurred to finance construction expenditures and the depreciation for income tax purposes of Susquehanna Unit 1 and Unit 2 were major factors$1,500 Capital Requirements Millions of Dolls$1,500 Sources of Capital Millions of Dolfi s 1,200 1,200 900 900 600 300 300 82 83 84" 85 86 87 Aclual~Procreated

~W Susquehanna construction Cl Other construction and nuclear fuel D Other (principally retirement of securities) 82 83 84 85 86 87 i Actual-f-Projected~

C3 Capital lease obligations O Outside financing (sales of debt and/or equity securities)

R Internal sources (principally from opera.tlons plus AFUDC less dividends) 24 causing the tax losses.At December 31, 1984, the Company had tax loss carryforwards of approxi-mately$100 million for both federal and state income tax purposes.The Company's construction expenditures have enabled it to qualify for substantial investment tax credits.At the end of 1984, an estimated$273 million of unused investment and payroll-based tax credits were available to reduce federal income tax liabilities in future years.For additional information concerning income taxes, see the Schedule of Taxes on page 35 and Note 6 to Financial Statements.

Capital Expenditure Requirements When Susquehanna Unit 2 was placed in commer-cial operation on February 12, 1985, it marked the end of an extensive period of generating plant construc-tion by the Company.In the past 20 years, the Company has placed into service eight large generat-ing units (four coal, two oil and two nuclear).In addition, the Company participated in the construct-ion of four jointly owned coal-fired units during the period.Completion of the two nuclear-fueled generat-ing units at the Susquehanna plant has dominated the Company's construction program for the past several years.The cost of the Company's 90%share of the two Susquehanna units is expected to be about$3.7 billion.Construction expenditures for the next several years are expected to decrease substantially from the levels recently experienced since no new generating units will be under construction.

The schedule below shows actual construction and nuclear fuel expenditures for the years 1982-1984 and current projections for the years 1985-1987.

Construc-tion expenditures during the three years 1982-1984 totaled$1.8 billion and are expected to be about$0.8 billion during the three years 1985-1987, a decline of approximately

$1.0 billion from the prior three years.Allotoance for Funds Used During Construction (AFUDC)The amount of AFUDC recorded in 1984 was less than in 1983, the first decrease following a decade of steady increases which were due to the greater level of construction work in progress related to the two Susquehanna units.The Susquehanna units ac-counted for about$652 million of the total$667 million of AFUDC recorded during the three years 1982-1984.

AFUDC will decrease substantially in 1985 following completion of Susquehanna Unit 2.See Note 7 to Financial Statements for additional information con-cerning AFUDC.Financin g In order to finance its construction program, the Company has had frequent sales of debt and equity securities over the past several years.Outside financing totaled$1.8 billion during the three years 1982-1984.

In addition to securities sales, the Company incurred$441 million of obligations under capital leases (primarily nuclear fuel)during the three years 1982-1984.

Details of the amount of securities sold and other information on sources and uses of funds during 1982-1984 are set forth in the Statement of Changes in Financial Position on page 29.Construction and Nuclear Fuel Expenditures (Millions of Dollars)----Actual----1982 1983 1984----Projected

---1985 1986 1987 Construction expenditures (a)Susquehanna plant...........

Transmission and distribution facilities

.Environmental

.Other$25 (b)$638$540$246$103$115 16 13 155,141 274 269 67 55$341$324 97 9 141 272 65$337 62 84 4 5 43 87 649 422 100 103$749$525 69 19 32 758 74$832 Nuclear fuel (c)Total.Allowance for funds used during construction (which is included in the above amounts)..............

$246$252$169$(33)(b)$9$10 (a)Construction plans are revised from time to time to reflect changes in conditions.

Actual construction costs may vary from those projected because of changes in plans, cost fluctuations, environmental regulations and other factors.(b)The Susquehanna station construction expenditures are estimated to be$83 million in 1985.Those expenditures and AFUDC have been reduced by the estimated tax reduction applicable to construction interest included in the tax loss carryforwards expected to be used in 1985.(c)Includes both owned and leased nuclear fuel.

The Company presently estimates that outside fi-nancing during the three years 1985-1987 will be about$300 million, or$1.5 billion less than the amount required during the prior three years.Funds from securities sales and from internal sources will be used to finance construction expenditures, repay$521 mil-lion of long-term debt obligations and meet$172 million of preferred and preference stock sinking fund requirements.

Funds generated from internal sources are expected to provide about 80%of total funds required during the three years 1985-1987 compared with 26%during the three years 1982-1984.

Tentative Plans for Securities Sales The Company intends to issue$192 million of securities in 1985, all in the form of long-term debt.The exact amount, nature and timing of sales of securities in 1985 and subsequent years will be deter-mined in the light of market conditions and other factors, including the granting of timely and adequate rate relief.Improved Pinancial Condition The Company's overall financial condition im-proved during 1984.Earnings per share of common stock increased.

The times interest charges earned ratio (pre-tax)continued the upward trend which began in 1983.This ratio increased from 2.05 times in 1982 to 2.29 times in 1983 and was 2.35 times in 1984.At the end of 1984, the market price of the'Company's common stock was 98.7%of book value.This is the highest market-to-book ratio experienced by the Com-pany in many years.Funds from operations also continued a favorable trend.As detailed on page 29, funds from operations in 1984 were$185 million higher than in 1983.Financing flexibility also improved.Currently, there are no significant limitations under the Com-pany's mortgage indenture or charter on the amount of additional debt securities that can be issued.Less than two years ago, the earnings coverage test of the mortgage indenture severely limited the amount of additional bonds the Company could issue.During 1984, a$100 million revolving credit agree-ment with a group of foreign banks was terminated.

The Company presently has bank lines of credit totaling$720 million and is assessing the appropriate level of these lines in light of the lower financing requirements expected during the next several years.The Company's financial condition in the near future will depend to a large degree on the receipt of adequate rate relief in the current proceeding before the PUC and the timely approval by the New Jersey Board of Public Utilities of the agieement to provide JCP&L capacity and energy from the Company's generating facilities.

Impacts of Inflation Certain effects of inflation on the operations of the Company have been estimated on the basis prescribed by the Financial Accounting Standards Board and are set forth in Note 16 to Financial Statements.

$6 Construction Work in Progress vs.Net Plant in Service Billions ol Dollars$30;Book Value Per Share<vs.Market Price Per Share-Year End Dollars Per Share 25 15 10 82 83 84 85'6 Actual~prclecred-u Qi3 Construction work In progress O Net plant In service*After Susquehanna Unit 2 in service 80 81 82 83 84 O Book value per share O Market price per share 26 to evaluate the Company's internal accounting con-trols, policies and procedures as to adequacy, applica-tion and compliance.

Deloitte Haskins&Sells, independent certified public accountants, have been engaged to examine the Company's financial statements and to render an opinion as to whether such financial statements, considered in their entirety, present fairly the Com-pany's financial position, operating results and changes in financial position, in conformity with generally accepted accounting principles.

Their ex-amination is conducted in accordance with generally accepted auditing standards and includes such proce-dures 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 Company maintains a system of internal accounting controls designed to provide reasonable, but not absolute, assurance that assets are safe-guarded and that transactions and events are ex-ecuted in accordance with management's authoriza-tion and are recorded properly to permit preparation of financial statements in accordance with generally accepted accounting principles.

The concept of reason-able assurance recognizes that the cost of a system of internal accounting controls should not exceed the benefits derived and that there are inherent limita-tions 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 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 independent 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.I Pt}Management's Report on the Financial Statements The management of Pennsylvania Power&Light Company is responsible for the preparation, integri-ty and objectivity of the 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 prepar-ing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon current-ly available facts and circumstances.

Auditors'pinion Oeloitte Haskias+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, 1984 and 1983 and the related statements of income, earnings reinvested, and changes in financial position for each of the three years in the period ended December 31, 1984.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, 1984 and 1983 and the results of its operations and the changes in its financial position for each of the three years in the period ended December 31, 1984, in conformity with generally accepted accounting principles applied on a consistent basis, after restatement for the change, with which we concur, in the method of accounting for leases as described in Note 2 of the financial statements.

February 4, 1985 27 Statement Of InCOme (Thousands of Dollars)1984 1983 1982 Operating Revenues (Note 3)Operating Expenses Net cost of energy Fuel Power purchases.Interchange power sales 720,670 171,953 (647,186)768,583 186,955 (740,964)633,694 59,571 (302,149)$1,562,782$1,248,397$1,219,548 EVages and employee benefits Other operating costs Depreciation

.Income taxes (Note 6)Taxes, other than income Deferred Susquehanna energy savings net of operating expenses (Note 4)Operating Income Other Income and (Deductions)

Allowance for equity funds used during construction (Note 7)Deferred Susquehanna capital costs (Note 4).Income tax credits (Note 6)Other-net..............................

Income Before Interest Charges Interest Charges Long.term debt...................

Short term debt and other Allowance for borrowed funds used during construction 245,437 232,632 219,002 118,763 185,784 154,206 1,155,824 406,958 64,743 (718)62,623 (4,830)121,818 528,776 280,328 33,740 (104,195)209,873 214,574 211,752 166,839 107,885 112,055 125,470 19,892 958,467 289,930 131,362 29,935 21,976 (9,518)173,755 463,685 258,629 29,231 (120,186)167,674 391,116 171,182 142,788 92,222 87,489 111,668 996,465 223,083 90,295 77,744 (588)167,451 390,534 239,769 28,007 (156,128)111,648 Net Income-Before Dividends on Preferred and Preference Stock.Dividends on Preferred and Preference Stock.....Earnings Applicable to Common Stock.......

Earnings Per Share of Common Stock (a)...Average Number of Shares Outstanding (thousands) 318,903 92,145$226,758$3.12 72,767 296,011 85,838$210,173 278,886 68,314$210,572 68,642 62,809$3.06$3.35 Dividends Declared Per Share of Common Stock....$2 48$2.40$2.32 (a)Based on average number of shares outstanding.

28 Scc accompanying Schedules and Notes to Financial Statements.

Statement of Changes in Financial Position (Thousands of Dollars)'Source of Funds Funds from operations Net income Charges (credits)to income not involving working capital Depreciation Amortization of property under capital leases..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.Secured term notes.Nuclear fuel trust notes-net increase...Short-term debt-net increase (decrease)

.Noncurrent capital lease obligations

..........

Working capital (excluding debt)-decrease (a).1984$318,903 118,763 38,649 125,038 718 (168,938)2,502 435,635 84,203 50,000 403,250 (85,200)452,253 53,424$941,312 1983$296,011 107,885 29,669 78,178 (10,043)(251,548)694 250,846 81,415 106,000 175,000 29,455 391,870 104,644 176,767$924,127 1982 278,886 92,222 7,442 20,404 (246,423)1,208 153,739 147,475 84,000 365,674 300,000 50,000 (14,944)932,205 220,422 84,751$1,391,117 Application of Fun'ds Construction expenditures Additions to nuclear fuel-owned and leased..Allowance for funds used during construction

.Securities retired Preferred and preference stock First mortgage bonds.Secured term notes.Long-term bank loans-net decrease..Nuclear fuel trust notes-net decrease.Reduction in noncurrent capital lease obligations

..Dividends on preferred, preference and common stock Working capital (excluding debt)-increase (a)....Other-net.$421,697 103,518 (168,938)356,277 26,803 80,154 100,000 206,957 47,492 273,236 39,762 17,588$941,312$648,661 100,157 (251,548)497,270 12,804 59,842 50,000 122,646 39,515 251,182 13,514$924,127$757,878 74,203~(246,423 585,658 6,597 178,000 375,000 559,597 11,675 216,601 17 566 31,321,117 (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.................

Capital lease obligations due within one year...........

Other-net.Increase (Decrease)

$(299)1,917 (4,680)70,771 (32,277)(26,267)30,597$39,762$191 7,889 (130,805)(29,992)(7,377)(5,999)(10,674)$(176,767)$827 60,894 (63,869)(6,746)(20,636)(29,889)(25,432)$(84 761)See accompanying Schedules and Notes to Financial Statements.

29 BalanCe Sheet at December 31 (Thousands of Dollars)Assets Utility Plant Plant in service-at original cost Electric Steam heat Less accumulated depreciation Construction work in progress-at cost Nuclear fuel in process-at cost.Leased property-net of amortization (Note 2)1984$4,876,163 8,661 4,884,824 1 023,864 3,860,960 2,020,839 47,475 401,527 6,330,801 1983$4,761,151 8,704 4,769,855 922,554 3,847,301 1,730,228 10,609 369,328 5,957,466 Investments Associated companies-at equity Receivable from litigation settlement Nonutility property and other-at cost or less...17,714 27,500 11,413 56,627 16,614 28,500 8,410 53,524 Current Assets Cash.Accounts receivable (less reserve: 1984,$5,486;1983,$5,020)Customers Interchange power sales.Other Unbilled revenues Fuel (coal and oil)-at average cost.Materials and supplies-at average cost....................

Common stock held for dividend reinvestment program (Note 8).Other 6,454 105,857 46,468 5,241 52,064 197,861 21,222 12,820 50,718 498,705 6,753 109,934 39,510 6,205 56,744 127,090 21,400 15,743 383,379 Deferred Debits 24,650$6,910,783 24,140$6,418,509 30 See accompanying Schedules and¹tes to Financial Statements.

Capitalization Common equity Common stock Capital stock expense Earnings reinvested.

Liabilities 1984$1,307,267 (16,805)606,525 1,896,987 1983$1,223,064 (15,973)560,858 1,767,949 Preferred and preference stock With sinking fund requirements Without sinking fund requirements.

Long-term debt 738,027 231,375 2,528,531 5,394,920 714,830 231,375 2,307,073 5,021,227 Current Liabilities Commercial paper and other notes Long-term debt due within one year Capital lease obligations due within one year (Note 2)........Accounts payable.Taxes accrued.Interest accrued Dividends payable Deferred income taxes.Energy revenues to be refunded Other.104,800 75,975 70,653 117,054 34,849 69,500 69,546 25,486 98,441 37,037 703,341 190,000 80,176 44,386 92,563 27,063 64,578 64,428 27 773 93,396 32,815 717,178 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits.Deferred income taxes.Capital lease obligations (Note 2)Other.107,130 336,617 330,874 37,901 812,522 111,038 205,916 324,942 38,208 680,104 Commitments and Contingent Liabilities (Note 14)86,910,783

$6,418,509 See accompanying Schedules and Notes to Financial Statements.

Schedule of Capital Stock at December 31 Preferred Stock-$100 par, cumulative (a)4'/s%%uo Series.................................

Preference Stock-no par, cumulative (a).....Common Stock-no par (a).Dividend reinvestment installments received.Shares Authorized 629,936 10,000,000 5,000,000 85,000,000 Shares Outstanding 1984 530,189 4,972,106 4,191,724 74,512,797 Outstanding Thousands of Dollars 1984 1983$53,019 497,211$53,019 519,176$1,307,267$1,222,393 671$1,307,267$1,223,064$550,230$572,195$419,172$374,010 Sinking Fund Provisions(c)

Shares to be Redeemed Redemption Annually Period With Sinking Fund Requirements Series Preferred 7.40%7.50%7.75%8.00%8.00%, Second.............

8.25%8.75%9.24%10.75%(e).................

11.00%, Adjustable (e)(f)....11.00%(e).................

11.25%(e).................

14.00%%uo (e).................

Preference

$8.625(e).................

$11.00$11.60 (i).$13.00$13.00, Second (i)..........

$13.68 (i).$15.00 (i).1985-2003 1985 1985-1988 1985-2002 1985-1989 1985-1989 1985-2004 1985-2005 1986-1990 1989-1993 1988 1989-1998 (g)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)1986-1990 1985-2000 1989-2008 1985-1998 1989-2008 1990-2009 1988-2007 102,000 25,000(d)25,000(d)12,500(d)25,000(d)25,000(d)25,000(d)Details of Preferred and Preference Stock (b)Optional Redemption Price Per Sharc 1984$104.14 103.33 102.59 112.00 103.56 103.68 110.00 115.00 115.00 125.00 125.00 125.00 123.00 None 106.05(h)114.00 106.50 114.00 114.00 120.00 Shares Outstanding 1984 304,000 150,000 480,000 450,000 100,000 500,000 600,000 589,550 265,000 150,000 260,000 150,000 340,000 510,000 377,702 500,000 154,022 500,000 500,000 500,000$30,400 15,000 48,000 45,000 10,000 50,000 60,000 58,955 26,500 15,000 26,000 15,000 34,000 51,000 37,770 50,000 15,402 50,000 50,000 50,000$738,027$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$714,830 Outstanding Thousands of Dollars 1984 1983 Without Sinking F<und Requirements 4'/Bo Preferred...............

Series Preferred 3.35%4.40%4.60%8.60%9.00%%uo Preference

$8.00.$8.40.$8.70.110.00 103.50 102.00 103.00 107.00 107.00 103.00 104.00 101.00 530,189 41,783 228,773 63,000 222,370 77,630 350,000 400,000 400,000$53,019 4,178 22,878 6,300 22,237 7,763 35,000 40,000 40,000$231,375$53,019 4,178 22,878 6,300 22,237 7,763 35,000 40,000 40,000$231,375 32 See accompanying

¹tcs to Financial Statetnents.

Increases (Decreases) in Capital Stock (shares and amount in thousands) 1984 1983 Shares Amount Shares Amount 1982 Shares Amount Common Stock Public offering.Dividend reinvestment plan......Employee stock ownership plan...-Series Preferred Stock (j)7.40%.7.75%.8.00%.9.24%.11.00%%uo, Adjustable

..............

11.00%.11.25%14.00%Preference Stock (j)$11.00$11.60$13.00$13.00, Second$13.68 4,178$84,875 (16)(1,600)(120)(12,000)(25)(2,500)(59)(5,866)(30)(3,050)(18)(1,787)500 50,000 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)4,000$77,124 3,971 69,930 43 702 (16)(1,600)(17)(1,667)340 34,000 (18)(1,771)(16)(1,559)500 50,000 (a)Each share of preferred, preference and common stock entitles the holder to one vote on any question presented to any sharcowners'eeting.(b)Liquidation prices pcr 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 49'%referred

$100$100 Series Preferred$100 Redemption price in effect.Preference

$100 Redemption price in effect, except for the$8.625 Series which is$100.(c)The aggregate amount of sinking fund redemption require-ments through 1989 are (thousands of dollars): 1985,$48,897;1986,$61,850;1987,$61,850;1988,$86,950;1989,$58,450.(d)On certain sinking fund redemption dates, the Company may redeem additional shares up to the number of shares 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 be required to make indemnity payments to the owners upon the sale or redemption of the stocks to provide an agreed upon effective yield after federal income taxes.The Company estimates that as of December 31, 1984 it could be required to make such indemnity payments in the future not in excess of$5.1 million.(f)Effective April I, 1988, the dividend rate is subject to a one-time adjustment pursuant to a formula based on the then current prime rate.(g)The 14.00%Preferred Stock has a sinking fund provision which requires redemption of the following number of shares annually at$100 per share: October 1, 1986.1987, 85,000;1988.1989, 51,000;1990, 68,000.(h)The$11.00 Preference Stock may not be refunded through certain refunding operations prior to July 1, 1985.(i)Ownership of the$11.60,$13.00, Second Series,$13.68 and$15.00 Preference Stocks is evidenced by Depositary Prefer.ence Shares, each representing

'/4 share of Preference Stock.(j)Decreases in Preferred and Preference Stocks represent: (i)the redemption of stock pursuant to sinking fund requirements, or (ii)shares reacquired through market purchases and subse-quently cancelled.

The reacquired and cancelled shares are used to meet sinking fund requirements.

Sec accompanying Notes to Financial Stateinents.

33 SChedule Of LOng-Term Debt at December 31 First Mortgage Bonds (a)15/o 9~/s%%uo 1 ls/4%%uo.15%97/s%%uo 3'Ys%%uo 15%16'/s%.14'/4'%%uo

.16'/s%%uo.

16'/s%.16'/s%.16'/s%.12'/s%%uo.

16'ls'%%uo

.16'/s%4/s%to 16'/2%5s/s%to 8'/s%7'!4%to 9'/4%%uo.8'/4%to 9s/4%.12s/4%to 15'/s%%uo Pollution control 5s/s%Series A.77/s%to 8'/s%Series C.11'/4%to 1 1'/s%Series D 10s/s%%uo Series E.10'eries F.Maturity Date (b)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 February 1, 1989 August 1, 1989 September 1, 1989 1990.1994 1995-1999 2000-2004 2005-2009 2010.2014 (c)(c)(c)March 1, 2014 September 1, 2014 1984$16,665 33,329 25,000 16,670 30,900 50,000 36,000 10,400 10,100 10,400 10,000 7,000 10,400 479,300 140,000 345,000 475,000 450,000 23,340 20,000 70,000 37,750 115,500 1983$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 10,000 7,000 10,400 354,300 140,000 345,000 475,000 325,000 23,500 20,000 70,000 Outstanding Thousands of Dollars Other Long-Term Debt Secured term notes (a)(d).Miscellaneous promissory notes Unamortized (discount) and premium-net.Less amount due within one year March 31, 1991 1985-1989 2,422,754 200,000 809 2,623,563 (19,057)2,604,506 75,975$2,528,531 2,099,658 300,000 796 2,400,454 (13,205)2,387,249 80,176$2,307,073 (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 1989 are (thousands of dollars): 1985,$75,975;1986,$98,623;1987,$47,429;1988,$21,511;1989,$28,375.Maximum sinking fund requirements aggregate$33.7 million through 1989 and may be met with property additions or retirement of bonds.(c)Pollution control bonds mature annually ns follows (thou.sands of dollnrs): (i)Series A on May 1, 1985,$640;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

¹tes to Financial Statements.

5 Schedule Of TaxeS (Thousands of Dollars)Income Tax Expense (Note 6)Included in operating expenses Provision-Federal State Deferred-Federal State Investment tax credit, net-Federal...Included in other income and deductions Provision (credit)-Federal State Total income tax expense-Federal State Detail of deferred taxes in operating expenses Tax depreciation

.Test operation of generating unit..........

Deferred Susquehanna energy savings net of operating expenses..............

Unbilled revenues.State utility realty tax.....Other.1984$51,790 11,243 63,033 123,844 2,815 126,659 (3,908)$185,784$(51,370)(11,253)$(62,623)$120,356 2 805$123,161$120,232 (2,780)(2,287)14,888 (3,894)$126,659 1983$15,823 6,787 22,610 94,689 (938)98,751 (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 1982$55,109 9,762 64,871 55,351 (591)54,760 (32,142)$87,489$(67,981)(9,768)$(77,744)$10,337~592$9,745$58,024 (3,373)2,213 (2,104)$54,760 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 and pension cost.Deferred Susquehanna capital costs...............

Other.Total income tax expense Effective income tax rate$203,350 77,656 5,719 (331)(2,855)80.189$123,161 27.9%$177,601 65,088 6,314 13,770 2,350 87,522$90,079 23.3%$132,770 110,827 6,838 5,365 123,025$9,745 3.4%Taxes, Other Than Income State gross receipts.State capital stock State utility realty Social security and other$66,711 23,044 48,316 16,135$154,206$60,112 20,074 31,803 13,481$125,470$56,515 18,243 26,591 10,319$111,668 See accompanying Notes to Financial Statements.

35 Statement Of EarningS ReinVeSted (Thousands of Dollars)1984 1983 1982 Balance, January 1 Add Net Income Deduct Cash dividends declared Preferred stock-at required annual rates..........

Preference stock-at required annual rates.........

Common stock-per share: 1984,$2.48;1983,$2.40;1982,$2 32 Issuance cost of retired preferred and preference stock.....

Balance, December 31$560,858 318,903 879,761 47,437 44,708 181,091 273,236$606,525$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 Notes to Financial Statements 1.Summary of Accounting Policies V"significant subsidiary" as that term is defined by the Securities and Exchange Commission.

36 Accounting Records Accounting records are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (F<ERC)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 (of which 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 distributing electricity.

All unconsolidated subsidiaries con-sidered in the aggregate would not constitute a Utility Plant and Depreciation Additions to utility plant and replacement of units of property are capitalized at cost.The cost of units of property retired or replaced is removed from utility plant accounts and charged to accumulated de-preciation.

Expenditures for maintenance and re-pairs of property and the cost of replacement of items determined to be less than units of property are charged to operating expenses.For financial reporting purposes, depreciation is computed on a straight-line method using rates based on the estimated useful lives of property, with the exception of the Susquehanna nuclear plant which is depreciated on a modified sinking fund method, which method is also used for rate-making purposes.Provisions for depreciation, as a percent of average depreciable property, approximated 2.5%%uo in 1984, 2.7'n 1983 and 3.3%%uo in 1982.Cost of Decommissioning Nuclear Plant An annual provision for decommissioning costs of the Susquehanna nuclear plant equal to the amount allowed for rate-making purposes is charged to oper-'ting expense.Such amounts, net of income taxes, are invested in securities kept in a segregated ac-count which can be used only for future decommis-sioning costs.Allowance for Funds Used During Construction (AFUDCJ As provided in the Uniform System of Accounts, the cost of funds used to finance construction projects is capitalized as part of construction cost.The com-ponents of AFUDC shown on the Statement of Income under other income and deductions and interest charges are non-cash items equal to the cost of funds capitalized during the period.The equity funds component is reduced by the income tax savings realized due to the tax deductibility of construction-related interest.AFUDC serves to off-set on the Statement of Income the interest charges on debt and dividends on preferred and preference stock incurred to finance construction.

In addition, a return on common equity used to finance construc-tion is imputed.See Note 7 to Financial Statements for informa-tion concerning a limitation of the tax reduction reflected in AFUDC due to the Company's tax losses.cated to the individual companies based on their respective taxable income or loss and investment tax credits.Income taxes applicable to the Company are allo-cated to operating expenses and other income and deductions on the Statement of Income.Under other income and deductions, the income tax credits relate principally to the tax reductions associated with the 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.Investment and payroll-based tax credits result in a reduction of federal income taxes payable.Such tax credits, other than credits resulting from contribu-tions to the employee stock ownership plan, are de-ferred when utilized and amortized over the average lives of the related property.See Note 6 to F<inancial Statements for additional information concerning income taxes.Capitalization o f Leases Effective as of January 1, 1984, certain capital leased property and related obligations were re-corded.Leased property is recorded at the present value of future lease payments and is amortized in a manner such that the total of interest on the lease obligation and amortization of the leased property equal the rental expense allowed for rate-making purposes.See Note 2 to Financial Statements for additional information concerning this accounting change.Nuclear Fuel The rental cost of nuclear fuel is charged to expense as the fuel is used for electric generation.

Under the Nuclear Waste Policy Act of 1982, the U.S.Department of Energy (DOE)is responsible for the permanent storage and disposal of spent nuclear fuel removed from nuclear reactors.The Company cur-rently pays DOE<a fee for future disposal services and recovers such costs in customer rates.Revenues Revenues are recorded based on the amount of electricity delivered to customers to the end of each accounting period.This includes unbilled revenues representing the amount customers will be billed for electricity delivered from the time meters were last read to the end of the respective accounting 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 ener-gy cost rate billings are recorded at the level of actual energy costs and the difference is recorded as payable to or receivable from customers.

Income Taxes The Company and its subsidiaries file consolidated federal income tax returns.Income taxes are allo-Retirement Plan The Company has a noncontributory retirement plan covering substantially all employees.

Company contributions to the plan include current service costs and all amounts required to amortize unfunded prior service costs over periods of not more than 20 years.2.Lease Accounting Change In 1984, in accordance with Statement of Financial Accounting Standards No.71"Accounting for the Effects of Certain Types of Regulation," the Com-pany capitalized certain leased property and obliga-tions which had not previously been recognized in the financial statements.

The Balance Sheet and Statement of Changes in Financial Position for periods prior to 1984 have been restated to reflect retroactive application of this change.The change had no effect on operating revenues, net income or retained earnings.Details of property under capital leases are as follows (thousands of dollars):

Nuclear fuel.Vehicles and miscellaneous equipment..............

Oil storage tanks..........

Other property............

December 31 1984 1983$396,071$330,399 69,058 25,023 17 163 62,830 25,023 22 671 507,315 440,923 Less accumulated amortization

....105,788 71,595 Property under capital leases...$401,527$369,328 Future minimum lease payments for capital leases at December 31, 1984 (excluding nuclear fuel)would aggregate$104.6 million, including$32.7 million of imputed interest.During the five years ending 1989, such payments would decrease from$18.5 million per year to$8.2 million per year.Future nuclear fuel lease payments will be based on the quantity of heat produced by the Susquehanna units.As leased nu-clear fuel is amortized, the Company normally sells and leases back additional fuel, thereby maintaining the unamortized balance of leased nuclear fuel at a level slightly below the$350 million maximum amount leasable under current arrangements.

The unamortized balance of nuclear fuel under lease at December 31, 1984 was$329.6 million.Interest on capital lease obligations which was recorded as operating expenses on the Statement of Income was as follows (thousands of dollars): 1984,$13,836;1983,$10,914;and 1982,$7,266.Generally, capital leases contain renewal options and obligate the Company to pay maintenance, insurance and other related costs.The Company also has entered into various operating leases which are not material with respect to the Company's financial position.3.Rate Matters In accordance with rate orders issued by the PUC, electric base rates for ultimate customers were in-creased by approximately

$73 million annually in January 1982 and$203 million annually in August 1983.The August 1983 increase resulted from the Com-pany's filing which reflected, among other costs, the effect of placing Susquehanna Unit 1 in service.The PUC's order did not permit the Company to earn a return on$287 million of its net investment in all generating facilities.

This adjustment, which re-duced requested revenues by about$59 million, resulted from a decision by the PUC that 945,000 kilowatts of the Company's generating capacity was excess.The Company was permitted to recover all depreciation, operation, maintenance and fuel costs associated with its generating facilities.

See Note 5 for information concerning an agreement to sell 945,000 kilowatts of capacity to Jersey Central Power&Light Company.In July 1984, the Company filed with the PUC for an overall increase in electric rates of approximately

$330 million.The increase reflects: (i)$466 million related to the investment and operating costs associ-ated with placing Susquehanna Unit 2 in service plus other increased costs of providing electricity; less (ii)an estimated reduction in annual energy costs of about$136 million associated with the operation of Susquehanna Unit 2.To moderate the impact of the increase, the Company has proposed to bill customers only one-half of the amount requested ($165 million)in the first year that the new rates are effective.

The full amount of the increase granted would be billed in the second year.The portion of the increase not collected from customers in the first year would be billed, without interest, over a period of about three years starting in the third year.The PUC suspended the Company's rate increase request and has held public hearings on the matter.The Company expects that the PUC will reach a decision on the rate request by April 26, 1985.If the PUC does not adopt a final rate order by that date, the rates filed by the Company would go into effect, subject to refund.The FE'RC permitted annual increases in rates for wholesale customers of$2 million effective August 1981,$3 million effective July 1982 and$4 million effective March 1984.4.Deferral of Costs Related to Susquehanna Generating Units In accordance with an order of the PUC the Company deferred certain costs, net of energy sav-ings, associated with Susquehanna Unit 1.Such deferred items, which aggregate$20.7 million, were incurred over a two and one-half month period extending from the date of commercial operation of the unit until the rate increase reflecting the unit was effective (August 22, 1983).The Company expects to seek recovery of the deferred costs after the PUC renders its decision on the Company's current rate request.The PUC has issued an order similar to thatissued previously for Susquehanna Unit lwhich (i)author-izes 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 opera-tion after the end of the future test year, the portion of the new rates reflecting the Unit 2 costs would go into effect shortly after the unit begins commercial operation.

5.Capacity Sales Agreement The Company and Jersey Central Power&Light Company (JCP&L)have entered into a long-term agreement under which capacity and energy will be provided JCP&L.Under the terms of the agreement, JCP&L will be entitled to 945,000 kilowatts of the Company's generating capability and related energy through 1995 with the amount then declining uni-formly each year until the expiration of the contract at the end of 1999.JCP&L will pay an amount equal to the Company's cost of service, which includes a 38 l return on the Company's investment in generating

~facilities.

The agreement also permits JCP&L to defer certain payments.At such time as the agree-ment becomes effective, the Company would expect to recover from JCP&L the$59 million a year in return on investment disallowed by the PUC in its August 1983 rate order.The agreement will not become effective until the New Jersey Board of Public Utilities makes a determination that the agreement is in the public interest.The new rates requested in the Company's current proceeding before the PUC do not provide for recov-ery of the costs of operating, depreciation, or a return on the investment in the facilities covered by the agreement with JCP&L.If the agreement does not become effective before the PUC reaches a decision on the rate increase request, the Company's earnings will be adversely affected to the extent such amounts are not recovered.

A decision by the PUC on the current rate proceeding is expected by April 26, 1985.6.Income Taxes The Internal Revenue Service (IRS)has completed its examination of the Company's federal income tax returns for the years 1977 to 1980.Based on adjust-ments proposed by the IRS, the Company does not expect any material change in its income tax liability for these years.The Company has tax loss carryforwards at De-cember 31, 1984 of approximately

$100 million for both federal and state income tax purposes.The state tax loss carryforward expires in the years 1986 and 1987, and the federal income tax loss carryforward expires in the years 1997 to 1999.The Company has unused investment and payroll-based tax credits aggregating approximately

$273 million ($35 million applicable to the employee stock ownership plan)at December 31, 1984 which may be used to reduce future federal income tax liabilities.

The carryforward period for these credits expires in the years 1993 to 1999.The Company has not recorded deferred income taxes for certain timing differences in accordance with PUC rate treatment.

The cumulative net amount of such timing differences for which deferred in-come taxes have not been recorded approximated

$659 million at December 31, 1984.The Company would expect to recover through electric rates the taxes due when such timing differences reverse.construction interest that could not be used as a deduction was$0.8 million for 1984,$53.8 million for 1983 and$6.7 million for 1982.To the extent the Company's tax losses are used to offset taxable income in future years, AF<UDC will be reduced by an amount equal to the tax reduction applicable to the construction interest included in the carryforwards utilized.8.Stock Held for Dividend Reinvestment Program At December 31, 1984, 511,054 shares of Common Stock of the Company were held temporarily for distribution to participants under the Company's Dividend Reinvestment Program.The stock was purchased on the open market and is carried at cost.9.Credit Arrangements The Company maintains lines of credit aggregat.ing$120 million with various domestic banks.The arrangements require the maintenance of compen-sating balances(notmaterialin amount)or the payment 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 without penalty.The Company has a loan agreement with a group of domestic banks pursuant to which the banks commit to lend the Company up to$600 million on a revolving basis with loans to mature on February 27, 1987.At the option of the Company, the interest rate on borrowings would be based on the prime rate, rates applicable to certificates of deposit or rates applicable to E<urodollar deposits.At the time any borrowing matures on February 27, 1987, the agree-ment permits the Company to borrow up to$600 million, the principal amount of which would be re-payable in semi-annual installments over the follow-ing three years.The loan agreement is maintained by the payment of commitment fees.During 1984, the Company borrowed and repaid$222 million under terms of the loan agreement with domestic banks.At December 31, 1984, there were no borrowings outstanding under any of the Company's credit arrangements.

Commitment fees incurred to maintain the Com-pany's credit arrangements aggregated

$2.6 million in 1984,$2.6 million in 1983 and$2.9 million in 1982.7.Allowance for Funds Used During Construction (AFUDC)AF<UDC is recorded on an after-tax basis with the equity component reduced by the income tax savings realized due to the tax deductibility of construction-related interest.Since 1982, the Company has had tax losses due, in part, to the large amount of construction interest incurred.As a result, the in-~come 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 income tax effect of the 10.Retirement Plan and Other Postretirement Benefits Pension costs for 1984, 1983 and 1982 were$29.0 million,$27.7 million and$23.8 million, respectively.

Of these amounts,$18.0 million in 1984,$16.0 million in 1983 and$12.4 million in 1982 were charged to operating expenses, and the balance was charged to construction and other accounts.The actuarial present value of accumulated retire-ment plan benefits and net assets at the end of the plan's recent fiscal years are as follows (thousands of dollars): 39 Actuarial present value of accumulated plan benefits: (a)Vested.Nonvested...............

Net assets available for benefits.June 30 1984 1983$191,284 10,185$189,313 10,501$201,469$199,814$272,323$257,315 Under equity accounting, the operations of associ-ated companies resulted in after-tax charges against the Company's net income of$4.1 million in 1984,$4.2 million in 1983 and$0.3 million in 1982.See Note 14 to Financial Statements for informa-tion concerning the Company's guarantee of certain obligations of associated companies.(a)Excludes accumulated plan benefits which are the obligation of four insurance companies under insurance contracts.

The assumed rates of return used in determining the actuarial present value of accumulated plan benefits were 6.59o for the June 30, 1984 valuation and 6%%uo for the June 30, 1983 valuation.

The change in the assumed rate of return to 6.5%%uo decreased the actuarial present value of accumulated plan benefits at June 30, 1984 by$13.5 million.The Company also provides certain health care and life insurance benefits for retired employees.

Substantially all of the Company's employees may become eligible for these benefits upon retirement, and the cost is generally recognized as expense when premiums are paid.Such costs for retired employees for 1984, 1983 and 1982 were approximately

$2.3 million,$2.2 million and$1.4 million, respectively.

ll.Joint Ownership of Generating Plants At December 31, 1984, the Company owned undivi-ded interests in three generating stations as follows (millions of dollars): Generating Station Susquehanna.........

Keystone........

Conemaugh..........

Plant Investment Ownership$3,733 90.00%38 12.34 35 11.39 The Company receives a portion of the total station output equal to its percentage ownership.

The State-ment of Income reflects the Company's share of fuel and other operating costs associated with the sta-tions.Each participant provides its own financing.

12.Associated Company Transactions The principal transactions with associated com-panies involve purchases of bituminous coal and the transportation of oil by pipeline for use at the Company's generating stations.Purchases ofbitumi-nous coal from associated companies, which are at a price generally equal to the entire operating costs of those companies, were (millions of dollars): 1984,$270.5;1983,$263.8;and 1982,$255.1.Oil transporta-tion charges, which are based on a PUC approved tariff, were (millions of dollars): 1984,$8.6;1983,$15.1;and 1982,$8.2.13.Proposed Sale of Steam Heat Plant The Company has signed a memorandum of under-standing related to the sale of its steam heat plant and associated distribution system in the city of Harrisburg.

Revenues from steam heat operations accounted for less than 1%o of the Company's operat-ing revenues in 1984 and the investment in steam heat plant, net of accumulated depreciation, was$4.3 million at December 31, 1984.The sale is not expected to materially affect the Company's net income.Any agreements involving the sale of the steam property require further negotiation and would be subject to the approval of the PUC.14.Commitments and Contingent Liabilities The Company's construction expenditures are esti-mated to aggregate$272 million in 1985,$274 million in 1986 and$269 million in 1987, including the allowance for funds used during construction.

See the section entitled"Capital Expenditure Require-ments" on page 25 for additional information con-cerning the Company's planned construction expenditures.

The Company is a member of certain insurance programs which provide coverage for property dam'-age to members'uclear generating plants.Facilities at the Susquehanna plant are insured against proper-ty damage losses up to$1.1 billion under these programs.The Company is also a member of an insurance program which provides insurance cover-age for the cost of replacement power during pro-longed outages of nuclear units caused by certain specified conditions.

Under the property and replace-ment 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 during the current policy year is about$21 million.The Company's public liability for claims resulting from a nuclear incident is currently limited to$620 million under provisions of the Price-Anderson Act (Act).The Company is protected against this po-tential liability by a combination of commercial insurance and an industry retrospective assessment program.In the event of a nuclear incident at any of the facilities owned by others and covered by the Act, the Company could be assessed up to$10 million per incident, but not more than$20 million in a calendar year in the event more than one incident is experienced.

At December 31, 1984, the Company had guaran-teed obligations of other companies (principally subsidiary coal companies and a subsidiary pipeline company)totaling$270.0 million.40 15.'Quarterly Financial Data (Unaudited)

Quarter Ended Operating Revenues Operating Net Income Income Thousands of Dollars Earnings Applicable to Common Stock Earnings Per Share of Common Stock (a)1984 March.June September December$479,484 351,310 349,994 381,994$119,964 93,055 99,132 94,807$98,244 66,003 76,509 78,147$76,059 42,851 53,049 54,799$1.07 0.59 0.72 0.74 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 (a)Based on the average number of shares outstanding during the quarter.16.Supplementary Information on Changing Prices (Unaudited)

The following supplementary information on the effects of changing prices is presented in accordance with the requirements of the Financial Accounting Standards Board (FASB), an organization that es-tablishes rules for accounting and financial report-ing.Customary financial reporting generally has not attempted to specifically reflect inflation.

The FASB requires that certain aspects of inflation 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 imple-mentation problems and conceptual differences regard-ing the manner in which the effects of changing prices should be measured.For 1984, the FASB requires disclosure of the effects of changing prices by use of current cost information.

In a period of inflation, prices of most goods and services increase but not necessarily all at the same time.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 (shown on page 42)in accordance with the partial restatement provi-sion of the FASB requirements.

Under this provision, utility plant, net of accumulated depreciation, nu-clear fuel expense and depreciation expense are the only items restated to reflect specific price changes (current cost).Fossil fuel inventories and the cost of such fuel have not been restated from their historical cost because they are stated close to current cost and the expense is generally recovered within a relatively short time through adjustment clauses.Revenues, income taxes and expenses other than nuclear fuel and depreciation are presented at the amounts re-ported in the basic financial statements.

Set forth under"Other Impacts of Changing 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 liabili-ties benefit during such periods because less purchasing power will be required to satisfy these obligations.

Monetary liabilities include preferred and preference stock issues with sink-ing fund requirements, long-term debt, current liabilities, capital lease obligations, deferred taxes and tax credits and other deferred credits.The Company is in a net monetary liability position.2.Increase in net utility plant during the year due to price changes.The increase in net utility plant is shown as a result of both specific price changes (current cost)and changes in the general price level as meas-ured by the U.S.Government Consumer Price Index for All Urban Consumers (CPI-U).

3.Adjustment of net utility plant to net recoverable amount.Under the ratemaking prescribed by regula-tory commissions, only the historical cost of utility plant is recoverable in revenue as depreci-ation.Therefore, any excess between the amount of utility plant stated in terms of current cost F (after deducting the effects of general inflation) and historical cost must be reduced to net recover-able amount.The amount of such excess that accrued as a result of price changes in the current year is shown as an adjustment of net utility plant to net recoverable amount.Supplementary Statement of Income for 1984 (Thousands of Dollars)As Reported in Financial Statements (Historical Cost)Adjusted on the Basis of Price Changes Experienced (Current Cost)(a)Operating revenues.Operating expenses Fuel Depreciation (b)Other.Interest expense.Other income and deductions

-net Dividends on preferred and preference stock Earnings applicable to common stock Other Impacts of Changing Prices Gain from decline in purchasing power of net amounts owed.....Increase in net utility plant during the year due to price changes As a result of specific price changes experienced (c).As a result of changes in general price level Excess of increase in specific prices over increase in general price level.Adjustment of net utility plant to net recoverable amount-(reduction)

$1,562,782 720,670 118,763 316,391 1,155,824 209,873 (121,818)92,145 1,336,024$226,758$1,562,782 728,309 274,867 316,391 1,319,567 209,873 (121,818)92,145 1,499,767$63,015$158,217$472,388 (393,076)$79,312$(155,285)(a)Stated in average 1984 dollars.(b)The current cost of utility plant was determined by applying construction cost indices maintained by the Company to the historical cost.The adjusted provision for depreciation was determined by applying the functional class depreciation accrual rates to the respective average year.end balances of depreciable plant adjusted for specific price changes.(c)At December 31, 1984, the current cost of act utility plant was$10.69 billion, while the historical cost or net amount recover-able through depreciation was$6.26 billion.

The following schedule presents a summary of reported in financial statements or other statistical selected data comparing items as they are normally summaries to items adjusted for changing prices.Supplementary Comparison of Selected Data (Thousands of Dollars, Except Per Share Amounts)1984 1983 1982 1981 1980$1,133,278 1,294,283$1,219,548 1,312,353 8 885,451 1,116,142$1,248,397 1,301,529$1,562,782 1,562,782 226,758 63,015 170,801 77,684 120,384 35,202 210,173 81,125 210,572 94,757 3.06 3.35 3.17 2.64 1.18 1.51 1.44 0.77 3.12 0.87 415,154 (79,312)(115,272)(287,657)(69,108)(180,424)(345,237)(352,924)4,154 (155,285)256,283 331,989 131,019 121,327 1,666,812 1,842,079 1,482,092 1,784,361 2,128,362 2,098,680 1,999,324 2,049,389 1,875,070 1,994,987 2.24 2.58 2.32 2.49 2.40 2.51 2.48 2.48 2.12 2.67 17.12 15.62 18.93 18.81 272.4 246.8 21.00 22.34 289.1 20.62 21.14 298.4 25.12 24.77 311.1 (c)Nct assets (sharcowncrs'quity) for purposes of this supple-mentary disclosure includes common equity and thc preferred and preference stocks withoutsinking fund requirements.

The preferred and prcfcrcnce stocks with sinking fund require-ments have been excluded since they were treated as monetary items.Operating revenues As reported.Average 1984 dollars (a)Earnings applicable to common stock (b)As reported.Current cost in average 1984 dollars........Earnings per share of common stock (b)As reported.Current cost in average 1984 dollars........

Amount by which the increase in general price level of net utility plant is greater than or (less than)the increase in specific prices of net utility plant Adjustment of net utility plant to net recoverable amount-write.up (reduction) at current cost in average 1984 dollars........Gain from decline in purchasing power of net amounts owed 158,217 Net assets at year-end (c)As reported.Current cost in average 1984 dollars........

Cash dividends declared per common share As reported.Average 1984 dollars (a)Market price per common share at year-end As reported Average 1984 dollars (a)Average consumer price index (CPI-U)........

C (a)Adjusted to average 1984 dollars by applying the CPI-U index to items as normally reported.(b)1981 excludes a nonrecurring credit related to an accounting change.43 Selected Financial and Operating Data)(c)operty..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 utility plant in service Construction work in progress Total assets (c)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-/o (a)....Embedded cost rates (b)Long-term debt-%.Preferred and preference stock-9o.........

Times interest earned before income taxes (a Ratio of earnings to fixed charges-total enterprise basis (a)(d).Depreciation as%of average depreciable pr Common Stock Data Number of shares outstanding

-thousands Year-end Average.Earnings per share (a)Dividends declared per share.Taxability of dividend income-9o (e)........Book value per share (b).Market price per share (b).Dividend payout rate-%(a)Dividend yield-9o (e)(I)Price earnings ratio (a)(I).Fuel Cost Data Cost per kwh generated-cents Coal-fired steam stations Nuclear steam station (h).Oil-fired steam station Combustion turbines and diesels (oil)......Average.Cost of fossil fuel received at steam stations Coal-per ton Residual oil-per bbl.Employees (b).1984$1,562,782 406,958 168,938 318,903 226,758$3,860,960 2,020,839 6,910,783 2,604,506 738,027 231,375 1,896,987 104,800 5,575,695 12.30 11.12 9.94 2.35 2.06 2.5 74,513 72,767$3.12$2.48 63.29$25.46$25'/s 80 11.00 7.24 1.76 0.54 5.31 9.82 1.98$42.75$31.28 8,386 1983$1,248,397 289,930 251,548 296,011 210,173$3,847,301 1,730,228 6,418,509 2,387,249 714,830 231,375 1,767,949 190,000 5,291,403 12.29 10.98 9.66 2.29 2.04 2.7 70,335 68,642$3.06$2.40 0$25.12$20'/s 79 10.48 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 5,829,138 2,323,318 621,634 231,375 1,643,695 160,545 4,980,567 13.60 10.81 9.41 2.05 1.81 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 5,097,550 2,165,381 544,231 231,375 1,435,437 175,489 4,551,913 12.74 10.80 8.93 1.91 1.78 3.2 58,447 53,912$3.17$2.24 0$24.52$17'/s 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 4,359,257 1,811,692 510,800 231,375 1,250,717 56,324 3,860,908 10.38 10.60 8.49 2.06 1.90 3.2 50,627 45,598$2.64$2.12 0$24.68$15/s 82 12.01 6.68 1.40 4.55 7.89 1.96$33.78$26.44 7,702 (a)1981 net income and earnings applicable to common stock include a nonrecurring credit related to an accounting change, while indicated financial ratios and common stock data for that year are computed excluding the nonrecurring credit from earnings.(b)Year.end.(c)1980.1983 restated to reflect change in accounting for capital leases.(d)Fixed charges consist of interest on short-and long.term debt, other interest charges, interest on capital lease obligations and the estimated interest component of other rentals.(e)Based on holding one share of common stock for the entire year.(f)Based on average of month.end market prices.(g)The winter peaks shown were reached early in the subsequent year.(h)The Company's first nuclear unit was placed in commercial operation on Junc 8, 1983 and the second unit on February 12, 1985.44 Sales Data Electric customers (b)..Average annual residential kwh use............

Electric energy sales billed-millions of kwh Residential Commercial Industrial Other System sales..............................

Atlantic City Electric (Susquehanna Unit 1)..Total electric energy sales billed...........

Sources of energy sold-millions of kwh Generated Coal-fired steam stations.Nuclear steam station (h).Oil-fired steam station Combustion turbines and diesels (oil)..Hydroelectric stations Power purchases Interchange power sales Company use, line losses and other..Total electric energy sales billed.1984 1,039,381 9,282 8,454 6,527 8,117 1 043 24,141 357 24,498 26,695 6,295 4,121 32 747 37,890 3,765 (15,377)(1,780)24,498 1983 1,026,144 9,051 8,138 6,119 7,623 968 22,848 209 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 7,324 982 22,297 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 I 005 22,954 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 7,910 784 22,493 22,493 26,596 5,692 33 533 32,854 1,415 (9,798)(1,978)22,493 Electric Revenue Data By class of service-thousands Residential Commercial Industrial Other energy sales.System sales.Atlantic City Electric (Susquehanna Unit 1)..Total from energy sales billed............

Unbilled revenues, net Other operating revenues Total electric operating revenues.........Average price per kwh billed-cents Residential Commercial Industrial Total for ultimate customers Total for all customers$591,922 441,651 411,533 59,526$529,911 386,617 367,950 47,275$503,557 363,233 347,726 47,731$411,668 292,984 295,006 39,484$349,714 246,024 245,513 28,480 1,504,632 31,809 1,331,753 18,494 1,262,247 1,039,142 869,731 1,536,441 (9,725)29,960 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 7.00 6.77 5.07 6.30 6.27 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$1,556,676$1,243,680$1,213,303$1,126,168$880,326 Generation Data Generating capability-thousands of kw (b).Winter peak demand-thousands of kw (g)..Generation by fuel source-%%uo Coal Nuclear (h)Oil.Hydroelectric Steam station availability

-%Coal-fired Nuclear (h)Oil-fired.Steam station utilization

-%Coal-fired Nuclear (h)Oil.fired.7,484 5,519 70.4 16.6 11.0 2.0 75.2 66.7 68.0 73.3 65.7 28.6 7,494 4,869 71.3 11.9 14.9 1.9 78.8 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 45 Common Stock Price and Dividend Data Quarter Ended 1984 March June September.December.High Low$22/s$19'/4 22s/s 19~/s 23~/s 21 25'/s 23 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 Ex-change.The number of record holders of common stock was 162,903 as of December 10, 1984.The high and low sales prices of the 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 1984 and 1983 were$2.46 and$2.38, respectively.

The most recent regular quarterly dividend declared by the Company was 62 cents per share (equivalent to$2.48 per annum)paid January 1, 1985.Future dividends will be dependent upon future earnings, financial requirements and other factors.The Company has estimated that 36.71%%uo of its 1984 dividends paid on common stock will not be taxable for federal income tax purposes as dividend income, but will constitute a return of capital which reduces the tax cost basis of the shares on which the dividends were paid.1983 March June September.December.$24'/z$207/s 24'/s 20'/~23'/s 20'/s 24'/s 20 4 V Fiscal Agents TRANSFER AGENTS FOR PREFERRED, PREFERENCE AND COMMON STOCK 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 PREFERENCE SHARES Morgan Guaranty Trust Company of New York 30 West Broadway New York, New York 10015 DIVIDEND DISBURSING OFFICE AND DIVIDEND REINVESTMENT PLAN AGENT Vice President and Treasurer Pennsylvania Power&Light Company Two North Ninth Street Allentown, Pennsylvania 18101-Securities Listed On Exchanges NEW YORK STOCK EXCHANGE 4'/2%Preferred Stock (Code: PPLPRB)4.409o Series Preferred Stock (Code: PPLPRA)8.609o 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,$2.90 Series (Code: PPLPRP)Depositary Preference Shares,$3.25 Series (Code: PPLPRO)Depositary Preference Shares,$3.42 Series (Code: PPLPRR)Depositary Preference Shares,$3.75 Series (Code: PPLPRN)Common Stock (Code: PPL)PHILADELPHIA STOCK EXCHANGE 4'/i9o Preferred Stock 3.3590 Series Preferred Stock 4.4090 Series Preferred Stock 4.60%Series Preferred Stock 8.60%Series Preferred Stock 990 Series Preferred Stock 9.24%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,$2.90 Series Depositary Preference Shares,$3.25 Series Depositary Preference Shares,$3.42 Series Depositary Preference Shares,$3.75 Series Common Stock Officers Directors ROBERT K.CAMPBELL, President and Chief Executive Officer MERLIN F<.HERTZOG, Executiue Vice President.

Corporate Services JOHN T.KAUFFMAN, Executive Vice President-Operations JACK R.CALHOUN, Senior Vice President-Nuclear LEON L.NONEMAKER, Senior Vice President.

Diuision Operations CHARLES E.RUSSOLI, Senior Vice President.

Financial JOHN R.BIGGAR, Vice President-Finance GENNARO D.CALIENDO, Vice President and Chief Counsel.Regulatory Affairs NORMAN W.CURTIS, Vice Prcsident-Engineering

&Construction-Nuclear ROBERT S.GOMBOS, Vice President-Human Resource&Development CHARLES J.GREEN, Vice President-Harrisburg Diuision WILLIAM F<.HE'CHT, Vice President.

System Power BRUCE D.KENYON, Vice President-Nuclear Operations JOHN P.KIERZKOWSKI, Vice President and Treasurer CARL R.MAIO, Vice President Lehigh Di uision GRAYSON E<.McNAIR, Vice President-Marketing&Customer Seruices EDWARD M.NAGEL, Vice President, General Counsel and Secretary HERBERT D.NASH JR., Vice President-Central Diuision CLAIR W.NOLL, Vice President-Procuremcnt

&Computer Services JOHN E.ROTH, Vice President.

Northern Division JOHN H.SAEGER, Vice President.

Susquehanna Diuision EDWIN H.SEIDLER, Vice President-Engineerin g&Construction System Power&Engineering BRENT S.SHUNK, Vice President-Lancaster Diuision JEAN A.SMOLICK, Assistant Secretary GEORGE F.VANDERSLICE, Vice President and Comptroller PAULINE L.VETOVITZ, Assistant Secretary WILLIAM R.WHITE, Vice President-Power Production HELEN J.WOLFER, Assistant Secretary and Assistant Treasurer Corporate Managcmcnt Committee:

Robert K.Campbell, chairman;Merlin F.Hertzolt, John T.Kauffman, Jack R.Calhoun, Leon L.None-maker, Charles h.Russoli, and Edward F.Rois, Director.Corporate Plan-ning, serving as the committee's executive secretary.

CLIF<FORD L.ALEXANDER JR., Washington, D.C.President, Alexander&Associates Inc.Consultants to business, government

&industry ELIZABETH E.BAILEY, Pittsburgh Dean, Graduate School of Industrial Admii)istration, Carnegie.Mellon University ROSWELL BRAYTON SR., Woolrich President and Chief Executiue Officer, 1Voolrich 1Voolen Mills Inc.Manufacturer of garments for outdoor activities JEFFREY J.BURDGE, Camp Hill Chairman of the Board and Chief Executiue Officer, Harsco Corporation.

Manufacturer of processed and fabricated metals ROBERT K.CAMPBELL, Allentown President and Chief Executive Officer EDGAR L.DESSEN, Hazleton Physician.

Radiologist EDWARD DONLEY, Allentown Chairman of the Board and Chief Executi ue Officer, Air Products and Chemicals Inc.Manufacturer ofindustrial and commercial gases and chemicals MERLIN F.HERTZOG, Allentown Exccutiue Vice President Corporate Services FRANCES R.HESSELBEIN, New York City National Executive Director, Girl Scouts of the U.S.A.HARRY A.JENSEN, Lancaster Director and former Chief Executive Officer, Armstrong 1Vorld Industries Inc.Manufacturer ofinterior furnishings and.specialty products JOHN T.KAUFFMAN, Allentown Exccuti ue Vice President-Operations W.DEMING LEWIS, Bethlehem President Emeritus, Lehigh Uniuersity HAROLD S.MOHLER, Hershey Former Chairman of the Board, Hershey Foods Corporation.

Diversified manufacturer of food products RALPH W.RICHARDSON JR., State College Consultant, agricultural and enuironmental sciences NORMAN ROBERTSON, Pittsburgh Senior Vice President and Chief Economist, Mellon Bank, N.A.DAVID L.TRESSLER, Scranton Chairman of the Board and Chief Executive Officer, Northeastern Bank of Pennsyluania Executive Committee:

Robert K.Campbell, chairman;Edgar L Desscn, Harry A.Jensen, 1V.Deming Lewis and Norman Robertson.

Audit Committee:

David L Trcssler, chairman;Clifford I Alexander Jr.Elizabeth E.Bailey, Roswell Brayton Sr., iiarold S.Mohler, and Ralph N<.Richardson Jr.Corporate Responsibility Committee:

Edgar L Dessen, chairman;Jeffrey J.Burdge, Frances R.Hesselbein, Harold S.Mohler and David L Tressl cr.Management Devclopmcnt and Compensation Comrnittce:

Roswell Brayton Sr.chairman;Clifford L Alexander Jr.~Elizabeth E.Bailey, Edward Donfey, 1V.Deming Lewis and Norman Robertson.

Nominating Committee:

Ralph 1V.Richardson Jr., chairman;Jeffroy J.Burdge, Edward Donley, Frances R.Hesselbcin and Harry A.Jensen.The Company's annual report filed with the Securities and Exchange Commission on Form 10-K will be available mid-March.

A shareowner may obtain n copy, nt no cost, by writing to Pennsylvania Power&Light Company, Two North Ninth Street, Allentown, Pn.18101, attention:

Mr.George I.Kline, Manager-Investor Services.

~.('-'Boa'rd o'f Directors Alexander Bailey Brayton l.Burdge=, IRLSCQ Des sen Donley Hesselbein Jensen ,'.'~YA>)P z.m Lewis Mohler Richardson Robertson (,(I ,I)'/, (((((((Y,)'((j((74 ir Tres sler Corporate Management Committee Reis Nonemaker Hertzog Campbell Kauffman Calhoun Russoli

~g~Pennsylvania Power&Light Company Two North Ninth Street~Allentown, PA 18101~21517705151 A e BULK RATE U.S.POSTAGE P A I D Allentown.

Pa.Permit No.104 l86<<<<<<a<<<<<<a tBI<<<<gjg Plgl QogggggOOg

<<i Eleven years and three months after ground was broken at the site of PP&L's Susquehan-na nuclear plant near Berwick, Pa., the sec-ond unit was put into commercial operation Feb.12, 1985.The achievement capped a pe-riod during which thousands of people gave millions of hours of dedicated work to suc-cessfully complete the largest construction project In the company's history.With the out-put from Susquehanna, and from PP&L's other generating plants, the company will be able to provide an abundant supply of reliable, economical electric power for Central Eastern Pennsylvania well into the next century.<<)))<<)).Litho In U.