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>

RECIPIENT COPIES RECIPIENT COPIES ID CODE/NAME. LTTR ENCI ID CODE/NAME LTTR ENCL" NRR LB2 BC 1 0 NRR LB2 LA 01 1 1 PERCH R 0 INTERN: REG F IL 04 1 1 SP j, ].

EXTERNAL: LPDR 03 2 2 NRC PDR 02 1 1 NOTES! 3 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 SUSQUEHANNA STEAM ELECTRIC STATION ANNUAL FINANCIAL REPORT ER 100450 FILE 841 Docket Nos. 50-387 PLA-2437 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 L CHARGED OUT THROUGH THE MAIL. REMOVAL OF ANY PAGE(S) FROM DOCUMENT FOR REPRODUCTION MUST II~ WS aa BE REFERRED TO FILE PERSONNEL.

Bb aa ag Ik LL LL DEADLINE RETURN DATE P'Qo SAN Fl5/2 8, RECORDS FACILITYBRANCH PD OO'O'Ci N

%ANN@ FR iMNMI

" '3"!~I't,~

8503250232 ppg 84i231 PDR ADQCK 05000387 I PDR

43 COVER CONTENTS PP &L's Illuminated 23-story 'ighlights corporate headquarters stands President's Letter as a visible symbol of PP8L's optimism and commitment to Year in Review 4 Central Eastern Pennsylvania's bright future. Except for a peri- Financial Review '2 od during World War II, the Financial Statements 28 building was continuously illu-minated from 1929 to the mid- Notes to Financial Statements 1970s when the lights were turned out and removed in re- Selected Financial and Operating Data 44 sponse to the energy crisis. Common Stock and Dividend Data 46 With the company's Susque-hanna nuclear units now on Officers and Directors I 48 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.

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-TORONTO vice area are Allentown, Bethlehem, Harrisburg, Hazleton, Lan-caster, Scranton, Willlamsport and Wilkes-Barre. With an abun- ALBANY dant supply of reliable, economical electric energy, PP&L's ser- BUFFALO 1co BOSTON 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 TOLEOO Development, toll.free at (800) 523-9854 to talk about plant loca- NEW YORK CITY PITTSBURGH I tion opportunities in the heartland of this great Northeast ~ PHILADELPHIA marketing area. /

ATLANTIC CITY WASHINGTON, D.C.

CHARLESTON RICHMOND

1984 1983 Customers (a) 1,039,381 1,026,144 Common Shareowners (a) 162,903 169,142 Electric Energy Sales, Kilowatt-hours .. 24.5 Billion 23.1 Billion Interchange Power Sales, Kilowatt-hours . 15.4 Billion 16.4 Billion Electricity Generated, Kilowatt-hours .. 37.9 Billion 37.7 Billion Operating Revenues. $ 1.6 Billion $ 1.2 Billion Capital Provided by Investors (a) .. $ 5.6 Billion $ 5.3 Billion UtilityPlant (a)

Net Plant in Service $ 3.9 Billion $ 3.8 Billion Construction Work in Progress ... ~..... $ 2.0 Billion $ 1.7 Billion Common Stock Data Return on Average Common Equity 12.309o 12.29Fo Earnings Per Share $ 3.12 $ 3.06 Dividends Declared Per Share $ 2.48 $ 2.40 Market Price Per Share (a)........ ~ ..... $ 25'/s $ 20'/e Book Value Per Share (a).......... ..... $ 25.46 $ 25.12 Times Interest Earned Before Income Taxes 2.35 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 13c Employees 7c Depreciation V 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 willsubstantially increase the level of PP&L's con-operation in February of 1985, it marked the success- tractual power sales to other utility companies over ful completion of the largest construction project in the fourteen-year life of the agreement.

the company's history. It also marked another out- The company's contract to sell power to Jersey standing year of progress in meeting the long-term Central is consistent with the Pennsylvania Public needs of our customers for reliable and economical UtilityCommission (PUC) ruling in our 1983 rate electric service. In addition, by concluding the largest increase request. It was decided in that case that financing program in the company's history, it 945,000 kilowatts of PP&L's total generating system marked a significant step forward in our efforts to was surplus capacity. Selling the electric output earn a fair return for our shareowners. from this portion of our total generating system to With both Susquehanna nuclear units now in com- Jersey Central willenable the company to recover the mercial operation, the company has met its construc- return on investment disallowed in the 1983 rate tion needs for major new generating capacity for at case. It also permitted us to reduce the rate request least the balance of this century. This exceptionally now pending before the PUC.

strong capacity position, based on an efficient mix of The rate increase received in 1983 helped improve coal and nuclear generation, opens up important op- the company's financial condition mostly by replac-portunities to broaden the scope of energy services ing a portion of the non-cash allowance for funds offered to our customers and to strengthen the finan- used during construction on Susquehanna Unit 1 cial position of the company. with customer revenues. This increase in liquidity is The combination of PP&L's competitively priced reflected in PP&L's improved interest coverage which electric power and relatively small future construc- is important in determining the company's credit tion program provides an enormous long-term standing.

advantage for meeting the growth and economic de- The company's 1984 earnings of $ 3.12 per share velopment objectives of the communities we serve. were up 6 cents from 1983. This earnings improve-Recognizing that the financial health of the company ment was largely the result of increased electric ener-is linked to the prosperity of our service area economy, gy sales reflecting the economic recovery in our promoting economic development in Central Eastern service area and colder-than-normal weather. Al-Pennsylvania continues to be the focus of PP&L's though the company's earnings continued at a reason-marketing programs. able level last year, the 1985 earnings outlook is Reliable and competitively priced electric power is a largely dependent on continuing to achieve sales vital economic development resource. As national growth and on the outcome of the rate increase re-trends clearly show, energy efficiency and improved quest we expect will be decided in April of 1985.

productivity are increasingly being achieved in With the construction of Susquehanna now com-homes, businesses and industries through the use of plete, PP&L's needs for outside financing have been electricity because of its versatility and high significantly reduced from the high levels reached in end-use efficiency. recent years. And since the company's relatively The strength of PP&L's generating capacity and small future construction program should be met our relatively small future construction program also largely by internal cash generation, we do not expect are factors which set PP&L apart from most of the to be issuing additional shares of common stock for nation's electric utilities. In the years ahead, we will the foreseeable future.

emphasize the importance of this strong competitive position as a supplier of electric power to attract and hold job-producing businesses in the communities Operating Performance we serve. 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 Sales, Earnings and Financing in 1984. The following summarizes the operating ac-Aided principally by the recent economic recovery, complishments of special significance at this time for kilowatt-hour sales increased by 6.3 percent in 1984 PP&L's customers and shareowners.

over 1983. This annual sales growth, PP&L's largest in eight years, was led by significant gains in our ~ Susquehanna Nuclear Units electrically heated home market and by increased Since June of 1983, when Susquehanna Unit 1 sales to commercial and industrial customers. The was placed in commercial operation until it was company's total sales increase also reflected the shut down for its first refueling outage in February benefit of the first full year of selling electric energy of 1985, Unit 1 generated 9.3 billion kilowatt-hours, from Susquehanna under our long-term contract about 21.5 percent of the electricity PP&L customers with the Atlantic City Electric Co. used during that 20-month period. In spite of a one-The company also has a contract now awaiting ap- time outage to connect plant systems common to proval by the New Jersey Board of Public Utilities to both nuclear units, Susquehanna Unit 1 operated at sell 945,000 kilowatts of electric power to the Jersey an average of 65.7 percent of its capacity during Central Power &Light Co. from a proportionate share 1984. This is an excellent record, particularly for a of PP&L's total generating system. This agreement nuclear plant operating in its first fuel cycle.

The very successful start-up testing program The essential conditions which make this an ap-which brought Susquehanna Unit 2 on-line, while propriate marketing strategy for PP&L are the com-Unit 1 also was in its first year-and-a-half of com- pany's exceptionally strong coal and nuclear mercial operation, again demonstrates the'commit- generating capacity and our competitively priced ment of PP&L people to superior performance in all rates for electric service.

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 Susquehanna Unit 2 Rate Filing and efficient operation, an average capacity factor About two-thirds of the $ 330 million rate request of 80 percent for Unit 1, excluding its refueling now pending before the PUC relates to the net cost outage, and an average capacity factor of 70 percent of bringing the second Susquehanna unit into com-for Unit 2. mercial operation. To moderate the impact on cus-

~ Total PP&L Generation tomers, the company has requested that this rate Again last year, PP&L's power plants maintained increase be phased in over a period of several years.

among the lowest total outage rates within the With both Susquehanna units in commercial opera-11-member Pennsylvania-New Jersey-Maryland tion, and with no major new construction on the power pool. The fact that these very efficient gener- horizon, we anticipate that we are entering a period ating units could only be replaced at several times of relatively stable rates for electric service. This will original costs, emphasizes the importance of the help us to achieve our kilowatt-hour sales growth ob-company's aggressive program to extend the life of jectives and more effectively promote the economic our existing power plants. development of Central Eastern Pennsylvania.

The outstanding performance by all of PP&L's gen- As we successfully conclude the most challenging erating units is the principal reason that the com- construction period in the company's history, we pany's rates for electric service continued to be below recognize that the dedication of our employees and the average charged both regionally and nationally. the support of our investors is what made this sig-Having Susquehanna Unit 1 in commercial operation nificant achievement possible. It is this winning p throughout 1984 enabled the company to sell more combination that continues to give us confidence that coal-fired generation to neighboring utilities while we will successfully meet the challenges ahead.

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.

Li

-<<<<J P

<< '<<<<W v <<

Marketing and Economic Development WW4 Customer service is the unifying purpose linking all of PP&L's marketing and economic develop- f 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- 'II eting and economic development programs is to facilitate the most effective operation of the PP&L <<h system by achieving optimal levels of kilowatt- <

g y 0 1T f

V ~'

0 i',

I 1

l t

i) f r,

(, U

,U" I

~g

~O I, l pgh 9g J

l~

Q ~ ';4.,

m

<<<+

PP&L's service area boasts a number of high-technol- Unlike most PJM companies, PP&L is a winter-peaking ogy companies. The technician at A. Johnson & Co. utility because of its large percentage of electric-heat cus-of Morgantown (left), makes an adjustment to con- tomers. The previous PP&L winter peak use record of 5.21 trols for a 2,000-kilowatt electron-beam furnace used million kilowatts, set in January 1982, was shattered during a to melt scrap titanium into ingots for reuse. Titanium is a strong, lightweight metal widely used in the de- record-breaking cold spell in early 1985. The new winter peak is fense and aerospace industries. A technician tests 5.52 million kilowatts recorded on Jan. 21, 1985, when temper-equipment (A), at Accu-Sort Systems Inc. of Telford, atures across PP&L's service territory dipped below zero.

that utilizes laser-beam technology to read universal bar codes for commercial inventory and parcel routing control. Components for computer disk drives (B) are Poorer Sale Negotiated assembled at a Xebec Inc. plant near Allentown. In August 1983, as part of the rate decision that recog-Xebec located in the Lehigh Valley largely due to ser-vices provided by the Ben Franklin North East Tier nized Susquehanna Unit 1 in PP&L's rate base, the Pennsyl-Advanced Technology Center (see page 16). Pure sili- vania Public UtilityCommission (PUC) ruled that PP&L had con crystals are "grown" in a high. temperature elec- 945,000 kilowatts of surplus generating capacity, and would tric-intensive process (C) at AT&T's Allentown works. not be allowed to earn a return on $ 287 million of its net The crystals are sliced into thin wafers to become investment in generating facilities representing that surplus.

memory chips for the semiconductor industry. 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 willpay 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 Agreement 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 UtilityRegulatory 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 Electricity touches people's lives in many ways that

$ 274 million, respectively. Expenditures for the following are taken for granted. Oxygen for medical purposes, several years are expected to stabilize at about $ 275 million as well as other industrial and commercial gases for a year. welding and a myriad of other purposes are produced While ongoing modifications during 1985 and 1986 at by separating the atmosphere at an Air Products and Chemicals, Inc. plant in Lancaster. The electric-inten-Susquehanna will require about $ 105 million, the biggest sive cryogenic distillation process requires tempera-portion about $ 126 million will be spent on the com- tures 300OF and more below zero. In the photo to the pany's existing non-nuclear generating plants. Much of this right the liquefied gases are pumped from storage money will be used for projects which are part of an extended tanks into insulated tank trucks. The simple pushlpull life program. valves on detergents (A) are molded, counted and This program, which is a key corporate goal, includes packed by the heat, motion and precise control in-efforts to extend generating plant life and to maintain and strumentation of electricity at the Mack Wayne improve the performance of existing power plants. The aim Closures Div. of the West Co. In Willlamsport. Hard-is to extend as far as possible into the next century, the time wood boards destined for furniture and other con-sumer products at Meiser Lumber Co. in Millerstown when expensive new generating units will be required. (B&C) were aligned by laser beams for precision cutting and milled by constant-speed saws controlled Rate Activities by the precision of electricity. Like a number of other saw mills In PP&L's territory, Melser Lumber recently The company had petitioned the FERC in November switched from diesel power to all-electric operation 1983 for about a 20 percent average increase in rates for for economy and dependability.

15 boroughs and one investor-owned utilitywhich 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.

Interrupti hie Rates A 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.

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 willbe hold at the Williamsport Scottish Rite Auditorium, 348 Market St., Williamsport, PA 17701, on Wednesday, April24, 1985. Formal notice of the meeting, together with a reservation card for meeting attendance, willbe 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. Ifyou would like to receive the 1974-1984 Profile, fillout, detach and mail the card on this flap.

I

(

i

g J g j

Y I If I'

<<

I ( f I

,f r~ I I I j

(. IfI I

<< ik>>

h

<<f<< I

'b~ c ,<<

Jg

/

I I

g I

.f ff lt

~~l I

l L-.;N j ff/

fldf t

j i/1 r.

f I

1

+r f

It

(

j 1 t I

I I

I J L

~E I

I t

I I

/,'I I

'c L

It.

I'I C;

r

<<gt I

l,f

't I

Q jjF tI I jf 1

'I F.

It t "i

ft r

10

Electricity affects the quality of life. An Allentown of the increase would recognize in base rates the company's real estate developer of historic properties enjoys an investment in, and cost of operating, Susquehanna Unit 2.

at-home movie with a video cassette recorder one The remaining third would represent recovery of other of the most popular items in today's consumer elec- higher costs of doing business since the August 1983 tronics market. A Mlllersville University professor and increase.

his family (A) enjoy their jacuzzilgreenhouse area in the home they designed and built. In addition to its To moderate the effects of the increase, the company recreational and therapeutic benefits, the Jacuzzi Is proposed that the full amount not be collected immediately, part of the water-source heat pump which warms the but rather be phased in over several years. Only half of the home in winter and cools it In the summer. The green- request, or $ 165 million, would be collected in the year house provides passive-solar gain during the winter starting on April26, 1985. That amount represents about an heating season as part of its energy-efficient design. 11.5 percent increase.

A Selinsgrove architect/developer and his wife (8) en- The second $ 165 million increment would go into effect the Joy late-night refreshments In their all-electric home, followingyear, beginning April26, 1986. The $ 165 million that which was designed around the versatility of electric- was not collected in the first year would be deferred without Ity In lighting, heating, cooling, cooking and dozens interest and recovered in several subsequent years.

of other applications which enhance their lifestyle.

Ifthe 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.

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 A 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. Electricity provides many options to keep people 17, 1985 and was to be put into effect March 1, 1985. The overall comfortable. A young Hazleton family chose a supple-amount that customers willpay for the program, as well as the mental electric storage system for their new home method of collection, will be part of the overall rate increase (right). Their SESS features a modified heat pump decision in April 1985. 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-Security Sales tractive residential load management option. A cou-ple staying at the Lackawanna Hilton Hotel (A) in The company raised $ 538 million in the capital markets Scranton enjoys the convenience of an individually during 1984. controlled heat pump unit In their room. The room The sale of $ 125 million of first mortgage bonds in April units have the versatility which allows heating rooms and another sale for the same amount in November raised $ 250 in some parts of the building, while cooling others million for the company. Interest rates for the two offerings on the sunny side of the hotel an advantage for days of in-between weather where all-heating or all-were 13.50 percent and 12.75 percent, respectively. cooling systems would leave some rooms uncomfort-The Lehigh County (Pa.) Industrial Development Authori- able. A retired woman In the newly completed Not-ty issued $ 153 million of its tax exempt 10.625 percent revenue tlngham Village Retirement Center (B) can control her bonds in 1984 to finance pollution control and solid waste own comfort level. Each apartment has its own unit disposal equipment at the company's Susquehanna plant. The allowing all residents to set the heatinglcoollng authority bonds are backed by PP&L first mortgage bonds temperature that suits their individual needs.

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 willno 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.

Susquehanna Project 1984 was another year of milestones for the company's Susquehanna nuclear plant near Berwick, Pa. These activities '4 were capped when Unit 2 was placed in commercial operation ii 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. B

a

~ . p g 1

lj, H

pip pl~

@gll

~g~~J fQ t

~ f li /i 4 Q7 Q J

<gCP-

Bi'gg" V I-

Ji, ~<3

';

'I 1

~ /

/'<

l

)'ly,W~ -. ~, rp

-

/

I

~ t~

el,

r r ~

'. 6,'/n~P;~ II q't.

cia

.J a

. '&i'~ ~e~~l t v 1

~j

'1

@PI E

t V

14

Electric lighting serves many purposes. Using PP&L's ~ The Nuclear Regulatory Commission (NRC) granted an innovative new off-peak greenhouse rate, J. L. Dillon operating license for Unit 2 on March 23, and the first of Inc., a wholesale florist in Danville, can use supple- 764 fuel assemblies was loaded into the reactor five days mental high-Intensity lighting (left) to stretch the later. Fuel load went extremely well and was completed 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 April 13, eight days ahead of schedule.

than If only daylight were used. The lights also help ~ An NRC-observed drill, conducted in early Aprilto test the heat the greenhouse. Electric lighting aids com- company's emergency preparedness and response capabili-merce, by providing a safer and cheerier nighttime ties, earned the company high marks from that regulatory environment (A) for downtown shoppers patronizing body.

stores along Allentown's Hamilton Mall. In addition to all the lifestyle and comfort amenities that electricity ~ In May the company completed negotiations to purchase powers Inside an all-electric Hazleton home (B), It nuclear fuel originally intended for use in an Ohio nuclear also provides security and accent lighting outside. 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 willcontinue 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 A retired guest relaxes in the sunroom (right) at the Control and Reclamation Act applies to the removal of waste all-electric, energy-efficient Nottingham Village Retire-piles containing anthracite silt. The company's position was ment Center. Nottlngham Village is an example of a that removal of the silt is not surface mining of coal and should new concept in retirement communities. Built adjacent to a modern nursing and convalescent facility, the not be subject to the fee. center provides individual apartments for its guests The fees are passed through to the company by silt sup- who can also use common living, recreation and din-pliers, and are a cost of fuel which PP&L customers must ing areas, which provide a sense of community.

eventually bear on electric bills. Should they be needed, doctors, nurses and advanced Anthracite silt a fine waste product that results from health care equipment are only moments away at the washing anthracite is an approximately equal mixture of nursing facility. Electricity also powers modern, high-anthracite and non-coal waste material. Low in sulfur, but also tech health care equipment at St. Joseph's Hospital low in energy content, silt can be burned only when enriched in Hazleton. A technician prepares a patient (A) for with higher quality coal or petroleum coke. The low-cost silt is diagnosis using a computed tomography (CT) scanner, used as part of the fuel mixture for generating units at the which can xcay a very thin slice of anatomy, providing a three-dimensional image clear through the body.

company's Sunbury and Holtwood power plants.

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 willprovide 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 tariffrule 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 Ijf make the greenhouse industry in Central Eastern Pennsylva- W 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, ifthe electricity was A needed elsewhere during periods of peak use.

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 0

-~IU II I ~ ' -== - Iglf -,

I I

I( ~,--~~cia~

'

I U0IUU

~ I cr

~ '~ ~~

'~' ~ll%

~ ~ Mll~

'1 Olin

~ ~~

',.

~

ClllS

' anln

~I ty ~

1[1

>II I~ KlllR&l

'ERIK~

INKS

<<i,~UUIY I> I 1

r e g

','

I

'""<',5i<'.-5

~

5 Sp hr 5'

5 l

5r 5

5t g5 5

j, l

5 5

5

,5f5

' '

0 5i'

;i 5 5

5 5'r 4

I r5554

(

55 18 j

,5

Electricity helps people have fun. Besides providing more and better jobs for Pennsylvanians. A major step to high-intensity lighting to enable skiers to pursue bring about these improvements was taken in 1982 when the their sport after dark, electricity also powers the Commonwealth of Pennsylvania instituted the Ben Franklin 1,500 horsepower compressors necessary for the Partnership Challenge Grant Program for Technological snowmaking equipment at Tanglwood Ski Area near Innovation.

Lake Wallenpaupack. With PPBL's off-peak rate in-centives, Tanglwood is one of a number of ski areas This led to the establishment of four locally supported that found it economical to switch to all-electric oper- consortiums and advanced technology centers across Pennsyl-ation from diesel-powered compressors. Young and vania. PP&L is a supporting member of the North East Tier old alike enjoy one of the thrill-rides (A) at Dorney Advanced Technology Center at Lehigh University, Bethle-Park near Allentown. The attractions in the 100-year- hem, Pa.

old park are powered by electric motors with a com- The consortium, made up of representatives from business bined total of nearly 900 horsepower. Overhead light- and industry, education, organized labor, economic develop-ing provides 24-hour-a-day recreation opportunities at ment groups and financial institutions, has established three the Allentown Racquetball Club (B). Electricity also primary objectives:

makes possible the therapeutic benefits of steam rooms, saunas and Jacuzzi whlrlpools at the club. ~ 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,"

A through its varied resources.

'$P'~Q

,v 'r ~ <

f) e 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.

Management Changes Robert R. F<ortune ended a PP&L career o'f nearly 36 years

~ ~

nfl 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

~P Q > j 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 One of the applications of electricity that Is perhaps serving for two years in the U.S. Army he returned to PP&L most taken for granted ls refrigeration (right). In just and held various data processing positions until his promotion a few generations, people have gone from iceboxes to financial analyst in 1965. He became manager-Budgets in and everyday trips to the grocer or butcher, to reli-able, virtually trouble-free electric refrigerators which 1969, manager-Financial Planning and Reporting in 1971, vice can store fresh food for days or weeks, and frozen president-Finance in 1979, and vice president and treasurer in food for months. Refrigeration has literally changed 1981. the way our society functions. Frozen convenience John P. Kierzkowski was appointed vice president and foods, such as the chicken rondelets being packaged treasurer effective March 1, 1984. Kierzkowski joined PP&L in (A) at Victor F. Weaver, Inc. In New Holland, often 1971 as manager-F<inancial Research and was named assistant play a big part ln meal planning for busy, on-the-go efficienc-treasurer in 1981. families without the time for from-scratch meal prep-John R. Biggar was named vice president-Finance on aration. Conversely, electricity powers the March 1, 1984. He joined PP&L in 1969 as an attorney in the iess and work-saving appliances that allow from-Legal Department. He became manager-Financing Services in scratch institutional food preparation (8) at Millers-1975 and manager-Finance in 1979. He had been an assistant ville University in Mlllersville. The university is con-verting to all-electric operation to take advantage of treasurer since 1981. the economies and reliability of PP&L electric service.

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 k 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.

20

r e

~ J

'v<

-j jr fh ij 1

9 i '

. I" r~,

I .Z%g ' L

'q bl 1

/

>i p

h I

ji. '

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 plant investment included in rate base replaced the financial condition and results of operations. Ad- previously recorded non-cash allowance for funds ditional information on these matters is set forth in used during construction. Costs such as employee the financial statements, schedules and notes on wages, materials and supplies and outside skilled pages 28-43 and the selected financial and operating labor incurred to operate and maintain the unit were data on pages 44 and 45. included in electric rates established by the PUC.

The rate decision, however, did not permit the Results of Operations Company to earn a return on $ 287 million of its net Earnings per share of common stock were $ 3.12 in investment in total generating facilities. The PUC 1984, $ 3.06 in 1983 and $ 3.35 in 1982. The slight decided that 945,000 kilowatts of the Company's total earnings improvement in 1984 was primarily attribut. generating capacity was excess and this reduced able to a 6.3'ncrease in electric energy sales during annual revenues by about $ 59 million. This disallow-the year. The increased revenues associated with the ance has adversely affected earnings available for higher sales somewhat offset the effects of an inade- common shareowners. However, the Company ex-quate rate increase allowed by the Pennsylvania pects to recover the return on investment disallowed Public UtilityCommission (PUC) in its August 1983 by the PUC when the sale of capacity and energy to rate decision. Jersey Central Power &, Light Company (JCP&L)

The decline in earnings per share in 1983 compared commences. See page 23 for a discussion of the JCP&L with 1982 reflected a partial year's effect of the in- agreement.

adequate rate increase and also the effects of the eco-nomic recession early in 1983. 1984 Rate Filing 1983 Rate Decision In July 1984, the Company filed with the PUC for an overall increase in electric rates of approximately In August 1983, the PUC issued a final order on the $ 330 million. The increase reflects $ 466 million related Company's request to increase rates to reflect the to the investment and operating costs of Susquehanna effect of placing Susquehanna Unit 1 in commercial Unit 2 plus other increased costs of doing business less operation and the recovery of other increased costs. an estimated reduction of about $ 136 millionin annual The PUC granted the Company an increase in base energy costs associated with the operation of Susque-rate revenues of approximately $ 203 million some hanna Unit 2. To moderate the impact of the increase,

$ 90 million less than the amount requested. the Company has proposed to billcustomers only one-The return allowed on the Susquehanna Unit 1 half of the amount requested ($ 165 million)in the first Earnings Per Share Times Interest Charges Earned 12 Months Ended Each Quarter 12 Months Ended Each Quarter Dollars Per Share Times Earned (Pre Tax)

$ 3.60 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 Electric Sales and Operating Revenues the rate increase would be billed in the second year Electric energy sales were 6.3%%uo higher in 1984 than and recovery, without interest, of the amount not 1983 and 3.4% higher in 1983 than 1982. The increased collected from customers in the first year would begin sales result from improved economic conditions and in the third year. extremely cold weather during the 1983-1984 winter The issue of excess generating capacity has again season. Ifnormal weather conditions had prevailed in been raised by certain parties in the current rate proceeding. However, the Company is unable to pre-both 1984 and 1983, energy sales in 1984 would have increased 5.1% over 1983.

dict what action the PUC may take with respect to When compared with 1983, residential sales for 1984 that issue or the Company's proposed rate phase-in were up 316 million kwh or 3.9%%uo, commercial sales plan. A decision by the PUC on the rate increase increased 408 million kwh or 6.7% and industrial sales request is expected by April 26, 1985. increased 494 million kwh or 6.5%%uo. The Company also sold 148 million kwh more energy to Atlantic City Sale of Capacity and Energy to JCPdLL Electric Company (Atlantic) in 1984 pursuant to an agreement whereby Atlantic purchases about 6% of The Company has entered into an agreement to the capacity and energy of the Susquehanna units.

provide JCP&L capacity and energy from 945,000 kilowatts of the Company's generating facilities. The changes from the prior year in total operating JCP&L will pay an amount equal to the Company's revenues were attributable to the following (millions cost of service, including a return on investment in the of dollars):

generating facilities. The agreement will not become 1984 1983 1982 effective until the New Jersey Board of Public Utilities Electric makes a determination that the agreement is in the Base rate increases.... $ 257.5 $ 141.1 $ 81.6 public interest. Recovery of fuel and When the agreement becomes effective, the Com- energy costs........ (17.0) (153.9) 1.7 pany would expect to recover from JCP&L the return Change in customer on investment in generating facilities disallowed by usage.............. 31.1 15.2 (3.6) the PUC in its 1983 rate order. However, if the Sales to Atlantic City Electric Company... 13.3 18.5 agreement does not become effective before the PUC Other (principally reaches a decision on the Company's current rate tax surcharge)...... 28.1 9.5 7.5 increase request, the Company's earnings would be Total electric.... 87.2 313.0 30.4 adversely affected because depreciation and the costs to operate and maintain the facilities included in the Steam heat ... 1.4 (1.6) (0.9)

JCP&L agreement would no longer be recovered in Total 28.8

. $ 314.4 $ $ 86.3 rates charged customers.

Sources of Energy I Disposition oi Energy Billions oi Kwh Billions of Kwh 50 50 40 40 30 20 10 10 0

80 81 82 83 84 80 81 82 83 84 O Hydro and purchased power O Company use, line losses and other O Nuclear generation O Interchange power sales O Oil fired generation 8 Electric energy sales to customers O Coal. fired generation 23

Base rate increases for customers under thej urisdic- the Company's own customers increased 1.4 billion tion of the PUC went into effect January 1982 and kwh, resulting in less energy being available for ~

August 1983. A large increase in sales of energy to interchange sales. Susquehanna Unit 1 was out of other utilities during 1983 resulted in lower energy service for about two months in early 1984 to permit a costs. This caused a substantial reduction in revenues tie-in of common facilities with Unit 2 and for certain applicable to recovery of such costs in that year. repairs. As a result, output from other units was Sales to ultimate customers accounted for approxi- required to meet customers'nergy needs instead of mately 96% of the Company's revenues from electric being available for sales to other utilities. In addition, sales over the past three years. Such revenues are output from the Company's oil-fired steam station under the jurisdiction of the PUC. The remaining 4% was down from 1983. This decrease was due in part to of revenues relate to sales to others for resale which equipment problems and also to less need for energy are regulated by the Federal Energy Regulatory Com- from these units by other utilities.

mission (FERC) as are interchange power sales, which are classified as a credit to operating expenses.

Wages and Benefits, Other Operating Costs and Depreciation Net Cost of Energy Wages and employee benefits and other operating In total, the cost of fuel burned in 1984 was 6.2%less costs increased in both 1984 and 1983 due to inflation than in 1983. The decrease in fuel costs reflects and costs related to operating Susquehanna Unit 1.

principally less oil consumed by the Company's two Increases in depreciation reflect additions to plant in oil-fired generating units where 1.5 billion less kwh service, including Susquehanna Unit 1 in 1983. The were produced. This was partially offset by higher provision for depreciation, as a percent of average costs for coal and nuclear fuel. The energy produced depreciable property, declined from approximately by coal-fired stations was about the same in 1984 as in 3.3% in 1982 to 2.7% in 1983 and to 2.5% in 1984 the prior year, but the cost of coal consumed was primarily due to the use of a modified sinking fund somewhat higher. At coal-fired stations the average method of depreciation for the Susquehanna plant in cost of fuel per kwh generated increased by 4.8%. accordance with rate-making treatment.

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 Income Taxes fuel costs in 1984 reflects the increased output from the In 1982, 1983 and 1984, the Company had losses for unit. income tax purposes. The large amount of interest In 1984, the quantity of interchange power sold to expense incurred to finance construction expenditures other utilities was 1.0 billion kwh lower than the all- and the depreciation for income tax purposes of time high of 16.4 billion kwh achieved in 1983. Sales to Susquehanna Unit 1 and Unit 2 were major factors Capital Requirements Sources of Capital Millions of Dolls Millions of Dolfi s

$ 1,500 $ 1,500 1,200 1,200 900 900 600

~

300 300 82 83 Aclual 84

"

W Susquehanna construction 85 86 Procreated ~87 i

82 83 Actual 84 f

85 C3 Capital lease obligations 86 Projected~

87 O Outside financing (sales of debt and/or Cl Other construction and nuclear fuel equity securities)

D Other (principally retirement of securities)

R Internal sources (principally from opera.

tlons plus AFUDC less dividends) 24

causing the tax losses. At December 31, 1984, the current projections for the years 1985-1987. Construc-Company had tax loss carryforwards of approxi- tion expenditures during the three years 1982-1984 mately $ 100 million for both federal and state income totaled $ 1.8 billion and are expected to be about $ 0.8 tax purposes. billion during the three years 1985-1987, a decline of The Company's construction expenditures have approximately $ 1.0 billion from the prior three years.

enabled it to qualify for substantial investment tax credits. At the end of 1984, an estimated $ 273 million Allotoance for Funds Used During of unused investment and payroll-based tax credits Construction (AFUDC) were available to reduce federal income tax liabilities in future years. The amount of AFUDC recorded in 1984 was less For additional information concerning income than in 1983, the first decrease following a decade of taxes, see the Schedule of Taxes on page 35 and Note 6 steady increases which were due to the greater level of to Financial Statements. construction work in progress related to the two Susquehanna units. The Susquehanna units ac-counted for about $ 652 millionof the total $ 667 million Capital Expenditure Requirements of AFUDC recorded during the three years 1982-1984.

When Susquehanna Unit 2 was placed in commer- AFUDC willdecrease substantially in 1985 following cial operation on February 12, 1985, it marked the end completion of Susquehanna Unit 2. See Note 7 to of an extensive period of generating plant construc- Financial Statements for additional information con-tion by the Company. In the past 20 years, the cerning AFUDC.

Company has placed into service eight large generat-ing units (four coal, two oil and two nuclear). In Financin g addition, the Company participated in the construct-ion of four jointly owned coal-fired units during the In order to finance its construction program, the period. Completion of the two nuclear-fueled generat- Company has had frequent sales of debt and equity ing units at the Susquehanna plant has dominated securities over the past several years.

the Company's construction program for the past Outside financing totaled $ 1.8 billion during the several years. The cost of the Company's 90% share of three years 1982-1984. In addition to securities sales, the two Susquehanna units is expected to be about the Company incurred $ 441 million of obligations

$ 3.7 billion. Construction expenditures for the next under capital leases (primarily nuclear fuel) during several years are expected to decrease substantially the three years 1982-1984. Details of the amount of from the levels recently experienced since no new securities sold and other information on sources and generating units willbe under construction. uses of funds during 1982-1984 are set forth in the The schedule below shows actual construction and Statement of Changes in Financial Position on nuclear fuel expenditures for the years 1982-1984 and page 29.

Construction and Nuclear Fuel Expenditures (Millions of Dollars)

-Actual- ---Projected 1982 1983 1984 1985 1986 1987 Construction expenditures (a)

Susquehanna plant ........... $ 638 $ 540 $ 246 $ 25 (b)

Transmission and distribution facilities . 69 62 84 97 $ 103 $ 115 Environmental . 19 4 5 9 16 13 Other 32 43 87 141 155,141 758 649 422 272 274 269 Nuclear fuel (c) 74 100 103 65 67 55 Total . $ 832 $ 749 $ 525 $ 337 $ 341 $ 324 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- At the end of 1984, the market price of the'Company's nancing during the three years 1985-1987 willbe about common stock was 98.7% of book value. This is the

$ 300 million, or $ 1.5 billion less than the amount highest market-to-book ratio experienced by the Com-required during the prior three years. Funds from pany in many years. Funds from operations also securities sales and from internal sources willbe used continued a favorable trend. As detailed on page 29, to finance construction expenditures, repay $ 521 mil- funds from operations in 1984 were $ 185 million lion of long-term debt obligations and meet $ 172 higher than in 1983.

million of preferred and preference stock sinking fund Financing flexibility also improved. Currently, requirements. there are no significant limitations under the Com-Funds generated from internal sources are expected pany's mortgage indenture or charter on the amount to provide about 80% of total funds required during the of additional debt securities that can be issued. Less three years 1985-1987 compared with 26% during the than two years ago, the earnings coverage test of the three years 1982-1984. 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.

Tentative Plans for Securities Sales The Company presently has bank lines of credit The Company intends to issue $ 192 million of totaling $ 720 million and is assessing the appropriate securities in 1985, all in the form of long-term debt. level of these lines in light of the lower financing The exact amount, nature and timing of sales of requirements expected during the next several years.

securities in 1985 and subsequent years will be deter- The Company's financial condition in the near mined in the light of market conditions and other future will depend to a large degree on the receipt of factors, including the granting of timely and adequate adequate rate relief in the current proceeding before rate relief. 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.

Improved Pinancial Condition The Company's overall financial condition im-proved during 1984. Earnings per share of common Impacts of Inflation stock increased. The times interest charges earned Certain effects of inflation on the operations of the ratio (pre-tax) continued the upward trend which Company have been estimated on the basis prescribed began in 1983. This ratio increased from 2.05 times in by the Financial Accounting Standards Board and 1982 to 2.29 times in 1983 and was 2.35 times in 1984. are set forth in Note 16 to Financial Statements.

Construction Work in Progress  ;

Book Value Per Share vs. Net Plant in Service <

vs. Market Price Per Share - Year End Billions ol Dollars Dollars Per Share

$6 $30 25 15 10 Qi3 O

82 83 Actual ~ 84 85'6 Construction work In progress Net plant In service prclecred

• After Susquehanna Unit 2 in service u O O

80 81 82 Book value per share Market price per share 83 84 26

Pt }

Management's Report on the Financial Statements I

The management of Pennsylvania Power & Light to evaluate the Company's internal accounting con-Company is responsible for the preparation, integri- trols, policies and procedures as to adequacy, applica-ty and objectivity of the financial statements and tion and compliance.

other sections of this annual report. The financial Deloitte Haskins & Sells, independent certified statements have been prepared in conformity with generally accepted accounting principles and the public accountants, have been engaged to examine Uniform System of Accounts prescribed by the the Company's financial statements and to render Federal Energy Regulatory Commission. In prepar- an opinion as to whether such financial statements, considered in their entirety, present fairly the Com-ing the financial statements, management makes pany's financial position, operating results and informed estimates and judgments of the expected effects of events and transactions based upon current- changes in financial position, in conformity with ly available facts and circumstances. generally accepted accounting principles. Their ex-amination is conducted in accordance with generally accepted auditing standards and includes such proce-The Company maintains a system of internal dures believed by them to be sufficient to provide accounting controls designed to provide reasonable, reasonable assurance that the financial statements but not absolute, assurance that assets are safe- are not materially misleading and do not contain guarded and that transactions and events are ex- material errors.

ecuted in accordance with management's authoriza-tion and are recorded properly to permit preparation The Board of Directors, acting through its Audit of financial statements in accordance with generally Committee, oversees management's responsibilities accepted accounting principles. The concept of reason- in the preparation of the financial statements. In able assurance recognizes that the cost of a system of performing this function, the Audit Committee, which internal accounting controls should not exceed the is composed of directors who are not employees of the benefits derived and that there are inherent limita- Company, meets periodically with management, the tions in the effectiveness of any system of internal internal auditors and the independent certified public accounting controls. Fundamental to the control accountants to review the work of each. Deloitte system is the selection and training of qualified Haskins & Sells and the internal auditors have free personnel, an organizational structure that provides access to the Audit Committee and to the Board of appropriate segregation of duties and the utilization Directors, without management present, to discuss of written policies and procedures. In addition, the internal accounting control, auditing and financial Company maintains an internal auditing program reporting matters.

Auditors'pinion Oeloitte Haskias+Sells One World Trade Center Certified Public Accountants New York, New York 10048 To the Shareowners and Board of Directors of Pennsylvania Power & Light Company:

We have examined the balance sheets of Pennsylvania Power & Light Company as of December 31, 1984 and 1983 and the related statements ofincome, 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) $ 1,562,782 $ 1,248,397 $ 1,219,548 Operating Expenses Net cost of energy Fuel 720,670 768,583 633,694 Power purchases . 171,953 186,955 59,571 Interchange power sales (647,186) (740,964) (302,149) 245,437 214,574 391,116 EVages and employee benefits 232,632 211,752 171,182 Other operating costs 219,002 166,839 142,788 Depreciation . 118,763 107,885 92,222 Income taxes (Note 6) 185,784 112,055 87,489 Taxes, other than income 154,206 125,470 111,668 Deferred Susquehanna energy savings net of operating expenses (Note 4) 19,892 1,155,824 958,467 996,465 Operating Income 406,958 289,930 223,083 Other Income and (Deductions)

Allowance for equity funds used during construction (Note 7) 64,743 131,362 90,295 Deferred Susquehanna capital costs (Note 4) . (718) 29,935 Income tax credits (Note 6) 62,623 21,976 77,744 Other net .............................. (4,830) (9,518) (588) 121,818 173,755 167,451 Income Before Interest Charges 528,776 463,685 390,534 Interest Charges Long. term debt................... 280,328 258,629 239,769 Short term debt and other 33,740 29,231 28,007 Allowance for borrowed funds used during construction (104,195) (120,186) (156,128) 209,873 167,674 111,648 Net Income Before Dividends on Preferred and Preference Stock . 318,903 296,011 278,886 Dividends on Preferred and Preference Stock ..... 92,145 85,838 68,314 Earnings Applicable to Common Stock....... $ 226,758 $ 210,173 $ 210,572 Earnings Per Share of Common Stock (a)... $ 3.12 $ 3.06 $ 3.35 Average Number of Shares Outstanding (thousands) 72,767 68,642 62,809 Dividends Declared Per Share of Common Stock .... $ 2 48 $ 2.40 $ 2.32 (a) Based on average number of shares outstanding.

Scc accompanying Schedules and Notes to Financial Statements.

28

'

Statement of Changes in Financial Position (Thousands of Dollars) 1984 1983 1982 Source of Funds Funds from operations Net income $ 318,903 $ 296,011 278,886 Charges (credits) to income not involving working capital Depreciation 118,763 107,885 92,222 Amortization of property under capital leases .. 38,649 29,669 7,442 Noncurrent deferred income taxes and investment tax credits net................ 125,038 78,178 20,404 Deferred Susquehanna costs net............ 718 (10,043)

Allowance for funds used during construction .. (168,938) (251,548) (246,423)

Other 2,502 694 1,208 435,635 250,846 153,739 Outside financing Common stock . 84,203 81,415 147,475 Preferred and preference stock. 50,000 106,000 84,000 First mortgage bonds . 403,250 175,000 365,674 Secured term notes. 300,000 Nuclear fuel trust notes net increase ... 50,000 Short-term debt net increase (decrease) . (85,200) 29,455 (14,944) 452,253 391,870 932,205 Noncurrent capital lease obligations .......... 53,424 104,644 220,422 Working capital (excluding debt)-decrease (a) . 176,767 84,751

$ 941,312 $ 924,127 $ 1,391,117 Application of Fun'ds Construction expenditures $ 421,697 $ 648,661 $ 757,878 Additions to nuclear fuel-owned and leased .. 103,518 100,157 74,203 Allowance for funds used during construction . (168,938) (251,548) ~(246,423 356,277 497,270 585,658 Securities retired Preferred and preference stock 26,803 12,804 6,597 First mortgage bonds . 80,154 59,842 178,000 Secured term notes. 100,000 Long-term bank loans net decrease .. 375,000 Nuclear fuel trust notes net decrease . 50,000 206,957 122,646 559,597 Reduction in noncurrent capital lease obligations .. 47,492 39,515 11,675 Dividends on preferred, preference and common stock 273,236 251,182 216,601 Working capital (excluding debt)-increase (a) .... 39,762 Other net . 17,588 13,514 17 566

$ 941,312 $ 924,127 31,321,117 (a) Changes in components of working capital (excluding debt)

Cash $ (299) $ 191 $ 827 Accounts receivable . 1,917 7,889 60,894 Unbilled and refundable revenues, net of deferred taxes... (4,680) (130,805) (63,869)

Fuel (coal and oil) 70,771 (29,992) (6,746)

Accounts payable and accrued taxes .................

year...........

(32,277) (7,377) (20,636)

Capital lease obligations due within one (26,267) (5,999) (29,889)

Other-net . 30,597 (10,674) (25,432)

Increase (Decrease) $ 39,762 $ (176,767) $ (84 761)

See accompanying Schedules and Notes to Financial Statements.

29

BalanCe Sheet at December 31 (Thousands of Dollars)

Assets 1984 1983 UtilityPlant Plant in service at original cost Electric $ 4,876,163 $ 4,761,151 Steam heat 8,661 8,704 4,884,824 4,769,855 Less accumulated depreciation 1 023,864 922,554 3,860,960 3,847,301 Construction work in progress at cost 2,020,839 1,730,228 Nuclear fuel in process at cost. 47,475 10,609 Leased property-net of amortization (Note 2) 401,527 369,328 6,330,801 5,957,466 Investments Associated companies at equity 17,714 16,614 Receivable from litigation settlement 27,500 28,500 Nonutility property and other at cost or less... 11,413 8,410 56,627 53,524 Current Assets Cash . 6,454 6,753 Accounts receivable (less reserve: 1984, $ 5,486; 1983, $ 5,020)

Customers 105,857 109,934 Interchange power sales . 46,468 39,510 Other 5,241 6,205 Unbilled revenues 52,064 56,744 Fuel (coal and oil) at average cost. 197,861 127,090 Materials and supplies at average cost .................... 21,222 21,400 Common stock held for dividend reinvestment program (Note 8) . 12,820 Other 50,718 15,743 498,705 383,379 Deferred Debits 24,650 24,140

$ 6,910,783 $ 6,418,509 See accompanying Schedules and ¹tes to Financial Statements.

30

Liabilities 1984 1983 Capitalization Common equity Common stock $ 1,307,267 $ 1,223,064 Capital stock expense (16,805) (15,973)

Earnings reinvested. 606,525 560,858 1,896,987 1,767,949 Preferred and preference stock With sinking fund requirements 738,027 714,830 Without sinking fund requirements. 231,375 231,375 Long-term debt 2,528,531 2,307,073 5,394,920 5,021,227 Current Liabilities Commercial paper and other notes 104,800 190,000 Long-term debt due within one year 75,975 80,176 Capital lease obligations due within one year (Note 2) ........ 70,653 44,386 Accounts payable . 117,054 92,563 Taxes accrued . 34,849 27,063 Interest accrued 69,500 64,578 Dividends payable 69,546 64,428 Deferred income taxes . 25,486 27 773 Energy revenues to be refunded 98,441 93,396 Other . 37,037 32,815 703,341 717,178 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits. 107,130 111,038 Deferred income taxes . 336,617 205,916 Capital lease obligations (Note 2) 330,874 324,942 Other . 37,901 38,208 812,522 680,104 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 Shares Outstanding Shares Outstanding Thousands of Dollars Authorized 1984 1984 1983 Preferred Stock $ 100 par, cumulative (a) 4'/s%%uo 629,936 530,189 $ 53,019 $ 53,019 Series................................. 10,000,000 4,972,106 497,211 519,176

$ 550,230 $ 572,195 Preference Stock no par, cumulative (a)..... 5,000,000 4,191,724 $ 419,172 $ 374,010 Common Stock no par (a). 85,000,000 74,512,797 $ 1,307,267 $ 1,222,393 Dividend reinvestment installments received . 671

$ 1,307,267 $ 1,223,064 Details of Preferred and Preference Stock (b)

Optional Sinking Fund Provisions(c) Redemption Shares to be Price Per Shares Outstanding Redeemed Redemption Sharc Outstanding Thousands of Dollars Annually Period 1984 1984 1984 1983 With Sinking Fund Requirements Series Preferred 7.40% 16,000 1985-2003 $ 104.14 304,000 $ 30,400 $ 32,000 7.50% 150,000 1985 103.33 150,000 15,000 15,000 7.75% 120,000 1985-1988 102.59 480,000 48,000 60,000 8.00% 25,000 1985-2002 112.00 450,000 45,000 47,500 8.00%, Second ............. 20,000 1985-1989 103.56 100,000 10,000 10,000 8.25% 100,000 1985-1989 103.68 500,000 50,000 50,000 8.75% 30,000(d) 1985-2004 110.00 600,000 60,000 60,000 9.24% 30,000(d) 1985-2005 115.00 589,550 58,955 64,821 10.75% (e)................. 53,000(d) 1986-1990 115.00 265,000 26,500 26,500 11.00%, Adjustable (e) (f).... 30,000 1989-1993 125.00 150,000 15,000 15,000 11.00% (e)................. 260,000 1988 125.00 260,000 26,000 26,000 11.25% (e)................. 15,000 1989-1998 125.00 150,000 15,000 15,000 14.00%%uo (e)................. (g) (g) 123.00 340,000 34,000 34,000 Preference

$ 8.625(e) ................. 102,000 1986-1990 None 510,000 51,000 51,000

$ 11.00 25,000(d) 1985-2000 106.05(h) 377,702 37,770 40,820

$ 11.60 (i) . 25,000(d) 1989-2008 114.00 500,000 50,000 50,000

$ 13.00 12,500(d) 1985-1998 106.50 154,022 15,402 17,189

$ 13.00, Second (i) .......... 25,000(d) 1989-2008 114.00 500,000 50,000 50,000

$ 13.68 (i) . 25,000(d) 1990-2009 114.00 500,000 50,000

$ 15.00 (i) . 25,000(d) 1988-2007 120.00 500,000 50,000 50,000

$ 738,027 $ 714,830 Without Sinking F<und Requirements 4'/Bo Preferred............... 110.00 530,189 $ 53,019 $ 53,019 Series Preferred 3.35% 103.50 41,783 4,178 4,178 4.40% 102.00 228,773 22,878 22,878 4.60% 103.00 63,000 6,300 6,300 8.60% 107.00 222,370 22,237 22,237 9.00%%uo 107.00 77,630 7,763 7,763 Preference

$ 8.00 . 103.00 350,000 35,000 35,000

$ 8.40 . 104.00 400,000 40,000 40,000

$ 8.70 . 101.00 400,000 40,000 40,000

$ 231,375 $ 231,375 See accompanying ¹tcs to Financial Statetnents.

32

Increases (Decreases) in Capital Stock (shares and amount in thousands) 1984 1983 1982 Shares Amount Shares Amount Shares Amount Common Stock Public offering. 4,000 $ 77,124 Dividend reinvestment plan ...... 4,178 $ 84,875 3,874 $ 81,843 3,971 69,930 Employee stock ownership plan...- 43 702 Series Preferred Stock (j) 7.40% . (16) (1,600) (16) (1,600) (16) (1,600) 7.75% . (120) (12,000) 8.00% . (25) (2,500) (25) (2,500) 9.24% . (59) (5,866) (29) (2,935) (17) (1,667) 11.00%%uo, Adjustable .............. 150 15,000 11.00% . 260 26,000 11.25% 150 15,000 14.00% 340 34,000 Preference Stock (j)

$ 11.00 (30) (3,050) (33) (3,268) (18) (1,771)

$ 11.60 500 50,000

$ 13.00 (18) (1,787) (25) (2,500) (16) (1,559)

$ 13.00, Second 500 50,000

$ 13.68 500 50,000 (a) Each share of preferred, preference and common stock entitles upon the sale or redemption of the stocks to provide an agreed the holder to one vote on any question presented to any upon effective yield after federal income taxes. The Company sharcowners'eeting. estimates that as of December 31, 1984 it could be required to (b) Liquidation prices pcr share of preferred stock (payable in make such indemnity payments in the future not in excess of preference over the preference stock) and preference stock are $ 5.1 million.

as follows (plus in each case any unpaid dividends): (f) Effective April I, 1988, the dividend rate is subject to a one-Involuntary Voluntary time adjustment pursuant to a formula based on the then Class Liquidation Liquidation current prime rate.

49'%referred $ 100 $ 100 (g) The 14.00% Preferred Stock has a sinking fund provision Series Preferred $ 100 Redemption price in effect. which requires redemption of the following number of shares Preference $ 100 Redemption price in effect, annually at $ 100 per share: October 1, 1986.1987, 85,000; 1988.

except for the $ 8.625 Series 1989, 51,000; 1990, 68,000.

which is $ 100. (h) The $ 11.00 Preference Stock may not be refunded through (c) The aggregate amount of sinking fund redemption require- certain refunding operations prior to July 1, 1985.

ments through 1989 are (thousands of dollars): 1985, $ 48,897; (i) Ownership of the $ 11.60, $ 13.00, Second Series, $ 13.68 and 1986, $ 61,850; 1987, $ 61,850; 1988, $ 86,950; 1989, $ 58,450. $ 15.00 Preference Stocks is evidenced by Depositary Prefer.

(d) On certain sinking fund redemption dates, the Company may ence Shares, each representing '/4 share of Preference Stock.

redeem additional shares up to the number of shares of these (j) Decreases in Preferred and Preference Stocks represent: (i) the series required to be redeemed annually. redemption of stock pursuant to sinking fund requirements, or (e) In the event there is a loss of certain federal income tax (ii) shares reacquired through market purchases and subse-benefits to corporate holders of these stocks, the Company quently cancelled. The reacquired and cancelled shares are would be required to make indemnity payments to the owners used to meet sinking fund requirements.

Sec accompanying Notes to Financial Stateinents.

33

SChedule Of LOng-Term Debt at December 31 Outstanding Maturity Thousands of Dollars First Mortgage Bonds (a) Date (b) 1984 1983 15/o February 1, 1984 $ 16,665 9~/s%%uo June 1, 1984 33,329 1 ls/4%%uo. December 15, 1984 30,000 15% February 1, 1985 $ 16,665 16,665 97/s%%uo June 1, 1985 33,329 33,329 3'Ys%%uo August 1, 1985 25,000 25,000 15% February 1, 1986 16,670 16,670 16'/s%. August 1, 1986 30,900 30,900 14'/4'%%uo . December 12, 1986 50,000 50,000 16'/s%%uo. August 1, 1987 36,000 36,000 16'/s%. September 1, 1987 10,400 10,400 16'/s% . August 1, 1988 10,100 10,100 16'/s%. September 1, 1988 10,400 10,400 12'/s%%uo. February 1, 1989 10,000 10,000 16'ls'%%uo . August 1, 1989 7,000 7,000 16'/s% September 1, 1989 10,400 10,400 4/s% to 16'/2% 1990.1994 479,300 354,300 5s/s% to 8'/s% 1995-1999 140,000 140,000 7'!4% to 9'/4%%uo . 2000-2004 345,000 345,000 8'/4% to 9s/4% . 2005-2009 475,000 475,000 12s/4% to 15'/s%%uo 2010.2014 450,000 325,000 Pollution control 5s/s% Series A . (c) 23,340 23,500 77/s% to 8'/s% Series C . (c) 20,000 20,000 11'/4% to 1 1'/s% Series D (c) 70,000 70,000 10s/s%%uo Series E . March 1, 2014 37,750 10'eries F . September 1, 2014 115,500 2,422,754 2,099,658 Other Long-Term Debt Secured term notes (a)(d) . March 31, 1991 200,000 300,000 Miscellaneous promissory notes 1985-1989 809 796 2,623,563 2,400,454 Unamortized (discount) and premium net. (19,057) (13,205) 2,604,506 2,387,249 Less amount due within one year 75,975 80,176

$ 2,528,531 $ 2,307,073 (a) Substantially all utility plant is subject to the lien of the (c) Pollution control bonds mature annually ns follows (thou.

Company's first mortgage and certain utility plant is also sands of dollnrs): (i) Series A on May 1, 1985, $ 640; 1986.2002, subject to the lien of a second mortgage. $ 900; 2003, $ 7,400 (ii) Series C on April 1, 2000, $ 4,000; 2006-(b) Aggregate long. term debt maturities through 1989 are 2009, $ 2,000; 2010, $ 8,000 (iii) Series D on November 1, 2002, (thousands of dollars): 1985, $ 75,975; 1986, $98,623; 1987, $ 15,000; 2012, $ 55,000.

$ 47,429; 1988, $21,511; 1989, $ 28,375. Maximum sinking fund (d) Variable interest rate.

requirements aggregate $ 33.7 million through 1989 and may be met with property additions or retirement of bonds.

See accompanying ¹tes to Financial Statements.

5 Schedule Of TaxeS (Thousands of Dollars) 1984 1983 1982 Income Tax Expense (Note 6)

Included in operating expenses Provision Federal $ 51,790 $ 15,823 $ 55,109 State 11,243 6,787 9,762 63,033 22,610 64,871 Deferred Federal 123,844 94,689 55,351 State 2,815 (938) (591) 126,659 98,751 54,760 Investment tax credit, net Federal ... (3,908) (4,306) (32,142)

$ 185,784 $ 112,055 $ 87,489 Included in other income and deductions Provision (credit) Federal $ (51,370) $ (15,216) $ (67,981)

State (11,253) (6,760) (9,768)

$ (62,623) $ (21,976) $ (77,744)

Total income tax expense Federal $ 120,356 $ 90,990 $ 10,337 State 2 805 ~911 ~592

$ 123,161 $ 90,079 $ 9,745 Detail of deferred taxes in operating expenses Tax depreciation . $ 120,232 $ 101,728 $ 58,024 Test operation of generating unit .......... (2,780) (10,856) (3,373)

Deferred Susquehanna energy savings net of operating expenses .............. (11,411)

Unbilled revenues . (2,287) 11,266 2,213 State utility realty tax..... 14,888 Other . (3,894) 3,024 (2,104)

$ 126,659 $ 93,751 $ 54,760 Reconciliation of Federal Income Tax Expense Indicated federal income tax on pre.tax income at statutory tax rate (46%) $ 203,350 $ 177,601 $ 132,770 Reduction due to:

AFUDC, less unused construction interest deduction .. 77,656 65,088 110,827 Tax and pension cost. 5,719 6,314 6,838 Deferred Susquehanna capital costs............... (331) 13,770 Other . (2,855) 2,350 5,365 80.189 87,522 123,025 Total income tax expense $ 123,161 $ 90,079 $ 9,745 Effective income tax rate 27.9% 23.3% 3.4%

Taxes, Other Than Income State gross receipts . $ 66,711 $ 60,112 $ 56,515 State capital stock 23,044 20,074 18,243 State utility realty 48,316 31,803 26,591 Social security and other 16,135 13,481 10,319

$ 154,206 $ 125,470 $ 111,668 See accompanying Notes to Financial Statements.

35

Statement Of EarningS ReinVeSted (Thousands of Dollars) 1984 1983 1982 Balance, January 1 $ 560,858 $ 516,162 $ 453,885 Add Net Income 318,903 296,011 278,886 879,761 812,173 732,771 Deduct Cash dividends declared Preferred stock at required annual rates.......... 47,437 47,268 38,730 Preference stock at required annual rates......... 44,708 38,570 29,584 Common stock per share: 1984, $ 2.48; 1983, $ 2.40; 1982, $ 2 32 181,091 165,344 148,287 Issuance cost of retired preferred and preference stock..... 133 8 273,236 251,315 216,609 Balance, December 31 $ 606,525 $ 560,858 $ 516,162 Notes to Financial Statements

1. Summary of Accounting Policies "significant subsidiary" as that term is defined by V

the Securities and Exchange Commission.

Accounting Records Accounting records are maintained in accordance UtilityPlant and Depreciation with the Uniform System of Accounts prescribed by Additions to utilityplant and replacement of units the Federal Energy Regulatory Commission (F<ERC) of property are capitalized at cost. The cost of units of and adopted by the Pennsylvania Public Utility property retired or replaced is removed from utility Commission (PUC). plant accounts and charged to accumulated de-preciation. Expenditures for maintenance and re-pairs of property and the cost of replacement of items Associated Companies determined to be less than units of property are Investments in unconsolidated subsidiaries (all charged to operating expenses.

wholly owned) and in Safe Harbor Water Power For financial reporting purposes, depreciation is Corporation (of which the Company owns one-third computed on a straight-line method using rates of the outstanding capital stock representing one- based on the estimated useful lives of property, with half of Safe Harbor's voting securities) are recorded the exception of the Susquehanna nuclear plant using the equity method of accounting. Unconsoli- which is depreciated on a modified sinking fund dated subsidiaries operate in the United States and method, which method is also used for rate-making are engaged in coal mining, holding coal reserves, oil purposes. Provisions for depreciation, as a percent of pipeline operations and real estate investment. average depreciable property, approximated 2.5%%uo in The Company believes that its financial position 1984, 2.7'n 1983 and 3.3%%uo in 1982.

and results of operations are best reflected without consolidation of these subsidiaries since they are not engaged in the business of generating or distributing Cost of Decommissioning Nuclear Plant electricity. All unconsolidated subsidiaries con- An annual provision for decommissioning costs of sidered in the aggregate would not constitute a the Susquehanna nuclear plant equal to the amount 36

allowed for rate-making purposes is charged to oper- cated to the individual companies based on their

'ting expense. Such amounts, net of income taxes, respective taxable income or loss and investment tax are invested in securities kept in a segregated ac- credits.

count which can be used only for future decommis- Income taxes applicable to the Company are allo-sioning costs. 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 Allowance for Funds Used During interest expense which is offset by the borrowed Construction (AFUDCJ funds component of the allowance for funds used As provided in the Uniform System of Accounts, during construction.

the cost of funds used to finance construction projects Deferred income taxes are recorded for timing is capitalized as part of construction cost. The com- differences between book and taxable income to the ponents of AFUDC shown on the Statement of extent they are permitted in rate determinations by Income under other income and deductions and regulatory agencies. The two principal items for interest charges are non-cash items equal to the cost which deferred taxes are not currently recorded are of funds capitalized during the period. The equity (i) certain pension costs and employee-related taxes funds component is reduced by the income tax capitalized for book purposes but deducted currently savings realized due to the tax deductibility of for income taxes and (ii) a portion of tax depreciation construction-related interest. AFUDC serves to off- in excess of book depreciation related to property set on the Statement of Income the interest charges placed in service prior to 1980.

on debt and dividends on preferred and preference Investment and payroll-based tax credits result in stock incurred to finance construction. In addition, a a reduction of federal income taxes payable. Such tax return on common equity used to finance construc- credits, other than credits resulting from contribu-tion is imputed. tions to the employee stock ownership plan, are de-See Note 7 to Financial Statements for informa- ferred when utilized and amortized over the average tion concerning a limitation of the tax reduction lives of the related property.

reflected in AFUDC due to the Company's tax losses. See Note 6 to F<inancial Statements for additional information concerning income taxes.

Capitalization o fLeases Effective as of January 1, 1984, certain capital Nuclear Fuel leased property and related obligations were re- The rental cost of nuclear fuel is charged to corded. Leased property is recorded at the present expense as the fuel is used for electric generation.

value of future lease payments and is amortized in a Under the Nuclear Waste Policy Act of 1982, the U.S.

manner such that the total of interest on the lease Department of Energy (DOE) is responsible for the obligation and amortization of the leased property permanent storage and disposal of spent nuclear fuel equal the rental expense allowed for rate-making removed from nuclear reactors. The Company cur-purposes. See Note 2 to Financial Statements for rently pays DOE< a fee for future disposal services additional information concerning this accounting and recovers such costs in customer rates.

change.

Retirement Plan Revenues The Company has a noncontributory retirement Revenues are recorded based on the amount of plan covering substantially all employees. Company electricity delivered to customers to the end of each contributions to the plan include current service accounting period. This includes unbilled revenues costs and all amounts required to amortize unfunded representing the amount customers willbe billed for prior service costs over periods of not more than 20 electricity delivered from the time meters were last years.

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 2. Lease Accounting Change amount for fuel and other energy costs. Any differ- In 1984, in accordance with Statement of Financial ence between the actual and estimated amount for such costs is collected from or refunded to customers Accounting Standards No. 71 "Accounting for the in a subsequent period. Revenues applicable to ener- Effects of Certain Types of Regulation," the Com-pany capitalized certain leased property and obliga-gy cost rate billings are recorded at the level of actual tions which had not previously been recognized in energy costs and the difference is recorded as payable the financial statements. The Balance Sheet and to or receivable from customers. Statement of Changes in Financial Position for periods prior to 1984 have been restated to reflect retroactive application of this change. The change Income Taxes had no effect on operating revenues, net income or The Company and its subsidiaries file consolidated retained earnings. Details of property under capital federal income tax returns. Income taxes are allo- leases are as follows (thousands of dollars):

December 31 $ 330 million. The increase reflects: (i) $ 466 million 1984 1983 related to the investment and operating costs associ-Nuclear fuel. $ 396,071 $ 330,399 ated with placing Susquehanna Unit 2 in service Vehicles and miscellaneous plus other increased costs of providing electricity; equipment .............. 69,058 62,830 less (ii) an estimated reduction in annual energy Oil storage tanks .......... 25,023 25,023 costs of about $ 136 million associated with the Other property ............ 17 163 22 671 operation of Susquehanna Unit 2. To moderate the 507,315 440,923 impact of the increase, the Company has proposed to Less accumulated bill customers only one-half of the amount requested amortization .... 105,788 71,595

($ 165 million) in the first year that the new rates are effective. The full amount of the increase granted Property under capital leases... $ 401,527 $ 369,328 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.

Future minimum lease payments for capital leases The PUC suspended the Company's rate increase at December 31, 1984 (excluding nuclear fuel) would request and has held public hearings on the matter.

aggregate $ 104.6 million, including $ 32.7 million of The Company expects that the PUC will reach a imputed interest. During the five years ending 1989, decision on the rate request by April 26, 1985. Ifthe such payments would decrease from $ 18.5 million PUC does not adopt a final rate order by that date, per year to $ 8.2 million per year. Future nuclear fuel the rates filed by the Company would go into effect, lease payments will be based on the quantity of heat subject to refund.

produced by the Susquehanna units. As leased nu- The FE'RC permitted annual increases in rates for clear fuel is amortized, the Company normally sells wholesale customers of $ 2 million effective August and leases back additional fuel, thereby maintaining 1981, $ 3 million effective July 1982 and $ 4 million the unamortized balance of leased nuclear fuel at a effective March 1984.

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. 4. Deferral of Costs Related to Interest on capital lease obligations which was Susquehanna Generating Units recorded as operating expenses on the Statement of In accordance with an order of the PUC the Income was as follows (thousands of dollars): 1984, Company deferred certain costs, net of energy sav-

$ 13,836; 1983, $ 10,914; and 1982, $ 7,266. ings, associated with Susquehanna Unit 1. Such Generally, capital leases contain renewal options deferred items, which aggregate $ 20.7 million, were and obligate the Company to pay maintenance, incurred over a two and one-half month period insurance and other related costs. The Company also extending from the date of commercial operation of has entered into various operating leases which are the unit until the rate increase reflecting the unit was not material with respect to the Company's financial effective (August 22, 1983). The Company expects to position. 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

3. Rate Matters previously for Susquehanna Unit lwhich (i) author-In accordance with rate orders issued by the PUC, izes the deferral of Susquehanna Unit 2 related costs electric base rates for ultimate customers were in- in the event the unit goes into commercial operation creased by approximately $ 73 million annually in before the end of the future test year and (ii) provides January 1982 and $ 203 million annually in August that in the event Unit 2 goes into commercial opera-1983. tion after the end of the future test year, the portion of The August 1983 increase resulted from the Com- the new rates reflecting the Unit 2 costs would go into pany's filingwhich reflected, among other costs, the effect shortly after the unit begins commercial effect of placing Susquehanna Unit 1 in service. The operation.

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, 5. Capacity Sales Agreement resulted from a decision by the PUC that 945,000 The Company and Jersey Central Power & Light kilowatts of the Company's generating capacity was Company (JCP&L) have entered into a long-term excess. The Company was permitted to recover all agreement under which capacity and energy willbe depreciation, operation, maintenance and fuel costs provided JCP&L. Under the terms of the agreement, associated with its generating facilities. See Note 5 JCP&L will be entitled to 945,000 kilowatts of the for information concerning an agreement to sell Company's generating capability and related energy 945,000 kilowatts of capacity to Jersey Central Power through 1995 with the amount then declining uni-

& Light Company. formly each year until the expiration of the contract In July 1984, the Company filed with the PUC for at the end of 1999. JCP&L willpay an amount equal an overall increase in electric rates of approximately to the Company's cost of service, which includes a 38

l return on the Company's investment in generating construction interest that could not be used as a

~ facilities. The agreement also permits JCP&L to deduction was $ 0.8 million for 1984, $ 53.8 million for defer certain payments. At such time as the agree- 1983 and $ 6.7 million for 1982.

ment becomes effective, the Company would expect To the extent the Company's tax losses are used to to recover from JCP&L the $ 59 million a year in offset taxable income in future years, AF<UDC willbe return on investment disallowed by the PUC in its reduced by an amount equal to the tax reduction August 1983 rate order. The agreement will not applicable to the construction interest included in become effective until the New Jersey Board of the carryforwards utilized.

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- 8. Stock Held for Dividend ery of the costs of operating, depreciation, or a return Reinvestment Program on the investment in the facilities covered by the At December 31, 1984, 511,054 shares of Common agreement with JCP&L. If the agreement does not Stock of the Company were held temporarily for become effective before the PUC reaches a decision distribution to participants under the Company's on the rate increase request, the Company's earnings Dividend Reinvestment Program. The stock was willbe adversely affected to the extent such amounts purchased on the open market and is carried at cost.

are not recovered. A decision by the PUC on the current rate proceeding is expected by April26, 1985.

9. Credit Arrangements The Company maintains lines of credit aggregat.

6. Income Taxes ing $ 120 million with various domestic banks. The The Internal Revenue Service (IRS) has completed arrangements require the maintenance of compen-its examination of the Company's federal income tax sating balances(notmaterialin amount) or the payment returns for the years 1977 to 1980. Based on adjust- of commitment fees. Borrowings under these lines of ments proposed by the IRS, the Company does not credit are generally for one year at the prime interest expect any material change in its income tax liability rate and may be prepaid at any time without penalty.

for these years. The Company has a loan agreement with a group The Company has tax loss carryforwards at De- of domestic banks pursuant to which the banks cember 31, 1984 of approximately $ 100 million for commit to lend the Company up to $ 600 million on a both federal and state income tax purposes. The state revolving basis with loans to mature on February 27, tax loss carryforward expires in the years 1986 and 1987. At the option of the Company, the interest rate 1987, and the federal income tax loss carryforward on borrowings would be based on the prime rate, expires in the years 1997 to 1999. rates applicable to certificates of deposit or rates The Company has unused investment and payroll- applicable to E<urodollar deposits. At the time any based tax credits aggregating approximately $ 273 borrowing matures on February 27, 1987, the agree-million ($ 35 million applicable to the employee stock ment permits the Company to borrow up to $ 600 ownership plan) at December 31, 1984 which may be million, the principal amount of which would be re-used to reduce future federal income tax liabilities. payable in semi-annual installments over the follow-The carryforward period for these credits expires in ing three years. The loan agreement is maintained the years 1993 to 1999. by the payment of commitment fees.

The Company has not recorded deferred income During 1984, the Company borrowed and repaid taxes for certain timing differences in accordance $ 222 million under terms of the loan agreement with with PUC rate treatment. The cumulative net amount domestic banks. At December 31, 1984, there were no of such timing differences for which deferred in- borrowings outstanding under any of the Company's come taxes have not been recorded approximated credit arrangements.

$ 659 million at December 31, 1984. The Company Commitment fees incurred to maintain the Com-would expect to recover through electric rates the pany's credit arrangements aggregated $ 2.6 million taxes due when such timing differences reverse. in 1984, $ 2.6 million in 1983 and $ 2.9 million in 1982.

7. Allowance for Funds Used During 10. Retirement Plan and Other Construction (AFUDC) Postretirement Benefits AF<UDC is recorded on an after-tax basis with the Pension costs for 1984, 1983 and 1982 were $ 29.0 equity component reduced by the income tax savings million, $ 27.7 million and $ 23.8 million, respectively.

realized due to the tax deductibility of construction- Of these amounts, $ 18.0 millionin 1984, $ 16.0 million related interest. Since 1982, the Company has had in 1983 and $ 12.4 million in 1982 were charged to tax losses due, in part, to the large amount of operating expenses, and the balance was charged to construction interest incurred. As a result, the in- construction and other accounts.

~ come tax reduction reflected in AFUDC has been The actuarial present value of accumulated retire-limited to the tax applicable to construction interest ment plan benefits and net assets at the end of the determined to be usable as a tax deduction. The plan's recent fiscal years are as follows (thousands of combined federal and state income tax effect of the dollars):

39

June 30 Under equity accounting, the operations of associ-1984 1983 ated companies resulted in after-tax charges against Actuarial present value of the Company's net income of $ 4.1 million in 1984, accumulated plan benefits: (a)

Vested . $ 191,284 $ 189,313 $ 4.2 million in 1983 and $ 0.3 million in 1982.

Nonvested ............... 10,185 10,501 See Note 14 to Financial Statements for informa-tion concerning the Company's guarantee of certain

$ 201,469 $ 199,814 obligations of associated companies.

Net assets available for benefits. $ 272,323 $ 257,315 (a) Excludes accumulated plan benefits which are the obligation

13. Proposed Sale of Steam Heat Plant of four insurance companies under insurance contracts. 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 The assumed rates of return used in determining accounted for less than 1%o of the Company's operat-the actuarial present value of accumulated plan ing revenues in 1984 and the investment in steam benefits were 6.59o for the June 30, 1984 valuation heat plant, net of accumulated depreciation, was $ 4.3 and 6%%uo for the June 30, 1983 valuation. The change million at December 31, 1984. The sale is not expected in the assumed rate of return to 6.5%%uo decreased the to materially affect the Company's net income. Any actuarial present value of accumulated plan benefits agreements involving the sale of the steam property at June 30, 1984 by $ 13.5 million. require further negotiation and would be subject to The Company also provides certain health care the approval of the PUC.

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 14. Commitments and Contingent Liabilities premiums are paid. Such costs for retired employees The Company's construction expenditures are esti-for 1984, 1983 and 1982 were approximately $ 2.3 mated to aggregate $ 272 millionin 1985, $ 274 million million, $ 2.2 million and $ 1.4 million, respectively. 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-ll. Joint Ownership of Generating Plants cerning the Company's planned construction At December 31, 1984, the Company owned undivi- expenditures.

ded interests in three generating stations as follows The Company is a member of certain insurance (millions of dollars): programs which provide coverage for property dam'-

age to members'uclear generating plants. Facilities at the Susquehanna plant are insured against proper-Plant ty damage losses up to $ 1.1 billion under these Generating Station Investment Ownership programs. The Company is also a member of an Susquehanna......... $ 3,733 90.00% insurance program which provides insurance cover-Keystone........ 38 12.34 age for the cost of replacement power during pro-Conemaugh .......... 35 11.39 longed outages of nuclear units caused by certain specified conditions. Under the property and replace-ment power insurance programs, the Company could The Company receives a portion of the total station be assessed retrospective premiums in the event the output equal to its percentage ownership. The State- insurers'osses exceed their reserves. The maximum ment of Income reflects the Company's share of fuel amount the Company could be assessed during the and other operating costs associated with the sta- current policy year is about $ 21 million.

tions. Each participant provides its own financing. The Company's public liabilityfor 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-

12. Associated Company Transactions tential liability by a combination of commercial The principal transactions with associated com- insurance and an industry retrospective assessment panies involve purchases of bituminous coal and the program. In the event of a nuclear incident at any of transportation of oil by pipeline for use at the the facilities owned by others and covered by the Act, Company's generating stations. Purchases ofbitumi- the Company could be assessed up to $ 10 million per nous coal from associated companies, which are at a incident, but not more than $ 20 million in a calendar price generally equal to the entire operating costs of year in the event more than one incident is those companies, were (millions of dollars): 1984, experienced.

$ 270.5; 1983, $ 263.8; and 1982, $ 255.1. Oil transporta- At December 31, 1984, the Company had guaran-tion charges, which are based on a PUC approved teed obligations of other companies (principally tariff, were (millions of dollars): 1984, $ 8.6; 1983, subsidiary coal companies and a subsidiary pipeline

$ 15.1; and 1982, $ 8.2. company) totaling $ 270.0 million.

40

15. 'Quarterly Financial Data (Unaudited)

Earnings Earnings Per Share Quarter Operating Operating Net Applicable to of Common Ended Revenues Income Income Common Stock Stock (a)

Thousands of Dollars 1984 March . $ 479,484 $ 119,964 $ 98,244 $ 76,059 $ 1.07 June 351,310 93,055 66,003 42,851 0.59 September 349,994 99,132 76,509 53,049 0.72 December 381,994 94,807 78,147 54,799 0.74 1983 March. $ 305,088 $ 62,643 $ 79,823 $ 60,055 $ 0.89 June 270,909 55,956 69,332 47,868 0.70 September 285,151 73 373 68,902 46,523 0.67 December 387,249 97,958 77,954 55,727 0.80 (a) Based on the average number of shares outstanding during the quarter.

16. Supplementary Information on (current cost). Fossil fuel inventories and the cost of Changing Prices (Unaudited) such fuel have not been restated from their historical The following supplementary information on the cost because they are stated close to current cost and effects of changing prices is presented in accordance the expense is generally recovered within a relatively with the requirements of the Financial Accounting short time through adjustment clauses. Revenues, Standards Board (FASB), an organization that es- income taxes and expenses other than nuclear fuel tablishes rules for accounting and financial report- and depreciation are presented at the amounts re-ing. Customary financial reporting generally has ported in the basic financial statements.

not attempted to specifically reflect inflation. The Set forth under "Other Impacts of Changing Prices" FASB requires that certain aspects of inflation be are the following:

computed in accordance with prescribed techniques and reported on an experimental basis. 1. Gain from decline in purchasing power of net The FASB recognizes, and the Company cautions amounts owed.

users of this information, that there is no consensus Inflation also affects monetary assets, such as on the general practical usefulness of this supple- cash and receivables, which lose purchasing mentary information. There are also unresolved imple- power during inflationary periods since these mentation problems and conceptual differences regard- assets will in time purchase fewer goods or ing the manner in which the effects of changing services. Conversely, holders of monetary liabili-prices should be measured. ties benefit during such periods because less For 1984, the FASB requires disclosure of the purchasing power will be required to satisfy effects of changing prices by use of current cost these obligations. Monetary liabilities include information. In a period of inflation, prices of most preferred and preference stock issues with sink-goods and services increase but not necessarily all at ing fund requirements, long-term debt, current the same time. The current cost method shows the liabilities, capital lease obligations, deferred impact of inflation on a company by measuring the taxes and tax credits and other deferred credits.

estimated change in prices of the specific goods and The Company is in a net monetary liability services used by that company. position.

The Company has elected to present the "Supple- 2. Increase in net utility plant during the year due to mentary Statement of Income" data (shown on page price changes.

42) in accordance with the partial restatement provi- The increase in net utility plant is shown as a sion ofthe FASB requirements. Under this provision, result of both specific price changes (current cost) utility plant, net of accumulated depreciation, nu- and changes in the general price level as meas-clear fuel expense and depreciation expense are the ured by the U.S. Government Consumer Price only items restated to reflect specific price changes Index for All Urban Consumers (CPI-U).

F

3. Adjustment of net utility plant to net recoverable (after deducting the effects of general inflation) amount. and historical cost must be reduced to net recover-Under the ratemaking prescribed by regula- able amount. The amount of such excess that tory commissions, only the historical cost of accrued as a result of price changes in the current utilityplant is recoverable in revenue as depreci- year is shown as an adjustment of net utility ation. Therefore, any excess between the amount plant to net recoverable amount.

of utility plant stated in terms of current cost As Reported Adjusted on in Financial the Basis of Statements Price Changes Supplementary Statement of (Historical Experienced Income for 1984 (Thousands of Dollars) Cost) (Current Cost) (a)

Operating revenues. $ 1,562,782 $ 1,562,782 Operating expenses Fuel 720,670 728,309 Depreciation (b) 118,763 274,867 Other . 316,391 316,391 1,155,824 1,319,567 Interest expense. 209,873 209,873 Other income and deductions net (121,818) (121,818)

Dividends on preferred and preference stock 92,145 92,145 1,336,024 1,499,767 Earnings applicable to common stock $ 226,758 $ 63,015 Other Impacts of Changing Prices Gain from decline in purchasing power of net amounts owed..... $ 158,217 Increase in net utility plant during the year due to price changes As a result of specific price changes experienced (c) . $ 472,388 As a result of changes in general price level (393,076)

Excess of increase in specific prices over increase in general price level . $ 79,312 Adjustment of net utility plant to net recoverable amount (reduction) $ (155,285)

(a) Stated in average 1984 dollars. (c) At December 31, 1984, the current cost of act utility plant was (b) The current cost of utility plant was determined by applying $ 10.69 billion, while the historical cost or net amount recover-construction cost indices maintained by the Company to the able through depreciation was $ 6.26 billion.

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.

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 Operating revenues As reported. $ 1,562,782 $ 1,248,397 $ 1,219,548 $ 1,133,278 8 885,451 Average 1984 dollars (a) 1,562,782 1,301,529 1,312,353 1,294,283 1,116,142 Earnings applicable to common stock (b)

As reported. 226,758 210,173 210,572 170,801 120,384 Current cost in average 1984 dollars ........ 63,015 81,125 94,757 77,684 35,202 Earnings per share of common stock (b)

As reported. 3.12 3.06 3.35 3.17 2.64 Current cost in average 1984 dollars........ 0.87 1.18 1.51 1.44 0.77 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 (79,312) (115,272) (287,657) (69,108) 415,154 Adjustment of net utility plant to net recoverable amount write.up (reduction) at current cost in average 1984 dollars ........ (155,285) (180,424) (345,237) (352,924) 4,154 Gain from decline in purchasing power of net amounts owed 158,217 131,019 121,327 256,283 331,989 Net assets at year-end (c)

As reported. 2,128,362 1,999,324 1,875,070 1,666,812 1,482,092 Current cost in average 1984 dollars........ 2,098,680 2,049,389 1,994,987 1,842,079 1,784,361 Cash dividends declared per common share As reported. 2.48 2.40 2.32 2.24 2.12 Average 1984 dollars (a) 2.48 2.51 2.49 2.58 2.67 Market price per common share at year-end As reported 25.12 20.62 21.00 17.12 15.62 Average 1984 dollars (a) 24.77 21.14 22.34 18.93 18.81 Average consumer price index (CPI-U)........ 311.1 298.4 289.1 272.4 246.8 C

(a) Adjusted to average 1984 dollars by applying the CPI-U index (c) Nct assets (sharcowncrs'quity) for purposes of this supple-to items as normally reported. mentary disclosure includes common equity and thc preferred (b) 1981 excludes a nonrecurring credit related to an accounting and preference stocks withoutsinking fund requirements. The change. preferred and prcfcrcnce stocks with sinking fund require-ments have been excluded since they were treated as monetary items.

43

Selected Financial and Operating Data Income Items thousands 1984 1983 1982 1981 1980 Operating revenues . $ 1,562,782 $ 1,248,397 $ 1,219,548 $ 1,133,278 $ 885,451 Operating income 406,958 289,930 223,083 211,050 168,659 Allowance for funds used during construction. 168,938 251,548 246,423 193,861 141,241 Net income (a) 318,903 296,011 278,886 244,077 179,759 Earnings applicable to common stock (a)..... 226,758 210,173 210,572 183,182 120,384 Balance Sheet Items thousands (b)

Net utility plant in service $ 3,860,960 $ 3,847,301 $ 2,112,169 $ 2,054,039 $ 1,954,762 Construction work in progress 2,020,839 1,730,228 2,923,841 2,312,292 1,874,397 Total assets (c) 6,910,783 6,418,509 5,829,138 5,097,550 4,359,257 Long-term debt ........................... 2,604,506 2,387,249 2,323,318 2,165,381 1,811,692 Preferred and preference stock With sinking fund requirements........... 738,027 714,830 621,634 544,231 510,800 Without sinking fund requirements........ 231,375 231,375 231,375 231,375 231,375 Common equity 1,896,987 1,767,949 1,643,695 1,435,437 1,250,717 Short-term debt 104,800 190,000 160,545 175,489 56,324 Total capital provided by investors.......... 5,575,695 5,291,403 4,980,567 4,551,913 3,860,908 Financial Ratios Return on average common equity /o (a) .... 12.30 12.29 13.60 12.74 10.38 Embedded cost rates (b)

Long-term debt  % . 11.12 10.98 10.81 10.80 10.60 Preferred and preference stock 9o......... 9.94 9.66 9.41 8.93 8.49 Times interest earned before income taxes (a ) (c) 2.35 2.29 2.05 1.91 2.06 Ratio of earnings to fixed charges-total enterprise basis (a) (d) . 2.06 2.04 1.81 1.78 1.90 Depreciation as % of average depreciable pr operty .. 2.5 2.7 3.3 3.2 3.2 Common Stock Data Number of shares outstanding thousands Year-end 74,513 70,335 66,461 58,447 50,627 Average. 72,767 68,642 62,809 53,912 45,598 Earnings per share (a) $ 3.12 $ 3.06 $ 3.35 $ 3.17 $ 2.64 Dividends declared per share . $ 2.48 $ 2.40 $ 2.32 $ 2.24 $ 2.12 Taxability of dividend income 9o (e) ........ 63.29 0 0 0 0 Book value per share (b) . $ 25.46 $ 25.12 $ 24.71 $ 24.52 $ 24.68 Market price per share (b) . $ 25'/s $ 20'/s $ 21 $ 17'/s $ 15/s Dividend payout rate  % (a) 80 79 70 72 82 Dividend yield 9o (e) (I) 11.00 10.48 11.95 13.34 12.01 Price earnings ratio (a) (I) . 7.24 7.48 5.79 5.30 6.68 Fuel Cost Data Cost per kwh generated cents Coal-fired steam stations 1.76 1.68 1.77 1.64 1.40 Nuclear steam station (h). 0.54 0.66 Oil-fired steam station 5.31 5.23 5.62 5.75 4.55 Combustion turbines and diesels (oil) ...... 9.82 10.21 10.74 10.51 7.89 Average . 1.98 2.15 2.20 2.30 1.96 Cost of fossil fuel received at steam stations Coal per ton $ 42.75 $ 39.37 $ 42.32 $ 39.59 $ 33.78 Residual oil per bbl. $ 31.28 $ 29.79 $ 30.94 $ 33.47 $ 26.44 Employees (b) . 8,386 8,160 8,208 7,999 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 1984 1983 1982 1981 1980 Electric customers (b) .. 1,039,381 1,026,144 1,013,623 1,006,570 999,525 Average annual residential kwh use............ 9,282 9,051 9,039 9,157 9,205 Electric energy sales billed millions of kwh Residential 8,454 8,138 8,045 8,088 8,056 Commercial 6,527 6,119 5,946 5,893 5,743 Industrial 8,117 7,623 7,324 7,968 7,910 Other 1 043 968 982 I 005 784 System sales .............................. 24,141 22,848 22,297 22,954 22,493 Atlantic City Electric (Susquehanna Unit 1) .. 357 209 Total electric energy sales billed ........... 24,498 23,057 22,297 22,954 22,493 Sources of energy sold millions of kwh Generated Coal-fired steam stations . 26,695 26,885 25,477 24,841 26,596 Nuclear steam station (h) . 6,295 4,509 293 Oil-fired steam station 4,121 5,581 3,186 4,705 5,692 Combustion turbines and diesels (oil) .. 32 45 13 32 33 Hydroelectric stations 747 700 612 622 533 37,890 37,720 29,581 30,200 32,854 Power purchases 3,765 3,880 1,414 744 1,415 Interchange power sales (15,377) (16,405) (6,900) (6,274) (9,798)

Company use, line losses and other .. (1,780) (2,138) (1,798) (1,716) (1,978)

Total electric energy sales billed . 24,498 23,057 22,297 22,954 22,493 Electric Revenue Data By class of service thousands Residential $ 591,922 $ 529,911 $ 503,557 $ 411,668 $ 349,714 Commercial 441,651 386,617 363,233 292,984 246,024 Industrial 411,533 367,950 347,726 295,006 245,513 Other energy sales. 59,526 47,275 47,731 39,484 28,480 System sales . 1,504,632 1,331,753 1,262,247 1,039,142 869,731 Atlantic City Electric (Susquehanna Unit 1) .. 31,809 18,494 Total from energy sales billed............ 1,536,441 1,350,247 1,262,247 1,039,142 869,731 Unbilled revenues, net (9,725) (119,539) (61,652) 76,884 Other operating revenues 29,960 12,972 12,708 10,142 10,595 Total electric operating revenues ......... $ 1,556,676 $ 1,243,680 $ 1,213,303 $ 1,126,168 $ 880,326 Average price per kwh billed cents Residential 7.00 6.51 6.26 5.09 4.34 Commercial 6.77 6.32 6.11 4.97 4.28 Industrial 5.07 4.83 4.75 3;70 3.10 Total for ultimate customers 6.30 5.91 5.74 4.59 3.90 Total for all customers 6.27 5.86 5.66 4.53 3.87 Generation Data Generating capability-thousands of kw (b) . 7,484 7,494 6,546 6,546 6,546 Winter peak demand thousands of kw (g) .. 5,519 4,869 4,489 5,207 4,945 Generation by fuel source  %%uo Coal 70.4 71.3 86.1 82.2 81.0 Nuclear (h) 16.6 11.9 1.0 Oil . 11.0 14.9 10.8 15.7 17.4 Hydroelectric 2.0 1.9 2.1 2.1 1.6 Steam station availability  %

Coal-fired 75.2 78.8 79.1 74.7 78.7 Nuclear (h) 66.7 67.7 Oil-fired . 68.0 75.8 80.4 73.4 79.6 Steam station utilization  %

Coal-fired 73.3 74.0 70.2 68.4 73.0 Nuclear (h) 65.7 67.5 Oil.fired . 28.6 38.8 22.2 32.8 39.5 45

Common Stock Price and Dividend Data The principal trading market for the Company's The Company has paid quarterly cash dividends common stock is the New York Stock Exchange. The on its common stock in every year since 1946. The stock is also listed on the Philadelphia Stock Ex- dividends paid per share in 1984 and 1983 were $ 2.46 change. The number of record holders of common and $ 2.38, respectively. The most recent regular stock was 162,903 as of December 10, 1984. The high quarterly dividend declared by the Company was 62 and low sales prices of the Company's common stock cents per share (equivalent to $ 2.48 per annum) paid on the Composite Tape for the past two years as January 1, 1985. Future dividends willbe dependent reported by The Wall Street Journal were as follows: upon future earnings, financial requirements and other factors.

Quarter The Company has estimated that 36.71%%uo of its Ended High Low 1984 dividends paid on common stock will not be 1984 taxable for federal income tax purposes as dividend March $ 22/s $ 19'/4 income, but willconstitute a return of capital which June 22s/s 19~/s reduces the tax cost basis of the shares on which the September . 23~/s 21 dividends were paid.

December . 25'/s 23 1983 March $ 24'/z $ 207/s June 24'/s 20'/~

September . 23'/s 20'/s December . 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 DIVIDENDDISBURSING OFFICE AND DIVIDENDREINVESTMENT 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)

PHILADELPHIASTOCK 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 CLIF<FORD L. ALEXANDERJR., Washington, D.C.

and Chief Executive Officer President, Alexander & Associates Inc.

Consultants to business, government & industry MERLIN F<. HERTZOG, Executiue Vice President.

Corporate Services ELIZABETHE. BAILEY,Pittsburgh JOHN T. KAUFFMAN,Executive Vice President-Operations Dean, Graduate School of Industrial Admii)istration, Carnegie. Mellon University JACK R. CALHOUN, Senior Vice President-Nuclear ROSWELL BRAYTON SR., Woolrich LEON L. NONEMAKER, Senior Vice President. President and Chief Executiue Officer, 1Voolrich 1Voolen Diuision Operations Mills Inc. Manufacturer of garments for outdoor activities CHARLES E. RUSSOLI, Senior Vice President. Financial 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 JOHN R. BIGGAR, Vice President-Finance EDGAR L. DESSEN, Hazleton GENNARO D. CALIENDO, Vice President Physician. Radiologist and Chief Counsel. Regulatory Affairs EDWARD DONLEY, Allentown NORMAN W. CURTIS, Vice Prcsident- Chairman of the Board and Chief Executi ue Officer, AirProducts Engineering & Construction-Nuclear and Chemicals Inc. Manufacturer ofindustrial and commercial gases and chemicals ROBERT S. GOMBOS, Vice President-Human Resource & Development MERLIN F. HERTZOG, Allentown Exccutiue Vice President Corporate Services CHARLES J. GREEN, Vice President-Harrisburg Diuision FRANCES R. HESSELBEIN, New York City WILLIAMF<. HE'CHT, Vice President. System Power National Executive Director, Girl Scouts of the U.S.A.

BRUCE D. KENYON, Vice President-Nuclear Operations HARRY A. JENSEN, Lancaster JOHN P. KIERZKOWSKI, Vice President and Treasurer Director and former Chief Executive Officer, Armstrong 1Vorld Industries Inc. Manufacturer ofinterior furnishings and CARL R. MAIO, Vice President Lehigh Di uision .specialty products GRAYSON E<. McNAIR, Vice President- JOHN T. KAUFFMAN,Allentown Marketing & Customer Seruices Exccuti ue Vice President-Operations EDWARD M. NAGEL, Vice President, W. DEMING LEWIS, Bethlehem General Counsel and Secretary President Emeritus, Lehigh Uniuersity HERBERT D. NASH JR., Vice President-Central Diuision HAROLD S. MOHLER, Hershey Former Chairman of the Board, Hershey Foods CLAIR W. NOLL, Vice President- Corporation. Diversified manufacturer of food products Procuremcnt & Computer Services RALPH W. RICHARDSON JR., State College JOHN E. ROTH, Vice President. Northern Division Consultant, agricultural and enuironmental sciences JOHN H. SAEGER, Vice President. Susquehanna Diuision NORMAN ROBERTSON, Pittsburgh EDWIN H. SEIDLER, Vice President-Engineerin g & Senior Vice President and Chief Economist, Construction System Power & Engineering Mellon Bank, N.A.

BRENT S. SHUNK, Vice President-Lancaster Diuision DAVIDL. TRESSLER, Scranton Chairman of the Board and Chief Executive Officer, JEAN A. SMOLICK, Assistant Secretary Northeastern Bank of Pennsyluania GEORGE F. VANDERSLICE, Vice President Executive Committee: Robert K. Campbell, chairman; Edgar L Desscn, and Comptroller Harry A. Jensen, 1V. Deming Lewis and Norman Robertson.

PAULINE L. VETOVITZ, Assistant Secretary Audit Committee: David L Trcssler, chairman; Clifford I Alexander Jr. Elizabeth E. Bailey, Roswell Brayton Sr., iiarold S. Mohler, and WILLIAMR. WHITE, Vice President-Power Production Ralph N<. Richardson Jr.

HELEN J. WOLFER, Assistant Secretary Corporate Responsibility Committee: Edgar L Dessen, chairman; Jeffrey J. Burdge, Frances R. Hesselbein, Harold S. Mohler and David L and Assistant Treasurer Tressl cr.

Management Devclopmcnt and Compensation Comrnittce:

Roswell Brayton Sr. chairman; Clifford L Alexander Jr. Elizabeth E.

~

Corporate Managcmcnt Committee: Robert K. Campbell, chairman; Bailey, Edward Donfey, 1V. Deming Lewis and Norman Robertson.

Merlin F. Hertzolt, John T. Kauffman, Jack R. Calhoun, Leon L. None-maker, Charles h. Russoli, and Edward F. Rois, Director. Corporate Plan- Nominating Committee: Ralph 1V. Richardson Jr., chairman; Jeffroy ning, serving as the committee's executive secretary. 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 l.

Alexander Bailey Brayton Burdge

=, IRLSCQ Des sen Donley Hesselbein Jensen

,'.'~YA>)

P z.m Lewis Mohler Richardson Robertson

(,( I

,I )'/, (

74

(

(((( (Y, )'(( j((

ir Tres sler Corporate Management Committee Reis Nonemaker Hertzog Campbell Kauffman Calhoun Russoli

A e

~g~ Pennsylvania Power & Light Company Two North Ninth Street ~ Allentown, PA 18101 ~ 21517705151 BULK RATE U. S. POSTAGE P AID Allentown. Pa.

Permit No. 104 l86 <<<<<<a<<<<<<a tBI<<<<

gjg Plgl QogggggOOg 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-i 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.